Amateur Status, but Major League Money


While college sports are considered “amateur” leagues, when it comes to revenue, they are definitely in the big leagues. In fact, the 15 top-grossing college football teams bring in over $1 billion in revenue (the University of Texas Longhorns generate $71.2 million in profit alone).

Money like that would normally make the IRS smile, but college football is different. The big Division I schools that bring in all that money are all tax-exempt. And the IRS also misses out on a substantial revenue stream that's unique to college sports: so-called “required donations” that fans make to the school to secure season tickets.

So how did these strange “required donations” come about? Back in 1986, boosters couldn't deduct the contributions they made specifically to secure sports tickets. But Louisiana Senator Russell Long, who sat on the Finance Committee, met with lobbyists who argued that his home state Louisiana State University needed tax-deductible contributions to add seats to Tiger Stadium. Long agreed, but didn't want to be seen showing favoritism to his constituents. So he approached Texas Representative Jake Pickle, whose Austin district included the Longhorns' campus. Together, the two lawmakers brokered a backroom deal and added a provision to the 1986 Tax Reform Act which preserved a 100% deduction – for just those two schools! Naturally, every other school in the country complained. But rather than turn red in embarrassment at getting caught creating a tax loophole and remove the provision, lawmakers voted to trim the deduction to 80% of the donation and extend it to everyone.

So how much does this all cost the IRS? Nobody really knows. But Ohio State University is the leader in seat-related donations, with $38.7 million. LSU is next with $38 million (and is about to spend $80 million to add more luxury boxes and seats, which should bring in another $15 million in donations), and Texas is third with $33.9 million. If the average donor pays 25% in federal tax, that means $22 million in lost tax dollars. And that's just three schools out of 1,000 eligible to collect such donations. Proponents of the provision note that donations go to support scholarships, facilities, and other university expenses.

Collegiate athletics is a giant industry and some college sports, like basketball and football, are as popular as professional ones. Every fall, college football provides a welcome respite to millions of fans across the country. Next time you sit down to watch your favorite team, you may want to give a toast to the tax code that helps make their success possible!