Today, for the first time in 30 years, Temple is going to a bowl game (excuse me while I wipe a tear of joy from my cheek). It’s a pretty remarkable feat, considering that, just four years before, the university nearly shuttered its football program altogether. The committee decided to keep the program, despite the fact that the school had been eliminated from Big East play, was coming off a 0-11 season and had an astonishingly bad 24-99 record over the past ten years.
As excited as I am to have my alma mater going to a bowl game this year (yes, a bowl game! *pardon my excited repeated utterances*), I do think it’s a bit sad that Temple’s comeback is as truly remarkable as it is. Because, as much as I love the sport of football, college football isn’t about football at all, really. At the end of the day, it’s all about money.
When Temple was considering dismantling its football program, it wasn’t because there weren’t students that wanted to play. And it wasn’t because there weren’t folks that wanted to watch, though attendance was limited: home attendance averaged 17,273 compared to home attendance of 105,000 for Penn State football games that same year. Having attended a woefully empty Temple game at the Linc before the “Golden years”, it was pretty bad.
The real story was about money. The program was losing hundreds of thousands of dollars each year. The Big East didn’t consider Temple a worthy draw, so they booted them out. That meant that the team lost more than $1.5 million just in Big East bowl and television money.
Any respectable company whose focus was on profit would have done the same thing. But Temple – and the NCAA – aren’t supposed to be companies that focus on profit. They’re both registered as charitable organizations, considered tax-exempt under section 501(c)(3) of the Tax Code.
As a tax attorney who has worked with a number of nonprofit companies over the years, I would never suggest that a nonprofit has an obligation to continue a course of action that results in losing money. There’s clearly no rule that would prohibit a nonprofit from making money. And in fact, I would say that there’s a fiduciary duty to donors and supporters to ensure that the organization is operating properly and spending money in an efficient, effective manner. So, in that respect, maybe Temple was doing the right thing when they reconsidered whether to keep their football program going. Perhaps it wasn’t in the best interest of the university to keep throwing dollars at a football program that was fumbling at best (pardon the pun but I couldn’t help myself).
But what about the NCAA? What is its responsibility in all of this?
You have to search pretty hard on NCAA.org (to be distinguished from NCAA.com) to figure that out. There’s no mention of their status on their history page or, remarkably, on their budget and finance page. In fact, if you run a search on “tax” or “tax-exempt” on their website, you won’t get a statement of purpose, a mission statement or any other information about status. You’ll just get
defensive prepared statements in response to federal inquiries and comments about their status.
The May 2009 Congressional Budget Office report accurately states that tax-exempt status is granted to colleges and universities that meet their educational mission. NCAA student-athletes graduate at a higher rate than their counterparts in the general student population across almost all demographics—highlighting that without question NCAA member institutions are meeting and exceeding that standard for tax-exempt status. Often the discussion regarding revenue from commercial activities in intercollegiate athletics fails to acknowledge the compatibility with the use of such revenue toward meeting the purpose of the tax exempt status – the education of student-athletes. Intercollegiate athletics provides $1.5 billion annually in scholarships to student-athletes, many of whom would otherwise likely not be able to attend college and get an education.
I know, overwhelming. Especially the bit where they say “Intercollegiate athletics provides…” and not “the NCAA provides…” Some good lawyering/PR there. Especially compelling since the entire budget of the NCAA (the organization, not including the associated colleges and conferences) is just $661 million.
Where does it come from? According to the organization’s most recent form 990 (required to be filed annually with the IRS), a mere $192,000 of their $661 million in revenue comes from public support. The lion’s share ($548 million) comes from TV revenue.
Nearly $40 million is spent annually on employee wages and related costs (President Myles Brand alone received $1.6 million in salary, $100,000 in deferred comp and $12,000 in expense account money – the numerous Vice Presidents received at least a quarter of a million each in salary and benefits). About $5 million is spent on legal, another $5 million on travel, and yet another $5 million on conferences, conventions, and meetings. Rent, utilities, postage, printing, interest etc. took up another $10 million or so. Insurance costs topped $20 million. “Branding” costs another $6 million. The five highest independent contractors were paid over $10 million for drug testing, video production, seating installation and facilities management. And don’t forget the $200,000 they spent on lobbying.
Wait. What about the kids? What was their mission again? I was able to find it… on another website. On Guidestar, the mission of the NCAA is defined as follows (their caps, not mine):
THE PRIMARY EXEMPT PURPOSE OF THE NATIONAL COLLEGIATE ATHLETIC ASSOCIATION IS TO MAINTAIN INTERCOLLEGIATE ATHLETICS AS AN INTEGRAL PART OF THE EDUCATIONAL PROGRAM AND THE ATHLETE AS AN INTEGRAL PART OF THE STUDENT BODY
Apparently, maintaining intercollegiate athletics costs a lot of money.
I get that this is a business. And it’s huge business. But let’s call a spade a spade. The NCAA is all about making money: I happen to think their primary purpose is profit. I don’t know how you can look at those numbers, the sources of revenue and expenses, and think otherwise.
I’m not the only one. Congress made a half-hearted attempt to address these very real inconsistencies in the NCAA’s supposed mission and their activities before. I blogged the inquiry and the response here.
But ultimately, Congress backed off – not because there’s not something there – but because nobody wants to be the big bad wolf that destroys college sports. Only revoking the NCAA’s tax-exempt status really wouldn’t destroy college sports at all. They wouldn’t lose much in the way of public support: they don’t have it to begin with.
What about taxing TV revenue as “unrelated trade or business income”? Would that kill off the NCAA? Look at those numbers. And think about the NFL. And MLB. And the NBA. And then you tell me.
I look at what happened to Temple – and I think about the hundreds of similarly situated athletic programs in the country – and it’s clear to me that the NCAA as a whole, including the conferences that it so generously supports, isn’t really about promoting what’s best for student-athletes. It’s about capturing an audience and generating revenue – and that’s not necessarily a bad thing. It’s just not a charitable purpose.
Throughout the week, I’ll be one of those folks watching ridiculously named sponsored bowl games (Chick-Fil-A Bowl anyone?) and cheering just as loudly as the next person. It’s all in good fun. But I do wish that Congress and IRS would get their ducks in a row on this one – the amount of profit that’s escaping taxation is pretty remarkable. And perhaps those tax dollars would benefit students in failing and struggling schools – the dollars from TV revenue surely aren’t.
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