When Louisiana State University and the University of Alabama meet in tonight’s Bowl Championship Series (BCS) National Championship game in New Orleans, college football’s top prize will be on the line. More than 75,000 will be in attendance, and millions will watch on TV. The Sugar Bowl, host to this year’s game, stands to make millions of dollars in profits. And little, if any, of it will be subject to federal taxes.
That’s because the Sugar Bowl and the championship game, like the three other bowls that make up the BCS, are classified as tax-exempt nonprofit charities, set up with missions to do public good with the money they earn and spend. In 2007, the last time New Orleans hosted both the Sugar Bowl and the BCS title game, the games generated $34.1 million in revenue — $11.6 million of that was tax-free profit.
The BCS, a consortium of the 11 Football Bowl Subdivision conferences and the University of Notre Dame, has been in place since 1998 and manages the five biggest bowl games — the Rose, Orange, Fiesta, and Sugar Bowls, and the BCS National Championship Game. The revenue generated by the BCS games and other nonprofit bowls — $261 million in 2009 — along with lavish trips for executives, large compensation packages for their CEOs, and scandals involving potentially illegal political donations have raised questions about why the bowls are classified as nonprofit charities and whether they should continue to be in the future.
The reason bowl profits aren’t taxed “is because it’s supposed to be serving a public purpose,” Gary Roberts, dean of the Indiana University School of Law-Indianapolis, told the Arizona Republic. The bowls, Roberts said, are not supposed to “squander this money that is not taxed.”
And yet, since the BCS began, average pay for the CEOs who run each bowl has more than doubled and now exceeds $500,000 a year, the Republic found. The Sugar Bowl, which has cash reserves in excess of $34 million and until recently benefited from tax subsidies from the Louisiana government, pays its CEO more than $593,000. In 2007, when the Sugar Bowl also hosted the BCS championship, it paid its CEO more than $645,000. Average executive pay at BCS bowls ranks in the top 2 percent of pay among nonprofits with similar budgets, and in the top 9 percent among nonprofits with budgets twice their size, the Republic found.
“If you’re running these bowls, it’s an opportunity to do good, not to do well,” Dean Zerbe, who investigated charitable exemptions while on the staff of Sen. Chuck Grassley (R-IA), told HBO Real Sports. “You can pay yourself a reasonable salary…and after that it has to go to a charitable purpose.”
Charitable purpose, however, likely doesn’t include lavish trips for executives and guests, another area that has drawn criticism. Executives at the Fiesta Bowl spent more than $100,000 on a corporate golf trip, and former CEO John Junker spent more than $1,200 at a strip club, according to an investigation into the Fiesta Bowl after a scandal enveloped the bowl in 2009. The bowl spent $3.3 million on The Fiesta Frolic, an annual trip for sponsors, executives, and others involved in the game, since the start of the BCS. In the same time frame, the Orange Bowl hosted a similar trip, The Summer Splash, at an average annual cost of more than $111,000.
The bowls, in some ways, have come to resemble America’s corporate structure: huge profits, high executive pay, and little, if any, taxes paid to the government. At the same time, the bowls depend on the participation of taxpayer-financed public institutions and, at times, taxpayer subsidies. As Sharon Schneider, a director at a Connecticut-based company that runs nonprofit foundations, told the Republic, “(The bowls) are saving millions, and the states and federal governments are losing millions with these four bowls on tax revenue they would collect if they were not nonprofits.”