By Kevin Bogardus - 02/02/14 06:00 AM EST
Beyond Super Bowl Sunday, the National Football League (NFL) will have to protect the pocket — its own pocket — as lawmakers on Capitol Hill look to end the league’s tax-exempt status.
Professional sports leagues are written into the tax code as nonprofit organizations. Some, including the NFL, have taken advantage of that distinction to be classified as trade associations for tax purposes.
Rep. Jason Chaffetz (R-Utah) introduced legislation this week to end the NFL and other sports leagues’ nonprofit status. His bill mirrors legislation that Sen. Tom Coburn (R-Okla.) introduced this past September, saying “tax earmarks are essentially tax increases for everyone who doesn’t receive the benefit.”
Chaffetz hopes his measure can be attached to the sort of broader tax reform bill that Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), chairmen of their chambers' tax committees, have been working to fashion the last couple of years.
“Closing this loophole for professional sports leagues is one example of much needed tax reform in this country,” Chaffetz said in a statement. “My hope is that this legislation, combined with closing several other loopholes, will become part of a comprehensive tax reform bill that will lower the rates and broaden the base in a revenue-neutral manner.”
Pro football is pushing back against the legislation. Brian McCarthy, a NFL spokesman, said the league has met with lawmakers to discuss the tax exemption.
“Every dollar of income that is earned in the National Football League — from game tickets, television rights fees, jersey sales, and national sponsorships — is subject to tax. None of this income is shielded in a tax-exempt entity,” said Brian McCarthy, a NFL spokesman.
McCarthy noted that the confusion arises because there is one part of the NFL that is tax-exempt: the NFL League Office.
“The League Office is the administrative and organizational arm of the NFL and does things like write the rules of the game, hire referees, run the college draft, negotiate the collective bargaining agreement with the players, conduct player safety research and run youth football programs,” McCarthy said.
Tax forms for the NFL’s front office show that the league took in more than $254 million in dues from its teams in 2011 — still not enough to offset its operating loss.
The league’s executives, however, pulled in serious pay that year. NFL Commissioner Roger Goodell earned almost $29.5 million in total compensation, while Jeff Pash, the NFL’s executive vice president and general counsel, took in more than $8.8 million. Critics say the multi-million salaries show the NFL isn’t deserving of nonprofit status.
The sports leagues’ tax exemption can stretch into millions of dollars. In May, the Joint Committee on Taxation estimated that ending the leagues’ break would bring in $109 million to the government over the next decade.
“It's multi-billionaires owning multi-billion dollar franchises that are able to deduct $8 million that they pay this organization each year, which promotes their business and makes them wealthier,” said Michael Maragos, a research assistant at Taxpayers for Common Sense.
The move to end the exemption has caught the attention of other sports leagues. A Coburn aide said lobbyists for the NFL and the PGA Tour have met with the senator's aides in recent months to discuss Coburn's bill.
“This is an earmark that was given to a special group. Whether it's part of comprehensive tax reform or moves on its own, it just needs to go away,” said the aide. “Dr. Coburn just wants his bill to get passed.”
Others are joining in against the league.
On Thursday, SackNFLTaxBreaks.org launched to end the NFL’s exemption. The campaign is co-founded by Lynda Woolard, author of an online petition that garnered 300,000 signatures against the tax break, and Ryan Rudominer, a veteran of Democratic politics and now a principal of R2 Strategic Consulting.
Coburn also picked up a co-sponsor for his legislation this week with Sen. Angus King (I-Maine) signing on. The two sent a letter on Tuesday to their colleagues to whip up support. On Friday, King noted other sports leagues have given up the nonprofit label.
“Interestingly, Major League Baseball and the NBA basically have said, we don't want this, we don't need this, and we're not going to do it. So I may be the only guy in America who has to go to an NFL game under the witness protection program, but Tom Coburn and I think this is just ridiculous,” King said on MSNBC.
The league has held its nonprofit status for decades. When the NFL merged with the then-American Football League in 1966, Congress gave it antitrust exemptions and also said “professional football leagues” could have nonprofit status.
“The objection to the NFL having this exemption is that they are promoting a specific brand. They are not necessarily working broadly in the public interest,” said Philip Hackney, a LSU Law Center professor.
Jeremy Spector, outside tax counsel for the NFL, disagreed.
“It writes rules for the teams, it helps the teams with best practices, it negotiates with the teams' players. What you really have is a trade association for the professional football industry. What Sen. Coburn is saying is, I don't think the professional football industry should have a tax-exempt trade association,” said Spector, also a partner at Covington & Burling.
Legislation to end the tax break has not gained traction on Capitol Hill, which might be due to the NFL’s political clout.
The league spent more than $1 million on lobbying in 2013, according to disclosure records, with premier firms Covington, Elmendorf | Ryan, Gephardt Group, the Glover Park Group and John Dudinsky & Associates representing the league in Washington.
In addition, the NFL’s Gridiron-PAC contributed almost $649,000 to candidates for the 2010 cycle and then upped that sum to $804,000 for 2012, according to Federal Election Commission records.
NFL games are also a popular fundraising venue for lawmakers. The Sunlight Foundation has found roughly 30 fundraiser invitations since 2007 to FedEx Field — the home of the Washington Redskins.
“We certainly don’t get all the fundraising invitations so this is just a barometer that tells you how much fundraising is going on at the biggest venue in Beltway sports,” said Kathy Kiely, Sunlight’s managing editor.
In addition, Sunlight has found lawmakers love to gear their fundraising towards the Super Bowl, with more than a half-dozen events centered on the big game over the years. Rep. Donald Payne, Jr. (D-N.J.) has a “Super Bowl Weekend Kickoff Reception” at the Clubhouse in Montclair, N.J., this Friday, according to an invitation.
The NFL Players Association is keeping its distance from the fight for now.
George Atallah, a spokesman for the players’ union, said they are following the debate over the tax exemption but have not weighed in with lawmakers.
“At this stage, we are merely monitoring the situation closely,” Atallah said.
Bernie Becker contributed to this report, which was updated at 4:14 p.m.