Scrutinizing the Business of Sports

By Craig Harris
February 20, 2008 06:30 PM

During the last few years, Seattle's oldest professional sports franchise raised money through its non-profit charity to buy tickets from itself to distribute to disadvantaged kids.

As a business reporter at the Seattle Post-Intelligencer, I discovered that while the Seattle SuperSonics organization was giving kids an opportunity to attend an NBA game, it also was using its non-profit foundation to help improve the team’s overall bottom line.  Half of the $1 million the team’s foundation counted as gifts in 2004 and 2005 was spent on buying tickets. And the donors, who were primarily players and coaches, received a tax write-off while kids watched them work.

To review the Sonics’ charity, I used GuideStar.org, a free online service that acquires tax returns (Form 990) from more than 1.5 million IRS-registered non-profits. While tax returns of citizens are private, non-profits must disclose their most recent three years of tax returns. Churches are exempt from this requirement.

My gut told me that the Sonics’ situation was probably unique, but to provide context I looked at the charities of other NBA teams and the other local professional sports teams in Seattle.

Unable to travel across the country, I again used GuideStar.org. I quickly found that what the Sonics did was an anomaly. While all but two NBA teams had charities, only five others in addition to the Sonics used their non-profit organizations to buy tickets to NBA games.

While the NBA was the focus of this particular story, I have used GuideStar.org for information on the public charities of other professional sports teams, college alumni associations, college football bowl games, professional golf tournaments, high school booster clubs and individuals.

All of these entities and many others, including the commissioner’s office of Major League Baseball, have been given non-profit status by the IRS because they claim to do a public service. As such, reporters should scrutinize returns of these entities to see how much money was raised and how it was spent. Some returns also will show who made the largest donation, and non-profits have to disclose the five highest paid employees and the five highest paid contractors.

GuideStar.org occasionally does not have the most recent annual return on file, but you can usually obtain it by working directly with the non-profit. The site does, however, often have tax returns beyond three years back. This gives reporters a historical perspective on how much money was raised and spent.

When reviewing returns, like any good book, it’s important to read to the end. The final pages of a Form 990 can have key details on how money is being spent or if there are related entities worth examining.

When I was at The Arizona Republic, I did a story that compared the charities of the area’s four major professional sports teams. While three franchises gave away nearly everything they raised through their charitable arms and had minimal management expenses, the Phoenix Coyotes had very high overhead and made questionable donations. The final pages of the tax return for the Coyotes’ charity showed one “gift” as a $20,000 donation to another charity that allowed the team owner to attend an exclusive dinner with celebrities and former boxing great Muhammad Ali.

After the story ran, the Coyotes changed the way their foundation spent money.

I also did a story on Phoenix’s Fiesta Bowl and how its director was the highest paid chief executive among all major bowl games. I found that the Fiesta Bowl, unlike other bowls, had three separate charities that raised money and each one contributed to the salaries of the executive director and other staff members. There was nothing illegal in doing this, but it made an interesting read. And I would have not found the related charities if I hadn’t read the back pages of the returns.

If you don’t have a professional sports team or college bowl game in your backyard, GuideStar.org still can be used to examine the spending of local high school booster programs or youth sports programs, like Little League.

In addition to sports organizations, some wealthy individuals have non-profit charities and those returns can also be found on GuideStar.org. I have used these tax returns to add depth to profile stories when an individual doesn’t seem open to talking about his or her charitable giving.

Finally, if you have trouble getting an organization to release its records, a call to the local IRS office typically results in a speedy resolution. The IRS seems to have a way of reminding charitable organizations to obey the law. But keep in mind that a charitable organization can charge you a small fee to make copies of its tax returns.

A call to the local Better Business Bureau or the state agency that regulates charitable organizations can also be helpful in providing context to a story, especially if you are looking at whether an organization is overspending donor money or has high management expenses. The BBB says spending on management should be no more than 35 percent of total expenses.

Craig Harris is a business reporter for the Seattle Post-Intelligencer. He previously was a sports business reporter for The Arizona Republic.

Illustration by Tony Bustos

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism