Why is the NFL a nonprofit?

Roger Goodell, May 2014. (Photo by Zennie Abraham / flickr)

A list of America’s best compensated CEOs, as you might imagine, includes a dream team of industry titans. According to Equilar, which collects data on executive salaries, Oracle’s Larry Ellison pulled in $96.2 million of total compensation in 2012; he’s followed by other bold-faced business names like Robert Iger of Walt Disney ($37.1 million), Rupert Murdoch of 21st Century Fox ($22.4 million), and Alan Mulally of Ford ($21 million).
Another member of that salary stratosphere is Roger Goodell, the commissioner of the National Football League, who earned $44.2 million in total compensation in 2012.
The difference between Goodell and the rest, though, is that he runs a nonprofit. That’s right—the National Football League is, in the eyes of the Internal Revenue Service, a nonprofit.
That tax-exempt status has never been more in danger, due to rising political and public anger at recent NFL scandals, including the Ray Rice domestic abuse case, the Adrian Peterson child abuse case, and the Washington Redskins’ refusal to change their name and mascot.
In Southwestern Pennsylvania, the Pittsburgh Steelers have received their own self-inflicted black eyes: Following allegations of sexual abuse in 2010, quarterback Ben Roethlisberger served a four-game suspension, while recently re-signed linebacker James Harrison was arrested on domestic abuse in 2008 (those charges were later dropped).
Over the past year, three U.S. Senators have proposed bills to strip the NFL of its tax exemption, while more than 400,000 people have signed a Change.org petition urging Congress to act.
“We are subsidizing this institution that has been so incredibly obtuse about the issues of sexual violence,” says Lawrence Lessig, the director of the Edmond J. Safra Center for Ethics at Harvard University and the founder of Rootstrikers, a grassroots advocacy group that has campaigned against the exemption. “The American public obviously likes sports and football, but when you’re in a clearly commercial context, when an enormous amount of money is being made, the idea that you would be subsidizing it is craziness.”
A convenient loophole
To be clear: The entire NFL is not a nonprofit. Like many modern corporations, what we think of as “The NFL” is an entity composed of various subsidies, including the for-profit NFL Network (the cable and satellite network owned by the league), as well as 32 separate teams. In 2012, “The NFL” netted $9.5 billion in revenue through TV licensing, ticket sales and merchandise; the vast majority of that money is funneled through the league’s teams. The teams are subsequently responsible for paying “dues” to the league’s office, which manages rules, oversees referees and conducts “player safety research.” The league office received $326 million in dues in 2012, the most recent year for which such data is available. Only the league office, run by Goodell, is considered a nonprofit.
Unlike public charities such the American Red Cross and the Salvation Army, which are considered 501(c)(3) nonprofits, the NFL is a 501(c)(6) organization, a segment of the tax code that applies to trade associations such as the American Medical Association and the U.S. Chamber of Commerce and was created in 1942. These groups are afforded nonprofit status to support the “common interest” of the members of a particular industry. The AMA, for example, supports doctors across the country; the chamber advances collective business interests. Membership is supposed to be open to anyone who can meet some basic requirement, be it a medical degree or a real estate license.
Given that the NFL “trade association” is limited to just 32 teams, several experts told PublicSource that the league shouldn’t be considered a 501(c)(6) organization. Philip Hackney, an associate professor at the Law Center at Louisiana State University and a former attorney in the IRS’s department of tax-exempt government entities, points to the seemingly similar situation in the 1979 U.S. Supreme Court decision in National Muffler Dealers Assn. Inc. vs. United States. Muffler chain Midas tried to form a trade association of Midas dealers around the country to take advantage of the nonprofit tax breaks at the national office. The IRS denied the request, as did the Supreme Court, ruling that the association’s focus — which was to promote Midas — was far too narrow.
“In my mind, the NFL doesn’t fit very well [into 501(c)(6) status]” Hackney says. “They do some good things with charity, but the majority of what they do is promote the brand of the NFL and the 32 teams.”
Goodell’s salary also seems to fail the IRS requirement that no nonprofit exists to benefit  a certain individual. With his $44.2 million in compensation in 2012, Goodell took home a whopping 14 percent of the league office’s total revenue. Other top earners were executive vice president and general counsel Jeff Pash ($7.9 million) and executive vice president of business ventures Eric Grubman ($4.2 million); three others received compensation packages higher than $1.7 million.
Even among the other nonprofit leagues, the staggering NFL salaries stand out. For the sake of comparison, both National Hockey League Commissioner Gary Bettman and Professional Golf Association Tour commissioner Timothy Finchem each made $8.3 million. While the NBA has always been a nonprofit, Major League Baseball gave up its tax-exempt status in 2008 — in part, some reports say, to avoid revealing information about high salaries to the public.
When PublicSource reached out to the Pittsburgh Steelers for a comment on the league’s tax status, they referred us to the NFL’s league office. Brian McCarthy, the NFL’s vice president of communications, directed us to a 2013 U.S. News article written by Jeremy Spector, the league’s outside tax counsel. In the piece, Spector points out that in 2009, the IRS confirmed the league’s tax-exempt status, but fails to discuss either the NFL’s “common interest” as a trade association, or Goodell’s high salary.
“Ask yourself, why would a nonprofit anywhere — the whole purpose of a nonprofit is to help people — pay a CEO $44 million a year?” says Sen. Tom Coburn (R-Okla.), a critic of the NFL tax breaks. “That tells you’re not a nonprofit right there.”
Time for a change?


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