College basketball and football are big business — no one would deny that.  But should they be taxed like big business?  Although the NCAA and its member schools are tax-exempt not-for-proft organizations, such organization may nonetheless be taxed on “unrelated business income.”  So, the question is whether big-time college sports programs are related to the educational mission of the universities that host them.

Matt Mitten, James Musselman, and Bruce Burton argue “yes” in a new article — because sports programs advance a wide range of legitimate university objectives, sports revenues should retain their tax-exempt status.  Based on a number of case studies, they conclude that the benefits to universities of improved athletic programs may include “attracting high-quality faculty and students, generating donations and enrichment, reconfiguring [] campus identities, and enhancing institutional political clout.” 

Although Matt and his coauthors do not believe that tax law is the right way to reform college athletics, they recognize a need for changes to better protect student-athletes from exploitation.  They would promote reform through a new, conditional antitrust exemption for the NCAA and its members. 

Their article, entitled “Commercialized Intercollegiate Athletics: A Proposal for Targeted Reform Consistent with American Cultural Forces and Marketplace Realities,” was recenly published at 2 J. Intercollegiate Sport 202 as part of a symposium on tax law and athletic reform.  The abstract appears after the jump. 

This article observes that American society’s passion for intercollegiate sports competition is an extremely powerful, naturally evolved cultural force. The marketplace responds to cultural forces, and the commercialization of college sports directly reflects the marketplace realities of our society. For example, colleges and universities rationally use their intercollegiate athletic programs, particularly NCAA Division 1 FBS football and basketball, as a means to achieve a wide range of legitimate objectives of higher education. Thus, the authors advocate that university athletic department revenues should continue to be exempt from federal taxation, specifically the unrelated business income tax (UBIT), despite the increasingly commercialized nature of intercollegiate sports. However, the commercialization of intercollegiate athletics creates the potential for conflict with a university’s academic mission and the risk that student-athletes may be exploited. The authors propose that Congress provide the NCAA and its member universities with a limited exemption from the federal antitrust laws conditioned upon targeted reforms that will 1) ensure that intercollegiate athletics are primarily an educational endeavor; 2) better enable student-athletes in revenue-generating sports to obtain the benefit of their bargain; and 3) protect and maintain student-athletes’ intercollegiate athletics participation opportunities in nonrevenue generating sports.