Even though it doesn’t fill up football stadiums with tens of thousands of fervent fans on Sundays in the fall, a not-for-profit organization and the NFL are treated as tax-exempt groups by the IRS. Now, a movement is afoot in Congress to level the playing field. Senator Tom Coburn (Rep.-Oklahoma) recently introduced an amendment to the Marketplace Fairness Act that would prevent professional sports leagues from qualifying for tax-exempt status.
The NFL currently generates about $10 billion in revenue annually, but nevertheless has operated as a not-for-profit organization since 1966 when iconic commissioner Pete Rozelle managed to incorporate the request for the tax exemption with an anti-trust action.
Technically, the NFL, which merged with the American Football League (AFL) that year, qualified as a 501(c)(6) not-for-profit organization. Under that section of the tax code, an exemption is available to “business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
The NFL has maintained its status as a tax-exempt organization despite the fact that the league is essentially a collection of for-profit entities banding together for common goals. In fact, the NFL itself has asserted a conflicting position when it was in its best interests to do so. In one case decided by the Ninth Circuit Court of Appeals (Los Angeles Memorial Coliseum Commission v. NFL, 726 F.2d 1381, 2/28/84), the NFL argued that it was a separate entity that should be exempt from certain anti-trust laws. The court determined that the NFL, under the direction of Rozelle, had acted in bad faith by blocking an attempted move out of Oakland by the Raiders’ owner, Al Davis.
Similarly, the U.S. Supreme Court ruled against the NFL in another case (American Needle v. NFL, No. 08-661, 5/24/10) involving a claim by the league for anti-trust immunity. In the opinion, Justice John Paul Stevens stated that NFL teams don’t possess either the decision-making quality or the single aggregation of economic power characteristic of independent action.
Therefore, even though individual teams are seemingly operating as for-profit entities, the league still argues that it is not. One way to avoid profitability on the books is to reward top executives with high compensation. Significantly, the NFL paid out a total of approximately $53.8 million to officials in 2012, including $8.5 million to former commissioner Paul Tagliabue, the replacement for Rozelle in1989, and $11.6 million to current commissioner Roger Goodell, who succeeded Tagliabue in 2006.
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