Conference reveals complexity of NCAA sports-tax exemption debate

Collegiate sports revenues have often been a source of contention and scrutiny. The "business" of big-time sports, as some call it, has seen a boom in profits from television deals, luxury boxes in stadiums, and a myriad of other sources -- all of which are tax exempt. It's not uncommon for coaches of collegiate basketball and football teams to receive multi-million dollar contracts, which can often be far more than university presidents make. These issues cause some people to question whether college sports are directly tied to universities’ educational missions and if they really deserve to be exempt from taxation.

At a recent conference organized by the Department of Kinesiology and the Institute for Sports Law, Policy, and Research (housed within Penn State University, The Dickinson School of Law), several renowned experts convened to discuss some of the complexities of this debate. Scott Kretchmar, professor of exercise and sport science in the Department of Kinesiology and Penn State’s faculty representative to the NCAA, co-moderated the conference with Steven Ross, Lewis H. Vovakis distinguished faculty scholar and professor of law at Penn State. Participants discussed issues about why NCAA sports are tax exempt, how tax exemptions are regulated in other organizations, and the relationship between financial revenue and colleges’ educational missions.

John Colombo, Albert E. Jenner Jr. professor at the University of Illinois College Of Law, raised his concerns about what some people see as frivolous spending in collegiate sports. When an organization receives tax exemptions, it is essentially as if the government is giving that organization free money, said Colombo. In many other instances of tax exemption, the government places strict regulations on how organizations can spend their money. Colombo proposed three methods to keep collegiate spending in check, all of which are currently used to monitor spending in nonprofit agencies. He argued for more transparency in how money is spent, limiting what colleges can spend money on, or having the IRS or some a third-party organization review spending to ensure that it contributes to the educational mission of the college.

Timothy M. Curley, director of athletics at Penn State, explained that NCAA sports became tax exempt several decades ago, when Congress concluded that the revenue gained from collegiate sports substantially contributed to a college’s educational mission. Curley argued that this is still true today, citing many examples of how sports improve education. Some examples include: continually increasing academic standards for student athletes, providing for the college’s outreach and community service mission, and promoting gender and racial equity in sports. Further, he said that most of the money made from big-time sports, especially at Penn State, is distributed to support other sports that do not generate much revenue.

James E. Delaney, commissioner of the Big Ten Conference, noted in his presentation that in big-time sports, colleges are competing with the professionals when it comes to hiring coaches. Many current college football coaches were at one point coaching professional teams (e.g., Pete Carroll at the University of Southern California and Nick Saban at the University of Alabama) -- and making high salaries. This competition inevitably leads to higher salaries for collegiate coaches, said Delaney. There is a huge base of stakeholders -- alumni, students, staff, etc. -- who fully back the need for hiring coaches at these salaries. Delaney also argued that, because of this demand for higher-paid coaches (among other things), colleges need ways to increase funds. State money can only support so much; commercial endeavors seem to be an efficient way to find more dollars.

Discussion about tax-exempt status in college sports leads to further dialogue on the role of sports within educational institutions, a focus of faculty in the Department of Kinesiology, including Kretchmar. He explained that, although the conference focused on taxes, the ethical implications of the debate extend beyond money into how universities use sports and whether or not those sports have become more important than education. “I think that the trend in division I schools is to decrease participation in athletics,” he said. The NCAA requires that division I institutions sponsor at least 14 sports; the average, Kretchmar said, is just over that minimum, hovering near 17 (Penn State, an exception to this rule, sponsors 29 sports). “Schools tend to spend their money in ways to keep men’s football and basketball programs healthy, and only offering a handful of other sports in which students can be nationally competitive,” he said.

Kretchmar believes that something should be done, but it will be up to Congress or the NCAA to decide. Whether or not changes are made to the current setup, the recent conference was one example of the many checks and balances that maintain ethical standards in sports.

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Last Updated November 11, 2009