College Athletics: The Nonprofit Fiction
Framing college athletic departments as nonprofits is a relic of times past. The financials don't support it, the operations don't reflect it, and the classification is holding the industry back.
Most people associate nonprofits with charities. Organizations that operate to drive some level of social impact. Providing resources to those in need, advancing research, or otherwise creating some form of public benefit. Legally, however, the category is much broader, encompassing everything from hospitals and universities to museums and community foundations.
With that in mind, my question is fairly simple:
What public benefit is being subsidized when a modern athletic department generates and spends hundreds of millions of dollars annually to fund their operations?
Regardless of how some may try to frame it, the primary function of most Division One collegiate athletic departments is to field competitive teams. This is why coaches and administrators get fired when their teams don’t perform.
The 75 most valuable college athletic departments in America generated something like $11.8 billion in revenues in fiscal year 2024. They run media rights operations, sell premium hospitality, negotiate sponsorship inventory at scale, compete fiercely for talent, and are now beginning to take in private capital. These organizations are without a doubt entertainment businesses.
Take Texas as an example. Valued at $1.5 Billion, The University of Texas athletic department generated $332 million in revenue in 2024 against $325 million in operating expenses (yikes). Head Coach Steve Sarkisian earns $10.8 million a year. They sold out every home game in the country’s eighth-largest stadium (averaging 102,847 fans per game at 100% capacity), and the Texas-Georgia game drew 12.9 million TV viewers on ABC.. the most-watched college football game of the 2024 season.
Now look at what I’ll call a real nonprofit.
My mother works on the executive leadership team at the North Carolina Community Foundation. The foundation’s mission is to mobilize resources for the state’s rural areas that don’t have the institutional infrastructure to sustain local civic life on their own. In 2025, they reported $144 million in revenue. Their highest-paid employee, the CEO, was paid $279,000. They operate across 60 counties, managing 1,300 funds that support everything from food banks to literacy programs to long-term disaster recovery. It operates as a charity in every sense of the word.. legally, structurally, and operationally.
How is it that both of these organizations operate under the same section of the U.S. tax code?
My last essay made the case that collegiate athletic departments are billion-dollar enterprises being run like old school nonprofits. This essay goes a layer deeper. It is not just that they operate like nonprofits. They are formally structured as such, sheltered inside their host university’s 501(c)(3) status.
(Check out Essay 1 here -> College Athletics: The Billion-Dollar Reckoning)
That structural inheritance shapes how these organizations function, how they operate commercially, and how they get governed. Given where collegiate athletics is heading, that structure is not just outdated.. it actively limits the industry’s ability to move forward. It is something that will have to be reconciled. My guess is that that day is coming, hopefully sooner than later.
What a 501(c)(3) Actually Is
Okay. In order to unpack this further, we have to understand exactly what legally constitutes a 501(c)(3) non profit.
Section 501(c)(3) of the Internal Revenue Code grants tax-exempt status to organizations operated for one of a defined set of purposes: charitable, religious, educational, scientific, literary, public-safety testing, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.
College athletics can be weaved into that framework in two ways. (1) They are embedded inside universities (educational purpose) and (2) they foster amateur sports competition.
Anyone that tells you the primary purpose of college athletic departments is education is misinformed at best. Given the realities of today’s college athletics, the amateur sports prong doesn’t hold water either.
Congress added “amateur sports” to 501(c)(3) in 1976, during a period when the facade of collegiate athletics being amateur athletics was easier to sell than it is today. And when Congress later defined a “qualified amateur sports organization” in Section 501(j), it described an entity organized to support athletes for national or international competition.. meaning the Olympic and Pan-American Games. Simply put: the carve-out was written for USA Swimming and the U.S. Figure Skating Association. Not for what college athletics has become.
So why do athletic departments still qualify?
They slip through because of the fact that they sit inside the university’s exemption. There is no Form 990 for ‘Texas Athletics.’ The financials are buried inside the University of Texas’s overall tax-exempt umbrella, which makes the whole thing harder to scrutinize and impossible to govern and operate as a standalone business.
The nonprofit shell is not just a label. It is the corporate structure.
I believe the divorce of the athletic department from the broader university umbrella is a critical step toward unlocking the unrealized commercial leverage I referenced in Essay 1.
The Amateurism Fallacy In More Detail
Under the House v. NCAA settlement, schools can now make direct revenue-share payments to athletes up to a $20.5 million annual cap, scaling to roughly $32 million over the next decade. Power 4 schools are projected to make roughly $1.8 billion in direct revenue-share payments to athletes in 2025-26 alone. Layer on the NIL market, projected to hit $2.7 billion this year, and the picture is unambiguous.
