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The PGA Tour's nonprofit business model has allowed it to avoid paying up to $200 million in federal taxes over the past 20 years, and its tournaments -- designed to benefit local charities -- operate in ways that fall short of acceptable charitable practices, an "Outside the Lines" analysis of IRS data finds.
The tour's charitable giving is a centerpiece of its golf events, tournament telecasts and website. The professional golf organization touts nearly $2 billion in donations over 75 years.
Yet that philanthropy has been bolstered by millions of dollars of annual tax breaks for the PGA Tour and its tournaments, which often are run by charities that spend far more on prizes, catering and country clubs than they do on sick kids, wounded vets or economic development. In one case, running a PGA tournament actually caused a charity to lose money -- more than $4.5 million over two years, the analysis found.
"Outside the Lines" analyzed the tour's U.S.-based tournaments that received charitable tax exemptions in 2011 (the most recent year available) and found they spent, on average, about 16 percent on actual charity. That figure is far below the minimum 65 percent that charity watchdog groups say makes for a responsible charity.
One of the groups, Charity Navigator, gave a "zero rating" to each of the tournament charities it reviewed for "Outside the Lines."
"The lion's share of the money is going to big prizes, cash prizes for athletes and all the promotion around it, so it's really pathetic, actually," Charity Navigator president Ken Berger said. "Every single taxpayer in this country ultimately is bearing the burden of having to pay the taxes for this wildly inefficient organization that's giving so little to charity."
But questioning the PGA Tour's nonprofit status and charitable giving is disingenuous considering how much it has donated over the years -- far exceeding any tax breaks it may get, PGA spokesman Ty Votaw told "Outside the Lines."
"It's as if no good deed goes left unpunished," he said. Votaw declined an in-person interview but answered some questions via email and on the phone.
Tour officials don't dispute that the percentage donated to charity is low, but they say it simply shouldn't matter. What's more important is the bottom line, Votaw said.
"This isn't a bake sale where there is no overhead and everything is contributed," he wrote in email. "A tournament is a major undertaking that requires significant planning, setup and operation, all of which requires significant expense beyond the time contributed by volunteers."
He said that the tour's commitment to charity is "unprecedented in professional sports;" its donations dwarf the $368 million the NFL says it has spent on charity over the past 40 years.
But Berger and others say such donations aren't possible without such big tax breaks.
"There's no evidence that I can see that this couldn't be just as equally done by a for-profit that pays taxes," Berger said.
At least one congressman agrees: Sen. Tom Coburn, R-Okla., has a bill pending in the U.S. Senate that would strip the league offices of the PGA Tour, NFL, NHL and a handful of smaller pro sports leagues of their nonprofit, tax-exempt status.
"People are surprised ... 'You mean there's a place in the tax code for the PGA or the NFL to hide and not pay money?' And the fact is, is yes," Coburn said.
The PGA Tour stands out, he said, "because they're the one that takes the largest advantage" of the tax exemption. The NBA has always been a for-profit corporation, and Major League Baseball ended its nonprofit status in 2007.
On the PGA Tour's website, the very first tab -- "Charity" -- takes readers to a page where they can see the charities each tournament supports. The charities range from big names such as St. Jude Children's Research Hospital and Shriners Hospitals for Children to a scholarship program for caddies and local United Way chapters.
Using tournaments to raise money for charity dates to a $10,000 donation made by the Palm Beach Invitational in 1938; running each tournament as a charity became PGA Tour policy in 1979. That charitable structure helps attract sponsors, volunteers and fans, Votaw said.
"It's a means to an end, and the end is to benefit any number of charities that, in turn, help countless lives," he said.
Here's how it works: Take the FedEx St. Jude Classic in Memphis, Tenn. A nonprofit by the name of Youth Programs Inc. was formed in 1960 as a 501(c)(3) organization, which is the same public charity category as your local humane society, cancer research fundraising group, homeless shelter or Boys & Girls Clubs.
