Superbowl weekend is upon us! Which team are you rooting for: the Patriots or the Seahawks? This weekend will be a refreshing change of pace for the National Football League (NFL) as it’s been dealing with a series of controversies this 2014-2015 season, the most recent being the Patriots’ deflated ball debacle—to which both Tom Brady and Bill Belichick vehemently deny any wrongdoing or participation in.
But outside of the football arena, there’s a bigger controversy brewing that can change the status of the NFL forever.
Currently, the NFL is classified as a non-profit but a few U.S. Senators and almost half a million people have signed a petition to strip the league of its tax-exempt status. Though the NFL has benefited from its tax-exempt status since 1966 when it merged with the American Football League (AFL), there has been recent outrage over Roger Goodell’s disclosed compensation, along with other issues that have raised a few eyebrows. The Commissioner of the NFL is estimated to have raked in $44.2 million in 2012. That’s nearly 14 percent of the league office’s revenue! To put this figure into perspective, Lawrence J. Ellison, the chief executive of Oracle, received $96.2 million the same year, while Michael T. Duke, the chief executive of Wal-Mart, received $20 million. This puts Goodell in the top-earning ranks among other CEOs of for-profit corporations. As we all know, the difference is Goodell works for a non-profit.
We’ve broken the arguments down: Team Non-Profit vs. Team Corporation. And we want YOU to decide! Which team are you on?
FIRST HALF: CLASSIFICATION
When most people hear the term “non-profit,” visions of the American Red Cross and the Salvation Army fill their minds. These are popular examples of what we usually consider as non-profits. These organizations are public charities, classified under the 501(c)3 tax code. The NFL, on the other hand, is a 501(c)6 non-profit, which applies to trade associations like the U.S. Chamber of Commerce (USCC) and the American Medical Association (AMA).
The IRS has actually carved out a specific section dedicated to the NFL itself so it’s pretty tough to fight against its non-profit classification. The subsection states that the league falls under “[b]usiness leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
But unlike most trade associations, the NFL limits the number of teams in their league. Currently, there are 32 teams. The AMA and USCC supports all professionals in their industry and advocates a collective interest for all members. Trade associations, by definition, are designed to accept anyone who meets basic requirements, whether it be having a medical degree or a business. But since the NFL is “exclusive,” many experts believe that the league should not benefit from the 501(c)6 classification.
HALFTIME SHOW: “COMMUNITY INTEREST”
It’s safe to say that the American public loves football. Like all non-profits, the NFL provides a “community interest.” The league office itself does not engage in any business activity. Instead, the business dealings are left up to the 32 teams, while the office acts as a trade association, or a referee of sorts, if you will. From establishing rules to hiring referees, the office manages the operations of the NFL organization.
Over at the Team Corporation camp, some people believe that the NFL hides behind this “community interest” guise, when in fact there is a clear commercial motivation in the league’s agenda. Many people believe that the NFL’s strategy is quite one-dimensional, simply promoting the NFL brand and its 32 teams—not for the good of the community.
SECOND HALF: TAXES
As Benjamin Franklin quite famously said, “In this world nothing can be said to be certain, except death and taxes.” This is absolutely true—that is unless you’re a non-profit. One of the biggest advantages of being a non-profit is its tax-exempt status. Since the league office is considered a non-profit trade association, it does not need to pay taxes. Instead, all the money-making is done by the for-profit teams that are taxed on the revenue they receive from television contracts and game tickets.
To further drive home the point, the IRS extensively audited the NFL league office in 2009. They concluded that it was in full compliance with the law and tax codes.
Though the NFL league office is considered a non-profit, the entire league as a whole is not. How does this work? Well, the NFL league is composed of the league office (the trade association) and 32 taxable for-profit teams. These subsidiaries make up the NFL league. It’s estimated that the entire NFL league profited nearly $9.5 billion, which includes sales from licensing, tickets, and merchandise. Much of that money is funneled back into the league office via membership dues and assessments. Current data shows that the NFL received over $326 million from their subsidiaries.
So what do you think? Should the NFL follow Major League Baseball’s lead and give up its tax-exempt status? Or should it keep its stance as a legitimate non-profit? Let us know in the comments below!