This week, the golf world was shocked when PGA Tour commissioner Jay Monahan announced that the PGA Tour and the Saudi-backed LIV Golf would merge. The businesses would be combined into a single for-profit entity, including the DP World Tour (the European PGA Tour).
It didn’t take long for the reactions to pour in—including from Congress. Shortly after the announcement, Rep. John Garamendi (D-CA) teed up legislation that would strip the PGA Tour of its tax-exempt status.
Bill Details
The “No Corporate Tax Exemption for Professional Sports Act” bill is currently just one page long and pretty straightforward. It would disallow “a professional sports league, organization, or association, a substantial activity of which is to foster national or international professional sports competitions (including by managing league business affairs, officiating or providing referees, coordinating schedules, managing sponsorships or broadcast sales, operating loan programs for competition facilities, or overseeing player conduct)” from electing 501(c)(6) status under the Tax Code.
Background
The PGA Tour is tax-exempt under section 501(c)(6) of the Tax Code. The section applies to “Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
If you’re scratching your head because you don’t see “golf” in the description, you’re not seeing things. The word “football” was explicitly included because of the National Football League (more on that in a moment), but the Regs make clear at 1.501(c)(6)-l that status can apply to any business league, defined as “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. It is an organization of the same general class as a chamber of commerce or board of trade.”
That puts professional sports leagues in the same company as chambers of commerce (including the US Chamber of Commerce), real estate boards (including the National Association of REALTORS), and other professional organizations (such as the American Library Association–Allied Professional Association, American Medical Association, and the Academy of Motion Picture Arts & Sciences.)
Sports Leagues
Over the years, many professional sports leagues, including the NFL, have enjoyed the benefit of tax-exempt status. The NFL gave up its status in 2015 after years of defending its right to it, following the Major League Baseball (MLB), which gave up its 501(c)(6) tax-exempt status in 2007. The National Basketball Association (NBA) has never been exempt, nor has Major League Soccer (MLS). Some sports leagues still do enjoy tax-exempt status, including the National Hockey League (NHL), the Professional Golfers’ Association (PGA), and the Ladies Professional Golf Association (LPGA).
History
Don’t confuse the PGA with the PGA Tour. They are separate entities with separate tax filings, although both are tax-exempt organizations.
The PGA was formed in 1916. The PGA Tour—often written as PGA TOUR and called simply The Tour—split from the PGA in 1968 and officially became a separate organization for tour players in 1974. The Tour was initially called the “Tournament Players Division” before changing its name to “PGA Tour” in 1975. Four years later, the PGA Tour relocated its headquarters from Washington, D.C., to Ponte Vedra Beach, Florida, where it remains to this day.
Today, the Tour self-describes as “the world’s premier membership organization for touring professional golfers, co-sanctioning tournaments on the PGA TOUR, PGA TOUR Champions, Korn Ferry Tour, PGA TOUR Latinoamérica and PGA TOUR Canada.” The website describes the Tour’s mission this way: “By showcasing golf’s greatest players, we engage, inspire and positively impact our fans, partners and communities worldwide.”
(For more on the Tour, check out Monte Burke’s Forbes article from 2013.)
Tax-Exempt Status
Despite some chatter to the contrary, the PGA Tour is not a public charity. However, it has ties to four related charitable organizations: PGA Tour Charitable & Education Fund, PGA Tour Charities Inc, PGA Tour Employees Emergency Relief Fund, and Pro Caddies Assistance Foundation.
The PGA Tour is a section 501(c)(6) organization. There are critical differences between a 501(c)(3) organization—often referred to as a public charity—and a 501(c)(6) organization. While both are tax-exempt, meaning that they are not subject to federal income taxes on related business income, donors to a 501(c)(6) organization may not claim a tax deduction for donations to the organization, while donors to a 501(c)(3) may take a deduction for their contribution a Schedule A, assuming that they itemize. Additionally, 501(c)(3) organizations face significant restrictions with respect to lobbying, while a 501(c)(6) organization may engage in lobbying related to its tax-exempt purpose.
