Bad news for the NFL: Noting the financial success of professional sports leagues, Senator Tom Coburn is pushing to change tax regulations that allow them to operate as 501(c)(6) nonprofits.
What does the National Football League have in common with the the U.S. Chamber of Commerce? Look no further than their tax status. In fact, we’ll save you a step:
Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
Find that surprising, even as a sports fan? So does a Republican senator who’s looking to change the law. More details:
The law as it stands: Senator Tom Coburn (R-OK), a noted budget hawk, has in recent months drawn attention to the line in the tax code, which he says improperly benefits an organization that brings in a combined $9.5 billion in revenue each year. (Currently, the league itself is funded by $6 million in membership dues paid by each team, which go back into funds meant to help develop stadiums—and isn’t taxed.) How’d that happen? Blame it on a merger. Back in 1966, the National Football League started talks with the American Football League about a merger that would have raised antitrust concerns without changes to the federal law. Legislation allowing limited antitrust immunity passed, in part because of support in Congress from influential Louisiana lawmakers who wanted (and later got) a team of their own. A provision in that law is why the tax code changed to make a point of specifically saying “professional football leagues” would be considered nonprofits. “The merger was good for the sport, stabilizing pro football while ensuring quality of competition,” The Atlantic’s Gregg Easterbrook recently argued. “But Congress gave away the store to the NFL while getting almost nothing for the public in return.” Other leagues followed suit, taking advantage of the rules.
The changes wanted: With his recently proposed PRO Sports Act, Coburn wants to close the loophole for sports leagues earning more than $10 million a year in revenue, arguing that the leagues don’t actually need it. “Tax earmarks are essentially tax increases for everyone who doesn’t receive the benefit,” he stated in a press release last week. “In this case, working Americans are paying artificially high rates in order to subsidize special breaks for sports leagues. This is hardly fair.” It’s not his first effort to close this particular loophole, either—earlier this year, he attempted to amend the Marketplace Fairness Act. (The Oklahoma senator also notes that the changes he proposes would not affect 501(c)(3) charitable organizations run by the leagues.)
How much would it hurt? If the law were to pass, the pain on the league might be less significant than it seems. For one thing, Major League Baseball already has made a move away from tax-exempt status, and the results were tax neutral. The NFL could benefit in similar ways, ESPN’s Kristi Dosh wrote in June: “If the NFL were to lose its tax exemption, it would then be eligible for a host of business-related tax deductions that would offset some of the league’s taxable income.” There are other questions, such as whether the league (which represents the teams) would get double-taxed in any way, but Coburn says these potential problems could be avoided.
So here’s a question which might be relevant for trade groups: If Coburn is going after one flavor of 501(c)(6), what would stop him from taking on any other? Fortunately, he’s considered this point in a Q&A about the PRO Sports Act [PDF], noting that while the entire space deserves scrutiny, there’s a big difference between the U.S. Chamber of Commerce and the NFL:
“Leagues claim their main purpose is to promote their respective sports, but most of their activities are dedicated to specific brands that help a limited number of pro players.”
Whatever happens next, the ball’s clearly been kicked off.