The National Football League has been in the crosshairs of late, and for good reason. Questions about how the league punishes its players swirled after two players, Ray Rice and Adrian Peterson, both became embroiled in domestic abuse scandals. The league’s black eye over the exposure of its systemic efforts to withhold information on just how damaging concussions are, meanwhile, is perhaps the issue that should really get more attention. And, of course, there’s the insistence on the part of Dan Snyder that he should be able to continue using a pretty egregious racial slur as the name of his team.
Not a good year for football, folks. Not as bad as 1905, sure, but it’s up there.
However, these recent scandals have given rise to an effort by the league’s detractors to remove the NFL’s nonprofit status. And I’m here to tell you that this is a really silly thing to get hung up on.
“Honey! Where Did I Leave My Pitchfork? The Angry Mob is Leaving Any Minute Now.”
The pitch is often something pretty similar to what appears in the change.org petition. “Professional football is a $10 billion a year industry but the NFL is legally defined as a nonprofit! You should be oh-so outraged at this tax loophole benefitting evil corporate fat cats and their violent sport! Quick! To Twitter!”
Unfortunately, there’s a certain degree of willful ignorance playing into the whole campaign. Let me be clear, it’s not that there isn’t a decent argument for removing the league’s nonprofit status. It’s just that it’s not really a big enough issue to warrant taking up anyone’s time.
At the core of this argument is actually a pretty simple legal definition that shouldn’t upset anyone, but leaves open a chance for unscrupulous issue advocates to exploit a semantic misunderstanding to drum up largely pointless outrage. I know, that’s pretty much all that’s left on the internet other than porn, but that doesn’t make it okay.
Okay, here’s the deal: Yes, the NFL is a nonprofit organization. It’s also a nonprofit in the sense that it usually doesn’t have any actual profits to speak of.
The NFL Pays No Taxes, but NFL Teams Definitely Do
“But – but – what about the $10 billion a year?!” I hadn’t forgotten that, it’s just that all of that money is taxed. The $10 billion figure comes from combining the income for the individual teams, each of which is a single privately owned business (save Green Bay). Basically, none of that income is using the NFL’s nonprofit status in any way, shape, or form.1 The league office may negotiate the TV contracts, but that money goes straight to the teams.
Why then, do you keep hearing that $10 billion in annual revenues figure quoted in arguments for removing the NFL’s nonprofit status? Wouldn’t it be intentionally misleading to reference total revenue for the league’s teams in the context of the league offices’ nonprofit designation? Correct! It totally is! That’s exactly why people do it: it’s a relatively easy way to drum up outrage by preying on people’s ignorance.
The Tax Filing that Launched a Thousand Blogs
The NFL is a trade organization that represents the 32 professional football teams that make up the league. It’s defined as a 501 (c)(6) nonprofit, the portion of the tax code that defines business leagues. So, part of the IRS “scandal” from last year was that at least a handful of people who actually did some research got a bit of a window into one of the murkier portions of the US tax code. Section 501 (c) outlines tax-exempt nonprofit organizations. All 29 kinds of them, from your cemetery companies (501 (c)(13)) to your Black Lung Benefit Trusts (501 (c)(21)).
The National Football League is a 501 (c)(6), a designation created for business leagues that act as an organizational structure for a group of private businesses trying to work together to advance their collective interests.
What does that mean? It means that the NFL doesn’t pay taxes, but then it’s not really making any money, either. It actually frequently operates at a loss.
What revenue the league office does have comes from team dues. With that money, the league pays its staff of nearly 1,600 people tasked with negotiating TV contracts, working through any rule changes, hiring referees (POORLY), and organizing charitable giving that boosts the league’s image in the general public.
It also means that, legally speaking, the NFL is not unlike the Chamber of Commerce or the American Medical Association, organizations that aren’t exactly taking heat for their nonprofit status. That’s because no one is actually upset about the existence of a legal distinction that allows trade organizations to operate, they just want to use the NFL as a whipping boy.
The thing is, the public attention lavished on the NFL means making a stink about its tax designation is a relatively easy way to get attention, something that politicians (and rage-baiting bloggers) love in almost all forms. That’s why Senators Tom Coburn and Cory Booker have both made public efforts to roll back the nonprofit status of the NFL and other sports leagues.
On its surface, the efforts aren’t entirely without merit. Firstly, the NFL, the NHL, and the PGA tour, among others, are able to use the 501 (c)(6) designation because of 1960s legislation that was the result of an NFL lobbying effort. Basically, merging the NFL with the relatively new AFL raised some monopoly concerns that would jeopardize the nonprofit status that had been employed since 1942, so the league managed to finagle a special addition to the tax code that allowed them to legally operate a monopoly.
Should the NFL get this special designation? Does it Really Matter?
Does the NFL get special status in the tax code? Yes, yes it does. Is that odd? Not so much. Again, there’s 29 different types of recognized 501 (c) groups out there. But then, the league’s legally protected status as a monopoly is arguably much more troubling, particularly when the league office is doing things like actively covering up the way its players were suffering brain damage.
At the end of the day, I can agree that the NFL might deserve any special favors from the tax code. I can even agree that removing its nonprofit status is warranted. But here’s the important question: what are the actual consequences of doing so? Basically nothing. And that’s why this issue is so frustrating.
The biggest clue that this is actually a total non-issue should be that Major League Baseball (MLB) voluntarily gave up the 501 (c)(6) designation for its league office in 2007. Yes, voluntarily. The league office would have to report salaries of any employees that exceeded $150,000 and they didn’t want to do that anymore, so they just gave up their nonprofit status.
This should be your first clue that this particular legal distinction means very, very little in the big picture. It’s not like the MLB owners opted to take on a massive tax bill because they were feeling guilty or they were really all that concerned about the commissioner’s salary being public record. Odds are, the MLB just determined that it could rework its finances to ensure the league office wouldn’t ever show enough of a profit for the switch to matter.
Estimates from the congressional Joint Committee on Taxation determined that eliminating the 501 (c)(6) designation for every sports league out there, not just the NFL, would increase tax receipts by a little under $11 million a year.
Is that nothing? No. Is it enough to actually be worth making a stink over? Good lord no. That $11 million a year represents about 0.0004% of the nation’s total tax receipts and 0.0003% of the total federal budget. Not the sort of numbers that warrant this kind of attention.
A Perfect Storm of Impotent Outrage
So why do so many people pretend this is an issue worth your attention? Because the NFL is visible. This whole campaign only exists because, despite being ridiculous, it grabs your attention.
Drumming up outrage surrounding football is easier than, say, doing the same thing for the home mortgage interest deduction, making it a lot more appealing to politicians and issue advocates. Coburn and Booker know they can get their name in the paper, and Slate and Salon and the rest of the outrage gristmill can count on plenty of clickthroughs from angry progressives.
So, the incentive is there to make a big stink. Not the incentive of making some sort of actual difference in the fairness of our tax code, but the incentive of getting votes and attention from people looking for a new pet cause.
At the end of the day, even if the assertion that the NFL’s nonprofit status should be revoked holds any water, it’s really on a fairly narrow legal justification, not the sort of broad, ideological grounds it’s usually getting sold as. And even then, the actual effects of revoking it would be so minimal it doesn’t justify the attention necessary to make it happen.
So if you’re looking for something to get mad about, keep looking. You can do a lot better.
1 So, apparently, the teams do count their dues paid to the league office as tax deductions, so there is technically some portion of profit from football operations avoiding taxes because of the NFL’s nonprofit status. I mean, a really miniscule portion of that revenue, but a portion nonetheless.
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