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Sat January 18, 2014
Sports

The NFL: Big Business With Big Tax Breaks

Originally published on Sun January 19, 2014 11:04 am

If you're a football fan, Sunday is kind of like Christmas.

Two conference championship games will determine the teams that advance to the Super Bowl, and the matchups couldn't be more exciting: Denver vs. New England (Peyton Manning vs. Tom Brady). And some would say the other game, pitting San Francisco against Seattle, might just feature the two best teams in the league.

America shows its love for the sport in many ways beyond breathless anticipation of big games. It also gives back to the National Football League with tax breaks and publicly funded stadiums.

But does the multibillion-dollar business really need the help, or is the NFL getting a free ride?

Not For Profit

If you walk into NFL headquarters on Park Avenue in Manhattan, "you think you're in the headquarters of Goldman Sachs," says Gregg Easterbrook, author of King of Sports: Football's Impact on America.

The NFL is registered as a not-for-profit, tax-exempt organization — even with a commissioner who makes nearly $30 million a year. From the tax code to big stadium deals, critics say the NFL is getting millions of public dollars that would be better spent elsewhere.

The NFL league office is organized as a 501(c)(6), a part of the tax code that exempts thing like business leagues, chambers of commerce and trade associations.

But that's just the league office, not the 32 individual franchises. "There is no tax break at the NFL for revenue earned from things like ticket sales or jersey sales or corporate sponsorships or television money," says Jeremy Spector, outside tax counsel for the NFL and a partner at Covington and Burling LLP.

Spector tells NPR's Arun Rath that the NFL, including its teams, brings in around $10 billion of annual taxable income.

"None of those revenues are escaping tax. It's the league office — that organizational or administrative arm — that's exempt," Spector says.

The administrative arm handles things like writing the rulebook, hiring referees, running the college draft and negotiating stadium deals.

Republican Sen. Tom Coburn of Oklahoma says it's absurd to call the NFL a "trade association." He's proposed changing the tax code to end the exemption and start collecting taxes from pro sports organizations.

"In a time when we have a $640 billion deficit — and that's the best we've had in five years — shouldn't very wealthy ... sports leagues pay their share?" he asks.

Spector, lawyer for the NFL, says sports organizations are being unfairly singled out.

"I think it's very dangerous if Congress starts picking and choosing which industry or which industry trade associations are eligible for the tax exemption," he says.

If You Build It ...

Besides the tax exemption, the NFL can also get a break through big stadium deals. Take, for example, the Dallas Cowboys.

In the late 1990s, the Dallas Cowboys and the team's owner, Jerry Jones, began plans to expand their stadium or build a new one. Jones shopped in and around Dallas for years, asking for public assistance to fund the stadium.

He found an audience in Arlington, a city just outside of Dallas. The price tag for the public was $325 million. (Jones was responsible for the balance of the money for the $1.2 billion stadium. Dallas News says Jones' contribution "was paid with commercial loans, league funding and proceeds from a ticket and parking tax.")

Arlington Mayor Robert Cluck saw an opportunity for the city, and a tough sell to voters.

"It was difficult, it certainly was," he says. "We explained to them how it was going to work, where it was going to be located, the amenities it would contain. So after we explained it thoroughly, it really was not very difficult."

To pay for that, voters in Arlington agreed to raise taxes: a higher sales tax, plus hikes on rental cars and hotel rooms.

Cowboys Stadium opened to the public in May 2009.

Cluck says the economic benefits are tangible: Groups use the stadium throughout the year, not just on game days. Plus, he says, building the stadium has increased property values in the surrounding area. All in all, he says, the stadium was worth it.

"I'm sure you can find somebody who is against it. I have not seen that person since it was completed. I think people are very, very happy with it," Cluck says.

Dan O'Connell, who manages a sports grill about a mile away from the stadium, says he originally voted against the tax increase. "But in retrospect, I think it was probably a good thing for the city," he says. "It seems to draw a lot of people in on the weekends and during games."

Resident Jordan Fitzgerald doesn't agree — and doesn't like the tax bill. "It was not worth it, whatsoever. Why? Because my tax money went to a ... stadium instead of my own benefit," she says.

But resident Robert Henning thinks the stadium put Arlington on the map.

"It's a worldwide icon for football, which I think is the greatest sport on the planet, and it's bringing a lot of income to our city," he says. "And it's bringing more people here. They see the promise, and that's what we want."

A Local Boost?

Easterbrook says he's heard this argument before — that stadiums boost local economies. But he says it doesn't stand up to scrutiny. He says investment in infrastructure like roads and bridges "has a multiplier effect every day of the year." Spending on stadiums, on the other hand, "has a multiplier effect 10 or 12 days of the year."

"In terms of civic investment, football makes no sense at all — not only its lack of multiplier effect on the local economy, but far more importantly, all the owners are billionaires," he says. "It can pay for its own stadiums."

Compared to similar businesses, NFL stadiums pay little or no property taxes.

