Ending the NCAA’s Tax Exemption Should Be a Slam Dunk

Ending the NCAA’s Tax Exemption Should Be a Slam Dunk

Ending the NCAA’s Tax Exemption Should Be a Slam Dunk

The NCAA is a billion-dollar a year media company, and it should pay its taxes.


This week, millions of Americans will watch the NCAA basketball tournament. With 67 televised games (including the play-in matches), March Madness is an entertainment bonanza that brings in almost a billion dollars of revenue each year. The organization putting on this event, the NCAA, is effectively a media company, but it receives tax breaks on a scale far beyond even what ESPN can dream of. The basis for this preferential treatment is the NCAA’s claim to operate on the principle of amateurism. On March 8, a 104-page federal court opinion exposed this assertion as a sham. The implication of this is huge: The NCAA should have its tax exemption removed.

The court’s opinion dealt with the issue of whether college athletes could be paid free-market salaries rather than be limited to compensation permitted by NCAA regulations, and it revealed the sheer scale of money involved. The NCAA generates about $1 billion per year, mainly from March Madness; the total value of the tournament’s media contracts, which extend to 2032, is $19.6 billion. The NCAA keeps half of that—paying high salaries to its executives, like $2.4 million in 2016 to its president—and distributes the remainder to collegiate athletic conferences, the most powerful of which are composed of universities that pay coaches millions of dollars per year and have opulent athletic facilities.

To protect this cash cow from taxation, the NCAA has used “amateurism” as its watchword for decades. It was shocking, therefore, that key witnesses testifying for the NCAA in the recent trial could not even define the term. The dictionary definition, however, is straightforward: An “amateur” is “a person who engages in a study, sport, or other activity for pleasure rather than for financial benefit or professional reasons.”

The former commissioner of the Southeastern Conference, for example, testified, “You know, the term ‘amateur’ I’ve never been clear on what is meant by either in your question or otherwise, what is really meant by amateurism.” The representative of another important conference, the Pac 12, conceded in his testimony that the NCAA bylaw relating to amateurism “is a series of things you cannot do, and by then still remain an amateur. It doesn’t exactly have a beautiful definition.”

The court’s opinion was particularly critical of this lack of a definition, stating that the NCAA offered “no stand-alone definition of amateurism either in the NCAA rules or in argument. The ‘Principle of Amateurism,’ as described in the current version of the NCAA’s constitution, uses the word ‘amateurs’ to describe the amateurism principle, and is thus circular. It does not mention compensation or payment.”

As the court sternly pointed out, it would be impossible for the NCAA to take the position that compensating athletes could not be part of amateurism, because the NCAA permits student-athletes to be compensated, by the court’s count, in at least 17 ways. The prime example would be an athletic scholarship, which is worth tens of thousands of dollars, but the other methods of compensation are not trivial. For example, cash equivalent or in-kind awards for post-season bowl or championship play can amount to thousands of dollars. Also, the NCAA disburses money to athletes from two funds, the Student Assistance Fund and the Academic Enhancement Fund, to, as described by the court, “assist student-athletes in meeting financial needs, improve their welfare or academic support, or recognize academic achievement.” The amounts that the NCAA makes available to these funds for distribution are noteworthy: In 2018, the NCAA handed out $84 million from the Student Assistance Fund and $48 million from the Academic Enhancement Fund.

In light of the above facts, the court concluded that the NCAA rules “that permit, limit, or forbid student-athlete compensation and benefits do not follow any coherent definition of amateurism.” Although the judge’s conclusion came in the context of an antitrust case, the opinion has major tax implications.

Right now, the NCAA falls under the charitable exemption in the Internal Revenue Code for educational institutions. But if the entertainment provided by the NCAA is not provided by amateurs, it is really no different from entertainment provided by media companies like ESPN or Amazon, which are not tax exempt.

It is doubtful that college-sports fans tune into the NCAA basketball tournament for educational purposes. If they did, they would be sorely disappointed; all they would see are games that look quite professional, which is not surprising because the level of athletic ability, coaching, and facilities is all on a par with the professional leagues. Indeed, most of the players who will be drafted by the NBA will be playing in this tournament. Further illustrating the professionalism of college sports, many of the best of these college basketball players fall into the “one-and-done” category, completing only one year of college before turning professional.

The explanation for the NCAA’s tax exemption is, in part, historical. Before 1956, when even athletic scholarships were prohibited by the NCAA, college sports were truly amateur. But with so much money involved today, that reasoning is increasingly unconvincing.

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