Big Time College Sports Teams should lose their tax exempt status

 Was the focus on an opinion piece in the Washington Post, "It’s a strange ‘charity’ that pays fired football coaches $228M," calling attention to the high salaries of coaches and the outlandish costs of contract buyouts.  

In Pennsylvania, some county courts have ruled that the high salaries of nonprofit hospital presidents are such that local properties may/or not be eligible for tax exempt status, because the impact is similar to for profit hospitals ("“Eye-popping” executive salaries led these hospitals to lose their property tax benefits," Lown Institute).  But two years later, the Philadelphia Supreme Court reversed the decision ("Pennsylvania court rejects nonprofit hospital property tax exemptions," RSM).

One of the issues, is like with professional sports where private equity is increasingly buying into teams ("What is behind the growth of private equity in sports?," JPMorgan), is that the same thing is on the verge with college football and related sports.

In the past five years, private equity firms have acquired stakes in teams across all four of the major U.S. professional sports leagues (NFL, NBA, MLB and NHL), and nearly one in five teams now has some level of PE involvement. What’s driving this surge?

Sports team ownership was once the preserve of the uber-wealthy, and that is still largely the case. But as the total valuation of sports teams in the four major leagues approaches $500bn, and with the average NFL team valued around $7bn, some franchises are growing even beyond the means of the wealthiest buyers. Private capital investors taking minority stakes allow ownership and risk to be shared among a larger group of investors, bringing an infusion of cash for opportunities such as the development of stadiums and surrounding properties.

The University of California private equity investment fund wants to buy into the BIG Ten League ("Michigan is a hard no. Where does Ohio State stand on Big Ten private equity deal?" USA Today, "But some of the universities like Michigan, are opposed ("UC Investments puts $2.4 billion Big Ten deal on hold amid pushback from Michigan and USC," New York Times).  From USA Today:

As part of the proposed deal, UC Investments would earn 10% of the Big Ten’s media and sponsorship rights earnings for 15 years, after which it could sell its stake. The remaining 90% would be divided among the schools, with payouts varying based on a university’s earning potential.

... At a previously scheduled meeting of Michigan's Board of Regents in October, members Jordan Acker and Mark Bernstein criticized the idea of bringing private equity into the conference, calling the deal "reckless" and "short-sighted." Bernstein, the board's chairman, specifically compared the deal to a "payday loan."

One of those members went as far to say that Michigan would consider leaving the Big Ten when the current media rights deal expires in 2036 if the deal goes through without unanimous approval.

... USC has also expressed some concern with the deal, though it hasn't gone as far as Michigan. USC's issue seems to stem from its position outside the top tier of member institutions. The deal currently calls for a tiered distribution of funds based on a school’s market value. Ohio State, Michigan, and Penn State would be in the top tier and could receive as much as $190 million. The other schools would get anywhere from $110 million to $150 million.

But University of Utah, a decent football team but not often in the top 10, just pulled the trigger, and sold a portion of its sports operation to Otro Capital ("Utah approves partnership with private equity firm," ABC).  The expectation is that the sale will generate $500 million.

Otro Capital, based in New York, is the first for-profit company that will handle finances for Utes athletics. Decisions will still be made by athletic director Mark Harlan, but a new company called Utah Brands & Entertainment will oversee the department’s resources. Otro Capital will be a minority owner in Utah Brands & Entertainment. This will mark the first university partnership with a private equity firm in college sports.

(Rick Egan | The Salt Lake Tribune) Rice-Eccles Stadium on Saturday, Sept. 6, 2025.

Utah Brands & Entertainment will preside over tickets sales, stadium events, broadcasting, concessions, licensing, brand content and finance. However, coaches and athletes will remain with the athletics department. Fundraising will also remain with the school.

Also see "The risks and rewards of Utah’s private equity plans: Will others around college sports follow?," The Athletic.

Separately, Travis County, Utah is suing the University of Texas Club, a members-only private club that is an operation separate from the University, for property taxes ("Travis County sues UT Club over unpaid property taxes," Daily Texan).  It's reasonable as its a for profit business that happens to be located on nonprofit land.  There's really no public purpose.

Travis County filed the lawsuit on behalf of the Austin Independent School District, the city of Austin, Travis County, Travis County Health Care District and Austin Community College, which are all eligible to receive the county’s local property taxes, including taxes from the club, according to the lawsuit.

At the club’s cheapest membership level, it requires a $350 initiation fee and $125 monthly dues for non-faculty and staff members, according to the club’s website. It was recently renovated in 2024 and is the “epicenter of exquisite dining, first-class events, lively watch parties, vibrant social gatherings, and a celebration of Texas sports,” according to the website.

Increasingly, especially with massive television broadcast rights payouts, it seems that college football teams, and basketball, should be responsible for the payment of Unrelated Business Income Taxes (UBIT) as television revenues should not be considered a primary purpose of providing football as a university spectacle or opportunity for student athletes. 

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Also see "Stadiums and arenas as the enabling infrastructure for "money-making" platforms" (2014)

Know your market #2: DC commercial property incentives

In "Know your market" I commented on some pretty obvious disconnects between Utah and the products being hawked by some of the vendors.

