Whenever there’s a big news story about taxes, an accountant smiles and an angel gets its wings.
The big news story of the week is that the NFL is dropping its tax exempt, 501(c)(6) status. That’s a touchdown for the taxpaying public, which has been so riled up over the NFL’s tax preferential treatment that a few people even went as far as to create a Change.org petition to ask for it.
Because if you haven’t typed an angry rant on the internet, you must not be serious.
As the petitioner’s author stated, “this doesn’t pass the basic fairness test” to have the NFL raking in so much money without handing a piece over to the government.
Now that Roger Goodell has dropped the tax-exempt status like it was Tim Tebow (and even less likely to bring it back as a fourth string player), how much money will the IRS add onto its income scoreboard?
What Is A 501(c)(6)
The part of the story that people seem to gloss over is what a 501(c)(6) actually means. When people hear “tax exempt,” most automatically think Goodwill or March of Dimes. Those are 501(c)(3) organizations, though, and fall under completely different rules.
501(c)(6) are trade organizations, like the American Institute of Certified Public Accountants, the Chamber of Commerce, or the slightly more controversial Cannabis Chamber of Commerce. These organizations subside almost exclusively on membership dues, and are intended to somehow make the people in their organization run their business better.
I really don’t see why these entities need to be tax exempt, but that’s besides the point. They are designed to be virtually revenue neutral (or “break even,” if you want to use the more familiar term). Most of the members of any organization would revolt if their trade organization was getting rich off their membership dues.
The NFL Is Worth BILLIONS
We see it all the time, and have likely contributed to it. Football makes bank. It is a very lucrative sport in the US, and if you can get a piece of that action, you’ll probably be doing pretty well for yourself.
In the US, Football means the National Football League. At least at the professional level. But here’s where people get confused. Just because Pro Football and the NFL are synonymous, it doesn’t mean that the actual organization called “The NFL” is making all the football money. The ad revenue, ticket sales, jerseys and hats and overpriced stadium hot dogs all bring in money, but they go to the individual clubs, NOT the NFL.
Virtually all the money the NFL receives is from the dues it charges to its members. That’s not to say that those are insubstantial amounts (still over $300 mil in total), but it’s not the billions upon billions that the individual teams rake in.
Get On With It!
I know I’ve been rambling about the background a bit, but I just wanted to lay the groundwork, build up anticipation a bit.
So let’s get down to it. How much did the NFL actually make? I created a nice little chart using the latest data I could find, all publicly available on the NFL’s 990.
See that blue line? That’s how much the NFL made in the past 4 years. Yes, it is negative, in the tens of millions, before 2012.
The red line is the amount of taxes the IRS received from the NFL. Since the NFL is tax exempt, it’s zero.
Okay, ready for the new chart that shows how much the NFL would have paid in taxes had it not been tax exempt during that time? Here we go:
Eagle Eye readers will probably note this is the same chart. Companies don’t pay taxes in loss years. Any losses are carried forward to offset future income until the losses are all absorbed.
While it is possible that the NFL will pay some taxes going forward (I can’t see everything going into the 990, so it might be treated differently if they filed a corporate income tax) chances are that it won’t be very much. Ever. That’s simply not how trade organizations work.
If they started making too much money, they’d just lower their dues until income and expense is closer to break even. No more taxes. Problem solved.
But My Righteous Anger!
Yeah, sorry about that.
If it makes you feel any better, the team clubs have been paying taxes for a really long time. Wait, no, that might make you feel worse, because you got all riled up about a non-issue.
Turns out Roger Goodell calling the Tax Exempt status a “distraction” was more than PR speak.
Maybe the moral of the story here is to assume that if you read a tax story on a typical news site, it’s probably wrong. Or at least only partially correct. The big news organizations kind of suck at taxes. Which probably explains why so many are having problems filing their own returns.