Tax Preferences for Collegiate Sports
May 2009
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Preface
Colleges and universities generally qualify for preferential treatment under the federal income tax because their educational mission has important benefits for the public. But concerns have arisen that some activities undertaken by colleges and universities are only loosely connected to educating students and might be viewed as unrelated to the schools’ tax-favored purpose. Long viewed as an integral component of higher education, sports in many universities have become highly commercialized. The large sums generated through advertising and media rights by schools with highly competitive sports programs raise the questions of whether those sports programs have become side businesses for schools and, if they have, whether the same tax preferences should apply to them as to schools in general.
This Congressional Budget Office (CBO) paper, which was prepared at the request of the Ranking Member of the Senate Finance Committee, compares athletic departments’ share of revenue from commercial sources with that of the rest of the schools’ activities to assess the degree of their commercialization. It also discusses the benefits of intercollegiate sports programs and some of the issues that might arise if the Congress decided to alter the treatment of those programs in the tax code. In accordance with CBO’s mandate to provide objective, impartial analysis, the paper makes no recommendations.
Kristy Piccinini of CBO’s Tax Analysis Division and Dennis Zimmerman, formerly of the Tax Analysis Division, wrote the paper, under the supervision of Frank Sammartino and G. Thomas Woodward, formerly of CBO. Paul Cullinan and Joseph Kile of CBO and Brad Humphreys of the University of Alberta commented on early drafts, and Nabeel Alsalam of CBO provided help with the data. (The assistance of an external reviewer implies no responsibility for the final product, however, which rests solely with CBO.)
Sherry Snyder edited the study, and John Skeen proofread it. Maureen Costantino designed the cover and prepared the report for publication. Lenny Skutnik printed the initial copies, Linda Schimmel coordinated the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site.
Contents
Current Tax Treatment of the Activities of Colleges and Universities
Comparing Commercialization in Athletic Departments and Other University Activities
Commercial Activity in Athletic Programs
Commercial Activity in Other University Programs
Competition with For-Profit Entities
The Benefits of Collegiate Athletics
Limiting the Deduction of Charitable Contributions
Limiting the Use of Tax-Exempt Bonds
Limiting the Exemption from Income Taxation
Appendix: Research on Certain Benefits of Intercollegiate Sports
1. Sources of Revenue for NCAA Division I Athletic Programs, Academic Fiscal Year 2004-2005
2. Sources of Revenue for Schools in NCAA Division IA, Academic Fiscal Year 2004-2005
3. Net Profit or Loss of NCAA Division I Athletic Programs, Academic Fiscal Year 2004-2005