Similarly, DC announces a tax freeze on downtown commercial space for "retail, grocery, or child care" ("D.C. launches ‘Office to Anything’ conversion tax incentive, commits millions," Washington Business Journal).

D.C. Mayor Muriel Bowser has opened up the application window for a new program aimed at revitalizing obsolete offices in or near downtown, offering developers a 15-year property tax freeze to convert their properties largely to nonresidential uses.

The program, dubbed “Office to Anything,” could create up to 2.5 million square feet in repositioned property, according to Bowser, who shared details Monday evening with members of the Business Journal's Power 100 list of influential area leaders.

“Operators were saying, ‘Well, what about us? We don’t want to do housing. We think that we have a different and better idea for a particular building. Can you work with us?’ So, that’s what Office to Anything is about,” Bowser said.

Office to Anything means just that: entertainment, hotel, retail and beyond. The incentive could also be used to renovate outdated offices into trophy space, a segment of D.C.’s office market that faces high demand but low supply. The program locks in a building’s real property tax rate for 15 years, starting either the year after the conversion is complete, or if requested by an applicant, the tax year the conversion is finished.

If because of WFH downtown visitorship is half of what it was, there's no market for retail or child care, until in 10+ years, there's more housing (note: I worked on projects in DC that took 13 years or 20 years or more to come to fruition.

Note: I have to acknowledge that given the fall off in the commercial property market, the Executive Branch is desperate for anything.  And this incentive program will have some impact.  OTOH, desperate projects as a way to fill up space isn't much better.  

The right project in the right space is hard to achieve but worth the wait.

Property tax exemptions and local hospitals: the Tower Health example

Photo: Ben Hasty, Reading Eagle.

Reading, Pennsylvania-based Tower Health, which started with Reading Hospital but like most hospitals grew into a larger network, including a misguided attempt to expand into Philadelphia and its suburbs by buying a set of community hospitals from a for profit hospital firm, which has been a financial disaster ("Tower Health records massive loss on St. Chris and other hospitals it bought in Philadelphia region," "Tower is selling Chestnut Hill Hospital, closing Jennersville, as it digs out from massive losses," Philadelphia Inquirer), is also dealing with a series of property tax cases.

When the hospitals were owned by a for profit firm, they weren't eligible for a tax exemption.  That changed when Tower Health, ostensibly a nonprofit, purchased them, costing localities including school districts a significant amount of tax revenue.

Chester County challenged the tax exemption for three hospitals which Tower Health is now selling or closing, while Montgomery County challenged the tax exemption for Pottstown Hospital, which is still operating ("Tower Health fights for its tax-exempt status, and local governments are watching," Reading Eagle).

The Chester County court ruled that Tower's exemptions were unjustified, although Tower is challenging the ruling, while Montgomery County's ruling was the opposite.

One of the points made in the Chester County case was that the hospital system doesn't really function much differently from a for profit hospital chain in that funds are redirected to the parent, and that the hospitals don't provide all that much free care for charity patients, merely provide care to people who have Medicaid or Medicare coverage anyway.  The judge relied on these points in making the decision.

The Montgomery case was based on compensation and incentives being based on for profit hospital metrics and were significantly out of line for nonprofits.

Separately I came across an article ("Sanford reports $65 million in payouts to former executives," Sioux Falls Business) about the "tie off" compensation being provided to the former CEO of South Dakota based Sanford Health which has multiple facilities in South Dakota and surrounding states, but as far afield as California.  

It's $46 million!!!!!!!!!!!!!!

Sanford Health is a nonprofit.

This definitely reiterates the point made by Montgomery County, Pennsylvania in its challenge of the property tax exemption for Pottstown Hospital.

2.  Payments in lieu of taxes/PILOTs.  Cities tend to have a preponderance of nonprofit institutions with property tax exemptions, which has a serious impact on municipal finance.  Some nonprofit institutions make an annual payment to cities to cover some of the costs that they impose.  

-- Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests, Lincoln Land Institute
-- "PAYMENTS IN LIEU OF TROUBLE: NONPROFIT PILOTS AS EXTORTION OR EFFICIENT PUBLIC FINANCE?," NYU Environmental Law Journal

But most officials complain that the payments generally come nowhere near compensating communities for costs incurred.

3.  Not all nonprofits may be tax exempt when it comes to property.  Generally, state law dictates whether or not nonprofits are entitled to property tax exemptions.  In most states it's categorical and an exemption is provided automatically.

By contrast, in DC, to receive a property tax exemption, the organization has to provide a high degree of service within the city, to the city.  For example, national trade associations or think tanks (Heritage Foundation, etc.) generally are deemed to not provide services to DC residents proper, so they aren't entitled to a property tax exemption.

It would be reasonable to create a "table of authorities" on the criteria for which nonprofits are entitled or not entitled to property tax exemptions, by use category/type of organization, for example hospitals, universities, etc.

The analogy would be how nonprofits can be taxed on "unrelated business income" which is generated by activities not related to the nonprofit purpose.