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NCAA News Archive - 2006
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Playoff would temper taxation concern
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By J. Douglas Toma
University of Georgia
University of Georgia
The upcoming bowl season reminds us — including national policy makers — that there continues to be significant commercial and professional aspects of football as played at the most prominent level.
These have existed since the beginning of the modern game nearly a century ago, of course. There is little really new about the corporate sponsorships, the races to build impressive facilities that go well beyond function toward opulence and the salaries for coaches far in excess of others on campus that define contemporary college football.
These commercial and professional traits have become increasingly conspicuous, however. Further, there is a newer expectation at major programs that securing premium seats (meaning anything between the goal lines at many institutions) requires a major donation to the athletics foundation. Another trend is television asserting ever more influence over scheduling, arranging games on practically every night of the week — particularly for institutions that do not receive significant exposure on Saturdays.
Such attributes connect college football as much with commerce as higher education, and perhaps more so.
Institutions have, by necessity over time, exhibited great skill in framing football as amateur in character. After all, maintaining a plausible connection to the accepted missions of universities, including developing character in students through extracurricular activities, enables the enterprise itself. It is what allows college football, even with its commercial and professional nature, to fit within the university. As such, college football is deemed, like the rest of the university, to have value to society such that it is exempt from federal and local taxation.
The present bowl system, with its prominent corporate connections and advantages for more prominent conferences and programs, risks both its traditional tax exemption and running afoul of the antitrust laws. Either result would lead to severe challenges for football, athletics departments, universities and conferences alike. The present approach also can frustrate the fans who are interested in the clarity that a tournament would provide. A football playoff modeled on the annual men’s and women’s Division I basketball tournaments offers a solution, particularly when tied to a reform agenda that faculty and presidents should find highly satisfying.
A letter to the NCAA from retiring U.S. Rep. Bill Thomas, R-California, outgoing chair of the U.S. House of Representatives Committee on Ways and Means, has called the tax exemption for college sports into question. When it comes to football, Rep. Thomas has a point — one that his replacement, Rep. Charles Rangel, D-New York, may well support.
Unlike the basketball tournaments, where the venues are devoid of advertising, for instance, seemingly every television shot of the upcoming Tostitos Bowl Championship Series final at University of Phoenix Stadium (named for the for-profit, thus taxpaying, higher-education provider) will include some sort of commercial reference. There also is a trend toward aggressive corporate sponsorship of even regular-season contests, including affixing a corporate logo to seemingly anything possible within televised games from halftime highlights to graphics introducing starting lineups. Several bowl games have dropped the traditional names of bowls inspired by civic pride, as with the Peach Bowl in Atlanta becoming the Chick-Fil-A Bowl. Have we crossed a line where the tax exemption becomes untenable?
Tax-exempt status is central to the significant and increasing reliance upon private donations of athletics programs — revenue often connected with priority football season-ticket seating. Priority seating, when pursued aggressively by athletics departments, shades toward the commercial and away from the philanthropic intent on which tax benefits are founded. Legislation or rulemaking abolishing or even curtailing the nonprofit tax exemption for revenue sports not only would require that athletics departments pay taxes, but also would remove the incentive under the tax code for those who make charitable gifts. Further, as commercial activity increases and fund raising becomes ever more important across institutions, particularly research universities, such a precedent could prove to be dangerous outside of college sports. Should universities be so brazen here, essentially flaunting significant corporate connections while claiming an exemption from taxation as amateurs?
The present bowl system also is questionable under antitrust law, which applies to intercollegiate sports and weighs pro-competitive benefits against anti-competitive effects when looking at monopolistic practices. Currently, there is token access for deserving teams from smaller conferences to a BCS slot, but the vast amount of revenue from the bowls as a whole goes to the six major conferences and ultimately the institutions within them (as well as the University of Notre Dame). If challenged in court by a class of perceived Division I Football Bowl Subdivision outsiders, as was threatened a few years ago, the question would become whether the anti-competitive effects of the BCS system within the subdivision, given its relative exclusivity, outweigh the pro-competitive impacts. Legislation could have the same impact of applying the antitrust laws to the bowl system. Again, is the present bowl system — a workaround, really, that is not even particularly favored by fans — worth the risk?
The open structure that a 16-, 24-, or even 32-team football playoff could afford would, like the basketball tournament, be more immune to antitrust challenge. It could include an automatic bid for each conference and several at-large bids with selection and seeding by a committee. Where would be the anti-competitive effects of an open system? The playoff could be modeled on both the successful and longstanding Division I Football Championship Subdivision and Divisions II and III playoffs, and the Division I men’s and women’s basketball tournaments, where direct corporate sponsorship is more muted and thus less likely to draw scrutiny for its tax-exempt status — although still lucrative through selling official sponsorships.
