National Football League

This 'nonprofit' is anything but—and that may be the NFL's biggest problem

Will Duke, special to
The Buffalo Bills take on the Green Bay Packers at home. Last season, former Bills owner Ralph Wilson averted a blackout at the last minute by buying thousands of tickets himself.
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Pop quiz: What's the first thing that springs to mind when you hear the term "nonprofit"?

Most people associate the phrase with good will and philanthropy like feeding the poor, helping children, or fighting disease in far-flung countries. Yet it just so happens that one of the world's largest tax free organizations is in fact the National Football League—the most successful sports franchise on the planet.

A quirk in the law classifies the NFL as tax-exempt to earn nearly $10 billion in revenues each year, while its chief pulls in a $44 million annual salary. But as the league grapples with multiple public relations crises, some say that its status as a non-profit could in fact be the source of its woes.

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"We tend to assume that if you're not for profit you must be one of the good guys," said Gregg Easterbrook, an author and sports analyst. "But in many cases the for-profits are the good guys and the not-for-profits are the ones that are getting away with something."

Generally, nonprofits are far less regulated than the average private or publicly traded company. Experts say they are given the benefit of the doubt by regulators and the public alike, and tend to police themselves adequately.

Big organization, big money, big headaches

The vast majority of the 1.5 million nonprofits in the U.S. are dedicated to legitimate charitable activities. Yet recent history suggests that when tax-exempt organizations stack big money, big headaches can follow.

Before going public in 2005, the New York Stock Exchange was actually incorporated as a non-profit under New York State law—until a pay scandal forced its former chief from his post and drew widespread condemnation. More recently, former President Bill Clinton's global philanthropy has come under fire over its finances and management practices.

In 1966, the NFL cemented its tax-exempt status when it merged with the American Football League, benefiting from a clause that provides tax-exemption to "business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues."

So why is a profitable organization that is plagued by bad press given tax exemption in the first place? Ryan Rodenberg, an assistant professor of sports law analytics at Florida State University, suggests that the initial decision to grant the NFL's tax-exempt status likely had more to do with the NFL being good at lobbying than any causes it promoted.

Today, however, the NFL is grossing more income than ever before. February's Super Bowl was the most watched in U.S television history, drawing in more than 114 million viewers and vast sums in advertising dollars.

Despite this, the NFL still benefits from a 501(c)6 status that results in an estimated tax break of more than $10 million each year.

'Pure as the driven snow'? Nope

"In general we tend to assume that that if someone says, 'I'm a not-for-profit' they must be as pure as the driven snow," Easterbrook said. "But not-for-profit can often be a subterfuge for putting money in your pocket. Or…also be paying yourself amounts of money that congress never anticipated."

Amid outrage over the league's domestic abuse troubles and its massive coffers, Congress has floated proposals to strip the NFL of its tax-exempt status. Yet some experts suggest that the NFL's problems are partly because, in the eyes of the law and sports fans, it's considered a public organization.

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"Because the NFL's outsized popularity in the U.S., it has become a de facto public institution," said Ben Shields, a lecturer at MIT's Sloan School of Management, who co-authored "The Sports Strategist," a book examining the relationship between sports teams and local governments.

Being viewed on the same level as a charity or philanthropy "is a contributing factor" behind its problems, Shields said. Yet, "the more money it makes, the more scrutiny it receives and the ethical issues it faces are under a microscope."

Rep. Jason Chaffetz, a Utah Republican spearheading the charge to strip the NFL of its exemption, said his proposal has gained significant support.

'Professional sports organizations aren't fooling anybody. Organizations like the NFL and NHL are for-profit businesses making millions of dollars each year," Chaffetz said in a statement.

"These are not charities nor are they traditional trade organizations. They are for-profit businesses and should be taxed as such," he said. "Closing this loophole should be combined with closing several other loopholes in order to lower tax rates in a revenue-neutral manner.'"