Today, Commissioner Roger Goodell announced that the National Football League is giving up its tax-exempt status, calling the debate over the finer points of its finances a “distraction.”
The announcement comes after years of politicians threatening to revoke the NFL’s nonprofit designation. Democratic Senator Maria Cantwell tried to repeal it in retaliation for the NFL’s refusal to force the Washington football team to change its racist horror show of a name. Senator Cory Booker wanted to use the IRS to ding it for its domestic-violence problem. It’s a bipartisan issue, too: Former Senator Tom Coburn and current Representative Jason Chaffetz both have argued that the NFL benefits from what amounts to an earmark, an earmark that Congress should do away with.
It makes you wonder why the NFL — a group composed of billionaire corporations, run for the benefit of billionaire corporations, staffed by millionaires, and wholly dedicated to making giant barge-loads of money — counted as a nonprofit in the first place. Goodell, for the record, made $35 million in 2013. The head of the Gates Foundation took home less than a million.
Not to get too deep into the arcana of our nation’s tax code, but the shortest answer is: Because Congress said so. The football league has been classified as a nonprofit since the 1940s and “specifically described” as a nonprofit since the mid-1960s, falling under the 501(c)(6) designation also adopted by trade associations, real-estate boards, and chambers of commerce.
That does not mean that the entities that make up the NFL do not pay tax, granted. “Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there,” Goodell wrote in a letter to team owners and members of Congress today, as reported by Bloomberg. “This will remain the case even when the league office and Management Council file returns as taxable entities, and the change in filing status will make no material difference to our business.”
He’s right: This won’t be a big financial hit to the NFL or a big boon to the Treasury. It’s not even clear that the NFL would have owed anything in taxes in the past few years. When in office, Coburn estimated that reclassifying the NFL and the National Hockey League, the other major sports league organized as a 501(c)(6), would generate a piddling $91 million a year in revenue.
But it doesn’t mean that it’s not good policy. The 501(c)(6) designation is a wholly unnecessary wrinkle in the tax code. There is no good reason that chess leagues and chambers of commerce should be generating profits to tax. And there is no good reason that they should not have to pay taxes in the case that they do generate profits. (I’m looking at you, the PGA and LPGA!) The same goes for 501(c)(4)s — “social welfare organizations” such as the Tea Party Patriots.
There are a few downsides, though. One is that the organization and its finances will become far more opaque, given that private, for-profit companies do not have the same public-disclosure requirements that nonprofits do. And what other unrelated policy cudgel will politicians looking to make a headline reach for when the NFL does something they don’t like?