"Research shows that about 70 percent of the cost of building and operating the NFL stadiums has been paid for by the public," Easterbrook says. "I estimate if you roll it all together — subsidies, tax favors etc. — it's roughly a billion dollars a year."

Take the MetLife Stadium in New Jersey, which will host this year's Super Bowl. Easterbrook says comparable businesses pay about $20 million a year in local property taxes.

"It pays $6 million a year through a political agreement that exempted the billionaire ownership families of the Jets and Giants that jointly own that stadium from the kind of taxes that are paid by mere average people," he says.

But not giving in to subsidy requests could also be a bad political move.

Easterbrook points to Minnesota, where the family that owns the Vikings threatened to leave a year ago and convinced the state Legislature to spend millions on a new facility. Easterbrook doubts the team actually would have left, but he says the governor had essentially two options: "One, he can say, 'I'm the man who kept the Vikings in Minnesota;' or maybe if they left ... then he would have been blamed for losing the Vikings."

For The Love Of Football

Even if the public loses money in the end, there's a powerful variable in the equation: the intense love fans have for their teams.

"People like to have an NFL team at home, they like going to the stadium, and they don't want to lose that," says Spector, the NFL tax counsel. "And if the public ... decides that they want to spend some public dollars to keep the team there, to help build a new stadium, that's their decision to make. I don't deny that these are tough decisions for a community. There are limited dollars."

The people who want to roll back the favors to the NFL are having a hard time finding allies. After four months, Sen. Coburn has only one co-sponsor for his bill, and he can't even say who it is.

Just this week, this lone voice in Congress against public help for pro football announced he's retiring at the end of this congressional session.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

ARUN RATH, HOST:

This is ALL THINGS CONSIDERED from NPR West. I'm Arun Rath.

(SOUNDBITE OF MUSIC)

RATH: Two conference championship games tomorrow will determine the teams that advance to the Super Bowl, and the matchups could not be more exciting. Denver and New England, Brady and Manning for Pete's sake. The other game, pitting San Francisco against Seattle, might just feature the two best teams in the league. I expect both games will be better than the Super Bowl. You can tell how much I love the game, and many Americans feel the way I do.

And America shows its love, giving back to the NFL with tax breaks and building stadiums with public money. But does the multibillion-dollar business really need the help, or is the NFL getting a free ride? That's our cover story today.

(SOUNDBITE OF MUSIC)

GREGG EASTERBROOK: NFL headquarters at 345 Park Avenue, New York, you walk into that facility, you think you're in the headquarters of Goldman Sachs.

RATH: That's Gregg Easterbrook, author of "King of Sports: Football's Impact on America."

EASTERBROOK: That facility is registered as a not-for-profit.

RATH: The National Football League is a tax-exempt organization, even with a commissioner that makes nearly $30 million a year. And from the tax code to big stadium deals, critics say they're getting millions of public dollars that would be better spent elsewhere.

Now, a lot of organizations in America are considered tax-exempt - charities, trade groups and NPR. The NFL league office is organized as a 501(c)(6), a part of the tax code that exempts things like business leagues and chambers of commerce and trade associations. But that's just the league office, not the individual franchises.

JEREMY SPECTOR: There is no tax break at the NFL for revenue earned from things like ticket sales, jersey sales or corporate sponsorships or television money.

RATH: Jeremy Spector is outside tax counsel for the NFL and a partner at Covington & Burling LLP. He says the NFL, including teams, brings in about $10 billion of annual taxable income.

SPECTOR: None of those revenues are escaping tax. It's the league office, that organizational or administrative arm, that's exempt.

RATH: That administrative arm handles things like writing the rulebook, hiring referees, running the college draft and negotiating stadium deals.

Senator Tom Coburn of Oklahoma says it's absurd to call the NFL a trade association. He's proposed changing the tax code to end the exemption and start collecting taxes from pro sports organizations like the NFL or the PGA.

SENATOR TOM COBURN: I'm saying in a time when we have a 640 billion deficit - and that's the best we've had in five years - shouldn't very wealthy to do sports leagues pay their share?

RATH: Jeremy Spector, lawyer for the NFL, says sports organizations are being unfairly singled out.

SPECTOR: I think it's very dangerous if Congress starts picking and choosing which industry or which industry trade associations are eligible for the tax exemption.

RATH: Critics say the tax exemption is just one way professional football gets a handout from taxpayers. Another way is big-time stadium deals. Take, for example, the Dallas Cowboys. Back in the late '90s, the Cowboys and their owner Jerry Jones began plans to expand their current stadium or build a new one.

He shopped in and around the city of Dallas for years asking for public assistance to fund the stadium. He found an audience in Arlington Texas, a city just outside of Dallas. And the price tag for the public, $325 million. Arlington Mayor Robert Cluck saw an opportunity for the city and a tough sell to voters.