Athletes are being paid hundreds of millions of dollars in aggregate, on contracts negotiated against their perceived market value and the athletic department’s commercial interest.
There is a word for an athlete who signs a contract, gets a salary cap allocation, and earns income from the commercial value of his or her performance.
That word is not ‘amateur.’
The IRS itself has already drawn the line on one side of this question. In 2023, IRS Chief Counsel issued a memo holding that NIL collectives.. entities whose primary purpose is paying athletes.. do not qualify for 501(c)(3) status because the activity serves private interests, not charitable ones. Two years later, Senator Maria Cantwell wrote to the Joint Committee on Taxation asking it to evaluate whether athletic departments, the NCAA, and NIL collectives still belong in the tax-exempt regime at all.
The bottom line is this. The intellectual case is over. We’re beyond the point of no return for the idea that college athletes (I’d argue even beyond the revenue sports) are amateurs. What’s left is the associated political unwinding and all that it entails.
The Financials Don’t Lie
Okay, let’s move past legal theory and put our financial glasses on.
Since nonprofits are supposed to spend in alignment with a thesis tied to social impact, let’s start by looking at leadership compensation.
The highest-paid employees in most athletic departments are the head football coaches (for educational purposes, of course). Coach Sarkisian makes $10.8 million a year, or roughly 3.3% of the total revenues for the University of Texas’ Athletic Department. Coach Smart makes $13.3 million at Georgia, roughly 7%. Across the Power 4, the average head football coach earns roughly $6.2 million. Nine make $10 million or more. Twenty make $8 million or more.
By comparison, Jennifer Tolle Whiteside, the CEO of the North Carolina Community Foundation, earns total compensation of $331,829.. roughly 0.23% of NCCF’s revenue. Cliff Holtz, who runs the American Red Cross.. an organization with 17,000 employees.. earns about 0.02% of the org’s revenue.
Stark difference.
If executive comp tells the headline story, the rest of the P&L amplifies the same message. I evaluated the FY2025 financial reports of three blue-chip SEC athletic programs to see exactly how money flows through these organizations. The numbers are remarkably consistent across all three. Unambiguous if you will.
Across the three programs, the average annual operating budget is roughly $250 million. Here’s where that money goes:
Coaches and admins are paid 3.1x more than what is spent on the athletes themselves. The average head coaching payroll alone ($44.5 million across the three programs) is 2.4x the average athletic scholarship budget ($18.3 million).
Now let’s go back to our anchor. Charity Navigator’s standard for a well-run nonprofit is at least 75% of expenses going to program services. The American Red Cross deploys roughly 90 cents of every dollar to its mission. The North Carolina Community Foundation distributes between 68% and 84% of its expenses directly as grants and scholarships to North Carolina communities.
These three SEC athletic programs deploy 11.3% to anything resembling charitable mission.. and that is the generous read, because it requires you to accept that providing room and board to athletes, some of whom will earn millions in payments associated with their roster spot is more or less equivalent to feeding disaster victims.
Pretty absurd.
At the Red Cross, the largest expenses are blood collection and disaster relief. At NCCF, the largest expenses are grants distributed to rural North Carolina communities. At these three SEC athletic programs, the largest expenses are paying coaches to win football games.
This is not a charitable allocation. It is corporate spend geared toward producing a competitive product that drives economic value.
What the Exemption Is Actually Worth
I often hear people mention the idea that the tax shelter athletic departments receive is negligible due to the fact that many of them reported ‘losing money.’ That idea is misleading (I feel like wasting money would be a more accurate depiction).
The losses are an accounting artifact of how aggressively athletic departments spend on coaches, facilities, and administration.. not evidence of low commercial value (as I argued for in my last essay).
CNBC valuations put 15 programs over $1 billion in enterprise value. Texas alone is worth $1.48 billion. The IRS obviously doesn’t tax negative net income, but it also doesn’t get to tax the theoretical equity value (which at some point.. soon.. will be leveraged) being built. And the bigger subsidies are upstream:
Donor deductibility. Across the three SEC programs we analyzed, an average of $76 million per school (30% of total revenue) came in as ‘contributions.’ That money is largely tax-deductible to the donors, even though much of what those donors purchased was effectively luxury entertainment access.. priority seating, suites, parking, and special access, etc.
Tax-free media rights. Every dollar of the $1.3 billion CFP deal flows through tax-exempt conferences and into tax-exempt athletic departments. The NFL pays corporate tax on its media revenue. The SEC does not.
