Why the NFL Decided to Start Paying Taxes

The league shed its nonprofit status, giving the public one less thing to criticize.

Roger Goodell, the commissioner of the National Football League, sips water at a press conference (Carlo Allegri / Reuters)

Which of these things is not like the other?

  • Business leagues
  • Chambers of commerce
  • Real estate boards
  • Boards of trade
  • Professional football leagues

Those are the five kinds of organizations that the IRS says can qualify as a 501(c)(6) nonprofit. The only American professional football league that might have a hope of meeting that requirement, the National Football League, secured that particular tax-exempt status back in the mid-60s, when there was actually more than one professional football league. (The NFL merged with the American Football League in 1966.)

On Tuesday, in an announcement that was mostly symbolic, the league said it'd be relinquishing its 501(c)(6) status. The change will have mild repercussions for the organization's finances, but really, it'll just get detractors to finally stop complaining about its nonprofit status. Tax exemptions exist to prop up organizations, like hospitals or symphonies, that the market might not sustain. The NFL, though, hardly needs such propping up: Its 32 teams brought in about $10 billion in 2013.

This perceived injustice has fueled complaints, from leaders and the masses alike: Jason Chaffetz, a congressman from Utah, has been hounding the league about its tax exemptions, and about 430,000 people have signed a Change.org petition pleading for the league to start paying taxes. But those outraged by the league's exemptions were focusing on an unrepresentative sliver of the league's revenues—the majority of that $10 billion was taxed, since it came in through the teams, none of which is a 501(c)(6). The league, which oversees those teams and is tax-exempt, itself brought in $326 million in 2012. Without 501(c)(6) status, the NFL will probably pay between $10 million and $15 million in taxes each year.

From that perspective, Tuesday's announcement, while a step in the direction of fairness, is fairly inconsequential in the greater scheme of American sports, and even American finances. The biggest difference it'll make is to the public's perception of the NFL; it gives people one fewer thing, on top of concussion settlements and domestic-abuse scandals, to get worked up about. "When you're wildly profitable and you're making money hand over fist, you want to ensure people have as positive an attitude towards you as possible," says Jay Zagorsky, a professor of operations and technology management at Boston University. "It was so egregious, and they're not going to lose that much from it. Whatever the amount they pay in tax compared to the profits for the year is so small they might as well take that hit."

One nugget seized upon as a sign of unfairness is the salary of the league's commissioner, Roger Goodell. It was $35 million in 2013, which placed him among the ranks of America's most highly paid executives. Without its 501(c)(6) status, the league will no longer have to disclose Goodell's salary—not a huge loss, because the public already has a decent sense of what it is, and his future earnings might come to light anyway.

Ultimately, Tuesday's announcement doesn't rectify any major injustices or create any new ones. Yet the bulk of the NFL's relationship to the American taxpayer remains troubling: Each year, a 2013 Atlantic article reported, stadium subsidies and other tax favors total about $1 billion. About two-thirds of the costs of building stadiums are covered by taxpayers, and some teams have even turned a profit by taking in more in subsidies than they spent on stadiums. NFL owners then reap the profits generated in those stadiums in the form of ticket sales and the licensing of game footage. That system might be a better candidate for public outrage than the $10 million the league hasn't been paying in taxes.

Why are Americans OK with that? "People say, 'Why would you exempt one particular industry from antitrust laws?' Because we did. We're constantly doing it," says Dave Berri, a sports economist at Southern Utah University. He noted that this sports-first mentality exists at all levels: The state of Utah recently allocated $1.5 million toward the sports programs at Utah State University, for example.* "'Why would you take tax dollars and funnel them directly to athletics on … college campuses?' Because we can. Why shouldn't we? We like sports. We're going to pay for it."

* This article originally stated that the state also allocated money to the University of Utah. We regret the error.