Million dollar athletes. Billionaire owners. Mega television contracts. These are not things that come to mind when one thinks of tax-exempt organizations.
It comes as a surprise to many, therefore, that the National Football League was, until recently, a tax-exempt business league incorporated as a 501(c)(6) organization. Calling the issue a distraction, NFL Commissioner Roger Goodell (who made more than $44 million in 2014) recently announced to team owners and members of the U.S. Congress that the league is giving up its tax-exempt status.
Many of the NFL’s revenue generating activities are taxable, but its central office will now be as well. In a letter announcing the move Goodell wrote, “Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there. This will remain the case even when the league office and Management council file returns as taxable entities, and the change in filing status will make no material difference to our business.”
The NFL’s tax-exempt status dates back to 1942, when it applied for and was granted an exemption from the IRS. The action taken by the league comes at a time of increasing scrutiny by lawmakers, some of whom had pledged to revoke the status. Many have interpreted the move as one driven more by public relations than by economics.
According to a Bloomberg report, the NFL had over $10 billion in revenue in 2013. Losing the tax break will only cost the league approximately $10 million per year. Plus, given that it will not have to file a non-profit tax return (Form 990), the commissioner’s salary will no longer be a public record.
By making this move, the NFL follows the lead of other major sports leagues. Major League Baseball dropped its tax exemption in 2007. The National Basketball Association was never tax-exempt.