NFL’s tax-exempt status could be providing tax breaks to teams, not just league

Timothy Lavin of Bloomberg View had an op-ed up last week on the NFL’s tax-exempt status, which I set aside before reading at first because while the league’s tax exemption is annoying, it doesn’t really amount to all that much of a tax subsidy. (Because individual teams, which are what actually earn the revenue, are still taxed.)

Except that Lavin has found some potential loopholes that the NFL may be exploiting to use that tax exemption as a more significant tax dodge:

  • “First, the league’s primary business these days is no longer football, it’s financing.” The NFL’s stadium loan fund — which is really more of a grant fund, since the teams get to pay it back with revenue they wouldn’t keep otherwise — appears to allow the league to borrow money on lower terms than it would otherwise, and pass the savings on to the teams that are building stadiums.
  • NFL teams pay more than $300 million a year total in dues to the league. If that money is then used to help teams pay for stadium costs, the team owners get to treat it as a business expense rather than a capital expenditure, which allows them to write it off much more quickly.

Lavin cautions that without looking at NFL teams’ books (ha ha ha ha!), we don’t know how much they’re actually saving by these methods, so it still may not be a huge deal. But this does potentially explain why the NFL is holding onto its 501(c)(6) status, which MLB voluntarily ditched in 2007.

Either way, the benefits for teams almost certainly pale in comparison to those from the IRS’s continuing acceptance of the tax-exempt bond dodge, which saves sports teams around $150 million a year, at the expense of the federal treasury. Maybe someday Congress will get around to doing something about all this, beyond staging the occasional hearing.

Tax-exempt status for sports leagues could cost taxpayers $90m or more per year

Patrick Hruby at Sports on Earth has a good, long article on “sports welfare” today, most of which focuses on Sen. Tom Coburn’s proposal to revoke the non-profit status of sports leagues. (Though there’s a good rundown of other past attempts to rein in federal sports subsidies as well, including Rep. David Minge’s late, lamented attempt to create an excise tax on stadium handouts.) Coburn’s plan is going nowhere for the moment, as did his attempt to bar the use of federal stimulus dollars on sports projects four years ago. But how big an effect would it have on the sports industry, and U.S. taxpayers?

Hruby attempts to break it down:

How much does this loophole cost taxpayers? Due to accounting vagaries, no one knows for sure. Given that the standard corporate tax rate is 35 percent — and that the NFL and NHL collectively received about $260 million in membership dues from their teams in 2010 — Coburn estimates that sports leagues are sheltering at least $91 million annually. But the actual amount is likely higher. After all, the PGA Tour and LPGA had combined gross receipts of more than $1 billion in 2010. A 2010 law review article by Vermont-based attorney Andrew Delaney notes that individual pro teams also can write off their league membership dues — a bit of what Delaney calls “creative asset priority reallocation” (read: perfectly legal money laundering) that amounts to an estimated $5 million-plus annual deduction for NFL clubs…

But wait. There’s more. As Delaney’s article notes, the NFL’s non-profit status subsidizes the astronomical salaries of executives like commissioner Roger Goodell ($11.6 million in 2010), media vice president Steve Bornstein ($12.2 million) and former commissioner Paul Tagliabue ($8.5 million). It also allowed the league in 2009 to pay 296 salaries over $100,000; fork over $7 million-plus for legal fees; spend nearly $1 million a month for office space; shell out $6.25 million for “travel services”; and pay 135 total independent contractors at least $100,000 apiece.

More infuriating still — or clever, depending on your perspective — is what the NFL does with the rest of its tax-deductible (by teams), tax-exempt (for the league) cash. According to Delaney, much of it goes to fund the NFL’s stadium construction financing program, which provides team owners with ultra-low interest loans. To obtain said loans, owners are required to secure public stadium funding; to pay back said loans, Delaney explains, personal seat licenses are sold tax-free through public agencies.

It’s likely even tougher than Hruby indicates to say how much more in taxes the sports leagues would have to pay if their non-profit status was revoked — for starters, I somehow doubt that the NFL and NHL would keep collecting membership dues in the same way if there weren’t a tax break associated with them. And PSLs sold by public agencies would continue to be tax-free regardless, unless Congress passes a separate provision making those subject to taxes.

Either way, though, stopping sports leagues that exist solely for the purpose of overseeing for-profit teams from being run as non-profits certainly couldn’t hurt. So why isn’t it being taken seriously?

“You hate to embarrass people, but that’s what it takes with something like this,” says a Capitol Hill staffer. “If [Congressional members] were pushed on this publicly, they couldn’t side with rich lobbyists or their special interest buddies in the NFL who give them free tickets.”

If Congresspeople can be embarrassed into action by being called out on obscure blogs for their craven opportunism, consider it done. Don’t make me come in there and testify again!