About the Author: Mr. Conrad is a retired college Economics Instructor who is hoping to remove a lot of the confusion, misunderstandings, and myths that surround contemporary economic thinking.
Why are professional sports so lucrative to EVERYONE except the GOVERNMENT? The owners, the players, the media, and sports suppliers everywhere all benefit financially while the government doesn’t. In fact, the government LOSES tax revenues from most professional sports teams because the sports teams SPEND more than they receive in revenue. The quick answer is this is because of the TAX and ACCOUNTING ADVANTAGES they are allowed.
I’m sure it must be like a stab in the heart to some FANS and SPORTS ADVOCATES to have someone single out the luscious CASH COW to which they are so endeared. But, let me explain why they feel this way, and explain how we should change it.
All the travel, medical expenses, training table meals, equipment, the salaries of coaches, players, affiliated advisors and consultants, and the entire MEDIA which surrounds professional sports as well as the businesses which build stadiums and practice fields, equip teams, as well as provide transportation and overnight accommodations are all provided at TAX EXEMPT cost. What this means is that EVERY CENT that is EXPENSED by these teams – whether for travel, equipment, meals, or salaries; in addition to the salaries and contributions of businesses which provide supplies and services to them – is EXEMPT FROM TAXATION.
For those who aren’t familiar with GAAP (Generally Accepted Accounting Practices), the business-related EXPENSES of corporations and other business entities are allowed to be SUBTRACTED from the revenues they have received and the resulting number is called their NET INCOME. Then, they pay TAXES on that number; their NET income. That’s why, in many cases – especially PROFESSIONAL SPORTS – because their expenses EXCEED their revenues, many teams actually pay NO TAXES!
To make this point a little more clearly, think of it in individual terms. If everything you SPENT money on for food, shelter, clothing, education, transportation, and medical expenses you got to SUBTRACT from the amount of INCOME you received, then your TAXES were assessed upon the amount of the difference between the two, in many instances – perhaps MOST! – you would owe NO TAXES. As it is at present, INDIVIDUALS pay taxes on their GROSS (adjusted) INCOME not their NET INCOME.
What being able to deduct all the expenses you incurred from the revenue you are taxed on would provide you with is MORE MONEY to spend on things you want – maybe a new BOAT, or a new CAR, or a vacation in the BAHAMAS, or even to have your house painted or more stylishly LANDSCAPED – and LESS MONEY paid to the US government! What that means is that whatever you SPEND your revenue on comes out of taxes you WOULD HAVE PAID instead of IN ADDITION to taxes you owed. Is THAT a great system or what?
What this system means is that despite the fact that each of these professional sports teams RECEIVES a huge amount of revenue, they also SPEND a huge amount of it – in most cases, MORE THAN what they receive – to pay players, coaches, and the expenses of travel, meals, equipment for their teams. While it is true that all of the revenue received as INDIVIDUAL INCOME would then be taxed at individual rates, if this is done through a FOUNDATION or even if it is hedged by TAX EXEMPT investments or through TAX DEFERRED accounts, the total tax burden can be substantially reduced.
So when you think about PROFESSIONAL SPORTS as a great cash cow for those who are involved in it, you are right. But, the FEDERAL GOVERNMENT doesn’t receive much, if any, of that revenue in TAXES because the NET INCOME of most of these teams is ZERO or less. If they SPEND IT ALL, they avoid taxes. Wouldn’t that be a great system for ALL of us?