The National Football League’s central office will become a taxable entity, ending its tax-exempt status in a move with minimal financial effect and significant symbolic value.
Commissioner Roger Goodell informed team owners and members of the U.S. Congress of the decision in letters dated Tuesday, saying he was eliminating a “distraction.”
“Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there,” Goodell wrote. “This will remain the case even when the league office and Management Council file returns as taxable entities, and the change in filing status will make no material difference to our business.”
The league’s decision pre-empts a move to revoke the tax break that had been led by former Senator Tom Coburn of Oklahoma. That effort has gained some momentum in recent years, but not enough to pass either the House or the Senate. The NFL’s action removes a point of leverage for Congress in its continuing inquiries into the league’s handling of concussions and domestic violence.
For the NFL, the costs of losing the tax break are minimal, an estimated $109 million over the next decade. There are benefits for the league, too, including the end of federal disclosure requirements that put Goodell’s salary and some other league information in the public domain.
The U.S. requires that non-profit groups file annual federal tax returns and make portions of them public. Goodell received $35 million in salary and bonuses in 2013.
“The NFL just probably realized it didn’t have much to give up and they’re gaining the ability to not reveal salary information,” said Michael McCann, a professor at the University of New Hampshire who specializes in sports law.
The league will switch its status this year, which means it will still file a public tax return as a nonprofit for the fiscal year that ended March 31. The NFL typically releases its tax return in February.
The NFL is the biggest sports league in the U.S. with a record $10 billion in revenue in 2013, up from $7 billion when Goodell took over as commissioner in 2006. Much of that revenue goes to the teams, which already face taxation.
The top members of the House Oversight and Government Reform Committee said they were “extremely pleased” with the NFL’s decision.
“It is rewarding to see such an important and positive step toward restoring basic fairness,” Republican Jason Chaffetz of Utah and Democrat Elijah Cummings of Maryland said in a joint statement. “We hope other professional sports organizations in similar situations will follow the positive example set by the NFL, and we look forward to rightfully returning millions of dollars to the federal treasury as a result.”
According to Goodell’s letter, the league has been studying its tax status for more than a year and the full ownership approved the decision in March.
“The big question is: Why now?” said Andrew Brandt, former vice president of the Green Bay Packers. Brandt is an NFL business analyst at ESPN television and director of the Jeffrey S. Moorad Center for the Study of Sports Law at Villanova University in Pennsylvania. “It seems like Congress has been making a big deal out of it. Without this status there’s no requirement to disclose, which helps in the PR battle.”
The NFL’s move mirrors one made by Major League Baseball in 2007. The National Basketball Association never was tax exempt. The National Hockey League is now the only major professional sports league in North America with the status.
The Internal Revenue Code specifically provides a tax exemption to “professional football leagues” under section 501(c)(6), the same portion of the law used by the U.S. Chamber of Commerce.
The only way to change that would be an act of Congress or a decision by a league to forgo the tax exemption.
“The NFL doesn’t need this public perception headache,” said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon. “With little effect on its bottom line, it was an appropriate move.”
The NFL’s decision wasn’t enough to satisfy some of the league’s critics, including Senator Richard Blumenthal, a Connecticut Democrat, who said he would continue pushing legislation to limit sports leagues’ antitrust exemptions.
Senator Harry Reid, a Nevada Democrat, continued pressuring the league to change the name of the Washington Redskins, which Reid says is offensive to native Americans.
“That tax break that they got is $100 million,” he told reporters in the Capitol Tuesday. “They’re treating that as if it’s nothing because they have such problems with other issues, not the least of which is kowtowing to the owner, especially one that has a team here in Washington.”