The NFL's dropping its tax exemption isn't a good thing. Here's why.

By dropping is tax exemption, the NFL can be even more secretive

The National Football League announced Tuesday that it is voluntarily giving up its federal tax-exempt status, which it says has become a "distraction."

"The owners have decided to eliminate the distraction associated with misunderstanding of the league office’s status," according to the official statement from Robert McNair, chairman of the NFL's finance committee and owner of the Houston Texans.

McNair didn't specify further, but it's a fair bet that the league got tired of its ostensible tax exemption being a punching bag for congressmen and senators trying to look fiscally responsible, and for members of the public grousing about the league's billionaires pocketing huge sums tax-free. But as McNair points out, the vast majority of NFL income gets upstreamed to its 32 individual teams, which pay taxes on it.

What he didn't point out, however, is how this move will make the NFL even more secretive than it is now. That's because, as a tax-exempt business league under section 501(c)6 of the tax code, the NFL has to file public tax returns every year. By ceding its tax exemption, the NFL no longer will have to do even that much. (For a look at the most recent league tax return available from the Guidestar service, for tax year 2012, go here.)

This annual disclosure is virtually the only glimmer the public gets at the workings of this huge business enterprise, since 31 teams are private businesses and don't make public disclosures of their own. The exception is the Green Bay Packers, which is owned by 350,000 public shareholders and releases financial data annually.

The NFL's tax returns, known as Form 990s, have never offered a wealth of information, but they do provide the only glimpse of certain facts. One is the compensation of the leagues' top executives, including Commissioner Roger Goodell. In 2012, the return discloses, he received more than $44.1 million, including  a $40-million bonus. The second-highest-earning executive was Steve Bornstein, executive vice president of media, who got $26.1 million--though it looks as though that sum was paid not by the league central office, but the individual teams.

The return also reveals that the league pays stupendous legal fees, a combined $16 million to the New York firm of Paul Weiss, Rifkind, Wharton & Garrison and the Washington firm of Covington & Burling. 

Among other nuggets, the return also shows that the league spent $1.25 millon in lobbying in 2012, and paid $8.9 million to Gubser & Schnakenberg, a Lincoln, Neb., firm that provides the communication system allowing coaches to talk to the quarterback on the field between plays. Under federal law, the league's lobbying expenditures will still have to be publicly disclosed.

The bottom line is that it doesn't seem as though the U.S. government will be raking in big bucks by taxing the NFL's central office. Most of what NFL central collects in revenue it pays out in deductible business expenses, including professional fees, wages and interest. The office collected revenue of $327 million in 2012, mostly from "membership dues and assessments,"  and spent $318 million, leaving an excess of $9 million that would otherwise have been subject to tax. It registered a loss of more than $77 million in 2011, a loss of $52 million in 2010, and a loss of $42 million in 2009, so presumably it would have had no tax bill for any of those years.

In other words, you can expect the NFL central office to run a very tight ship in terms of tax liability as a fully taxable entity. The only big change in its abandonment of the tax exemption is that you'll know a little bit less about it. 

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