College sports and taxes

Last week, a hearing of the U.S. Senate Finance Committee discussed numerous financial issues in higher education, including tax
write-offs for donations related to certain college sports. As reported in the Chronicle of Higher Education (link here, subscription required), the panel’s bipartisan leaders may call on the Internal Revenue Service to crack down on donor abuses in college sports. Abuses called into question at the hearing included the practice by athletic boosters of writing off gifts for season tickets and luxury boxes.

James J. Duderstadt, a former president of the University of Michigan, also testified against tax incentives relating to intercollegiate athletics. Duderstadt told the committee that the incentives “drifted rather far from the tax-exempt purposes of education and scholarship. Tax policy, to some degree, is fueling an arms race in stadium construction, coaching salaries, and indeed even in student exploitation in big-time sports programs such as college football and basketball.”

The Finance Committee’s hearing adds to pressure earlier this fall from Congressman Bill Thomas, chair of the U.S. House of Representatives Ways and Means Committee. Rep. Thomas sent a letter to the NCAA requesting clarification on the tax-exempt status of intercollegiate athletic programs, and specifically singling out the financial revenue to the NCAA and its member institutions received from television contracts, stadiums, and other commercialism. Rep. Thomas also noted the ever-increasing salaries to Division I head coaches and several academic concerns involving athletes as reasons to investigate the tax-exempt status of college sports.

NCAA president Myles Brand issued a response to the letter (link here), in which he stated “The fact that some intercollegiate athletics programs at some schools generate revenues in excess of expenses is not inconsistent with the fact that such programs contribute to the schools’ overall educational programs. The modern comprehensive university and, indeed, American higher education would not exist without the ability of some disciplines and activities to generate income that helps pay for other disciplines and activities.

Brand also stated, “Those who represent the federal taxpayer, members of Congress, have long recognized the educational value of athletics competition at the college or university level, and that income derived from intercollegiate athletics competition is substantially related to the educational functions of colleges and universities.”

Yet, the questioning by Congress has certainly raised the issue of tax-exempt status of intercollegiate athletics within in the larger context of higher education. Welch Suggs, Associate Director of the Knight Commission on Intercollegiate Athletics, told (link here): “it’s tough to see this is an educational enterprise and not a business. We’ve always believed that college sports has a place in higher education. It’s clear, though, that the missions of athletic departments have deviated, which is why we try to lessen that deviation through the reports we put out.”