Waiting for a shoe to drop

I mentioned in the podcast I did yesterday with Tony that events on the ground, such as antitrust litigation threats, are likely to make the NCAA and its member institutions seek an antitrust exemption from Washington for its sports programs.  It is unlikely that such would be given without a quid pro quo and that’s where things get dicey.  The low hanging fruit for Congress is the non-profit tax exemption the schools and the NCAA currently possess.  If you think about it, that’s another significant advantage collegiate sports enjoy over the pros.

There are a few ways in which the Big Ten Conference is a misnomer. For one thing, the athletic conference founded in 1897 and comprised of corn-fed flagship Midwestern universities, now has 14 members. (In recent years, it has added decidedly non-Midwestern members like Rutgers and the University of Maryland.) Second, in the GuideStar rankings of nonprofits, the Big Ten appears as a “human services” organization alongside the American Red Cross and Feeding America. (The Big Ten is No. 7 in the Slate 90 human services section.)

Like the NCAA under which it is organized, the conference qualifies as a charitable organization because, in the words of the IRS, it “fosters national or international amateur sports competition.” Indeed, in this “human services” sector, five of the top 10 are organizations that deal with college sports, including the NCAA itself. Like the ten in Big Ten, amateur is an almighty stretch here. The Big Ten doesn’t compete with after-work intramural leagues. As in other sectors like health care and financial services, tax-advantaged nonprofits like the Big Ten compete directly against avowedly for-profit professional sports leagues for attention, revenue, and above all, splashy television deals.

In 2017, the Big Ten Conference completed the most lucrative media deal in the history of college athletics: ESPN, Fox, and CBS agreed to pay the Big Ten $2.46 billion over six years for the rights to broadcast its football and basketball games. By comparison, NBC’s 10-year agreement with the NHL—one of America’s big four professional sports leagues—was worth less than $2 billion.

What gives? The NCAA is the only viable pipeline to both the NFL and NBA, and so the talent and quality of play in college football and college basketball is almost at the level of the pros. In effect, these are the minor leagues. That, combined with the built-in tribal allegiance college fans have with their teams, makes for stratospheric TV ratings. More than 28 million people watched this year’s national football championship between Alabama and Georgia. That’s better than the average viewership numbers the NFL pulled during its first two weeks of playoff games. (When it comes to baseball and hockey, two sports that have extensive professional minor leagues, the money and attention associated with the college version is de minimis.)

In terms of success, revenue, and popularity, the Big Ten is, along with the SEC, the star upon which the world of collegiate sports revolves. And it has a remarkable business model. It doesn’t build or maintain stadiums. And it certainly doesn’t recruit and pay the star athletes.

It’s a pretty sweet deal for the NCAA and its associated conferences, who generate Fortune 500–type revenues from something produced, gratis, by unpaid amateurs. Not paying taxes is a nice cherry on top of that lucrative sundae…

Congress has sniffed around this question before.  And you can bet your bottom dollar that if the NCAA goes all out on the antitrust front, it’ll be an issue again (if, for no other reason than the pros have their lobbyists, too, and will no doubt be pushing their agendas).  There’s no telling where it goes, of course, but from here, it’s got all the warning signs of be careful what you ask for.  Of course, if you’re desperate after Jeffrey Kessler kicks your ass, your options are limited.  I’d think that end game might make for another persuasive reason to settle, but I’m not Donald Remy.

3 Comments

Filed under Political Wankery, See You In Court, The NCAA

3 responses to “Waiting for a shoe to drop

  1. Hogbody Spradlin

    Just speculating, but the unrelated business taxable income rules for nonprofit organizations, that are already in place, could cover the situation. I further imagine that effective lobbying has kept them from applying so far. Make the football and basketball programs keep separate books and tax them on their profit. I dislike sending more money to Uncle You Know Who, but the NCAA has only itself to blame.

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  2. Lrgk9

    The NCAA lawyers are making bank, what a great deep pocket client.

    Oh the cream that comes that churning…

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  3. Mayor

    I have been questioning how universities can make this much money and still continue to claim “non-profit status.” Even if you bought the “charitable purpose” argument (I don’t) how do you get past the millions in retained earning?

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