NFL voluntarily gives up tax-exempt status: What's the difference?

On Tuesday, the National Football League announced it will voluntarily give up its nonprofit status. How does this change the operation of the multibillion dollar sports league?

Michael Conroy/AP/File
New England Patriots quarterback Tom Brady celebrates after the NFL Super Bowl XLIX football game.

The National Football League announced Tuesday that it will voluntarily give up its nonprofit status, removing its eligibility for tax exemptions.

While its nonprofit status was confusing to most Americans, as it's a multibillion dollar commercial enterprise, the change will actually bring about multiple benefits to the league.

Commissioner Roger Goodell said the NFL has held tax-exempt status since 1942. He called the status a “distraction,” saying it misled the public to believe the league does not pay taxes. All 32 teams already pay taxes on their income, so the change will not alter the operation or function of the NFL.

“As you know, the effects of the tax-exempt status of the league office have been mischaracterized repeatedly in recent years,” Goodell said, as reported by the Associated Press. “The fact is that the business of the NFL has never been tax exempt.”

So if the league was already paying taxes, what changes?

One of the requirements of the league’s previous status as a 501(c)(6) tax-exempt organization is the league was required to file an IRS 990 form, which lists the compensation for the organization’s highest paid employees. By giving up this status, the league will no longer be required to make employee compensation public.

Since the teams themselves were not tax exempt, the taxes that will come from the organization are smaller than the billions brought in by the entire NFL. According to the Washington Post, the NFL executive offices will now need to pay taxes. In 2013, their income totaled $327 million. Bloomberg estimated their total taxes will add up to $109 million over the next decade. Not bad for an industry that makes nearly $10 billion in revenue annually.

On the other hand, the public will no longer know the details of executive salaries, such as whether or not Mr. Goodell’s salary caps at the $44 million he made in 2012 or will continue to climb. At least six other executives have salaries in the seven-figure range, and about 300 others make six figures.

“The NFL just probably realized it didn’t have much to give up and they’re gaining the ability to not reveal salary information,” Michael McCann, a professor at the University of New Hampshire who specializes in sports law, told Bloomberg.

Recently, the NFL has faced public relation problems such as domestic violence charges, ex-players convicted of murder, and other allegations. Congress has also pushed for change and reform in the industry. Bloomberg reported that Rep. Jason Chaffetz (R) of Utah and Democratic Rep. Elijah Cummings of Maryland released a joint statement following the NFL’s announcement:

It is rewarding to see such an important and positive step toward restoring basic fairness … We hope other professional sports organizations in similar situations will follow the positive example set by the NFL, and we look forward to rightfully returning millions of dollars to the federal treasury as a result.

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