Why Did the NFL Give Up Its Tax-Exempt Status?

 

April 28, 2015; The Hill and The New York Times

The National Football League is giving up its controversial tax-exempt status, according to the New York Times.

With both Commissioner Roger Goodell and Houston Texans owner Robert McNair calling it a “distraction,” Goodell said in a letter to team owners that “the league office and its management council will file tax returns as taxable entities for the 2015 fiscal year.” The commissioner made the switch after team owners gave the league’s finance committee and management council the authority to change the tax status at meetings in March.

According to Bloomberg News, Goodell’s memorandum said the NFL’s tax-exempt status had “been mischaracterized repeatedly in recent years.” The NFL has been a tax-exempt nonprofit since 1942, although all the teams and their owners pay taxes on their considerable incomes.

The NFL is a multibillion-dollar moneymaking enterprise, but Goodell says that dropping the League’s tax-exempt status won’t effect how the NFL operates or functions. However, the change will eliminate the annual filing of IRS Form 990, the publicly available tax return of a tax-exempt organization, which requires the listing of compensation for the highest-paid employees.

The NFL hardly qualifies in our mind for tax-exempt status as a 501(c)(6), because the beneficiaries of its trade association functions are not football clubs across the board or the sport of football generally, but the 32 specific for-profit professional football clubs. But former commissioner Pete Rozelle so strongly sought this tax status that he had it written into the 501(c)(6) statutory definition. Why? Was it simply a throwaway? Something doesn’t add up here.

One benefit for Goodell and the NFL is that without having tax-exempt status, they won’t face the pressure of full disclosure for their big-ticket salaries, including Goodell’s enormous salary, which was over $40 million in 2012. Of course, we only know that because the NFL was tax exempt, even though the NFL tried to get itself exempted from the disclosure requirement long ago.

But if the tax exemption wasn’t all that important to the NFL, and dropping it won’t materially affect the NFL’s operations going forward, doesn’t that sound odd? Counterintuitive, like there’s something more to the story? Was the NFL able to jigger its finances so that it could use its tax-exempt status for its benefit and then drop it, still manipulating the numbers, so that without it there would be no adverse impact?

Given the NFL’s huge size, enormous salaries, and massive income-generating track record, it sounds like there’s a step that should be taken, either by the IRS, if the IRS’s tax-exempt division were operating with resources and capacity, or by some other watchdog with the ability to take a deep dive into the complexities of the NFL’s financial structure. Let’s hope some watchdog goes back over several years of the NFL’s Form 990s and figure out what the benefit of the tax exemption has been to the NFL in concrete terms—that Rozelle clearly wanted so much to stick it into the law.

Moreover, someone should assess the NFL’s filings to see what the NFL did and didn’t do in terms of compliance with required disclosure. Until this point, the NFL had wanted to protect its tax-exempt status but circumvent various disclosures. What do watchdogs think the NFL should have been reporting on? What should it have been held to in terms of nonprofit standards of behavior and disclosure? Can we assess what benefits the NFL captured through its tax-exempt status and compel a recapture of the economic benefits that the NFL now sees as able to be ditched without much financial impact?

Now is the time to reassess not only the NFL’s history as a tax-exempt entity, but others’ whose tax-exempt status is also questionable, since as (c)(6)s, they have functioned with a tax exemption that gave benefits the NFL is demonstrating they perhaps may not need.—Rick Cohen and Larry Kaplan