Who here is overpaid?

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NFL Gives Up Tax Break to Keep Its Secrets

Kavitha A. Davidson is a former Bloomberg View columnist.
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The National Football League made one heck of a news dump -- I mean, "announcement" -- on a busy Tuesday, revealing that it plans to relinquish the league office's tax-exempt status. The obvious follow-up question: What's in it for Commissioner Roger Goodell?

The NFL has been under political and public pressure over its status as a 501(c)6 nonprofit, which exempts business leagues "not organized for profit" from taxation. In 1966, the phrase "professional football leagues" was specifically added to the tax code as part of the effort to merge the AFL and the NFL. Gregg Easterbrook adeptly summed up the league's sweetheart deal in a 2013 piece for the Atlantic, noting that adding football was a last-minute concession won by the league's lobbyists in a broader law that also won the NFL an antitrust exemption for television broadcast deals -- a luxury it still enjoys.

Defenders of the NFL's nonprofit status note that it's just the league office, not the individual teams, that is tax exempt under this provision, and that the league office itself generally loses money, contrary to the notion that the NFL is a $12 billion league. That may be technically true, but it's a myth that the league-office tax exemption doesn't benefit the 32 teams that do pay taxes. As Bloomberg View's Timothy Lavin explains, the league can act as a sort of tax shelter for the individual teams, who can write off the millions of dollars they pay in dues to the league as a business expense, and in turn receive favorable loans through the league's financing program for upgrading their stadiums. 

According to the Joint Committee on Taxation, the NFL's exemption saves the league around $109 million over 10 years. That's not a terribly large sum relative to the NFL's revenue, and it might be an amount worth forfeiting just so Goodell can avoid people bringing up the league's nonprofit status whenever he errs on domestic violence or sexual assault. As the NFL's public-relations disasters piled up over the last year, politicians tried to use the league's tax exemption as leverage in calling for reform.

Still, despite Goodell's insistence that the tax exemption was nothing more than a "distraction," I'm just a wee bit skeptical that the NFL doesn't have an ulterior motive. With public attention focused on Baltimore riots and marriage equality and a naval standoff with Iran and the league's own draft starting Thursday, Goodell might have hoped we'd be distracted enough not to question his motives on the exemption.

Once the NFL gives up its nonprofit status, it won't be required to disclose executive pay. And despite the boom in the league's bottom lines, many still point to Goodell's astronomical $44 million annual compensation package as puzzling given how poorly he's handled various crises, from domestic violence to concussions. Now critics won't have data on his salary, or those of other top-level executives, as ammunition.

It will be harder to demonstrate the divide between the NFL's haves (management) and its have-lesses (labor) by comparing compensation. While Goodell's pay is the highest of the four major-league commissioners, the average salary of an NFL player is the lowest of the four major sports, at around $2 million. As revenues continue to grow, that money isn't going to the players fans pay to see so much as to the executives who control their contracts more tightly than ever. And while the NFL has one of the worst records in gender hiring, and as women across the country fight for equal pay, there will be fewer ways to ensure that the league's newly hired guard of high-ranking female executives will be paid comparably to their male counterparts.

There is precedent to this reasoning: Major League Baseball gave up its tax exemption in 2007, and many speculated that this was because of the requirement to disclose executive pay. Perhaps not coincidentally, IRS documents obtained by SportsBusiness Journal that year revealed that MLB Commissioner Bud Selig had been the highest-paid commissioner in 2005, pulling in $14.5 million, which included a 100 percent bonus.

There's also a sense among observers that the NFL is willing to give up its tax exemption as a sort of compromise to get the politicians off its back in calling for the end to its antitrust exemption. They might point out that Senator John McCain and others used a threat to the NFL's antitrust exemption as leverage in getting the league to end its blackout policy for games that don't sell out (although I've argued that this change was less about political pressure than a new strategy toward digital streaming).

I'd remain equally cautious about conclusions on the NFL's tax exemption. After all, even after MLB gave up its tax-exempt status, it hasn't avoided challenges to its antitrust exemption. Back in September, at the height of the Ray Rice controversy, Goodell promised increased transparency from the famously secretive league. Apparently this didn't stretch to continued scrutiny of his fat wallet.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Kavitha A. Davidson at kdavidson19@bloomberg.net

To contact the editor on this story:
Tobin Harshaw at tharshaw@bloomberg.net