The PGA Should Not be Tax Exempt And Its Advertising Revenues Should Be Taxed

Charles Luther Sifford (June 2, 1922 – February 3, 2015) was the first African American to play on the PGA Tour.

If LIV Golf wins in its antitrust suit against the Professional Golf Association, which seems very likely even to an antitrust neophyte, the PGA will have to pay taxes on nearly $1 billion advertising revenue, some of which it earned just last weekend. Because only in the world of exempt organizations is selling media access to marketers not a business. In the tax exempt world, marketers are just altruistic "sponsors" and alakazahm(!), their "sponsorship" payments are not unrelated business income!  So the PGA needs its exempt business league status, unlike the NBA and the NFL where advertising revenue is largely taxable to the teams.  

Trouble is, the PGA has for most of its history, enjoyed questionable, at best, entitlement to exemption.  Unless one thinks excluding market participants by race "improved business conditions" as required by (c)(6).

Golf has always been a sport enjoyed by "gentlemen," and Black men were anything but gentlemen in the eyes of the PGA.  The only African Americans at PGA events were caddies, busing tables or picking up towels in the locker room. PGA was following the norm at the time.  Thurgood Marshall had to go all the way to the Supreme Court to vindicate Alfred "Tup" Holmes' right to play golf at a City of Atlanta Golf Course (the "Bobby Jones" course) now named after Tup. That was only a year after Brown v. Board of Education.  Fortunately, or maybe not for those of us whose lives were just fine before that damned little white ball, golf is no longer restricted to gentlemen.  And, since Tub first played, the PGA has been legitimately tax exempt under IRC 501(c)(6).  Or at least it had the better of the argument.  Most of the big money professional sports associations have voluntarily relinquished tax exempt status, something they would not have done no doubt if they were not otherwise able to zero out their incomes. 

Tub, Charles Bell and Oliver Wendell Holmes, preparing to tee off in 1955 at North Fulton Golf Course, the same year the Supreme Court ordered Atlanta to desegregate is public golf courses.  From Public Radio WBUR

IRC 501(c)(6) exempts business leagues from the corporate tax.  The regulations confirm intuition:  a business league can't benefit just one industry participant.  "Thus, its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons."  Most people know that a new professional golf association, LIV Golf, is funded by Saudi oil money, a fact that creates a public relations problem for the wealthy upstart association.  Critics point out that the Saudi sponsorship is accomplished with the same money that paid for "the killing of Saudi Arabian journalist Jamal Khashoggi, who was killed inside the Saudi consulate in Istanbul."   And also that FBI documents suggest, if not prove, Saudi money helped finance 9/11.  Even Tiger turned down a guaranteed payday of nearly $1 billion to play in a LIV event.  

Well, it turns out, the PGA is very patriotic and shortly after LIV Golf announced it was hosting professional tournaments, with purses big enough to rival, if not exceed purses at PGA events, PGA announced that players who participate in LIV golf tournaments could just forget about playing in PGA events.  The Masters, by the way, is not a PGA event so we saw LIV players competing in that tournament.  In fact, none of the four major golf tournaments, though PGA sanctioned, are owned by PGA.  And once the Masters' said LIV golfers could compete, so too did the PGA Tournament (also separately owned) and the remaining two major golf tourny owners. Still, all PGA owned events exclude LIV golfers.  You can see where this is going.  A business league that flexes its monopolistic power to crush certain competitors related to the business league's purposes -- like the PGA is trying to do -- is hardly concerned about improving the industry.  Its just working to exclude a market participant and presumably to maintain its monopoly.  

But look this is not a hard case case and the Service should have already yanked PGA's tax exemption for even having a rule, much less enforcing the rule.  It doesn't need an official ruling that PGA is a monopoly or is engaging in anti-competitive behavior. But a finding of liability pretty much proves that PGA would not meet (c)(6).  No wonder it is litigating when it doesn't have a snowball's chance in Florida.  Phil Mikelson and a bunch of other top golfers, by the way, recently sued PGA for anti-trust violations.  Here is the gravaman of the complaint:

As part of its carefully orchestrated plan to defeat competition, the [PGA] Tour has threatened lifetime bans on players who play in even a single LIV Golf event. It has backed up these threats by imposing unprecedented suspensions on players (including the Plaintiffs) that threaten irreparable harm to the players and their ability to pursue their profession. It has threatened sponsors, vendors, and agents to coerce players to abandon opportunities to play in LIV Golf events. And it has orchestrated a per se unlawful group boycott with the European Tour0F 1 to deny LIV Golf access to their members. The PGA Tour also has leaned on other entities in the so-called golf “ecosystem,” including certain entities that put on golf’s “Majors,” to do its bidding in its effort to maximize the threats and harm to any golfer who defies the Tour’s monopsonistic requirements and plays in LIV Golf events.

If that allegation doesn't prove PGA is seeking its own benefit, and not that of the entire golfing industry, I don't see what does.  By the way, PGA sweated bogeys a few years ago when President Trump pushed legislation that would have killed tax exemption for professional sports associations. The legislation died after Jack Nicklaus lobbied hard against it.  Still, the NBA and the NFL voluntarily relinquished their (c)(6) exemptions.  Here is a little more from the complaint:

It is no secret that the PGA Tour is targeting players in order to defeat the threat of competitive entry. The PGA Tour has been clear since the threat of competitive entry emerged that its most powerful weapon to defeat competition is to target its members—who comprise virtually all of the elite professional golfers in the world—to prevent them from playing on a competing tour. For example, PGA Tour Commissioner Monahan wrote in a January 2020 strategy memorandum that the best way to prevent a competitor from emerging is to prevent PGA Tour members (including Plaintiffs) from supporting the new promoter: The impact that [the new league] could have on the PGA TOUR is dependent on the level of support it may receive from these players. Without this support, [the new league’s] ability to attract media and corporate partners will be significantly marginalized and its impact on the TOUR diminished. At its core, the point is obvious: A nascent golf league without the golfers necessary to put on elite events is no threat at all. Deprive the new league of access to virtually all of the top golfers in the world, and it will pose no challenge to the Tour’s dominance.

I don't wonder why the Service has not snatched the PGA by its collar.  The headline would read, "IRS Attacks PGA in support of Saudi Terrorists and Murders."  The Service ain't no fool.  Still, the PGA is in open blatant violation of its exempt status.  Without tax exempt status, PGA would be taxable on its huge advertising revenues because the giveaway that is articulated in 1.513-4 would not apply. 

darryll jones