Debunking the Myth of the NFL's Tax Exempt Status

Dan Scott's picture
Rank: Baboon | 102

It's been a bad year for the NFL. Sure, they generated over $9 billion of revenue in 2013, but consider the scandals and controversies of the past year alone - Ray Rice, Adrian Peterson, the Washington Redskins, concussions and player safety, the fact that the Jacksonville Jaguars are being used to try and convert Europeans into fans of American Football - it's clear that the NFL has an image problem. Compounding this problem is the fact that the NFL, a supposedly tax exempt organization, pays its commissioner a $44 million salary.

The issue of the NFL's tax exempt status is brought up during every major scandal. It's an easy target, and provides a prime opportunity for sportswriters, fans, and politicians alike to take a moral stand against a high-profile organization.

The narrative, as it's commonly presented, is that the NFL is a multi-billion dollar industry doing what multi-billion dollar industries do best: finding loopholes to avoid taxes. It's a bunch of millionaires getting paid to play a game that makes even more money for their billionaire owners. Meanwhile, the government doesn't see a cent, and the middle-class fanbase is stuck paying $40 for parking and $8 for a beer inside a stadium built with their tax dollars. It's a compelling narrative, and it's easy to see why it generates such widespread outrage. The problem is, it's not entirely true. The NFL is not tax exempt.

The NFL League Office is tax exempt. The NFL as a whole is not. This may sound like just a technicality, but it's significant. There are three important entities in play here:

  • NFL Teams (subject to taxation): Each of the 32 NFL teams generate revenue and incur expenses on an independent basis. If you buy a ticket to Gillette Stadium, that becomes revenue for the New England Patriots. The Patriots use this revenue to pay expenses, such as Tom Brady's salary. Any remaining profit is subject to taxation.
  • NFL Ventures (subject to taxation): NFL Ventures is the arm of the NFL that works to benefit, and profit, the league as a whole. When the NFL signs TV broadcast deals with NBC, CBS, and FOX, that money is funneled through NFL Ventures and then split up and distributed to each individual team. NFL Ventures is also responsible for other revenue league-wide revenue generation, such as sponsorship deals and the NFL Network.
  • NFL League Office (tax exempt): The League Office handles the more administrative aspects of running the league. The League Office is responsible for planning the Super Bowl, organizing the draft, and negotiating contracts with referees. It also engages in research around player safety and makes charitable contributions to groups such as Play60. Since none of these activities actually generate revenue, the League Office is funded via 'membership dues' paid by each individual team. In the eyes of the IRS, this qualifies as a 'trade association.'

(A brief caveat: I'm not an expert on taxation, and the NFL does not publicly release its financials. The above chart is my best effort at piecing together information from various public sources)

Does the NFL League Office deserve to be tax exempt? Probably not. But it's not nearly as egregious as commonly presented. Further, the way the NFL is set up, it's questionable whether or not the IRS would have anything to gain from revoking the status. As shown above, the League Office isn't where the NFL makes its money. Major League Baseball had a similar tax exempt structure but abandoned it in 2007, explaining that the exemption provided no monetary benefit.

There's no consensus on how much is at stake for the NFL. According to the Congressional Joint Committee on Taxation, removing tax exempt status from professional sports leagues would yield an extra $109 million in tax revenue over the next 10 years, but that includes eliminating the exemption for the NHL, PGA, and various smaller leagues as well. $109 million over 10 years is nothing to sneeze at, but it's not even a drop in the bucket that is the government budget, and clearly not highway robbery as its commonly perceived. In fact, some experts suggest the tax exemption is actually costing the NFL money, as it prevents them from claiming certain deductions.

Overall, the vast majority of the billions of dollars generated by the NFL as a whole are subject to normal taxation. Sure, the league office's exemption is questionable, but it's not something that should bring your blood to a boil. Save that for the fact that Jeff Triplette is somehow still allowed to officiate games.