Tax-exempt organizations, including those under section 501(c)(6), must file an annual return, Form 990, and make it available for public inspection. Information on that return includes details about the organization’s finances, as well as a list of its highest-paid employees. You can find Forms 990 for the Tour and other tax-exempt organizations on the IRS website and sites like Charity Navigator.
Tour Financials
According to the most recent filings available online—the 2021 taxable year—the Tour took in $1.6 billion in revenues. They ended the year with a balance sheet showing $4.5 billion in total assets and $3.3 billion in liabilities. The highest-paid employee was Monahan, who received $8.6 million in compensation.
Those are big dollars. And the new agreement with LIV Golf is expected to bring in even more revenue.
Non-Profit?
What will that mean for its tax-exempt designation? Tax professionals have already started pointing fingers at two fundamental characteristics of a 501(c)(6) organization: It must not be organized for profit, and no part of its net earnings may inure to the benefit of any private shareholder or individual.
To be clear, a non-profit can make money and not lose status. But profit cannot be a primary motive.
Likewise, the prohibition against private inurement doesn’t mean that employees can’t be paid well, but it does mean that the organization can’t direct funds or assets to benefit individuals connected with the organization, directly or indirectly.
How the new partnership will impact the ability of the Tour to stay within the lines is a question.
For its part, the Tour says that “Separately, PGA TOUR Inc. will remain in place as a 501(c)(6) tax exempt organization and retains administrative oversight of events for those assets contributed by the PGA TOUR, including the sanctioning of events, the administration of the competition and rules, as well as all other “inside the ropes” responsibilities, with Jay Monahan as Commissioner and Ed Herlihy as PGA TOUR Policy Board Chairman. “
Objections
Garamendi thinks differently. His “No Corporate Tax Exemption for Professional Sports Act” would end tax-exempt status for the PGA Tour and other professional sports leagues.
Garamendi is opposed to the partnership, saying, “Saudi Arabia cannot be allowed to sports wash its government’s horrific human rights abuses and the 2018 murder of American-based journalist Jamal Khashoggi by taking over the PGA Tour.” He continued, “PGA Tour Commissioner Jay Monahan should be ashamed of the blatant hypocrisy and about-face he and the rest of the PGA Tour’s leadership demonstrated by allowing the sovereign wealth fund of a foreign government with an unconscionable human rights record to take over an iconic American sports league and avoid paying a penny in federal corporate income tax. This merger flies in the face of the PGA Tour players who turned down hundred-million-dollar paydays from the Saudi-backed LIV to align themselves with the right side of history and human decency.”
ISTANBUL, TURKEY – OCTOBER 08: A man holds a poster of Saudi journalist Jamal Khashoggi during a … [+]
Garamendi is referring to Khashoggi, a Saudi citizen who was living in Virginia and was a columnist for The Washington Post. Khashoggi was killed during a visit to the Saudi Consulate in Istanbul, Turkey, on Oct. 2, 2018—the killing was said to be particularly brutal. His remains have never been found.
In 2018, the CIA concluded that Saudi Crown Prince Mohammed bin Salman ordered Khashoggi’s assassination, despite the Saudi government’s claims that he was not involved in the killing. In 2021, an intelligence report released by the Biden administration indicated that “an elite team of operatives helped carry out the killing” and that the “team reported directly to Prince Mohammed, who cultivated a climate of fear that made it unlikely for aides to act without his consent.”
The Saudi Arabia Public Investment Fund is backed by LIV Golf, led by Saudi Crown Prince Mohammed bin Salman.
“The notion that the Saudi Sovereign Wealth Fund would pay zero dollars in taxes on their blood money and potentially billions of dollars in profits while countless American families pay their fair share while struggling to make ends meet is ludicrous. My commonsense legislation would right this wrong and bring some much-needed accountability to this matter,” Garamendi said.
A spokesperson for Garamendi said there have been “several hundred positive messages” from constituents, and there has also been interest in the bill from his colleagues in the House who have asked to join as cosponsors. He noted that a Senator is also looking to lead the bill in the Senate.
But what about backlash? Garamendi’s office indicated that they have yet to face any serious opposition, adding that neither the PGA Tour nor the LIV had contacted the office as of yesterday.