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Rep. Pascrell challenges massive college football head coach contracts

Tim Shaw  

Tim Shaw  

Letter to USC President

House Ways and Means Oversight Subcommittee Chair Bill Pascrell (D-NJ) sent letters to the presidents of Louisiana State University (LSU) and the University of Southern California (USC) following the schools’ respective high-profile head football coach hirings seeking answers as to whether their contacts—which include multimillion-dollar salaries, as well as performance and noncash incentives—violate the tax code.

Tax-exempt educational entities.  LSU and USC are both tax-exempt entities under Code Sec. 501(c)(3) because they are “organized and operated exclusively for” educational purposes. Income from the schools’ educational activities is not subject to federal tax.

However, exempt educational entities pay tax on employee compensation in excess of $1 million under Code Sec. 4960, as well as unrelated business income tax (UBTI) on income from business activity not directly related to education.

Educational entities like universities are required to submit an annual Form 990, Return of Organization Exempt From Income Tax, to the IRS that includes a breakdown of the institution’s mission, activities and governance, revenue, expenses, and compensation information for its most compensated employees or other key persons.

Pascarell asks how coaches‘ pay promotes education.  Money in college athletics has been an ongoing topic in the discussion surrounding how to prioritize the education of student athletes who compete in sports at tax-exempt schools.

Pascrell challenges in his letters that it is “unclear how such lucrative compensation” offered to LSU and USC’s new football coaches aligns with the schools’ respective educational missions and benefits their student bodies.

Brian Kelly is departing the University of Notre Dame to become the new head coach of the LSU Tigers football team. Reportedly, Kelly’s contract totals $95 million with a yearly base salary that starts at $9 million for 2022 and gradually increases each year to $10 million in 2031.

In addition to $500,000 annual bonuses, the contract includes a performance-based incentive equal to another $500,000 bonus each year LSU is eligible for a bowl game, bringing the potential maximum incentive to $1.35 million.

It is alleged that Kelly will also receive an interest-free loan up to $1.2 million for his primary residence, and monthly allowances for two vehicles.

Lincoln Riley was recently named the next head coach of the USC Trojans football team. Although the full details of his contract are not yet entirely clear, Riley is reported to be set to receive a total of $110 million during the contract term, as well as a $6 million home.

Riley may also have unlimited access to a private jet.

Pascrell is requesting both schools to clarify how their respective new deals with the new coaches relate to tax-exempt educational purposes.

They are to respond to specific queries regarding:

  • highly-compensated university employees pursuant to Code Sec. 4960,
  • the “increasing commercialization” of men’s football and basketball programs,
  • financial data on athletic scholarships,
  • revenue and expenses of athletic departments,
  • fiscal and budgetary oversight of athletic departments, and
  • costs and usage of athletic facilities.

Pascrell notes in his letters that the responses will provide insight on how the Oversight Subcommittee should monitor athletic programs of tax-exempt educational entities moving forward.

NCAA data shows coaches generate money.  Data published online by the NCAA sheds light on the financial trends of intercollegiate athletics, specifically Division I autonomous (Power 5 conference programs that self-govern their own operations) Football Bowl Subdivision (FBS) programs like LSU and USC and other prominent universities.

In 2020, Division I autonomous FBS schools generated over $8.25 million in revenue, 34.8% of which came from media rights, 24% came from donor contributions and endowments, and 18.8% came from ticket sales.

The remainder was comprised of items such as royalties, licensing, advertising, and student fees.

The same entities incurred a combined $7.9 million in expenses during the same period. The highest expense was coach compensation at 20%, followed by facility expenses (19.5%), and administrative compensation and severance pay (18.9%).

Comparatively, student athlete financial aid was 12.7% of all expenses.

While this group of schools overall netted a profit, median 2020 net generated revenue by Division 1 autonomous FBS schools was negative $7.76 million. Only 20 of the 65 schools had positive net generated revenue.

For men’s sports, only football and basketball were profitable, and only 1 of the 65 football programs had negative net generated revenue.

The story this data tells is that a successful coach can bring in enough money to recoup losses from other sports, leading to what has been a growing trend of college coaches getting paid similarly to some NFL coaches.

However, regardless if players go winless in a season or win a bowl game or championship, they are unpaid.

Pascrell said in a press release that the scholarships student athletes are awarded for competing “pale in comparison” to the compensation of coaches, who profit “handsomely from their labor.”

LSU and USC both plan to comply with Pascrell’s requests.

“We fully intend to respond to Rep. Pascrell’s questions and will outline our position at that time,” Ernie Ballard, media relations director at LSU’s Office of Communications & University Relations, told Checkpoint.

In a statement, USC told Checkpoint that it looks forward to “interacting with Rep. Pascrell and other members of Congress to provide greater understanding of the way revenue-generating sports like football directly support and fund virtually all other sports—including women’s sports and Olympic sports—as well as hundreds of athletic scholarships each year.”

Pascrell asked both schools to answer by January 14, 2022.

 

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