As the Universities of Texas and Oklahoma prepare to reap millions this weekend during their annual shootout in Dallas, the National Collegiate Athletic Administration is preparing a response to a possible federal challenge to the tax policy that facilitates the universities’ financial windfall.
This Indy Star.com article reports that the House Ways and Means Committee has delivered an eight-page letter to NCAA President Myles Brand demanding that the NCAA justify why the multi-billion dollar business of big-time college sports deserves its education-based tax exemption (related Miami Hawk Talk post here; also see this Sports Law Blog post). The letter observes in part:

“Educational organizations comprise one of the largest segments of the tax-exempt sector, and most of the activities undertaken by educational organizations clearly further their exempt purpose. The exempt purpose of intercollegiate athletics, however, is less apparent, particularly in the context of major college football and men’s basketball programs.” [. . .]
“To be tax-exempt . . . the activity itself must contribute to the accomplishment of the university’s educational purpose (other than through the production of income). How does playing major college football or men’s basketball in a highly commercialized, profit-seeking, entertainment environment further the educational purpose of your member institutions?”

As noted here (see also here and here), NCAA member institutions sold out long ago to the owners of professional sports franchises by effectively agreeing to subsidize minor league systems in football and basketball for the owners. The education-based tax break fuels the raising of funds necessary to capitalize that system, and directly benefits the owners of professional sports franchises who do not need to allocate capital to development of minor league systems because of the NCAA members’ cooperation in doing it for them. The contrast between college baseball — a thriving but relatively small economic model that competes for players with a well-developed minor league professional system — and college football — a booming industry (at least for a relative few universities) that does not compete with a minor league for players — reflects the high stakes involved for everyone involved in the current system.
My sense is that nothing will come of this current Congressional inquiry because — as one of Larry Ribstein’s colleagues points out in the article — politicians from states that thrive on big-time college sports would probably never allow the gravy train to end. Moreover, foreign professional leagues in basketball are creating a minor-league system in that sport that is changing the nature of college basketball for the better, so arguably markets will eventually work to mitigate the hypocrisy of the current system, anyway. But given the extraordinary run-up in the value of National Football League franchises over the past couple of decades, don’t you think it’s about time that universities quit subsidizing a part of that growth?