Why The NFL Gave Up Its Tax-Exempt Status
The NFL recently announced that it will become a taxable entity, ending its long-standing and long-debated tax-exempt status. After facing many forms of crisis over the last few seasons, the NFL took a voluntary measure to end one that had been lingering for quite some time. In fact, Commissioner Roger Goodell said by changing the league’s tax status, the league would eliminate a “distraction.”
Although this changes the NFL in some capacity, the true ramifications are not all that severe. The NFL made the smart business decision for two main reasons:
Less Transparency, More Public Praise
When the league went through its most recent stretch of negative PR surrounding domestic violence, player safety and the Washington name debate, Roger Goodell’s enormous salary was one of the first points brought up. Last year, Goodell’s reported salary was $44 million, while the prior year was $30 million. Other league executives’ salaries also had to be disclosed as part of the league’s prior tax status. Now, as a private business, the league and its owners won’t have to defend Goodell’s competency or pay. Additionally, it is expected that the commissioner’s salary will continue to rise through the years. Now the NFL won’t have to make it public information.
Another perk to the NFL’s change is the uptick in public praise. While Congress appears to remain skeptical of the league’s intentions, public perception will most likely improve in this regard. In recent years, retired Senator Tom Coburn (R-OK) estimated is his that pro sports exemptions cost the American taxpayers $91 million a year. With the average American pining for any financial relief they can find, taking a portion of a sports league’s taxes off their books is certainly welcomed.
Beat the Government to the First Punch
Many in the public and private sector wondered how the NFL and other sports leagues even qualified for tax-exemption in the first place (1966’s AFL-NFL merger is the large reason). With so much pressure on the league for its handling of player safety and off the field transgressions, the NFL faced mounting pressure from Congress on both sides of the aisle. In recent years, Senator Coburn and Cory Booker (D-NJ) brought forth similar legislation to end the NFL and other sports league from benefitting from the current standard.
By following in Major League Baseball’s 2007 decision, only a few major sports leagues in America still operate as a 501 (c)(6)–leaving the NFL and LPGA as two of the remaining leagues. Additionally by dropping its status, the league will join the ranks of its players and teams that have paid taxes throughout the years. Additionally, the league is expected to only pay out $109 million in taxes over the next decade.
While this certainly avoids further congressional pressure on the subject, many on the hill probably won’t be satisfied enough. This may have taken the league out of the crosshairs on this subject, but many more remain–though it will be easier for the league to deal with under its new tax status.
By beating the government to the punch, the league took an appropriate step to cut down on negative PR while removing some transparency from the public. Essentially, nothing will change for the league besides its tax filing. Certainly, this won’t end the league’s woes but for now it does ensure one less “distraction” for the NFL and the famous shield.