When Alabama beat Georgia for the national championship it put an end to the 2017 college football season, what will continue is the tax dodge engaged in by college sports programs around the country.
Historically, college sports were viewed as merely ancillary to the educational purpose of universities. The concept was akin to the U.S. Supreme Court’s decision in 1922 that granted MLB an antitrust exemption because, according to the Justices, baseball wasn’t “a business.” Both decisions may have made sense decades ago when revenues were generated primarily from ticket sales, but they seem absurd today. NCAA Division I sports programs generate an estimated $8 billion a year and tickets represent only a fraction of that total. That’s more income than the NHL and the NBA – approximately $4.5 billion and $6 billion, respectively - generate.
And like their “professional” counterparts, college sports programs and conferences receive the lion’s share of their revenue from television contracts and corporate sponsorships, for which they sometimes compete with professional teams and leagues. But unlike professional sports teams, college programs are entirely tax exempt, thanks to intense lobbying by colleges and universities. Even in instances when the IRS has sought to tax what are clearly revenue streams wholly unrelated to the educational mission, Congress has stepped in to “protect” that revenue.
Education is the magic word that allows our nation’s universities to shelter their billions of dollars of revenue. Universities are nonprofit entities that have designated “student-athletes” to be “amateurs” who are engaged in “extra- curricular” activities, not unlike members of the debate team or marching band.
That fallacy, fabricated and perpetuated by the NCAA, has allowed its member institutions to escape a myriad of laws related to employment and antitrust in addition to the nation’s tax laws.
Even the most recent changes to the tax code substantially spared colleges and universities. Two provisions in the new law do target college sports programs – an excise tax on the salaries of university employees whose salaries exceed $1 million, and the partial elimination of a deduction for booster donations tied to ticket purchases. More than 85 of the nation’s Division I football coaches earn more than $1 million annually, topped by Jim Harbaugh’s $11 million.
Neither new proposal will generate much revenue for the federal government nor will it derail the college sports revenue juggernaut. It could have been worse. Two additional proposals failed to survive the House-Senate negotiations and ticket revenue, corporate sponsorships and television revenues remain tax exempt.
Most of the revenue generated by college sports programs is retained internally and used to fuel the voracious appetite of the athletic teams, mostly football and men’s basketball. It should be pointed out that some of the highest grossing programs – including Alabama and Ohio State, which generate in excess of $200 million annually – do contribute a portion of their spoils to academics. But they’re the exception, not the rule.
Exempting college sports programs from taxes is a dodge that has gone on long enough. It’s high time they paid the tax man.
Jordan Kobritz is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com. The opinions contained in this column are the author’s. Jordan can be reached at email@example.com.