With Big Ten $2.4B deal looming, lawmaker asks questions about tax-exempt status of college sports

A lawmaker skeptical of the Big Ten’s proposed $2.4 billion deal with a private investor has requested a Congressional analysis of the tax consequences for the NCAA, its schools and conferences in the changing college sports industry.

“Legitimate questions have been raised about whether it is time to rethink the tax-exempt regime under which college sports currently operates,” Sen. Maria Cantwell, D-Wash., wrote in a letter Monday to the head of the Congressional Joint Committee on Taxation.

Last month, Cantwell sent a letter to Big Ten leaders warning that deals with private investors could have negative consequences, including impacting the schools’ tax-exempt status.

Her letter Monday asked for a more detailed look at how a number of changes impacting college sports could impact the longstanding tax-exempt standing held by those who oversee college athletics.

Among the questions from Cantwell, who is the ranking member on the Senate committee that oversees college sports, were:

— Whether Congress should consider rewriting tax rules for name, image and likeness collectives that work with schools to provide payments to players. She cited other analysis that has determined collectives don’t qualify as tax-exempt organizations.

— If there were measures Congress should consider “with respect to addressing excessive compensation for coaches” and the size of their buyouts.

— The tax implications for athletes if they are classified as employees or independent contractors.

The timing comes at a key moment for the Big Ten, which is facing resistance from the universities of Michigan and Southern California over a proposed $2.4 billion deal that would break off the league’s media rights and other properties and place them in a separate business that could negotiate deals through 2046.

Among the reservations Michigan and USC leaders have expressed about the deal are an uneven distribution of the funds from the deal and the overall impact of joining with a private investor.

“We greatly value our membership in the Big Ten Conference and understand and respect the larger landscape,” USC athletic director Jennifer Cohen wrote in letter to boosters last week. “But we also recognize the power of the USC brand is far-reaching, deeply engaging, and incredibly valuable, and we will always fight first for what’s best for USC.”

In her letter last month to the Big Ten leaders, Cantwell spelled out the stakes of selling part of the conference’s media rights.

“Your university’s media revenues currently are not taxed because they are considered ‘substantially related to’ your tax-exempt purpose,” she wrote. “However, when a private, for-profit investor holds a stake in those revenues it raises questions whether the revenue loses its connection to your institution’s educational purpose.”

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