The NFL is examining whether to drop its tax-exempt status for the league office, a standing that’s drawn the ire of a wide range of critics, from Congress to fans, who particularly over the past two weeks have called on the league to change its charitable structure.
The matter was discussed at the NFL owners meeting in May, sources said, and the talks are continuing.
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“It has been a topic of discussion for several years,” said NFL league spokesman Greg Aiello via email in response to questions about the current talk. He declined to provide further information.
The key logistical problem for the league in considering any change is that the structure of stadium bonds that flow through the league office would need to be altered if the office’s tax-exempt status changed.
The interest paid on all of the bonds the NFL sells to finance stadiums or to raise proceeds to lend to teams is taxable, said Frank Hawkins, a former NFL finance executive and co-founder of Scalar Media. So there’s no sudden tax hit to bondholders if the league changes its organizational structure.
If the NFL wishes to change, Hawkins said, more of an issue is that the league would need the consent of bondholders to alter the organizational structure and bylaws of the entity issuing the bonds.
The bondholders likely would ask the league to pay a fee plus legal costs of changing bond documents if they agree to the switch, Hawkins said.
He added that because current rates are so low, the league might well be able to refinance its outstanding debt and both reduce its debt payments and change its structure.
The discussion over the NFL’s tax-exempt status is not a new one. Hawkins, who left the NFL in 2008 after almost 15 years with the league, recalled the debate occurring as long ago as 1993.
But as the business of the NFL has grown, more attention has been paid publicly to the league’s finances. And with the NFL set to generate more than $11 billion leaguewide in revenue this year, the league’s standing as a tax-exempt organization has served as another attack point for critics in recent weeks.
“Why [does] a multibillion-dollar outfit get tax-exempt status?” MSNBC host Joe Scarborough asked on his morning show last week, echoing the frequently stated refrain. “They are not paying taxes.”
That characterization, however, overlooks the point that all 32 of the league’s clubs pay taxes. It’s only the league office, which is funded by the clubs, that is structured as a tax-exempt group. It’s a structure that’s similar to a trade association for oil companies: The oil companies pay taxes; the trade association does not. So for the NFL, it wouldn’t be a case of the league paying taxes as an $11 billion operation, because much of that revenue flows through the teams and is taxed accordingly. The league would have to pay taxes on the money that flows to the NFL offices, but that’s a far lower amount, so any financial effect of a change would be relatively minimal.
For the year ended March 31, 2013, the league office reported revenue of $326 million and a surplus of $9 million.
Still, that has not stopped a cacophony of politicians, led by Sen. Tom Coburn (R-Okla.), from pushing legislation to strip the NFL of its tax-exempt status. There is even a fan group, SackNFLtaxbreaks.org dedicated to changing the league’s tax status.
There’s a side note to what would happen if the NFL were to change its filing status. If the NFL were to drop its tax-exempt status, that would mean it no longer would be required to publicly file its tax document, as it is now — and that means the compensation information for the league’s top officials (including the $44.2 million compensation for Commissioner Roger Goodell reported in the most recent annual period) would not have to be disclosed.
MLB changed its tax status from tax-exempt to taxable in the late 2000s, largely in response to publication of Commissioner Bud Selig’s compensation. MLB insiders have said the financial effect of the switch has been minimal.
