Why The NFL Is Voluntarily Giving Up Its Tax-Exempt Status

CREDIT: (AP Photo/David J. Phillip, File)

NFL commissioner Roger Goodell

In a memo to NFL owners and a letter to House Ways and Means Committee Chairman Paul Ryan (R-WI), NFL commissioner Roger Goodell on Tuesday announced that the league had decided to voluntarily give up its tax-exempt status.

Under tax law, the NFL and other professional sports leagues have been able to organize as 501(c)(6) non-profit trade organizations. The NFL has done so since 1942, largely without much fanfare or scrutiny. But in recent years, especially as NFL revenues have ballooned to nearly $10 billion annually, the league’s tax-exempt status has come under scrutiny from sports fans, tax groups, and lawmakers from both parties. It is now, Goodell said in the letter, “a distraction” that isn’t worth keeping.

NFL types might be fond of throwing the “distraction” label on things that don’t deserve it, but in this instance, Goodell is probably right. Relinquishing the tax exemption will almost certainly have little, if any, cost for the league or benefit to taxpayers, since the NFL operates as a pass-through entity. That is, the majority of the money the league takes in is either made by or passed on to teams and taxed at that level, where 31 of the 32 franchises are organized as private, tax-paying businesses (the publicly-owned Green Bay Packers are a nonprofit).

Because of that, the cost of the exemption to taxpayers (or the benefit to the NFL) is relatively small. According to Sen. Tom Coburn (R-OK), who featured tax-exempt status for sports leagues in his annual “Waste Book,” those exemptions cost taxpayers as much as $91 million a year. But the NFL is only a part of that, and Citizens for Tax Justice has estimated that the exemption saves the league just $10 million annually, roughly the same calculation the Joint Committee on Taxation made when it estimated that revoking the exemption would increase federal revenues by $109 million over a decade.

But those benefits may not exist at all. Major League Baseball gave up its tax exemption in 2007 and has maintained that doing so had no effect on its finances. The NFL, according to some experts, may have to pay a small amount of taxes based on some revenue it takes in and the structure of a stadium loan program it used to run. But even accounting for that, other experts have in the past guessed that the league might be able to find more than enough write-offs in the tax code to offset what it could have to pay.

Even if it does have some liability, though, the few million dollars it might have to pay in federal taxes likely aren’t worth the recent headaches the exemption has caused. In recent years, lawmakers and petition-starters have used the status as a cudgel to needle the NFL on its finances and other issues. Former Rep. Dave Camp (R-MI), for instance, included its repeal in a broader tax reform package. Coburn, Sen. Angus King (I-ME), and Sen. Cory Booker (D-NJ) have all targeted it with legislation. Sen. Maria Cantwell (D-WA) and D.C. Del. Eleanor Holmes Norton have both introduced legislation that would revoke the status if the NFL does not force Washington’s owner to change the team’s controversial “Redskins” name (in a statement issued Tuesday, Cantwell said that “giving up the tax break…doesn’t mean you can ignore the need for the NFL to abandon a racial slur as a team name”).

Beyond that, the tax exemption forced the league to disclose Goodell’s salary and other financial information (like the amount it spent lobbying Congress), which only brought further PR headaches. Now, the pieces of legislation are even bigger non-starters than they perhaps already were (none has gained any traction in Congress), and Goodell’s exorbitant salary and other financial figures will be shrouded from public view.

In other words, the NFL seems to have made a pretty sensible calculation that the small benefit of the tax exemption, if it existed at all, wasn’t worth the negative public relations problems that started to come with it. And as far as tax benefits go, the subsidies its teams get from federal, state, and local governments to build and maintain stadiums remain far more beneficial than the exemption anyway.