Are College Sports Doomed to Pay Taxes Now That They’ll Pay Players?

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The fact that the NCAA is a nonprofit entity that brought in $9 billion last year is fairly well known, and most people also know that nonprofits are, by definition, tax exempt. As college athletics continue to move toward paying their players to pay (a good move, in our view), schools’ and universities’ abilities to avoid paying taxes gets slipperier and slipperier, especially since some of these sports programs are so lucrative.

In an op-ed for The Boston Globe, former United States Senator John E. Sununu pointed out that “[w]hile educational institutions provide unquestionable value to students and society, nowhere is it written that nonprofit status conveys a license to engage in unlimited commercial activity tax-free.” His larger point was that the most massive Division I programs belong to schools that shouldn’t be allowed to bring in hundreds of millions of dollars in revenue from sports programs claiming nonprofit status, especially if and when some of those players are being paid.

College football and basketball, foremost among academic athletics, exist largely as farm systems for their professional counterparts, and you’ve probably seen the infographic about the highest paid college employees, and what most of them do (Hint: most of them are football coaches, some of them are basketball coaches, and a few are deans and college presidents).

While the NCAA has not commented on this situation explicitly, we can infer that the association is not down with this program, since it seems to want to avoid paying anyone for anything. Consider how the University of Texas athletic director, Steve Patterson, vehemently defended the idea that star players (he was asked about Vince Young and Johnny Manziel) were not responsible for bringing in a massive amount of revenue for the schools that they played for.

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“No,” Patterson told Texas Monthly. “I am not saying they did not benefit the university. But you have to understand that both parties benefit. The university is largely creating the value. The athletes are trading on the value the universities have created.”

He also creatively split hairs, saying, “I don’t think college athletes are the equivalent of minor-league football players. They are students who wouldn’t get into the university but for the athletics and wouldn’t stay in the university but for the sports. No corporations are going to be lining up to pay them money out of high school. They also get a huge benefit on the college stage by having such assets as strength coaches, nutritionists, psychological support, tutors, mentors, media training. ” It is worth noting here, perhaps, that the Longhorns earned over $165 million in sports revenue last year.

That said, Patterson’s not incorrect: The schools aren’t raking in money with regular students playing the sports, but the student-athletes aren’t going to be recognized if they aren’t playing for highly visible programs. That’s undeniably true. What’s at issue here is the crumbling facade that the universities aren’t existing in a universe that puts academics as a priority over sports, and whether or not the discrepancy is enough to force the IRS to reexamine the nature of money raised by college athletics. We’re not sure there’s any way out of this one for the NCAA.