Buckle your seatbelts

thejazzcat

HR Heisman
Sep 25, 2001
5,051
4,502
113
A couple of things about this -

First, having paid employees is not the problem. Hospitals, churches, schools - all have employees. The difference here is that the employees are being paid to advance the exempt purpose of the not-for-profit. A football player is not.

Second, it doesn't have to be a separate entity to be taxable. Tax exempt organizations have something called UBIT (Unrelated Business Income Tax). Many, if not all, complex exempt organizations have to deal with this tax all the time. One of the most common issues is advertising - the Football Program, for example, probably already creates UBIT issues because the sale of advertising is not related to the exempt purpose. This article explains it pretty well. The tax rate is a flat 21% on the net income generated by the unrelated activity.

https://www.aicpa.org/resources/article/unrelated-business-income-taxes-ubit-in-a-nutshell

So, why would paying employees trigger the loss of exempt status? Because these athletic programs were already on thin ice over a decade a go. Athletes receiving direct compensation instead of playing football as a part of their commitment to the school for academic reasons. would like be enough to push it over the cliff.

And finally, employee players "might" have to pay taxes? It's a mortal lock that they will. Unless it's a small enough amount that they can consider it part of the scholarship (total cost of attendance).
UBIT is related to how income is earned, and nothing in any proposals I've seen changes that; IE, there are no new income streams being discussed, rather ways to distribute the income, which is not a UBIT issue. That's why NIL can't be generated by, and paid by, the university (man, that'd be a quagmire!). As to the players paying taxes, you're right - that's a lock and totally fair.
 

Hawk_4shur

HR Legend
Jan 2, 2009
14,791
19,240
113
UBIT is related to how income is earned, and nothing in any proposals I've seen changes that; IE, there are no new income streams being discussed, rather ways to distribute the income, which is not a UBIT issue. That's why NIL can't be generated by, and paid by, the university (man, that'd be a quagmire!). As to the players paying taxes, you're right - that's a lock and totally fair.
It's not just the income stream.

Right now, schools are getting by on the idea that playing football is a part of the education of the athlete and so revenue generated by the athletes and teams goes to serve the exempt purpose. If athletes get paid to play, than the idea of an exempt purposes goes away.

Put another way, I think paying players could be the "last straw" for the IRS. Hello UBIT.
 

thejazzcat

HR Heisman
Sep 25, 2001
5,051
4,502
113
Just to start - this post is about paying players, not NIL...so all you NIL police don't need to tell me that NIL isn't about the schools paying the players. I get that, but it's not what this thread is about.


I don't really care about the tax thing. The real impacts will be on non-revenue sports and title IX. As employees, I think there's a good possibility that title IX will no longer apply. There's no need for equal scholarships which will greatly reduce the number of women's sports needed to balance out all those football schollys.

In addition, the revenue to pay players has to come from somewhere. Hey, football in raking in the cash, so no problem, right? Wrong. A bunch of that money is used to pay the cost of the non-revenue sports. So what do you do? Cut the non-revenue sports. Cutting men's non-revenue again reduces the title IX need for corresponding schollys for women's sports.

Also, they're employees now...how do you enforce the need for them to attend classes? I'd expect that to drop eventually too.

So the net effect will be semi-pro "college" football where the players are not college students, but are paid employees of the schools. The non-revenue sports will go away to fund the football players' salaries.

Oh...and you wrestling fans? No worries because our wrestling program is massively popular and isn't a money loser, right? Don't bet on it. Unless there are a bunch of other schools where it's as popular as it is at Iowa, they'll mostly be dropping it too. It doesn't matter if it's a revenue sport here if all the opponents drop the sport.

Who knows for sure how this will end up, but the law of unintended consequences says college sports across the board will be very different in the next couple decades.
Lots of great points here. I also think the greatest pressure will be on the non revenue generating sports. IMO, you ask absolutely the right question - where will the money come from? For a second let's assume that they'll want to keep as many Olympic sports as possible. Where would the money come from then? Salary reductions? Haha. I just had a vision of pro sports tickets and concessions flash through my mind. But there would certainly be headwinds there given overall attendance challenges. So we're back to program eliminations? Probably. Whatever direction this goes, this will widen the gap between the haves and have nots in historical fashion. The fact that there is no credible governing body to guide the process is part of the potential tragedy. You said it right - this will be unintended consequences on steroids.
 

thejazzcat

HR Heisman
Sep 25, 2001
5,051
4,502
113
It's not just the income stream.

Right now, schools are getting by on the idea that playing football is a part of the education of the athlete and so revenue generated by the athletes and teams goes to serve the exempt purpose. If athletes get paid to play, than the idea of an exempt purposes goes away.

Put another way, I think paying players could be the "last straw" for the IRS. Hello UBIT.
I understand that (I've worked in the charitable field as a CAP for 35 years). There's no question that the charitable missions will be challenged, but I'd be shocked at the end of the day if that doesn't get successfully wordsmithed.

Right now, schools are getting by on the idea that playing football is a part of the education of the athlete and so revenue generated by the athletes and teams goes to serve the exempt purpose.