Property tax exemption. Stadiums, arenas, and training facilities.. assets that, if held by the Dallas Cowboys, would generate hundreds of millions in local tax revenue.. sit on tax-exempt rolls.
Tax-exempt municipal bonds. Stadium construction is financed at rates private operators do not have access to.
No UBIT in practice. Unrelated Business Income Tax, which is supposed to apply to commercial activity unrelated to the exempt purpose, has been read so narrowly that even broadcast rights have been ruled ‘substantially related’ to the exempt purpose of fostering amateur athletics. Simply amazing.
The Joint Committee on Taxation estimated in 2015 that revoking nonprofit status for the four major pro sports leagues would generate roughly $109 million in federal revenue over a decade. The number for college athletics.. across 130+ FBS schools, two dozen conferences, the CFP, and the NCAA.. would be a multiple of that, before counting state and local property taxes and the upstream value of donor deductibility.
This is not a small subsidy. Tax exemption is not simply an accounting treatment. It is a public subsidy. Every dollar of foregone tax revenue represents a policy decision that the public benefit created by an activity outweighs the revenue the government could otherwise collect. The relevant question is not whether athletic departments make money, but whether the activity being subsidized today is the same activity Congress intended to subsidize when these exemptions were established.
Why This Matters for the Industry
My argument here isn’t punitive. It is the same argument I made in Essay 1, just from a different angle.
Athletic departments are operating as commercial enterprises while being structured as charities. That discrepancy is fundamental to many of the challenges and dysfunctions the industry is currently working through. While the loss of tax-exempt status is typically framed as a negative, consider what’s currently being blocked:
No access to growth capital. Utah and the Big Ten are turning to private equity precisely because they cannot issue equity, cannot structure a real capital stack, and cannot raise institutional capital in the way a private business can.
No clear ownership or governance. Decisions get made by university presidents, faculty senates, and conference commissioners.. none of whom have fiduciary obligations aligned with running a $250+ million-a-year business.
No pricing or labor flexibility. The tax structure constrains what athletic departments can do with revenue share, with employment classification, with NIL, with sponsorship structures.
Reputational liability for the host university. Every coach buyout, every NIL scandal, every conference realignment chaos episode lands on a nonprofit host whose mission is education.
Dropping the nonprofit shell is not a punishment. It is an unlock.
It lets athletic departments become what they truly are by allowing them to operate as commercial entities with various classes of stakeholders, real governance, real capital structures, and a clean separation from the academic mission of the university.
Imagine if the average $76 million in “donations” the three SEC schools referenced earlier booked last year was instead recognized as equity capital. Donors become a class of institutional investors. The relationship dynamic changes. Accountability is mandated and institutional value is pushed forward as a result.
In other words, it allows and compels these organizations to better utilize the commercial leverage they hold. And I believe that doing so unlocks more than enough surplus to get creative with how to continue supporting sports that have traditionally been non-revenue.
All in all. The university keeps its exemption. Athletics goes its own way, pays its taxes like every other entertainment business, and gains the ability to operate like one.
We’ve Seen This Before, & Know How it Ends
In 2015, the NFL voluntarily relinquished its tax-exempt status.
It had operated as a 501(c)(6) trade association since 1942, with the league office classified as a nonprofit while the 32 teams paid taxes individually. By 2014, NFL Commissioner Roger Goodell’s disclosed compensation had climbed to over $44 million per year, becoming, in his own words to owners, a “distraction”. The exemption was saving the league office roughly $10 million annually.. real money, but a rounding error against the $10+ billion the league was generating.
The league dropped the status, paid the taxes, and stopped having to publish Goodell’s salary.
Major League Baseball did the same thing in 2007, right after disclosure rules would have forced it to publish Bud Selig’s $18-million-plus pay. The NBA never had the exemption.
Almost every major professional sports league in America has now concluded that operating as a nonprofit is either economically unjustifiable or politically untenable. College athletics is the last holdout.
The Bottom Line
In the words of the great Ray Dalio, “Truth or, more precisely, an accurate understanding of reality is the essential foundation for any good outcome.”
The truth is that collegiate athletic departments are not nonprofits. There’s no justifiable reason that the tax code, or the industry, should continue to pretend that they are anything other than commercial enterprises.
The sooner that happens, the sooner the industry can become what it should be.. honest about what it is, sustainable in how it operates, and positioned to deliver great experiences for the athletes and fans who make it matter.
If you have made it this far, you likely have a perspective on this and I’d love to hear it. The point of this series is not to be right about every detail.. It is to push the conversation forward.