On its publicly available IRS form, the purpose of Youth Programs Inc. is to "host an annual professional PGA Tour sports event for the benefit of charitable organizations." In 2011, it made $15.3 million, about 89 percent of that from the golf tournament. It spent $15.3 million, which included about $6 million in prize money for the golfers and $5 million in TV promotion. It spent close to $1 million on tournament production and $500,000 on food and beverages, most likely at a discount, because Youth Programs is also exempt from paying sales tax in Tennessee.
The amount actually spent on charity -- the money given to St. Jude's -- was $1.5 million, or 10 percent of tournament expenses. Only $253,742 of that was actual cash to the research hospital. The rest went to St. Jude ads aired during the televised tournament, pro-am entry fees and air travel for celebrities.
Youth Programs Inc. president Jack Sammons declined a request for an interview.
Twenty-five of the tournaments on the primary PGA Tour circuit are arranged as 501(c)(3) public charities or private foundations, although not all of them account for tournament expenses in the same way. (The rest are either not run by a nonprofit, take place outside the United States or are run directly by the PGA Tour.) IRS rules loosely dictate how the money raised has to be spent, but charity watchdog groups have set standards to determine what a responsible charity is, and Charity Navigator says -- at a minimum -- 65 percent of the money raised should be spent on providing actual charity.
The 501(c)(3) tournaments average about 16 percent. Only one -- the AT&T Pebble Beach National Pro-Am -- run by the Monterey Peninsula Foundation, exceeded the standard. It's a private charitable foundation and it spent about 79 percent of its money on grants to various charities.
The worst performance came from the Shriners Hospitals for Children Open in Las Vegas, which is a unique case because the hospital itself runs the tournament. Over two years, the hospital actually lost $4.5 million running the tournament, according to the institution's annual financial report. A hospital statement released to "Outside the Lines" through the PGA Tour states that the tournament provides valuable media exposure for the hospital that costs less than if the hospital had to pay for a similar exposure level.
The IRS records of other tournaments' finances raise other red flags, including some higher-than-standard salaries, contractors tied to board members or directors, and questionable expenses, such as the Waste Management Phoenix Open paying almost $650,000 to Waste Management of Arizona for trash removal.
"I think it's really awful. I think that it's deceiving the public, and that it's a house of cards that eventually will fall," Charity Navigator's Berger said.
While Berger doesn't hold back his criticism, charities that benefit from the tournaments are not necessarily complaining that they are not getting shares closer to acceptable industry standards.
The charity directors interviewed by "Outside the Lines" were all generally positive about the tournaments, with one exception of a charity manager -- who declined to comment -- who pulled his charity out of a tournament because he didn't feel like the financial benefit was worth the time involved.
It's common for local charities that get donations from tournaments to provide volunteers to help with crowd control, hospitality and course maintenance.
For example, youth from the Boys & Girls Club of Truckee Meadows in Reno, Nev., help pick up trash along the course during the Reno-Tahoe Open. The club, which has a budget of about $6 million, got $5,000 from the tournament in 2011, but chief professional officer Mike Wurm said he's grateful for every dollar.
"I will tell you it's not just the money, that the other parts of the experience -- exposing kids to an activity they wouldn't be exposed to -- that has a high value for us," he said. He said being tied to the tournament also raises the club's profile and fosters partnerships with other organizations, two intangibles often mentioned by PGA Tour officials as well.
Wurm said he runs his organization as efficiently as possible, spending 80 percent of the money to directly help children. That's unlike the tournament foundation that donates 3 percent to actual charities. But Wurm said he wouldn't criticize tournament officials for not reaching that same standard. He said the tournament benefits the local economy, especially in a region that was one of the worst hit nationwide by the recession.
"It's better to have what we have than have nothing at all, so I would hate to have some standard that would drive them out of here," he said. "It would be terrible to lose that event for this community."
Although Berger argues that the tournaments can and should donate more if they operated as regular businesses, Votaw said that losing the tax-exempt status would have a "chilling effect on the PGA Tour's ability to continue to contribute millions of dollars to charity."
