Congress Should Tackle NFL's Tax-Exempt Status

PORTLAND, Ore. (TheStreet) -- We can only assume that, at some point in the not-so-distant future, Congress will restart the government it shut down and get back to something resembling work.

When that happens, Republican Sen. Tom Coburn of Oklahoma is going to continue his lonely quest to make sports leagues with revenues in excess of $10 million pay taxes. That includes the National Hockey League, Professional Golfers Association, Association of Tennis Professionals Tour, Women's Tennis Association Tour, U.S. Tennis Association, National Hot Rod Association and the Professional Rodeo Cowboys Association - all of which exist as tax-exempt organizations under Section 501(c) of the Internal Revenue Code.

However, it's the organization written right into that section's language that would be the big catch of Coburn's revenue fishing trip: "501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual."

The football league in question is the National Football League and its reported $9.5 billion in revenue from 2012. That exemption makes it possible to take a look at comissioner Roger Goodell's $30 million salary, but also makes it very clear just how difficult it is to keep tabs on the cash coming into the league and how it is being disbursed to teams.

That fact isn't lost on Lynda Wooldard, a fan from New Orleans who put together a Change.org petition asking Congress to strip the NFL of its tax-exempt status. More than 210,000 people have signed on.

However, Forbes columnist Peter Reilly argues that the NFL's non-profit tax exemption only allows it to operate as a revenue clearhinghouse for its 32 teams and nothing more. He even argues that what keeps the NFL separate from for-profits including Major League Baseball (which gave up its tax-exempt status in 2007) and the National Basketball Association is its "quasi-religious status," tacitly suggesting that it may be worthy of a religious exemption.

Coburn, naturally, finds this ludicrous.

"Tax earmarks are essentially tax increases for everyone who doesn't receive the benefit," he says in a statement. "In this case, working Americans are paying artificially high rates in order to subsidize special breaks for sports leagues. This is hardly fair."

Under the league's current revenue structure, its $9.5 billion in revenue generated apart from losses would hypothetically generate more than $3.3 billion in tax revenue if taxed at the 35% corporate rate. While Coburn isn't so sure that's what the government would get -- his estimate is more along the lines of $91 million annually for all tax-exempt sports -- any amount the government could get from the NFL would be a huge step toward paying back a significant public investment.

NFL games more than doubled the prime-time viewership of Fox, ABC, CBS and NBC, Digital First Media said. Fox ( FOXA), CBS ( CBS) and Comcast's ( CMCSA) NBC agreed to pay the NFL $28 billion for broadcast rights through 2022. Walt Disney's ( DIS) ESPN has a separate $1.9 billion annual deal for Monday night football, while DirecTV ( DTV) has a $1 billion per season agreement for the NFL Sunday Ticket package that is set to become even more lucrative once the current contract expires in 2015. Its television revenue is slated to rise from an average of $4 billion a year to $5 billion annually as new contracts kick in. The networks are more than happy to pay, given that 31 of the 32 most-watched television shows in the fall of 2012 were NFL games.

Still, that didn't stop the NFL from blacking out 15 games 2012. That's down from 16 last year and 26 in 2010, but is still impressive, given the NFL tweaked its blackout policy this summer. Under the old rule, which dates back to an act of Congress in 1961, home games couldn't be shown on TV stations that broadcast within a 75-mile radius of the stadium if non-premium tickets weren't completely sold out 72 hours before kickoff. The revised policy allow teams to declare a sellout and keep games on the air once ticket sales hit 85% of their home stadium's capacity.

Even switching up the games it offers on publicly owned airwaves might be just fine if the games it was taking off the air weren't being played in stadiums paid for with public money. A full 30 of the NFL's 31 stadiums have had a portion of their costs paid for with tax dollars. It cost an average of $525 million to cover each of 20 NFL stadiums built since 1997, according to a Minnesota study looking into the likely costs of a new stadium for the Vikings. That study says 56% of those stadium costs -- or roughly $238 million per stadium were paid for with public funds.

That's nearly $4.8 billion in tax dollars spent on NFL stadiums alone, but economists estimate that continued costs including maintenance, infrastructure and renovations dip into more tax money and force the public to pay upward of 70% of a stadium's cost.

In Tampa, taxes paid for 100% of the $194 million cost of building Raymond James Stadium, which opened in 1998. Since then, fans watching at home have missed 19 out of 24 home games in the last three seasons thanks to blackouts. Only team intervention prevented further blackouts this season.

That's drawn the ire of not only Coburn, but Republican senator and former presidential nominee John McCain. The Arizona senator introduced legislation in May that would prevent the NFL from blacking out home games played in stadiums built with public money.

That amount of public money used isn't going down as new stadiums go up, either. At least $115 million in public funds are going into the new San Francisco 49ers facility, Levi's Stadium, opening in Santa Clara next year. Minnesota is currently on the hook for about $500 million of the proposed $974 million Vikings stadium planned for 2016, though that's still being negotiated. In Atlanta, where the Falcons' Georgia Dome is a scant 21 years old, Atlanta has already pledged $200 million toward a proposed $1 billion stadium.

Meanwhile, the NFL is playing two games in London this year and has committed to several games there in the future -- with most involving the small-market Jacksonville Jaguars. In Buffalo, in an attempt to "regionalize" yet another small-market team, the Bills have sacrificed a "home" game to Toronto each season since 2008 and will continue to do so through 2017. The Bills are 1-4 in those regular-season matchups.

If the Green Bay Packers' public ownership agreement wasn't grandfathered in, that team would likely be in the same situation. Instead, the public earnings disclosures it releases every year are an NFL anomaly and the only window into how much money NFL teams take in and how they might balance their books.

Maybe all of the above aren't included in Coburn's argument for stripping the NFL's tax exemption, but they should be. The public has invested a considerable amount of trust in the NFL. For its investment, it's seen only diminishing returns in the taxpayer-funded stadiums, privatized television broadcasts from those stadiums that enrich only team owners, communities held hostage by said owners when they don't get the shiny toys they want, a commissioner who gets paid $30 million a year to be those owners' yes man, a tax exemption that rakes even more money into owners hands and antitrust exemptions dating back to the 1960s that protect it all.

For a Congress that's ostensibly riled up over issues of taxation and payments, allowing the NFL to skirt tax obligations that other sports leagues pay willingly seems counter to calls for fiscal prudence. Maybe Senator Coburn can address that discrepancy, if he and his colleagues ever see fit to get back to work.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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