What generates $10 billion annually, is followed by 64% of Americans, is subsidized by your taxes, pays its chief executive $30 million per year, and is a tax-exempted non-profit organization? If you guessed the NFL, then you must be ready for some football!
It’s true, the world’s most profitable sports league is also a tax-free entity. More shockingly, however, is that the American taxpayer provides 70% of capital costs for increasingly lavish, billion-dollar stadiums.
What witchcraft has the public funding insanely profitable companies owned by billionaires? First, a quick history lesson on how the NFL came to be a financial juggernaut. In 1966, Congress did two things: It enacted Public Law 89-800, a statute granting the NFL a monopoly regarding broadcasting rights; and it amended Internal Revenue Service Code, Section 501(c)(6) to include “professional football leagues” in its definition of not-for-profit organizations. As such, the NFL is exempt from having to pay federal taxes.
While this sounds like the work of a lobbyist going Beast Mode, the legislation wasn’t a big deal 47 years ago. In fact, the NFL had already been classified as a non-profit organization as early as 1942. It’s just that that status only became codified in 1966.
Litigator Andrew Delaney has alleged that the NFL uses its non-profit status to launder money. As a trade association that promotes the interests of its 32 for-profit franchises, the NFL sells lucrative licenses for such things as apparel and television contracts through for-profit business such as NFL Enterprises, LLC. The individually-owned franchises receive compensation and, in turn, make annual “dues and assessments” to the NFL, all of which is tax-deductible. The money just goes around in a circle.
Such practices have led Delaney to call the NFL a “glorified tax shelter.” Gregg Easterbrook argues in The Atlantic that the decision to add professional football leagues under Section 501(c)(6) “has saved the NFL uncounted millions in tax obligations, which means that ordinary people must pay higher taxes, public spending must decline, or the national debt must increase to make up for the shortfall.”
The NFL has defended itself by contending that its 32 franchise teams and their players pay federal income taxes. In response to criticism over its tax-exempt status, spokesman Brian McCarthy told USA Today, “Every dollar of income generated in the NFL such as tickets, TV rights fees, merchandise sales, etc. is subject to federal income tax.”
More important to the NFL business strategy, however, is the big-time television contracts. At the time Public Law 89-800 granted the NFL a monopoly on its broadcasting rights, cable television did not begin to approach the immense revenue it generates today. ESPN and the NFL Network did not exist; it was regional channels that were important. Thus, in 1966 the NFL received antitrust-exempt media rights with little to no opposition. Now those rights are worth billions of dollars annually.
What makes these contracts so profitable, however, is the relatively low overhead costs. Thanks to John Q. Taxpayer, team owners receive the lion’s share of those contracts while only making a minimal contribution, if any, to the stadium the game is being played in.
Thus, the dirty secret behind why professional football is so profitable is because most stadiums are publicly funded. Teams pay a modest rent to perform in their stadiums, but they retain the exclusive right to air those games on televisions. Those rights are then pooled among the 32 teams and sold to the highest bidder.
As the ink dries on the NFL’s highly-lucrative broadcasting contracts, states facing major budget cuts continue to throw taxpayer money at NFL teams. Annually, “NFL stadium subsidies and tax favors add up to perhaps $1 billion.” In addition to these taxpayer contributions, “many cities, counties, and states also pay the stadiums’ ongoing costs, by providing power, sewer services, other infrastructure, and stadium improvements.” Essentially, franchise owners are having their product bankrolled by the public.
Scott Herhold of the San Jose Mercury News has attempted to rationalize the high price taxpayers must make for a local NFL team. For Herhold, “It’s about the intangibles of identity and pride, which are far harder to value.” While such a sentiment has its merits, many states are heavily slashing public services to offset deficits and cannot afford to subsidize a professional football stadium.
In order for there to be a meaningful change, two changes need to be made. First, Section 501(c)(6) is amended to no longer include the “professional football leagues” language. Until the NFL is more transparent with its finances, it does not deserve its tax-exempt benefits from being a non-profit organization.
Second, Congress must enact legislation prohibiting the privatization of television images performed in publicly funded stadiums. Only with the threat of losing their television contracts worth several billion dollars will the NFL be inclined to privately finance their own stadiums. Such a drastic measure would prevent the public from being gouged for the construction and maintenance of stadiums that serve as the playground for the uber rich.
Personally, it would be preferable to see my tax dollars go toward adequate public services than to NFL teams that are, on average, worth $1.17 billion.