Commercial and Tax-Free??

By Scott Jaschik
Updated: May 27, 2009

NCAA WASHINGTON, D.C. — Between 60 and 80 percent of athletic departments’ revenue in Division IA of the National Collegiate Athletic Association (NCAA) comes from “activities that can be described as commercial,” according to a study issued last week by the Congressional Budget Office.

While athletic officials have long tried to describe their activities as fundamentally similar to the rest of their institutions, the Congressional report suggests otherwise. It finds that the proportion of commercial revenue is seven to eight times that for the rest of the institutions’ activities.

As a result, athletics programs may have “crossed the line from educational to commercial endeavors,” the Congressional review found. (Outside of the NCAA’s top division, it found significant, but much reduced commercial revenue — 20 to 30 percent in the rest of Division I).

Some critics of big-time college athletics have hoped that this study would prompt challenges to the tax-exempt status enjoyed by college athletics, but the report suggests otherwise.

“Removing the major tax preferences currently available to university athletic departments would be unlikely to significantly alter the nature of those programs or garner much tax revenue even if the sports programs were classified, for tax purposes, as engaging in unrelated commercial activity,” the report says.

“As long as athletic departments remained a part of the larger nonprofit or public university, schools would have considerable opportunity to shift revenue, costs, or both between their taxed and untaxed sectors, rendering efforts to tax that unrelated income largely ineffective.”

“Changing the tax treatment of income from certain sources, such as corporate sponsorships or royalties from sales of branded merchandise, would be more likely to affect only the most commercial teams; it would also create less opportunity for shifting revenue or costs.”

The CBO used data from documents filed by college athletic programs with the NCAA — and provided first to The Indianapolis Star for an investigation it conducted — to construct this analysis of commercial and non-commercial revenue sources for IA programs in 2004-05.