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What??? The NFL Was a Nonprofit

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nflIn 2012, Roger Goodell earned 44.2 million in total compensation as the commissioner of the National Football League. Not too surprising. Corporate representatives of the NFL, after all, are not unlike King Midas: everything they touches turns to gold. What is surprising is that Roger Goodell earned 44.2 million as commissioner of a non-profit organization.

The Roots of the NFL’s Non-profit Status

In 1942, the NFL was established as a trade organization, and has since been operating as a nonprofit under the 501(c)(6) segment of the tax code that requires the organization’s activities to be directed toward the “improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.” A 501(c)(6) organization is not allowed to oversee any profit-generating enterprises and cannot offer the same type of services or products sold by its membership. Doing would compromise its tax-exempt status.

For those who are scratching their heads as they picture the millions of dollars of profits pulled in from NFL tickets and NFL-related merchandise, it should be noted that it was the NFL League Office that was tax-exempt. The 32 teams within the NFL are for-profit, as is the NFL Network (the cable and satellite network owned by the league.) The corporate headquarters has the power to hand out fines, negotiate television contracts, discipline players and officials, to cancel contracts, and to take in a pretty large salary. Each team within the NFL pays the league office annual dues, the total of which comes to around $330 million annually.

The nonprofit status of the NFL’s league office has long been a topic of controversy, and critics have been working to overturn its tax-exempt status for years. In September 2013, Senator Tom Coburn (R-Okla.) introduced the Properly Reducing Overexemptions for Sports Act (Pro Sports Act), which bestow for-profit status upon any sports organization that garnered more than $10 million in annual revenue. (The NFL made over $9 billion in gross revenue in 2012.) Coburn stated, “I don’t think pro sports team are grade associations They are companies that are promoting their own brand, their own teams, and their own league, and not sports in general. We need the tax revenue, and to stop giving it away to people who don’t need it.”

Back in 1942, the NFL was struggling financially. In an effort to save money and protect their players, the league filed for non-profit status with the IRS. In 1966, when the NFL merged with the AFL, it avoided antitrust law sanctions by bargaining with Louisiana Senator and Chairman of the Financial Committee Russell Long. In exchange for exemption from sanctions, the NFL opened the league’s sixteenth NFL franchise in Louisiana, which is how the New Orleans Saints came to be. (At least Louisiana was benefiting from this non-profit organization!)

Should the NFL Be a Non-Profit?

Recent scandals within the NFL have called for further inquiry into the NFL corporate office’s tax-exempt status. Opponents believe that bestowing nonprofit benefits upon a multi-billion dollar corporate enterprise is disrespectful of charitable organizations that seek to help others.   Should the NFL have been labeled a trade organization in the first place? Trade organizations work to benefit entire industries, but the NFL does not allow new professional football teams to simply join the league. It’s a closed club, and a very profitable one, at that.

In defense of the NFL’s tax-exempt status, Jeremy Spector, the NFL’s outside tax counsel said, “The league office acts as a trade association for the NFL clubs,” Spector wrote in November. “It establishes rules and standard practices for its members, develops programs to help them run their operations more efficiently and profitably, and promotes the business in the broader community. Trade associations are nonprofit organizations. They don’t engage in any business activity. As a result, they are exempt from being taxed under section 501(c)(6) of the federal tax code.”

The NFL Gives up their Tax-Exempt Status

In April of 2015, the NFL decided to voluntarily relinquish its non-profit status. Was it because they were under pressure from Congress? Or was it a calculated PR stunt? According to the commissioner, they were simply sick of all the complaining. Goodell called the exemption a “distraction” that had been repeatedly mischaracterized. However, the New York NFL headquarters becoming subjected the taxes isn’t going to hurt the league too much. A Congressional committee estimated that the league office will likely pay about $10 million in yearly taxes, pennies to the multi-billion dollar organization. Nevertheless, this hotly contested chapter in American football history has come to an end. The tax man is going to start visiting the corporate home of the National Football League.