Originally Published: October 8, 2014 6 a.m.
If you've ever wondered why references to "Congress" are oftentimes preceded by the words, "do-nothing," read on.
In the wake of repeated reports of domestic violence committed by NFL players, New Jersey Senator Cory Booker introduced a bill designed to repeal the league's tax-exempt status. As if that move doesn't embarrass him enough, Booker included nine other professional sports leagues in his bill. Days later, three of Booker's senatorial colleagues, no doubt as publicity starved as he is, introduced a second bill to scrap the NFL's tax-exempt status because of the continued refusal of the Washington Redskins to change their name.
Senator Harry Reid (D-NV), one of the supporters of the bill targeting the Redskins, said, "It is not right that the National Football League continues to denigrate an entire population." What Reid conveniently chooses to ignore is that throughout this country's history no entity has abused Native Americans more than the federal government.
The bills were introduced after members of Congress had fled Washington in order to campaign for the November elections. A cynic might suggest that a responsible Congress would have remained in session to address more important issues than the NFL's tax exempt status, perhaps a vote to support the war against ISIL or an effort designed to eradicate Ebola. But of course, using the word "responsible" in the same sentence with Congress is an oxymoron.
Neither bill is likely to become law. Congress' do-nothing reputation is well-earned, in part because legislators rarely agree on anything. On the other hand, Congress does have a "bully pulpit" which it used effectively against Major League Baseball in 2005 by holding hearings on the use of PEDs in baseball. Legislators threatened to eliminate the sport's anti-trust exemption, a threat that led to the adoption of increased penalties on steroid violators.
Sports leagues are famously - and rightfully - concerned about their public image. Image and the unquenchable thirst for higher revenues are the only two things that motivate them. Leagues and individual teams receive public funding for facilities and infrastructure. They also enjoy assorted tax benefits, which are dependent on the support of legislative bodies. That means whether Congress is grandstanding or not, you can rest assured that the bills have caught the attention of the NFL.
If you're curious about whether passage of either bill would have any adverse effect on the NFL, the short answer is very little. The league is incorporated as a 501(c)(6) entity for the purpose of scheduling games, making and enforcing rules, and administering the business of professional football. Although the NFL is not organized to make a profit, unlike a 501(c)(3) organization, it is not required by law to be a charitable organization.
The NFL's receipts are derived mainly from membership dues - approximately $6 million per year - paid by each of its 32 teams. Those funds are used primarily to pay the exorbitant salaries of league executives - Commissioner Roger Goodell earned $44 million last year - and other administrative expenses, including rent on a swanky office on Park Avenue in New York City.
The nearly $10 billion generated by the NFL last year was funneled through four subsidiaries that, unlike the league itself, are for profit entities. However, the subsidiaries are merely conduits, distributing the lion's share of their media, licensing and sponsorship revenue to the individual teams, only one of which, the publicly owned Green Bay Packers, is organized as a non-profit. The other 31 teams are all subject to income taxes.
Based on an examination of public documents, the NFL had a slight excess of receipts over disbursements in 2012, but paid out substantially more than it took in during the two preceding years. If the NFL had been a for profit entity in 2012, it still could have avoided paying income taxes by consolidating 2012's return with prior years'. The net effect: No tax consequence. However, not all of the other nine sports leagues targeted by Booker could be as fortunate. Leagues that generate revenue by organizing tournaments rather than through membership dues, for example, the PGA and the USTA, potentially have more at stake than the NFL.
While Congress may have a role in addressing the scourge of domestic violence, in this instance it's doing what it so often does: Nothing.
Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is a Professor in the Sport Management Department at SUNY Cortland and maintains the blog http://sportsbeyondthelines.com. Jordan can be reached at email@example.com.