Recently, you may have heard that the Internal Revenue Service came under some considerable fire for targeting certain groups seeking tax-exempt status while green-lighting others (such as one run by the brother of President Obama), but did you know that the National Football league, an organization that currently rakes in about $10 billion per year in revenue, is also a non-profit organization in the eyes of the government? While you're trying to figure that one out, we've got another one for you. Did you know that the league has been a non-profit organization since 1966, when the NFL merged with the American Football League, and then-commissioner Pete Rozelle folded in the request for an exemption with the request for an anti-trust exemption?
Yes, it's all true. Technically, the NFL is a 501(c)(6) non-profit organization. That part of the Internal Revenue Code "provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual."
It's an interesting wrinkle, because while the NFL's member teams essentially act as a group of individual entities with an overarching partnership governed by the league, the league itself has not always argued so when it was against its benefit. In the Los Angeles Memorial Coliseum Commission vs. National Football League et al dispute argued in the Ninth Circuit Court of Appeals in 1983, the league argued that it was a single entity, thus exempting it from certain antitrust statutes. The Coliseum Commission (and the Raiders franchise on whose behalf the Commission was responding) said that the league was instead a group of legal entities that act independently. The Court agreed with the Commission and the Raiders, finding that Rozelle had acted in bad faith in Al Davis' attempted move out of Oakland.
When Supreme Court Justice John Paul Stevens ruled against the NFL in the American Needle case in 2010, he more specifically outlined how NFL teams actually operate in practice, as opposed to pure theory.
NFL teams do not possess either the unitary decision-making quality or the single aggregation of economic power characteristic of independent action. Each of them is a substantial, independently owned, independently managed business, whose "general corporate actions are guided or determined" by "separate corporate consciousnesses," and whose "objectives are" not "common." Copperweld, 467 U. S., at 771. They compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel ...
[...] The fact that the NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate to produce games, provides a perfectly sensible justification for making a host of collective decisions. Because some of these restraints on competition are necessary to produce the NFL's product, the Rule of Reason generally should apply, and teams' cooperation is likely to be permissible. And depending upon the activity in question, the Rule of Reason can at times be applied without detailed analysis. But the activity at issue in this case is still concerted activity covered for [the ruling's] purposes.
While member teams obviously operate for profit, the interesting wrinkle here is that the league itself claims not to. And one way to avoid profitability is to pay your current and former executives up the wazoo, which the NFL has done.Read More »from The U.S. Senate may — and should — review the NFL’s tax-exempt status