This is a response to Scott Salmon's "The National Football League and Non-Profit Status".
In truth, this is not so much a rebuttal as a clarification of the issues, as I don't really disagree with what Scott Salmon wrote. The bottom line is that it does not appear that the NFL is generating billions of dollars and completely avoiding paying taxes because of the corporate status of the NFL (the fact that the owners may very well be evading paying millions or billions in taxes through unrelated legal or illegal tax avoidance schemes is a question we will not address here). But this does not mean that the NFL does not get an improper tax benefit from its corporate status. I just don't think there is enough information available to say one way or the other.
For those who are not bored to tears by this stuff, I will try to answer a few basic questions that are raised when discussing this issue.
How is the NFL a "non-profit"?
The NFL is organized as a 501(c)(6) business association under the U.S. tax code, and enjoys tax-exempt status. To be a 501(c)(6) organization, the requirement is more than just that an entity not turn a profit. The entity is supposed to be primarily engaged in activities that benefit an industry as a whole. Not benefitting individual members. And not generating hundreds of millions or billions of dollars through commercial activity. Members of 501(c)(6) business associations are supposed to be putting money into the organization (for lobbying, industry advertising and promotion, charitable purposes and community activities), not taking money out of it in profit.
The issue is a little grey because, in the 1960's, Congress amended the statute to expressly provide for "football associations" to be 501(c)(6) entities. So the NFL enjoys a little more latitude than other trade groups. But I still think that the NFL does not meet the requirements of a 501(c)(6) entity.
I would be more certain of this if I understood the exact mechanism by which NFL-related licensing revenue was "funneled" to the owners.
How much money does "the NFL" make?
As is common in discussions about whether "the NFL" pays enough taxes, Scott Salmon conflates the revenue of the NFL league office with the revenue of the league owners:
Let's start with how much the NFL makes per year. That number is roughly $10 billion, by far the largest of any league in the country. You can be quibble about the amount Goodell is paid, but remember just how big of an organization he runs. That $10 billion comes from a variety of sources, including jersey sales, advertising revenue, television deals, etc. However, that money does not go into the NFL's coffers.
But, since we are only really interested in whether the 501(c)(6) league office is benefitting from the tax-exempt status, we really only need to be concerned with how much money the league office actually makes, which is less than $10B. How much less? That is where things get a little tricky.
First, there is no question that the tax-exempt NFL receives hundreds of millions of dollars in dues from the owners each year. There is nothing wrong with this. In fact, it is exactly what you would expect to see if the NFL was a true business association; money going from the owners to the association to cover pro-industry expenses.
But what about all those jersey sales? How much of that passes through the 501(c)(6)?
Let's be clear. If the NFL league office was selling billions in merchandise and then simply distributing the profits to its members, it would be an even more clear violation of the limits on 501(c)(6) behavior. Contrary to Scott Salmon, I think that would require a much more in depth analysis to determine if tax avoidance was occurring in that situation. But is that what is happening? Maybe not.
The League Office maintains bank accounts in an agency or representative capacity on behalf of the Member Clubs (the NFL Agency Account). The NFL Agency Account records activities applicable to television and radio income, postseason games, expansion fees, revenue sharing, visiting team shares, medical costs.
Here is what the NFL front office is representing to the public and to the tax authorities: All the money that comes in from the NFL's various revenue streams gets deposited into bank accounts that are wholly owned by the NFL owners and that money is never on the books of the NFL's 501(c)(6) front office. If this is true then the front office is merely administering the accounts. The NFL would be no more liable to pay taxes on Jerry Jones' money -- even if not tax exempt -- than Jerry Jones' individual business manager or financial advisor would.
Is this setup proper? I honestly can't say. What I can say that I was a little surprised when I looked closer. It has been my understanding for years that the NFL owned the NFL copyrights and trademarks, licensed them, and collected the revenues. Don't those TV warnings against the rebroadcast of games say something about the NFL owning the rights? If the NFL isn't licensing those jerseys, who is? If the NFL owns the rights but has assigned their rights to another corp. or LLC controlled by the owners, shouldn't the NFL have to place the value of those assignments on their books?
What it sort of looks like is as if Microsoft arranged for payments on computer sales to go directly to Bill Gates then Microsoft claimed to be a non-profit. Yes, Gates would have to declare the profits himself, so taxes would have to be paid. But there could be significant tax benefits to the arrangement.
Does any of this matter?
As has been pointed out by the NFL and others, the front office doesn't turn a profit. So, whether it is a tax-exempt or not may ultimately be irrelevant.
If anything looks fishy about all this, it is that, generally, the NFL owners appear to be operating the front office as an important part of actively generating revenue, but doing so as a tax-exempt business association. Do the owners get a tax benefit by incurring expenses in the name of the non-profit NFL rather than in the name of a for-profit company? I honestly do not know. I am not a tax lawyer. But I would advise Scott Salmon and others to not take the NFL's glib pronouncements of "nothing to see here" at face value.