Primary Sources for further reading:

Comments (24)

Oct 13, 2014

People are attacking the NFL because it is violent and male dominated. It's a proxy war for feminists. How many charities are tax exempt, pay their presidents a ton and contribute a fraction to those actually in need. What about churches not paying taxes. Why do people who shit out kids get tax credits paid for by you and I.

Whole lot more important things than worrying about the league office not paying taxes. It's an issue because it's a way of attacking the NFL.

Oct 17, 2014
TNA:

People are attacking the NFL because it is violent and male dominated. It's a proxy war for feminists...It's an issue because it's a way of attacking the NFL.

I agree to an extent, but I think the bigger driver is people simply not knowing the actual facts. The "NFL pays no tax" line gets repeated so often that people automatically assume it's true. I'll admit the first time I heard it I thought it was outrageous as well, and it was only after a little bit of research that I realized it was just much ado over nothing. I'd like to think that most of the crowd would put down their pitchforks if they actually understood the issue.

Oct 17, 2014
Dan Scott:
TNA:

People are attacking the NFL because it is violent and male dominated. It's a proxy war for feminists...It's an issue because it's a way of attacking the NFL.

I agree to an extent, but I think the bigger driver is people simply not knowing the actual facts. The "NFL pays no tax" line gets repeated so often that people automatically assume it's true. I'll admit the first time I heard it I thought it was outrageous as well, and it was only after a little bit of research that I realized it was just much ado over nothing. I'd like to think that most of the crowd would put down their pitchforks if they actually understood the issue.

People not knowing the facts is the root of the majority of issues in this country.

Oct 13, 2014

Just as much attention is brought to stadium subsidies. What is your take on that?

Oct 19, 2014

Incentive will be paid for by people staying at the hotels, who likely don't live in the Las Vegas region, and who will likely not blink at the extra $2 at the bottom of their hotel bill.

Oct 19, 2014

Yes, but per the article, those funds had previously gone to schools, transportation, and tourism-related expenditures.

Best Response
Oct 19, 2014

From my understanding, it's a tax increase, not a reallocation of existing tax dollars. There's a large difference between the two. The article nudges the reader to believe that the tax money is coming out of existing allocated revenue. Las Vegas was not simultaneously weighing the idea of increasing the room tax in order to increase revenue dollars for schools, transportation, etc. I can reasonably see the argument that the current amount of visitors to Las Vegas is at maximum utility, so an increased tax could drive down visitors, although I've never personally made a decision to travel somewhere over an incremental $1-5/night cost, especially in a city like Las Vegas.

    • 3
Oct 19, 2014

If I'm going to Vegas, it's to gamble a little bit and cross off other bucket list items (e.g., firing off some WW2 weps at The Gun Store). No way I'm going to a Raiders game, even if my team is playing them. I always thought Raiders fans were among the most dedicated - after all, who the hell else is going to dress in all black and spiked pads to games? I have to imagine that fandom is going to fall with the move, right? At least the Rams were originally in Los Angeles, so it's almost like they were returning home. This is like Wyoming inheriting the Browns - they have no reason to give a fuck. I have no idea what I'm talking about, but you know, I am sure.

    • 2
Oct 19, 2014

It feels like there is an empty hole in the NFL without the Oakland Raiders. This move is bullshit.

Oct 19, 2014
JTH:

The only two sports stadiums within $500 million of the Vegas cost are MetLife and the soon-to-be-built Los Angeles Stadium, each of which has something that Vegas' new arena does not: two pro teams.

Not only that, but those are huge sports markets. MetLife Stadium was $1.6 billion and serves a greater metro area of nearly 20 million people. The new LA Stadium will cost $2.6 billion (inclusive of the huge adjacent entertainment district) serving a metro population of over 12 million people.

The Las Vegas Raiders are fixing to build a single team stadium for $1.9 billion for a metro population of ~2 million people. I guess the market researchers for the NFL predicted that there would be sufficient out of town tourists that would go to the games if their home team was playing against the Raiders?

Additionally, most NFL stadiums host extracurricular events like concerts, which will be difficult to attract given that the stadium will have to compete with all the other events going on in the city.

Also, lets not forget that an NHL team is moving into T Mobile Arena next season...

