Former PGA Tour commissioner Deane Beman made a genius decision that would forever change the landscape of professional golf when he converted the PGA Tour into a 501(c)6 non-profit organization.
However, if a new Senate bill from Senator Tom Coburn (R-OK) eventually becomes law, that designation will no longer shield the PGA Tour from corporate taxes.
The Coburn bill, S.1524, would deny 501(c)6 status to professional sports leagues whose revenue exceeds $10 million. The main target of the proposed change to the tax code is the National Football League, but if the bill is signed into law, the PGA Tour would be among those sports leagues suddenly subject to the federal 35 percent corporate tax rate.
A scoring of the legislation suggests the 501(c)6 distinction is worth about $10 million to major sports leagues.
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Coburn's Senate office says these leagues do not promote “the success of their respective sports—football, ice hockey, and professional golf—but these leagues are clearly organized for profit to promote their specific brands.” To qualify as a 501(c)6, these organizations must claim they are essentially a trade organization, looking to promote their sport at large, not just their respective brands.
The PGA Tour could argue, particularly if they bring the International Golf Federation more in-house, that they do indeed promote the success of golf. Also, by working more closely with the European Tour and American-based mini-tours, they could make the case that they work to promote the overall benefit of professional golf, not just the PGA Tour and its four other umbrella tours.
In his talking points, Coburn also suggests PGA Tour executives and its players -- labeled "independent contractors" -- make way more through the 501(c)6 structure than other trade organizations.[line-quote color="red"]For example, PGA Tour players and sponsors have raked in millions while taxpayers effectively subsidized the tour's operations. In 2010, the tour paid its (sic) five of its most successful golfers a combined $37.4 million. That same year, sponsors -- who pay to have their brands advertised at tournaments and on television broadcasts -- received $44 million of the tour's $1.4 billion revenue (sic). Tim Fincehm (sic), PGA Tour's commissioner, received a handsome sum of $3.7 million in 2010 from the nonprofit PGA Tour itself and $1.5 million from its related organizations.[/line-quote]
The PGA Tour would not be the only golf organization impacted by the Coburn bill. The LPGA and PGA of America would also be subject to corporate tax rates.
Meanwhile, the Tour's charitable activities could continue through its 501(c)3 organizations.
Beman's decision was a huge catalyst for the PGA Tour as a business, making a sponsorship investment easier for businesses because of the charitable dollars that would go back into their stakeholders communities through PGA Tour events. To date, the PGA Tour has donated nearly $2 billion to charities through its tournaments.
“When I became commissioner in March of 1974, I told the Tournament Policy Board I saw the Tour as not just a sports league but a public trust; and I intended to balance the interests of the players, the community tournaments and the game of golf,” Beman said, according to chronicler Adam Schupak. “By 1979, we had begun to make good financial progress for the players. Much of this progress came by the community sponsors putting up more of their hard-earned money into purses. By then, we began to fully understand and focus on the vital role of charity in the overall success of the PGA Tour.”