NFL Decides to Relinquish Tax-Exempt Status

The National Football League recently gave up its tax-exempt status, a designation that saves the organization about $10 million each year, according to the Citizens for Tax Justice. Measured against the billions the league makes annually, this is a drop in the bucket for the sports superpower. Still, $10 million is, well, $10 million. So why would an organization voluntarily expose itself to the obligation of making tax payments?

The answer is, we believe, PR and privacy. To be clear, the tax-exempt status the NFL enjoyed only applied to the league office itself, not the 32 teams, who have always filed taxes. For years, the league has been heavily scrutinized by the media for its 501(c)(6) designation status. The idea that a mega-revenue-generator could be allowed to sidestep taxes, legitimately or not, is easy fodder for the news media.

With this designation under the IRS code, the organization is required to disclose top salaries paid. That means NFL Commissioner Roger Goodell’s salary of over $35 million in 2013, $13 million higher than the top paid player, is public knowledge. This information has only exacerbated intense criticism of the league at a time when its image is still on the defense as a result of the Ray Rice scandal, among others.

At a news conference at the NFL annual meeting, Robert McNair, chairman of the league’s finance committee, told the press, “The owners have decided to eliminate the distraction associated with the misunderstanding of the league office’s status, so the league office will in the future file returns as a taxable entity.” Major League Baseball made the move to give up its 501(c)(6) status and eliminate this “distraction” back in 2007, and the National Hockey League may someday decide to follow suit.

The lesson in all of this, to those of us who don’t run a national sports league, is that potential tax savings alone should never be the most important factor to making a major life or business decision. Chasing after the biggest refund to save a few dollars and cents now could have bigger, more significant consequences down the line.

In the end, it looks like the NFL decided saving a few dollars wasn’t worth the cost to the league’s reputation and brand. And, well, it will probably be able to find plenty of other ways to minimize its tax bill, now that it can write off a long list of business expenses as a taxable entity.

The end game is that the decision was probably made after looking at the cost/benefit scenario from multiple angles. High-net-worth individuals are advised to take the same approach with their own assets, considering tax-saving maneuvers from a 10,000-foot-level to understand potential liabilities and benefits.