The National Football League (NFL) is one of the most profitable sports organizations in the world, and yet it still remains a nonprofit organization. This has been a source of confusion for many people, so this article will explain why the NFL is not-for-profit and why that doesn’t necessarily mean that it isn’t making money. It will also explore what the league does with its funds and how those funds are used to improve the game.
Amid many National Football League scandals last October, PublicSource asked a columnist named Patrick Doyle to look into the league’s worthless rankings. On April 28, NFL Commissioner Roger Goodell announced that the company would no longer have a tax, eliminating “distractions”.
The list of America’s highest-paid CEOs, as you might imagine, includes a dream group of corporate titans. According to Equilar, which collects executive compensation data, Oracle’s Larry Ellison earned $96.2 million in total compensation in 2012; It follows other bold business names such as Walt Disney’s Robert Iger ($37.1m), 21st Century Fox’s Rupert Murdoch ($22.4m) and Ford’s Alan Mulally ($21m).
Another member of this salary stratosphere is Roger Goodell, the commissioner of the National Football League, who earned $44.2 million in total compensation in 2012. The difference between Goodell and others, however, is that he works without profit. That’s right, the National Football League is, in the eyes of the Internal Revenue Service, a nonprofit organisation. The tax hasn’t been in jeopardy, given the political and public outrage over recent NFL scandals, including Ray Rice’s domestic violence case, Adrian Peterson’s child abuse and the Washington Redskins refusal to change their name and mascot.
In southwestern Pennsylvania, the Pittsburgh Steelers got a black eye of their own making: Following allegations of sexual abuse in 2010, quarterback Ben Roethlisberger served a four-game suspension, while James Harrison was recently arrested for domestic violence in 2008 (The charges were later dropped). In the past year, three US senators have proposed bills to exempt the NFL from its taxes, while more than 400,000 people have signed a Change.org petition urging Congress to act.
Lawrence Lessig, president of Edmond J., said: “We support this company that is very careful about sexual violence.” Safra Institute of Harvard University and founder of Rootstrikers, a group of civil rights activists who advocate against independence. “It’s clear that Americans love sports and football, but when you’re in a clear business situation, when you’re making a lot of money, the idea that you’re contributing to it is crazy.”
A useful escape route
To be clear: The entire NFL is not a useless organisation. Like many modern companies, what we call “NFL” has different offerings, including the for-profit NFL Network (cable and satellite network) and 32 different teams. In 2012, the “NFL” brought in $9.5 billion in revenue from TV licenses, ticket sales, and merchandise; Most of the money came from the sports team. The members are responsible for paying “dues” to the union office, which is in charge of the law, supervises the legislature and conducts the “security investigation of the player”. The same company earned $326 million in debt in 2012, the most recent year for which such data is available. Only the union office, headed by Goodell, is considered unprofitable. Unlike public charities such as the American Red Cross and the Salvation Army, which are considered 501(c)(3) nonprofits, the NFL is a 501(c)(6) organisation, part of the Code taxes that apply to professional organisations. Such as the American Medical Association and the United States Chamber of Commerce were founded in 1942. These groups are given unemployment status to support the “common interest” of industry members. For example, the AMA supports physicians across the country; the building defends collective business interests. Membership is intended to be open to anyone who can meet specific requirements, whether a medical degree or housing permit. Since the NFL’s “trade union” is only 32 teams, several experts told PublicSource that it should not be considered a 501(c)(6) organisation. Philip Hackney, an associate professor at Louisiana State University School of Law and a former attorney in the IRS’s federal tax collection division, points to a similar situation in a 1979 United States Supreme Court ruling. States and National Muffler Dealers Assn. Inc vs United States. The Midas muffler chain tried to form a trade union of Midas dealers across the country to take advantage of the tax breaks that were not paid to the national company. The IRS denied the claim, as did the Supreme Court, ruling that the group’s purpose—promoting Midas—was too narrow.
“In my opinion, the NFL doesn’t fit [501(c)(6) status] well,” Hackney says. “They’re doing a lot of charity work, but most of what they’re doing is promoting the NFL brand and the 32 teams.”
Goodell’s salary also seems to fail the IRS requirement that no nonprofit exists to benefit a specific individual. With his $44.2 million in compensation in 2012, Goodell took home 14 per cent of the league office’s total revenue. Other top earners were executive vice president and general counsel Jeff Pash ($7.9 million) and executive vice president of business ventures Eric Grubman ($4.2 million); three others received compensation packages higher than $1.7 million.
