Football season is just around the corner. In case you missed it, the National Football League (NFL) announced earlier this year it decided to voluntarily end its tax-exempt status. Why did the NFL do this and what does it mean?
Discussion of the NFL ending its tax-exempt status raises a good question: how is a high-revenue entity, such as the NFL, able to be tax-exempt in the first place? Under Internal Revenue Code section 501(c)(6), professional football leagues can be organized as tax-exempt entities known as “business leagues.” The 501(c)(6) exemption is typically used for organizations that have a common business interest, such as a chamber of commerce or real estate board. These entities are granted tax-exempt status because they work to promote their industries, not individual persons or businesses.
To be clear, only the NFL itself was tax-exempt; the 32 teams are separately organized and will continue to pay taxes on their income. The league as a whole, including the individual teams, had $10 billion in revenue, and almost $1 billion in profits in 2013. Of that, the head office (the tax-exempt entity) reported revenues around $330 million in 2013. All in all, it is estimated that the NFL was saving around $10 million a year by being tax-exempt. All things considered, $10 million isn't very significant for a $10 billion organization.
So why would the NFL give up its tax-exempt status? One big reason was likely public relations. If you have followed professional football the past few years, you have seen issue after issue for the NFL. In the 2014-2015 football season alone, the NFL’s public image was tarnished with player safety concerns (concussions in particular), domestic abuse charges, and investigations into alleged cheating. The last thing the NFL needed was continued scrutiny of its tax situation.
Another good reason is privacy for the league's financial situation. By giving up its 501(c)(6) tax-exempt status, the NFL will no longer have to publicly report financial information, including employee salaries. This is good news for the league’s highly-criticized commissioner, Roger Goodell, who reportedly received a salary of $44 million in 2013.
It remains to be seen if the decision to give up its tax-exempt status will improve the NFL’s public relations. From a tax standpoint, however, little will change for the nation’s most popular sports league. Since the announcement in April, little has been said about the NFL’s tax status. The publicity may already be over.