Taxing College Sports

Nick Saban, former coach of the Miami Dolphins, recently received a $4 million a year contract, plus bonuses for bowl games, from the University of Alabama. In October, the National Collegiate Athletic Association (NCAA) signed a $6 billion, eleven-year contract with CBS to broadcast the NCAA basketball tournament. The deal includes rights to Internet content and merchandise. These two events raised questions on whether multi-million dollar college athletic departments, most notably the NCAA, should maintain their non-profit status and be exempt from taxation.

The NCAA claims its purpose is “to govern competition in a fair, safe, equitable and sportsmanlike manner, and to integrate intercollegiate athletics into higher education so that the education experience of the student-athlete is paramount.” The organization contains 1,024 colleges and universities, divided into three divisions based on the number of sponsored women’s and men’s teams, on attendance and scheduling requirements, and on the amount of financial aid given to student-athletes.

The NCAA formed in response to concerns that colleges and universities had over the dangerous nature of football. The organization, then called the Intercollegiate Athletic Association of the United States, had 62 members at its original meeting on December 28, 1905, in New York City. At that time, the NCAA was a discussion group and rules-making body, but its role grew as more championship games were held. After World War II, the organization created the “Sanity Code,” which monitored recruiting and financial aid. In 1951, the NCAA received its first full-time executive director, and established its headquarters in Kansas City, Missouri, the next year. In the 1970s, the organization divided its members into three separate divisions and involved itself in women’s athletic programs.

Now headquartered in Indianapolis, Indiana, the NCAA employs 350 individuals and is headed by Myles Brand. The NCAA reports having an operating revenue of $564 million dollars. Ninety percent of the revenue comes from television and marketing rights fees. Less than one percent of the organization’s funds come from membership dues.

Because of the vast amounts of money flowing into college athletics, questions have been raised regarding whether the organization’s tax-exempt status should be preserved. In October 2006, the former House Ways and Means Committee Chair, Rep. Bill Thomas (R-CA) sent a letter to Brand challenging the need for the organization not to pay taxes. In his letter, Thomas questioned whether or not the NCAA works to keep the athletes as a regular part of the student body. Thomas questioned whether the line between college athletics and professional athletics is clearly defined in an era of “corporate sponsorship, multimillion dollar television deals, highly paid coaches with no academic duties, and the dedication of inordinate amounts of time by athletes to training.” The letter also addressed the disparity between the pay of women’s and men’s team coaches, the quality of classes athletes take, and low graduation rates among student-athletes. The most important question Thomas’s letter asked was how the “highly commercialized, profit-seeking, entertainment environment” of college football and basketball contributes to the university’s “educational purpose.” Thomas wanted an answer beyond the generation of income for the school.

Brand, president of the NCAA, responded to Thomas questions. In it, Brand claims the moneymaking nature of the sports does not “…diminish the importance of their educational value.” The knowledge gained on the football field or basketball court cannot be valued less than those learned in “non-classroom” endeavors pursued by other students, such as journalism or music, according to Bond. The public’s interest in the NCAA basketball tournament determined the price CBS paid to broadcast the game. “If the American public had the same popular interest in French lectures or accounting classes as they do in athletics, television would be just as eager to telecast those events and to sell commercial time to pay rights fees,” Brand wrote about the CBS contract. In addition to revenue generated by the organization, Brand addressed the disparity between the salaries of women and men’s team coaches and the existence of million-dollar coaches’ salaries. The market determines the salaries, Brand claimed. He also noted that coaches do not have the protection of tenure and can be easily dismissed.

Complaints about the tax-exempt status of the NCAA focus on the money the organization generates, not the function of the body. I doubt Congress would express an interest in the organization if its budget was cut in half and all the games were broadcast on public access television. The question Thomas should focus on is, “Would requiring the organization to pay taxes ameliorate some of the concerns Thomas addressed in the letter about athlete integration into the university, graduation rates, and coach’s pay?” The organization’s tax-exempt status could be acting as a restraint, avoiding a quest for money that does not take into account the athlete’s performance off the field. Now, they are forced to, at the very least, pretend that whether or not the athletes are passing their classes and graduating actually matters.

At the very heart of the matter is discomfort over our priorities. Do we live in a country that does not treat athletics as a supplement to an education, but instead prizes it above anything else? In a New York Times article published January 7, 2007, entitled “Athletic Departments Are Turning Pro,” Andrew Zimbalist, an economics professor at Smith College writing a book on the business surrounding sports, described Saban’s contract with Alabama as “…a university outbid[ing] an N.F.L. team for a head coach.” Noting Saban’s salary will dwarf that of many public university presidents, Zimblast claimed it “…sends a strange message to the student body about the institution’s priorities.”

The money thrown at college athletics programs represents the public demand. CBS would not have dared to pay $6 billion to the NCAA if the public would not watch the games. CBS does not define the public’s tastes or its interests; it merely gives the public what it wants and what the public wants is a basketball game, not a lecture on French literature. Forcing the organization to pay taxes will not change this fact.

In this battle, the burden is on the NCAA to prove its worth and how it furthers the educational goals of colleges and universities. With a $6 billion contract from CBS and a budget in the hundreds of millions of dollars, it will be difficult to gain any sympathy from the public. Congress has a talent for sniffing out potential tax revenues that would give a gold digger a run for his or her money. Since the NCAA is not trying to find a cure for cancer or sheltering African orphans, I would not be surprised if the organization is forced to pay taxes in the future.