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When is a subsidy not a subsidy?

2012 October 16
by Victor Matheson

Readers of thesportseconomist.com know that we generally take a very hard line against public subsidies for sports. So, I am a bit surprised to find myself, I think, on the other side for once. Travis Waldron at ThinkProgress, who has written some very nice pieces in the past about stadium subsides, I believe, gets one wrong here.

Quoting a report by Republican Sen. Tom Coburn of Oklahoma, Waldron notes that,

The National Football League (NFL), the National Hockey League (NHL), and the Professional Golfers’ Association (PGA) classify themselves as non-profit organizations to exempt themselves from federal income taxes on earnings. Smaller sports leagues, such as the National Lacrosse League, are also using the tax status. Taxpayers may be losing at least $91 million subsidizing these tax loopholes for professional sports leagues that generate billions of dollars annually in profits. Taxpayers should not be asked to subsidize sports organizations already benefiting widely from willing fans and turning a profit, while claiming to be non-profit organizations.

My sense is that this accusation is misplaced. While revenues earned by the NFL are not taxed directly, the NFL itself only serves as an organizing body for its member teams. The NFL disburses the revenues it takes in to individual team owners who then pay income taxes on the proceeds at the team level. As such, I can’t see how this is a loophole.

Since I am not an accountant, I am more than willing to stand corrected on this point, so I invite comments.

P.S. Hats off to Tom Coburn. It is nice to see a small-government Republican on the right side of sports subsidies for a change unlike George W. Bush, who made his fortune by convincing the residents of Arlington, TX to build his baseball team, the Texas Rangers, a new stadium in the early 1990s, and Mitt Romney, who rose to national prominence through his management of the 2002 Salt Lake City Winter Olympics, which managed a healthy profit only if one doesn’t count as an expense the $567 million contributed by state, local, and federal governments.

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