Oct 14, 2014

Don't forget Mike Ditka's on-air slide into dementia in the list of NFL problems.

    • 1
Oct 16, 2014

Somebody needs to tell the NFL there is no way it will ever really take off in Europe. Selling out a few games a year in London isn't all that hard given the novelty effect and the fact that Londoners are used to paying exorbitant amounts of money for tickets (I think the cheapest Arsenal tickets are around $80).

Good luck pulling that for a whole season in the rest of Europe. Most people are barely willing to get season tickets for more than 300 euros (at least 20 home games) for soccer teams they have supported since birth.

And as for TV rights... ain't nobody got time for 1 hour of game time spread over 3-4 hours played by teams they have no real attachment too.

The NBA does OK outside the US but it has a game that's far more continuous than football or baseball, takes less time to be wrapped up and is the pinnacle of a sport that a lot of people outside the US actually play.

    • 1
Oct 17, 2014
GoodBread:

Somebody needs to tell the NFL there is no way it will ever really take off in Europe. Selling out a few games a year in London isn't all that hard given the novelty effect and the fact that Londoners are used to paying exorbitant amounts of money for tickets (I think the cheapest Arsenal tickets are around $80).

Good luck pulling that for a whole season in the rest of Europe. Most people are barely willing to get season tickets for more than 300 euros (at least 20 home games) for soccer teams they have supported since birth.

And as for TV rights... ain't nobody got time for 1 hour of game time spread over 3-4 hours played by teams they have no real attachment too.

The NBA does OK outside the US but it has a game that's far more continuous than football or baseball, takes less time to be wrapped up and is the pinnacle of a sport that a lot of people outside the US actually play.

No one should ever tell the NFL its not going to take off in Europe. They currently offer free or reduced cost Sunday Ticket (ostensibly to build brand recognition) to a number of Nordic, European and Asian markets. With VPN and Chromecast you can stream directly to your TV.

Edited 6:32 to include mention of reduced cost markets, which substantially increases the overall #.

Oct 18, 2014

Ha, well done.

Oct 16, 2014

The tax free issue is stupid and like @"TNA" said is just a way to attack the NFL. If it's a dues funded entity, I'm assuming that it's expenses/32 teams (probably a more complicated structure but something along those lines) so it can just end up with no profit at the end of the year, or it could be made into a pass through entity that the clubs own and taxes just get transferred down the line, but since it's not a source of revenue it would make no difference.

It's simply an issue that people who have no concept of corporate structures, finance or taxes can easily grasp and think "these billionaires don't pay taxes! Let's rush down to Zuccoti Park and protest!"

Fans should be more upset about the disaster that Goodell is, and how it's become the No Fun League but it's still full of wife beaters and felons. I think concentrating on stars who beat their kids with a stick is more important than penalizing someone for an end zone celebration. And if the general populace wants something to complain about, stadium funding is by and large highway robbery.

Oct 16, 2014

Im guessing y'all don't have much experience with nonprofits. The fact that an organization files a 990 means its tax exempt. So, yes, the NFL is tax exempt. What does that mean? Certain types of income (membership dues, for example) are not taxable as income.

The NFL, while running charities, is not a charity. Its a sports organization (typically organized as a 501c7). These classifications provide little financial benefit, because all other income aside from membership dues, is generally taxable.

Where these organizations really skirt taxation is in their charitable foundations...

Oct 16, 2014
scottyc:

Im guessing y'all don't have much experience with nonprofits. The fact that an organization files a 990 means its tax exempt. So, yes, the NFL is tax exempt. What does that mean? Certain types of income (membership dues, for example) are not taxable as income.

Yes, but it's only the league office that files the 990, not the league as a whole. The league office isn't where the NFL makes its money - if you look at the leaked financials linked at the bottom of my original post, they actually lost nearly $100m between 2009 and 2010. Even if the league office tore up their form 990 instead of filing it, I don't think they'd see much of a change in their tax bill.

    • 1
Oct 17, 2014
Comment

I'm too drunk to taste this chicken -Late great Col. Sanders

Pages