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The Big Business of Tax-Free College Sports

6 min readBy: Scott Hodge

The college sports world is undergoing a major realignment as universities jockey to join athletic conferences with the richest TV deals. Moving from one athletic conference to another can mean millions in additional revenue sharing from lucrative broadcasting contracts and other revenue streams, all taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. -free.

Unlike professional sports teams that must pay income taxes on the revenues they earn from TV contracts, ticket sales, and licensing merchandise, universities and athletic conferences can pocket the same income tax-free because of their tax-exempt status under section 501(c)(3) of the Internal Revenue Code (IRC).

Charities Benefit from Double Non-Tax Income

The 501(c)(3) nonprofit designation applies to most charities, educational organizations, and think tanks, such as the Tax Foundation. Contributors to 501(c)(3) organizations may deduct donations from their federal taxes (if they itemize their deductions) while the receiving organization does not have to pay income tax on that donation. Economists call this double non-taxed income because the income is tax deductible for the giver and tax-free for the receiver.

However, not all income that charities earn is tax-free. Tax-exempt organizations are required to pay regular taxes on income that is unrelated to the main mission of the organization. An example presented in the Internal Revenue Service (IRS) publication on “unrelated business income” is of a museum gift shop.

When the gift shop earns income from the sale of art reproductions, it is not considered taxable because it contributes directly to the museum’s educational purpose. But income from the shop’s sale of souvenirs and tourist items is subject to tax because the products do not further the museum’s educational purpose.

IRS Rules Permit Tax-Free TV Income for College Athletics

According to IRS rules, the income that college athletic programs earn from broadcast rights and ticket sales is similar to the museum’s sale of painting reproductions:

The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization’s nationwide amateur program, and encourages public participation. The sale of rights and the broadcasting of events contribute importantly to the organization’s exempt purpose. Therefore, the sale of the exclusive broadcasting rights isn’t an unrelated trade or business.

This rationale seems like a stretch, to say the least. College athletic conferences are similar in most respects to professional sports leagues that collect TV broadcast revenues and distribute them to the members. Most professional sports leagues, such as the National Football League and Major League Baseball, were once tax-exempt “membership” associations under section 501(c)(6) of the IRC. After considerable criticism from Congress, all the major leagues have given up that designation and are now taxable entities. (The PGA Tour remains a 501[c][6] organization).

But because college athletic conferences are considered “educational organizations,” they are exempt from tax on their income. Furthermore, since broadcasting companies can deduct the cost of making payments to college athletic conferences on their income tax return, it means that TV income to athletic conferences is never subject to federal income taxes and is effectively subsidized by other taxpayers.

Athletic Conferences Are Big (Tax-Free) Businesses

The money at stake is staggering. As the nearby table indicates, in 2021, IRS tax returns show that the “Power Five” athletic conferences—the Big 12, Big 10, Atlantic Coast Conference (ACC), Pac-12, and Southeastern Conference (SEC)—reported nearly $3.3 billion in untaxed “program service revenue,” which is a catch-all category that includes income from broadcast rights, ticket sales, bowl games, and merchandise licensing.

Although the conferences are 501(c)(3) charitable organizations, just 1 percent of their overall revenues comes from donations or grants. Of the five conferences, only the Pac-12 reported any taxable unrelated business income. In other words, 99 percent of the $3.3 billion in total income generated by the conferences is from sources that would be taxable if they were considered commercial enterprises.

The Largest Collegiate Athletic Conferences Earned Billions in Tax-Free Income in 2021

Key Components of Total Revenues
ConferenceNumber of Member Schools in 2021Total Conference RevenuesContributions and GrantsProgram Service RevenueUnrelated Business IncomeAverage Distribution to Member Schools
Big 12 Conference10$480,595,030 $305,552 $474,026,804 $0 $43,598,905
Big 10 Conference14$845,640,731 $0 $819,501,508 $0 $58,035,953
Atlantic Coast Conference*14$616,986,841 $303,936 $615,989,997 $0 $39,449,539
Pac-12 Conference12$580,865,804 $7,544,121 $573,061,467 $10,841,523 $37,006,480
Southeastern Conference14$802,021,967 $9,210,661 $782,472,158 $0 $49,893,552
Power Five Total64$3,326,110,373 $17,364,270 $3,265,051,934 $10,841,523
NCAA$1,224,314,780 $0 $1,170,133,632 $0
Note: *15 are listed in the 990 since Notre Dame participates in some sports
Source: IRS 990 Tax Returns,