From the overall perspective of ALL collegiate sports programs, this would still be true. Paying the players of the revenue generating sports wouldn't change that overarching benefit to the university. Whether or not the legal arguments can be successfully made remains to be seen - but I'd bet that's the argument that will be made. And I'd also bet they'd be successful.
 

Hawk_4shur

HR Legend
Jan 2, 2009
14,791
19,240
113
I understand that (I've worked in the charitable field as a CAP for 35 years). There's no question that the charitable missions will be challenged, but I'd be shocked at the end of the day if that doesn't get successfully wordsmithed.

Right now, schools are getting by on the idea that playing football is a part of the education of the athlete and so revenue generated by the athletes and teams goes to serve the exempt purpose.

From the overall perspective of ALL collegiate sports programs, this would still be true. Paying the players of the revenue generating sports wouldn't change that overarching benefit to the university. Whether or not the legal arguments can be successfully made remains to be seen - but I'd bet that's the argument that will be made. And I'd also bet they'd be successful.
Excellent - glad to have an expert in the dicussion.

I am of the opinion that athletic depts, like Iowa, are on the razor's edge of UBIT issues today. So, today, when athletes are given scholarships to compete it can be argued that it's part of the mission to educate these students and bring attention to the overall mission of the U.

But, if the athletes are paid directly from the University to play football to raise money, how is that picture a part of the exempt function of a university?

Music majors perform at Hancher and tickets are sold. But these are actual Music majors. And, the performers don't get paid.

There are no Football majors. The initial idea of students playing football is completely gone.

It would be like the University hosting a Monster Truck rally with Engineering students, but the students are getting paid to build and compete Monster Trucks.

Of course, the premise of UBIT is that the activity is profitable. Paying football players to play may put an end to that anyway.
 

thejazzcat

HR Heisman
Sep 25, 2001
5,051
4,502
113
Excellent - glad to have an expert in the dicussion.

I am of the opinion that athletic depts, like Iowa, are on the razor's edge of UBIT issues today. So, today, when athletes are given scholarships to compete it can be argued that it's part of the mission to educate these students and bring attention to the overall mission of the U.

But, if the athletes are paid directly from the University to play football to raise money, how is that picture a part of the exempt function of a university?

Music majors perform at Hancher and tickets are sold. But these are actual Music majors. And, the performers don't get paid.

There are no Football majors. The initial idea of students playing football is completely gone.

It would be like the University hosting a Monster Truck rally with Engineering students, but the students are getting paid to build and compete Monster Trucks.

Of course, the premise of UBIT is that the activity is profitable. Paying football players to play may put an end to that anyway.
I don't necessarily disagree with your points, in today's context. Where I'm coming from is from observing decades of evolving and changing tax code. What is being discussed is a fundamental shift in collegiate sports. Would it fit in today's code? To your point - likely not. But if history is a guide, proposals will be made, positions will be taken, and arguments made and debated. And changes will inevitably be made. This is like plugging 220 into a 110 outlet, which clearly doesn't work. My guess is that the wiring will be changed to 220.

Similarly, I still don't understand the concept of professional amateur athletes in the Olympics. But somehow, all that language got parsed. And we now have very professional athletes playing "amateur" sports. I could research it and see where the code was changed, but I don't really care to and it's not the point. The point is that the changes were made to accommodate the reality that amateurs were getting paid. And now we have actual pros in the Olympics. I have zero idea how all of the legitimate questions being asked will be answered, but I think it will get done somehow, someway. And I'm doubtful we'll recognize it as anything resembling what we see today.
 
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Hawk_4shur

HR Legend
Jan 2, 2009
14,791
19,240
113
I don't necessarily disagree with your points, in today's context. Where I'm coming from is from observing decades of evolving and changing tax code. What is being discussed is a fundamental shift in collegiate sports. Would it fit in today's code? To your point - likely not. But if history is a guide, proposals will be made, positions will be taken, and arguments made and debated. And changes will inevitably be made. This is like plugging 220 into a 110 outlet, which clearly doesn't work. My guess is that the wiring will be changed to 220.

Similarly, I still don't understand the concept of professional amateur athletes in the Olympics. But somehow, all that language got parsed. And we now have very professional athletes playing "amateur" sports. I could research it and see where the code was changed, but I don't really care to and it's not the point. The point is that the changes were made to accommodate the reality that amateurs were getting paid. And now we have actual pros in the Olympics. I have zero idea how all of the legitimate questions being asked will be answered, but I think it will get done somehow, someway. And I'm doubtful we'll recognize it as anything resembling what we see today.
Excellent point.

College football has evolved over decades, and will continue to evolve. It's like putting your hand in warm water and turning up the heat - soon your hand is burning but you didn't really see it coming.

A decade ago I propose a "tax" on college football programs. A % of revenue would go to the general fund to support the U as a whole. It would be a progressive payment so the Iowa's and OSU's of the country would pay a lot more to their general fund than Iowa State. It would help schools and level the playing field in football and basketball.

I guess I still like the days when college students played football, rather than professional athletes going to school (or not). But -

Those were the days my friend
We thought they'd never end
We'd sing and dance forever and a day
We'd live the life we choose
We'd fight and never lose
For we were young and sure to have our way
 
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