Last August, journalist Alan Shipnuck reported that during a “secret meeting” of top PGA Tour players, convened by Tiger Woods, the discussion turned on the organization relinquishing its tax-exempt status—and the tens of millions of dollars that this saves it each year—so it could better compete against the upstart Saudi-backed LIV Golf league.
Going fully for-profit would allow potentially billions of dollars in private financing while also enabling tour pros to be compensated with equity stakes in the tour.
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Days later, the PGA Tour stated it was in no way considering giving up its exempt status, which commissioner Jay Monahan called a “central fabric to who we are.”
Tuesday’s surprise announcement of the tour’s sudden partnership with LIV Golf suggested that this nonprofit fabric, while getting stretched, would not tear.
In a letter addressed to his golfers, Monahan said the tour would “remain in place” as a 501(c)(6) while moving its “commercial businesses and rights” to a new, yet-unnamed for-profit entity, with almost all of the details to be worked out later.
“There is a lot of work to be done to get us from a framework agreement to a definitive agreement,” Monahan acknowledged.
Nonprofit tax experts who spoke to Sportico said that, from an organizational and tax standpoint, this proposed move would be far easier and more commercially advantageous for the PGA Tour than if it were to convert to a for-profit entity, as the NFL did eight years ago.
“There are lots of contracts an entity [like the tour] normally have, so if you choose something that moves it out of that entity, it creates a lot of headaches for yourself,” said Philip Hackney, an associate professor of tax law at Pittsburgh University. “Having tax-exempt status probably gets them access to state and local and federal benefits that are useful to maintain, but carrying it out in this way, in which it appears there is a joint venture, allows them to have all that flexibility while maintaining the benefits.”
That said, by carrying itself forward as America’s last major tax-exempt pro sports organization—and now, one in league with the Saudis—the PGA could be subject to increasing public and political scrutiny over its IRS designation.
The PGA Tour’s tax-status quibblers have included LIV chief executive Greg Norman, who in May 2022 publicly criticized the association’s refusal to grant its players the ability to play in the first LIV Golf Invitational Series.
“This is particularly disappointing in light of the tour’s nonprofit status,” Norman said then, “where its mission is purportedly ‘to promote the common interests of professional tournament golfers.'”
Three months earlier, Rep. Greg Steube (R-Fla.), reintroduced federal legislation, first proposed by Sen. Tom Coburn (R-Okla.) nine years prior, which would have amended the Internal Revenue Code to prevent pro sports organizations earning more than $10 million in annual revenue from receiving tax-exempt status. A similar proposal had been put forward by Sen. Joni Ernst (R-Iowa) in 2018, and had even found its way into an amended version of that year’s Tax Cuts and Jobs Act.
That language was removed at the last moment, after a vigorous lobbying campaign by golfers Jack Nicklaus and Davis Love III.
When Coburn went after pro sports leagues’ tax-exempt statuses in 2013, his spokesperson said his effort was in part meant to highlight the “sheer stupidity of the tax code.” The senator proposed a budget resolution amendment that would create a “deficit-neutral reserve fund to eliminate tax loopholes and special interest tax breaks for the PGA Tour, the NFL, NASCAR, Hollywood, fish tackle box manufacturers, and Eskimo whaling captains.” (Coburn died in 2020.)
A 2013 report by ESPN determined that the PGA Tour’s nonprofit model had enabled it to avoid as much as $200 million in federal taxes. In response to concerns that it has failed to pay its fair share, the tour has noted the billions of dollars it has donated to philanthropic causes, which it says it would not be able to do as a for-profit.
In 2015, the NFL announced that it was voluntarily relinquishing its nonprofit status after having filed as a federal nonprofit since 1942. The National Hockey League had ceased filing as a not-for-profit after 2014; Major League Baseball opted out of its tax-exempt status in 2008; and the NBA never sought an exemption.
When the NFL and AFL merged in 1966, the IRS tweaked the tax code to specifically include “professional football leagues” among the entities entitled to claim 501(c)(6) status, along with qualifying business leagues, chambers of commerce, real estate boards and boards of trade. This change was done in concert with provisions that allowed the merger to go forward without antitrust challenges.
Critics of the NFL’s tax-exempt status had noted the seeming absurdity that a league generating billions of dollars in revenue each year—and paying its commissioner, Roger Goodell, tens of millions annually—was being sheltered from federal taxes, though it was unclear to what extent In 2015, its final fiscal year operating as a non-profit, the NFL reported a deficit of over half a billion dollars.
“I think politicians who have been yapping about this are grandstanding,” sports economist Andrew Zimbalist told Sportico. “They get to hold hearings and be on CSPAN and write reports from constituents saying they won’t allow fat rich sport owners to take advantage of the system.”
The PGA Tour reported ending the year 2021 with $4.5 billion in total assets and $3.3 billion in liabilities. The organization, which employs over 1,000 and counts an additional 10,000-plus volunteers, paid 13 people more than a million dollars that year, topped by Monahan, who received $8.6 million. The organization disclosed earnings of $583 million from its media rights, $152 million from tournaments it managed, $175 million from tournaments it co-sponsored and another $176 million from program sponsorships. Presumably, much of the money from these revenue streams will eventually flow into the new for-profit joint venture.
PGA Tour Inc., the nonprofit, holds 100% ownership in 40 C corporations, including the Florida for-profit corporation, PGA TOUR Holdings Inc., which ended 2021 with almost $400 million in assets. The tour also has four related 501(c)(3) organizations—PGA Tour Charitable & Education Fund, PGA Tour Charities Inc, PGA Tour Employees Emergency Relief Fund and Pro Caddies Assistance Foundation—whose assets cannot be transferred to any for-profit entity .
Just as Norman made it an issue two years ago, others can—and presumably will—now invoke the tour’s designated tax-exempt purpose when scrutinizing why it has now tied itself to the Public Investment Fund and LIV.
“I do think those questions are magnified by the fact it is a nonprofit,” said Brian Mittendorf, an accounting professor at Ohio State University. “Did they just cede the moral high ground with this decision? You would expect a nonprofit entity to have higher standards.”
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