While not every tax return itemizes the revenues conferences receive from broadcast rights, the returns do list how much revenue is distributed to the member schools. In 2021, the 14 members of the Big 10 were the big winners—each took home $58 million on average. The 14 members of the SEC each pocketed nearly $50 million on average, while the 10 members of the Big 12 received roughly $43.6 million each. Members of the ACC and Pac-12 received an average of roughly $39 million and $37 million, respectively.

Overseeing college athletics is the National Collegiate Athletic Association (NCAA), which is also a 501(c)(3) tax-exempt organization. The NCAA’s 990 tax return shows that it generated $939 million in TV rights fees in 2021, 77 percent of the conference’s $1.2 billion in total revenues. The rest comes from such sources as membership fees, tournament revenues, and investment income. The NCAA receives no charitable donations or grants and claims no unrelated business income. It does distribute more than half of its total income in grants to member schools and amateur athletic programs.

Conference Expansion Means Bigger Revenue Sharing

The Big 10 has been actively poaching schools from other conferences. Since TV deals scale with the addition of new conference members, it creates an incentive to expand. The Big 10 recently announced that it will expand to 18 schools at the start of the 2024 school year, after admitting USC, UCLA, Oregon, and Washington, who are currently members of the Pac-12.

The Pac-12 is considered the poorest of the conferences, which explains its recent defections. Sports Illustrated reports that the Pac-12 is about to sign a TV deal worth $20-$25 million for each school. By contrast, the Big 10’s 2024 TV deal will mean an average of $65 million for each school. That’s more than $40 million reasons for the four West Coast teams to join a conference that was once comprised of only Midwest schools.

Congress Increases Scrutiny of Tax-Exempt Sports Leagues

The proposed merger of the PGA Tour with LIV Golf has brought renewed congressional attention to tax-exempt sports leagues. Rep. John Garamendi (D-CA) and Senate Finance Chairman Ron Wyden (D-OR) have each introduced legislation to limit or remove the tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. of professional sports leagues (found here: House Bill and Senate Bill).

Considering that collegiate sports has become such a big business, lawmakers should reconsider how previous legislation and IRS rulings have exempted broadcast and similar “commercial” revenues from taxation under the unrelated business income provision. Fully exempting billions of dollars of what is otherwise commercial income from the tax code makes no sense even if it is intended to “support” amateur athletics.

Removing the tax exemption for such income would also put athletic conferences on par with the way the IRS is proposing to treat private groups that raise funds to pay student-athletes under the NCAA’s interim name, image, and likeness (NIL) policy.

IRS Floats Stricter Rules for Groups Paying Student-Athletes

In 2021, the NCAA adopted an interim rule that allows student-athletes to be compensated for their NIL without negating their NCAA eligibility. Since then, more than 200 “NIL collectives” have been created to raise funds—largely from university boosters—to channel payments to student-athletes.

Some NIL collectives have been granted 501(c)(3) status, while others were formed as business entities, causing inequities within the industry. But as one athletic director was quoted as saying, “Let’s be honest, we are all money laundering.”

In a recent memorandum by the IRS Office of Chief Counsel, officials now say that tax-exempt status for these NIL collectives may not be justified. According to the memo: “An organization that develops paid NIL opportunities for student-athletes will, in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity.”

In other words, because the donated funds go to compensate specific athletes rather than promote the wider interests of student-athletics, the NIL collectives should not be considered tax-exempt. This makes sense, but a similar argument could be made about the TV revenues schools use to underwrite the tuition costs of scholarship athletes.

Taxation of Sports Needs Consistency

One of the key purposes of the IRS memorandum was to “promote consistent treatment of similarly situated taxpayers and sound tax administration,” yet inconsistency is clearly still an issue in the taxation of sports income in the U.S.

Lawmakers need not go so far as to remove the tax-exempt status of collegiate sports conferences, but treating broadcast and similar revenues as taxable “unrelated business income” would be a good start in leveling the playing field and making the tax code more consistent.

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