Even among the other nonprofit leagues, the staggering NFL salaries stand out. For comparison, National Hockey League Commissioner Gary Bettman and Professional Golf Association Tour commissioner Timothy Finchem each made $8.3 million. While the NBA has always been a nonprofit, Major League Baseball gave up its tax-exempt status in 2008. In part, some reports say, to avoid revealing information about high salaries to the public.
When PublicSource reached out to the Pittsburgh Steelers for a comment on the league’s tax status, they referred us to the NFL’s league office. Brian McCarthy, the NFL’s vice president of communications, directed us to a 2013 U.S. News article by Jeremy Spector, the league’s outside tax counsel. In the piece, Spector points out that in 2009, the IRS confirmed the league’s tax-exempt status but failed to discuss either the NFL’s “common interest” as a trade association or Goodell’s high salary.
“Ask yourself, why would a nonprofit anywhere — the whole purpose of a nonprofit is to help people — pay a CEO $44 million a year?” says Sen. Tom Coburn (R-Okla.), a critic of the NFL tax breaks. “That tells you’re not a nonprofit right there.”
Time for a change?
In September 2013, Coburn introduced the Properly Reducing Overexemptions for Sports Act (PRO Sports Act), which would remove nonprofit status from any sports organisation with more than $10 million in annual revenue, including the NFL, NHL, PGA Tour and the U.S. Tennis Association. Sen. Angus King (I-Maine) has signed on to the bill, and U.S. Rep. Jason Chaffetz has introduced a version in the U.S. House.
According to Coburn, his proposed changes in the tax code would result in more than $109 million in new tax revenue over the next decade. “I don’t think pro sports teams are trade associations,” Coburn said. “They are companies promoting their brand, teams, and league, not sports. We need the tax revenue to stop giving it away to people who don’t need it.”
Two other senators have also recently offered variations on the tax exemption revocation. In September, Sen. Maria Cantwell (D-Wash.) put forward a bill that would strip the NFL of its nonprofit status until the Washington Redskins changed their name; her bill has the support of Majority Leader Harry Reid (D-Nev.). And following the Ray Rice scandal this autumn, Sen. Cory Booker (D-N.J.) proposed a bill that would use the NFL’s league office tax payments to ramp up investment in domestic violence prevention.
Outside of Congress, two grassroots campaigns are advocating for the removal of the tax exemption. Lessig’s Rootstrikers, a nonprofit group that opposes the corrupting influence of money in politics, has started its campaign supporting Coburn’s legislation. In contrast, a petition on Change.org had gathered more than 400,000 signatures as of press time.
The NFL has maintained its nonprofit status thanks, in part, to a sophisticated lobbying effort on both the local and national levels. According to Open Secrets, the NFL has spent nearly $3 million lobbying over the past three years. A Sunlight Foundation report showed that NFL personnel — owners, players and staff — donated $1.5 million to candidates in the 2012 election.
As part of its effort to contain the PR crisis from the domestic abuse scandal, the league also recently hired Cynthia Hogan, a prominent Democratic operative and former counsel to Vice President Joe Biden. According to Politico, Hogan was the “key Senate aide” behind initiating the Violence Against Women Act in 1994.
“The NFL is very active with lobbyists,” says Gregg Easterbrook, a journalist and author of the 2013 book The King of Sports: Football’s Impact on America. “In modern Washington, you don’t buy politicians off — you give them campaign donations, you invite the local congressman to sit in the owners’ box and get them announced at the games. [They want people to think], ‘Look at the senator, sitting next to the owner! Look how important they are!’”
Coburn acknowledges the vested interest of his colleagues. “How many different pro teams are there, and how many senators are from those states?” he asks. NFL teams are located in 22 states, so there are 44 senators with a powerful entity at home. That “makes it pretty hard to change something.”
Still, the NFL’s recent failures may push the league to act finally. Easterbrook says: “Given all the PR problems that the NFL has — we could spend all day listing them — I find it puzzling that they wouldn’t say, to prove that they are concerned about what the public thinks, ‘We’re asking Congress to revoke our nonprofit status.’ That would be great public relations.”
When asked whether the NFL was considering dropping its tax-exempt status, the NFL’s McCarthy declined to comment.
Coburn is hopeful that the league might even if Congress doesn’t take the proper steps. “This isn’t big money to the NFL,” he says. “I hear they are thinking about getting out of it like MLB. It certainly doesn’t smell good or look good when you pay the head of the nonprofit $44 million a year. These guys don’t need this.”