MAYOR ROBERT CLUCK: It was difficult, it certainly was. We explained to them how it was going to work, where it was going to be located, the amenities that it would contain. After we explained it thoroughly, it really was not very difficult.

RATH: To pay for that, voters in Arlington agreed to raise taxes: a higher sales tax, plus hikes on rental cars and hotel rooms. Cowboys Stadium opened to the public in May 2009. Mayor Cluck says the economic benefits are tangible. He says groups use the stadium throughout the year, not just on game days. And he says building the stadium has increased property values in the surrounding area. All in all, he says, the stadium was worth it.

CLUCK: I'm sure you could find somebody who's against it. I have not seen that person since it was completed. I think people are very, very happy with it.

RATH: We decided to test out Mayor Cluck's assertion with some locals at Mavericks Sports Grill, just a mile away from the stadium. Dan O'Connell is the bar's manager.

DAN O'CONNELL: When the original votes were cast for the tax increase, I voted against it. But in retrospect, I think it was probably a good thing for the city. It seems to draw a lot of people in on the weekends and during games.

RATH: Jordan Fitzgerald doesn't agree and doesn't like the tax bill.

JORDAN FITZGERALD: It was not worth it, whatsoever. Why? Because my tax money went to a damn stadium instead of my own benefit?

RATH: Same goes for Alexia Whitehead.

ALEXIA WHITEHEAD: I guess it pisses me off that, you know, my taxes go to that. And I don't even care about football, so...

RATH: But some people, like Robert Henning, think the stadium put Arlington on the map.

ROBERT HENNING: I love it. It's a worldwide - just icon for football, which I think is the greatest sport on the planet, and it's bringing a lot of income to our city. And it's bringing more people here. They see the promise, and that's what we want.

RATH: Author Gregg Easterbrook says he's heard that argument before - that stadiums boost local economies. But he says it doesn't stand up to scrutiny.

EASTERBROOK: Studies consistently show that the same amount of money spent on civic infrastructure, whether it's roads, bridges, subway, tunnels, if you spend on infrastructure, it has a multiplier effect every day of the year. If you spend on NFL stadia, it has a multiplier effect 10 or 12 days of the year.

RATH: In terms of civic investment, football makes no sense at all, not only its lack of multiplier effect on the local economy, but far more importantly, all the owners are billionaires. The league has $10 billion of annual revenue. It can pay for its own stadiums.

So can you give us a sense of scale in terms of the subsidies? How much is the NFL coming out ahead?

EASTERBROOK: Research shows that about 70 percent of the cost of building and operating the NFL stadiums has been paid for by the public. I estimate if you roll it all together - subsidies, tax favors, et cetera - it's roughly $1 billion a year. Most NFL stadia either don't pay any property taxes or pay drastically reduced property taxes compared to comparable businesses. MetLife stadium, where this year's Super Bowl will be held in New Jersey - and wish me luck, because I'll be freezing my keister off at that game - should pay about $20 million a year in local property taxes if it was tacked to the comparable rate per similar businesses in the same county.

It pays $6 million a year through a political agreement that exempted the billionaire ownership families of the Jets and Giants - who jointly own that stadium - from the kind of taxes that are paid by mere average people.

RATH: Leaving aside, though, if it's not - I mean, not to sound silly about it, but even if it's not sensible, you know more than anybody how much people love this game. And there's that threat hanging over cities of, you know, you don't want your beloved team to go away, go somewhere else that's better.

EASTERBROOK: The most recent example of that is Minnesota. A year ago, the billionaire ownership family of the Minnesota Vikings essentially blackmailed the state legislature into giving them half a billion dollars for a new facility. The key decision was made by the governor of Minnesota.

His choices were two: One, he can say: I'm the man who kept the Vikings in Minnesota, or, maybe if they left, I don't think they would've left. I think the odds were very small. But if they'd left, then he would have been blamed for losing the Vikings.

I mean, the former case where he boasts about, I'm the man who kept them here, he can claim ,and this will create thousands of jobs, even though that's transparently phony. If he does something that results in the Vikings leaving, then he's blamed. Meanwhile, the money that's been spent, it's all down the road. Some other politician will have to produce it.

RATH: Gregg Easterbrook, author of "King of Sports."

Even if the public loses money in the end, there's that powerful variable in the equation: the intense love fans have for their teams. Again, Jeremy Spector from the NFL.

SPECTOR: People like to have an NFL team at home. They like going to the stadium, and they don't want to lose that. And if the public at large or through their representatives decides that they want to spend some public dollars to keep the team there to help build a new stadium, you know, that's their decision to make. I don't deny that these are tough decisions for a community. There are limited dollars. And the communities have to decide where they want to spend them.

RATH: The people who want to roll back the favors for the NFL are having a hard time finding allies. After four months, Senator Coburn has only one co-sponsor for his bill, and he's not at liberty to say who it is. And this week, Senator Coburn, this one lone voice in Congress against public help for pro football, announced he's retiring at the end of this congressional session. Transcript provided by NPR, Copyright NPR.