"The objective of a for-profit corporation is to enrich its owners," he said. "We prefer to enrich communities. The tax laws also do not incentivize for-profit corporations to make significant gifts to charity."
Sen. Coburn's bill -- the PRO Sports Act -- has not made it out of committee, has no co-sponsors and is a long shot to even make it to a Senate vote. But the PGA Tour last year poured a half-million dollars into lobbying Congress regarding its tax exemptions. The NFL spent about $60,000.
Coburn thinks the basic structure of such leagues is simply unfair.
|U.S. Sen. Tom Coburn, R-Okla., has not had much support in his effort to end the nonprofit statuses of pro sports leagues, but his bill is pending in the Senate nonetheless.|
Pro sports leagues are categorized as 501(c)(6) nonprofit business leagues, the same designation as Rotary clubs, chambers of commerce, and the American Bar Association. According to data pulled by nonprofit analysts at Guidestar, NFL commissioner Roger Goodell's $11.5 million base salary in 2011 was the highest among all nonprofit business league officers, with PGA Tour commissioner Tim Finchem coming in at No. 5 with $4.1 million.
The PGA Tour's nearly $1 billion in revenue ranks second among all similar nonprofits and is far above the almost $200 million reported by the NFL, whose individual teams and for-profit divisions are separate from the nonprofit league office, Guidestar figures show.
"You know any rotaries that run hundreds of millions of dollars through their organization every year? And that the people who participate in it make salaries in excess of millions of dollars every year, the best members of the Rotary club?" Coburn said. "No, we don't."
Many people take the "nonprofit" designation an organization has as meaning it cannot keep any money it makes above expenses. But that's not true. The PGA for years has carried over profits -- to the tune of $700 million as of 2011. A feature on Finchem this year in Forbes magazine cites the tour's savings as giving the tour a "competitive advantage" that preserved its TV contracts even as corporate sponsors wavered in a shaky economy.
That $700 million is likely what the tour would have paid taxes on were it not structured as a nonprofit, said Brad Borden, a tax law professor at Brooklyn Law School in New York, who reviewed the tour's finances for "Outside the Lines."
"It seems very unfair ... at a time when [the government is] cutting services, they are also providing a subsidy to professional athletes who are playing a game. And this is very troubling."
He and other tax law experts estimated that the PGA Tour was responsible for up to $200 million in lost tax revenue over the past 10 to 20 years. That's based on applying a corporate tax rate to the PGA Tour's retained earnings with some reductions figured in, a similar methodology a Congressional tax estimator used to determine the future impact of Coburn's bill at $109 million over 10 years for all nonprofit sports leagues.
Eliminating that exemption is not going to solve the $17 trillion federal deficit, but Coburn said it's an important step in ending pro sports subsidies, which include tax breaks and public financing for stadiums and sporting events, and low-interest loans.
"We shouldn't be getting entertained at the expense of our kids and the middle-income and lower-income in this country," Coburn said.
The PGA Tour's individual tournaments, which are structured as tax-exempt charities themselves, also are free from paying sales and property taxes in some states.
Votaw says it's not fair to combine Coburn's attempt to take away the tour's nonprofit status with an examination of its individual tournaments -- which would not lose their tax-exempt status under the provisions in Coburn's bill.
"We believe that Sen. Coburn's bill would have a chilling effect on the amount of money raised for charity while generating very little in additional tax revenues," Votaw said. "Sen. Coburn has spent a lifetime trying to reduce the size and scope of government and believes in a strong private sector. If charity is chilled as a result of his proposed bill -- and we believe it will be -- the local organizations that benefit from the PGA Tour will likely turn to government for help.
"In many respects, the tour is the embodiment of what Sen. Coburn believes in. The cost of the exemption is negligible, but the private sector support for charity that is generated is extraordinary and unprecedented in professional sports."
Producer Arty Berko of ESPN's Enterprise and Investigative Unit contributed to this report.