A playoff also could be tied to the reform in college sports that presidents, academic administrators and faculty have championed. These groups consistently have argued against a playoff, accepting that it would only further commercialism and professionalism. The opposite, in fact, is true. The most common argument is that a playoff requires more time away from class. But last year, the presidents, through the NCAA, allowed programs to add a 12th regular-season game to enhance revenues — hardly a move in the direction of reform. The additional game does not even please fans, who must endure another uninspiring, usually lopsided “guarantee” game with a smaller program visiting a larger one solely to collect a check. Also, arguments based on time away from class seem not to apply to basketball scheduling that is laden with made-for-television midweek games — or to football itself, where Ohio State University waits more than 50 days from its last Big Ten football game November 18 to its January 8 BCS championship game in Arizona.
An automatic playoff bid for smaller conferences and perhaps even a weekend of play-in games to begin the tournament could replace the revenue and exposure from the guarantee games. Their participation in the tournament also could be used as leverage in addressing another issue requiring the attention of those interested in reform. Now regular weeknight and Sunday evening games suggest the more commercial attributes of college football more than its legitimacy within higher-education institutions. These games disrupt the workday on campus (practically inviting students to sleep through their classes the following day), force those who participate on the field to miss additional days of class time and inconvenience many spectators.
Like the BCS presently, a tournament could be the product of the conferences, even incorporating the existing conference championship games. It is safe to assume that a playoff would be popular with fans, approaching the basketball tournament, if not exceeding it. The roughly $450 million in annual rights fees paid to the NCAA for the men’s basketball tournament is more than double the gross yearly revenue from the BCS, according to Knight Foundation data. The guarantee games represent intercollegiate athletics at its most crassly commercial. What are these about if not the money? They can be reduced or even eliminated with the revenue from a playoff — resources now needlessly left on the table. The same is true of the weeknight television games. Presidents can trade a playoff for increased rationality and thus decreased commercialism in college football.
Questioning the tax-exempt status and monopolistic behavior in college football in an environment of increasingly conspicuous commercialism and professionalism is hardly a large leap, particularly given the populist questions that have gained momentum lately across higher education, most notably with the Spellings commission. So, what if presidents framed the debate differently, arguing that a playoff could rationalize and thus diminish some of the commercial and professional tendencies in college football? They would satisfy reformers, including their interested faculty; maintain the advantages as well as the ideals of amateurism; and even please college football fans.
J. Douglas Toma is an associate professor at the Institute of Higher Education at the University of Georgia, and writes about strategy and management in higher education, including as it involves college sports.
These have existed since the beginning of the modern game nearly a century ago, of course. There is little really new about the corporate sponsorships, the races to build impressive facilities that go well beyond function toward opulence and the salaries for coaches far in excess of others on campus that define contemporary college football.
These commercial and professional traits have become increasingly conspicuous, however. Further, there is a newer expectation at major programs that securing premium seats (meaning anything between the goal lines at many institutions) requires a major donation to the athletics foundation. Another trend is television asserting ever more influence over scheduling, arranging games on practically every night of the week — particularly for institutions that do not receive significant exposure on Saturdays.
Such attributes connect college football as much with commerce as higher education, and perhaps more so.
Institutions have, by necessity over time, exhibited great skill in framing football as amateur in character. After all, maintaining a plausible connection to the accepted missions of universities, including developing character in students through extracurricular activities, enables the enterprise itself. It is what allows college football, even with its commercial and professional nature, to fit within the university. As such, college football is deemed, like the rest of the university, to have value to society such that it is exempt from federal and local taxation.
The present bowl system, with its prominent corporate connections and advantages for more prominent conferences and programs, risks both its traditional tax exemption and running afoul of the antitrust laws. Either result would lead to severe challenges for football, athletics departments, universities and conferences alike. The present approach also can frustrate the fans who are interested in the clarity that a tournament would provide. A football playoff modeled on the annual men’s and women’s Division I basketball tournaments offers a solution, particularly when tied to a reform agenda that faculty and presidents should find highly satisfying.
A letter to the NCAA from retiring U.S. Rep. Bill Thomas, R-California, outgoing chair of the U.S. House of Representatives Committee on Ways and Means, has called the tax exemption for college sports into question. When it comes to football, Rep. Thomas has a point — one that his replacement, Rep. Charles Rangel, D-New York, may well support.
Unlike the basketball tournaments, where the venues are devoid of advertising, for instance, seemingly every television shot of the upcoming Tostitos Bowl Championship Series final at University of Phoenix Stadium (named for the for-profit, thus taxpaying, higher-education provider) will include some sort of commercial reference. There also is a trend toward aggressive corporate sponsorship of even regular-season contests, including affixing a corporate logo to seemingly anything possible within televised games from halftime highlights to graphics introducing starting lineups. Several bowl games have dropped the traditional names of bowls inspired by civic pride, as with the Peach Bowl in Atlanta becoming the Chick-Fil-A Bowl. Have we crossed a line where the tax exemption becomes untenable?
