11.17.25

Cantwell Asks Key Policy Questions About the Tax-Exempt Status of College Athletics Revenue

In letter to Joint Committee on Taxation, Cantwell seeks assistance on developing policies to address the tax implications of college sports revenues, including buyouts for fired coaches

WASHINGTON, D.C. – Today, U.S. Senator Maria Cantwell (D-WA), senior member of the Senate Finance Committee and ranking member of the Committee on Commerce, Science, and Transportation sent a letter to Thomas A. Barthold, Chief of Staff of the U.S. Congress Joint Committee on Taxation, requesting the committee’s assistance in analyzing the implications of maintaining the tax-exempt status of college athletic revenue.

“Given the evolving market dynamics of college sports coupled with changes in the legal framework affecting college athletes, legitimate questions have been raised about whether it is time to rethink the tax-exempt regime under which college sports currently operates,” Sen. Cantwell wrote.

In the letter, Sen. Cantwell also asked committee staff to determine whether Congress should consider measures "to address excessive compensation paid to coaches or other athletic department personnel who are fired (i.e. buy outs)." Just this season, combined buyouts for fired Division 1 football coaches have already approached $200 million.

Sen. Cantwell has been deeply involved in legislative efforts regarding college sports. In September, Sen. Cantwell joined Sen. Cory Booker (D-NJ) and Richard Blumenthal (D-CT) in introducing the Student Athlete Fairness and Enforcement (SAFE) Act to codify athletes’ rights and protections in law, expand revenue for all schools, support women’s and Olympic sports, and bring much-needed stability to the college sports system.

In late October, Sen. Cantwell joined a virtual press conference with former college and professional athletes to defend college athletes’ rights against efforts to strip away protections in the 9-0 Supreme Court Alston ruling and the Grant House vs. NCAA settlement.

Also in September, she wrote to the presidents of the Big Ten schools warning of the dangers of selling university assets to private equity firms. That same month Sen. Cantwell released a report showing how skyrocketing media rights payments have exacerbated a massive financial gap between traditional power conferences, especially the new Power 2—the SEC and Big Ten—and everyone else. In August, she wrote to the presidents and chancellors of more than 350 Division I universities and their governing bodies, warning that the SCORE Act - currently before the House of Representatives - would further cement current inequities in college athletics and consolidate power with the SEC and Big Ten. On July 15, Sen. Cantwell and Rep. Michael Baumgartner (R, WA-05) sent a letter strongly opposing the bill.

The full text of the letter is below and HERE.

Thomas A. Barthold, Chief of Staff Joint Committee on Taxation

502 Ford House Office Building Washington, DC 20515

Dear Mr. Barthold,

I write to request the assistance of the Joint Committee on Taxation staff as I work to develop legislative proposals that address the tax implications associated with the future of college athletics.

The legal and financial landscape of college sports has changed substantially over the years and it now is a multi-billion dollar industry1 whose growth and potential growth have attracted the attention of private equity and venture capital investors.2

Unlike professional sports, however, the NCAA and athletic conferences operate as tax-exempt organizations because they are under the umbrella of the tax-exempt educational institutions with whom they are affiliated.

Given the evolving market dynamics of college sports coupled with changes in the legal framework affecting college athletes, legitimate questions have been raised about whether it is time to rethink the tax-exempt regime under which college sports currently operates.3

In order to assist me and other Members of the Senate Committee on Finance, I respectfully request the Joint Committee on Taxation staff prepare background on the present law governing the taxation of colleges and universities including the application of the existing UBIT regime on the activities of these institutions.

In addition, please include a discussion of the policy considerations for Congress going forward in light of the changing financial and economic landscape of college athletics.

As part of this analysis, please include the following key issues:

    • The implications of no longer allowing the NCAA, member institutions, and their affiliated athletic conferences to operate as tax-exempt organizations.
    • The implications of subjecting revenues from college athletic activities to unrelated business income tax (UBIT), including the impact of such changes on the underlying financial operations of colleges and universities.
    • In Chief Counsel Memorandum AM 2023-004 and several recent private letter rulings, the IRS has determined that most NIL collectives primarily provide private benefits to student athletes, and as a result, they do not qualify as tax-exempt organizations. Should Congress consider codifying tax rules with respect to the operation of NIL collectives?
    • Has the IRC Section 4960 excise tax been effective in reigning in excessive compensation to college coaches? Are there other measures Congress could consider with respect to addressing excessive compensation for coaches? Are there measures Congress could consider to address excessive compensation paid to coaches or other athletic department personnel who are fired (i.e. buy outs)?
    • As athletes now have the right to earn compensation for their name, image, and likeness (NIL) and be compensated directly by the schools, how would the tax implications for the athletes differ depending on whether they ultimately are classified as employees or independent contractors for tax purposes?

It is important that the Congress be proactive in determining the tax rules that should apply as stakeholders adapt to these changing market dynamics, especially given that so much of this activity currently is tax advantaged.

Thank you for your timely consideration of this request. If you have questions, please feel free to contact Lauren Bazel (lauren_bazel@cantwell.senate,gov) on my personal staff or Shannon Smith (Shannon_smith@commerce.senate.gov) with the Senate Commerce Committee staff.

Sincerely,