Earlier this semester I gave a lecture on the economics of non-profit organizations. Non-profits are given their status because the government wants to provide extra incentives for organizations to tackle problems and for individuals to donate money to solve these problems. In my lecture I discuss some standard examples like hospitals, symphonies and colleges. Then I take students to GuideStar, which reports on the finances of non-profits. GuideStar allows you to see the actual forms, called the 990, that almost all non-profits file each year with the IRS. Some students are then assigned the tasks of creating homework problems based on the lecture. Jerry Lavoie, one of my students, sent in an amazing homework that showed the NFL is a non-profit organization that pays no taxes. I was shocked to read this, but after double checking his work, it is true.
I love watching NFL football. However, reading the NFL’s most recent 990 form (click here to see the form) is chilling. The NFL is a 501(c)(6) non-profit, which is a category designed to exclude local chambers of commerce and small business associations from paying taxes. The 501(c)(6) category, however, has one extra type included in the list of exempt organizations, “Professional Football Leagues.”
The most recent 990 form (see the picture below) shows the NFL took in 1/3 of a BILLION dollars in revenue and had assets worth over 3/4 of a BILLION dollars. The NFL only made a “profit” of $9 million. The reason the “profit” was so low was that it gave its top two people over $70 million in pay for just one year! The commissioner (Roger Goodell) made $44 million in salary and bonuses, while Steve Bornstein the Vice President of Media took home $26 million.
For-profit companies are limited by the IRS tax code (Section 162(m)) to deduct only $1 million in pay per person for the CEO and the next four highest paid officers. This means that if the NFL was classified as a for-profit business their taxable profits would have been about $90 million instead of $9 million since much of their pay would not have been deductible. The average for-profit corporation in the US paid about 17% in federal, state and local taxes, which means the NFL’s non-profit designation cost US taxpayers over $15 million in just the most recent filing year.
The reason the tax code allows non-profits to exist is to help further charitable purposes such as aiding the poor; to help advance society by improving things like education; or to reduce the burden on the government by doing things that the government would or should have been doing, like creating parks or playgrounds. Non-profits are given their status to ensure extra incentives to do charitable works. What extra tax incentives does the NFL need to continue doing business? They have been the the most popular sport watched in the USA for 30 years.
I believe strongly in supporting non-profits. Having a tax code that encourages people to form associations that promote sports and exercise is a good idea. However, in my mind the NFL fits no rational criteria for being considered a non-profit. The NFL is clearly a for-profit organization no matter what their tax code designation. The tax code should be immediately changed to eliminate this gross inequity and loop hole. This weekend I will tune in to watch the latest NFL games, but I will be doing so with much less enthusiasm knowing the NFL is playing games not only with a football, but also with taxpayers’ money.