It’s Week Nine of the 2013 football season, and millions of Americans are following every play. The Kansas City Chiefs are still undefeated. The New York Giants have finally won a couple of games. And playoff races are already starting to take shape. (Bengals, anyone?) So, what does any of this have to do with taxes?
Today’s National Football League is the biggest spectacle since the Romans packed the Coliseum to watch the Christians take on the Lions. (Needless to say, the Lions were heavy favorites—and usually covered the spread.) Last year, the league generated $9.5 billion in revenue from a combination of TV rights, ticket sales, stadium concessions and licensing agreements. The biggest part of that cash geyser goes to the players (who naturally pay tax on their salaries). More chunks go to the owners (who pay tax on theirs), and stadium vendors (who pay tax on all those $8 beers).
The NFL’s league office, which promotes the sport and organizes the teams, took in $255.3 million last year, mostly from team dues. That same year, the league spent $332.9 million, including $35.9 million to a construction company for new office space (who naturally paid tax on their share), $29.4 million in salary for Commissioner Roger Goodell (who of course paid tax on his share), and what must seem like a token $2.3 million in grants for community groups like the United Way.
So, it sure sounds like the receivers at Team IRS are catching their share, right? Well, while the team owners, the players, the t-shirt sellers, and beer vendors are all in it for the money, would you believe the league office itself is a “not-for-profit” entity? That makes it sort of like the American Red Cross — if the Red Cross were in the business of giving concussions instead of treating them. (Technically, the Red Cross is a “501(c)(3)” public charity, while the NFL is a “501(c)(6)” trade association.) And that means the league office itself could earn $100 million or more per year without paying a dime in federal income tax. Talk about an end run around the IRS!
Last month, Senator Tom Coburn (R-OK) introduced the PRO Sports Act to revoke the tax exemption for professional sports leagues earning more than $10 million. This would of course affect the NFL, along with the National Hockey League, the Professional Golf Association, and other pro sports groups. Coburn is joined by 275,000 Americans who have signed a Change.org petition to strip the league of their nonprofit ball. Senator Coburn alleges unsportsmanlike conduct, saying that “working Americans are paying artificially high rates in order to subsidize special breaks for sports leagues,” and estimates that his bill could generate at least $91 million of new revenue every year from the NFL and NHL alone. (So far, Coburn hasn’t found any co-sponsors. Do you think he would be so bitter if Oklahoma City had a team?)
There’s certainly no reason a league office needs a tax exemption to operate. Major League Baseball gave up theirs in 2007, partly to avoid the salary disclosures that come with tax-exempt status. The National Basketball Association has always been a for-profit entity owned by the various teams.
And if the NFL does lose their tax-exempt status, they can still avoid paying any tax. How can they do that? Through smart planning, of course — the same sort of planning we use to minimize your tax. But the clock is counting down for 2013, and there are no overtimes in this contest. So call now for your game plan!
William T Zumwalt CPA, PLLC
5416 South Yale Ave
Tulsa, OK 74135