Under tax law, the NFL and other professional sports leagues have been able to organize as 501(c)(6) non-profit trade organizations. The NFL has done so since 1942, largely without much fanfare or scrutiny. But in recent years, especially as NFL revenues have ballooned to nearly $10 billion annually, the league’s tax-exempt status has come under scrutiny from sports fans, tax groups, and lawmakers from both parties. It is now, Goodell said in the letter, “a distraction” that isn’t worth keeping.
NFL types might be fond of throwing the “distraction” label on things that don’t deserve it, but in this instance, Goodell is probably right. Relinquishing the tax exemption will almost certainly have little, if any, cost for the league or benefit to taxpayers, since the NFL operates as a pass-through entity. That is, the majority of the money the league takes in is either made by or passed on to teams and taxed at that level, where 31 of the 32 franchises are organized as private, tax-paying businesses (the publicly-owned Green Bay Packers are a nonprofit).
Because of that, the cost of the exemption to taxpayers (or the benefit to the NFL) is relatively small. According to Sen. Tom Coburn (R-OK), who featured tax-exempt status for sports leagues in his annual “Waste Book,” those exemptions cost taxpayers as much as $91 million a year. But the NFL is only a part of that, and Citizens for Tax Justice has estimated that the exemption saves the league just $10 million annually, roughly the same calculation the Joint Committee on Taxation made when it estimated that revoking the exemption would increase federal revenues by $109 million over a decade.
But those benefits may not exist at all. Major League Baseball gave up its tax exemption in 2007 and has maintained that doing so had no effect on its finances. The NFL, according to some experts, may have to pay a small amount of taxes based on some revenue it takes in and the structure of a stadium loan program it used to run. But even accounting for that, other experts have in the past guessed that the league might be able to find more than enough write-offs in the tax code to offset what it could have to pay.
So yes, the bottom line is that our corporate tax code is so generous to businesses as large as NFL franchises that it actually may benefit the NFL in the long run.
And the best part is they can keep hustling cities and local governments for fat tax exemptions and stadium sweetheart deals that will keep them making huge profits at the expense of crumbling cities.
Nice work if you can get it.