Tax-exempt status is central to the significant and increasing reliance upon private donations of athletics programs — revenue often connected with priority football season-ticket seating. Priority seating, when pursued aggressively by athletics departments, shades toward the commercial and away from the philanthropic intent on which tax benefits are founded. Legislation or rulemaking abolishing or even curtailing the nonprofit tax exemption for revenue sports not only would require that athletics departments pay taxes, but also would remove the incentive under the tax code for those who make charitable gifts. Further, as commercial activity increases and fund raising becomes ever more important across institutions, particularly research universities, such a precedent could prove to be dangerous outside of college sports. Should universities be so brazen here, essentially flaunting significant corporate connections while claiming an exemption from taxation as amateurs?
The present bowl system also is questionable under antitrust law, which applies to intercollegiate sports and weighs pro-competitive benefits against anti-competitive effects when looking at monopolistic practices. Currently, there is token access for deserving teams from smaller conferences to a BCS slot, but the vast amount of revenue from the bowls as a whole goes to the six major conferences and ultimately the institutions within them (as well as the University of Notre Dame). If challenged in court by a class of perceived Division I Football Bowl Subdivision outsiders, as was threatened a few years ago, the question would become whether the anti-competitive effects of the BCS system within the subdivision, given its relative exclusivity, outweigh the pro-competitive impacts. Legislation could have the same impact of applying the antitrust laws to the bowl system. Again, is the present bowl system — a workaround, really, that is not even particularly favored by fans — worth the risk?
The open structure that a 16-, 24-, or even 32-team football playoff could afford would, like the basketball tournament, be more immune to antitrust challenge. It could include an automatic bid for each conference and several at-large bids with selection and seeding by a committee. Where would be the anti-competitive effects of an open system? The playoff could be modeled on both the successful and longstanding Division I Football Championship Subdivision and Divisions II and III playoffs, and the Division I men’s and women’s basketball tournaments, where direct corporate sponsorship is more muted and thus less likely to draw scrutiny for its tax-exempt status — although still lucrative through selling official sponsorships.
A playoff also could be tied to the reform in college sports that presidents, academic administrators and faculty have championed. These groups consistently have argued against a playoff, accepting that it would only further commercialism and professionalism. The opposite, in fact, is true. The most common argument is that a playoff requires more time away from class. But last year, the presidents, through the NCAA, allowed programs to add a 12th regular-season game to enhance revenues — hardly a move in the direction of reform. The additional game does not even please fans, who must endure another uninspiring, usually lopsided “guarantee” game with a smaller program visiting a larger one solely to collect a check. Also, arguments based on time away from class seem not to apply to basketball scheduling that is laden with made-for-television midweek games — or to football itself, where Ohio State University waits more than 50 days from its last Big Ten football game November 18 to its January 8 BCS championship game in Arizona.
An automatic playoff bid for smaller conferences and perhaps even a weekend of play-in games to begin the tournament could replace the revenue and exposure from the guarantee games. Their participation in the tournament also could be used as leverage in addressing another issue requiring the attention of those interested in reform. Now regular weeknight and Sunday evening games suggest the more commercial attributes of college football more than its legitimacy within higher-education institutions. These games disrupt the workday on campus (practically inviting students to sleep through their classes the following day), force those who participate on the field to miss additional days of class time and inconvenience many spectators.
Like the BCS presently, a tournament could be the product of the conferences, even incorporating the existing conference championship games. It is safe to assume that a playoff would be popular with fans, approaching the basketball tournament, if not exceeding it. The roughly $450 million in annual rights fees paid to the NCAA for the men’s basketball tournament is more than double the gross yearly revenue from the BCS, according to Knight Foundation data. The guarantee games represent intercollegiate athletics at its most crassly commercial. What are these about if not the money? They can be reduced or even eliminated with the revenue from a playoff — resources now needlessly left on the table. The same is true of the weeknight television games. Presidents can trade a playoff for increased rationality and thus decreased commercialism in college football.
Questioning the tax-exempt status and monopolistic behavior in college football in an environment of increasingly conspicuous commercialism and professionalism is hardly a large leap, particularly given the populist questions that have gained momentum lately across higher education, most notably with the Spellings commission. So, what if presidents framed the debate differently, arguing that a playoff could rationalize and thus diminish some of the commercial and professional tendencies in college football? They would satisfy reformers, including their interested faculty; maintain the advantages as well as the ideals of amateurism; and even please college football fans.
J. Douglas Toma is an associate professor at the Institute of Higher Education at the University of Georgia, and writes about strategy and management in higher education, including as it involves college sports.
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