▶ 0:03:03Heat. Heat.
▶ 0:05:41Are you all right?
▶ 0:15:56The committee will come to order. Today's hearing continues a longunning effort by the Ways and Means Committee of aggressive oversight of our nation's tax code and an area that demands our attention in the $2.5 global sports industry.
▶ 0:16:18From college athletes to professional leagues, sports organizations benefit from a range of favorable tax treatments, including tax exemptions and taxpayer funded subsidies that warrant congressional oversight to ensure tax dollars are being used as intended.
▶ 0:16:39Today, tax incentives push professional sports teams to prioritize corporate profits at the expense of their local communities and the fans who live there. At the same time, college athletes are facing a confusing maze of potential tax liabilities brought on by the explosion in the use of name, image, and likeness rights, more commonly known as NIL.
▶ 0:17:08The coaches, athletic directors, and college administrators to whom these student athletes might turn for advice, are no doubt equally unprepared for the unique tax implications of the NIL system, a system worth an estimated $2.3 billion today.
▶ 0:17:31A particularly disturbing piece of this puzzle is how professional sports teams are using taxexempt municipal bonds to finance stadium construction, renovation, and in some cases All to benefit their bottom line at the expense of the taxpayer without necessarily helping the communities where they reside.
▶ 0:17:5643 of 57 new stadiums over the past 20 years have been built using taxexempt municipal bonds at a cost of $4.3 billion to the American taxpayer. In seven of these instances, the team actually moved out of their original locality.
▶ 0:18:20in some cases leaving taxpayers on the hook for the cost of the original stadium but no team. The purpose of taxexempt bonds is to generate local investment and job creation in the communities where new construction occurs. But the evidence shows that communities are not seeing meaningful return on their investment from the team and stadium relocations that have occurred.
▶ 0:18:48Sadly, I must look no further than my home state to Missouri to find an example of corporate greed triumphing over community benefit. The Kansas City Chiefs, who called Missouri home for over six decades, have announced their decision to leave the state and move to the Kansas side of the city.
▶ 0:19:10This decision being made made based on where the team can extract the most taxpayer dollars reflects the reality that ultimately these teams or at the very least their seuite leadership are more loyal to their bottom line to their fans. But it's not just the Chiefs.
▶ 0:19:32Tax incentives are being used by teams around the country to leverage the communities they're in for the most favorable deals possible, often without any public benefit. The Oakland Athletics walked away from the city that supported them for nearly six decades. bound for the Las Vegas strip and up to million in Nevada taxpayer money.
▶ 0:20:01The Arizona Coyotes asked Tempe voters to help finance their new arena. When those voters said no, the franchise was shipped to Salt Lake City inside of a year. Oklahoma City voters were told to remember what happened when their team used to be the Seattle SuperSonics.
▶ 0:20:22and maybe because of the concern about losing a team approved a sales tax to cover roughly 95% of a $900 million arena while the team's billionaire ownership put in just $50 million. All to keep a franchise that was itself poached from Seattle in 2008 when the city declined to pay up.
▶ 0:20:48The Chicago Bears, they are threatening to abandon Soldierfield and have floated crossing state lines into Indiana to pressure Illinois into a richer package. The Philadelphia 76ers spent two years playing Pennsylvania against a New Jersey offer to lure them to Camden only to reverse course at the last minute.
▶ 0:21:14The Philadelphia Eagles are doing the same situation right now. And the numbers only climb. 80 850 million in public money for the Buffalo Bills. billion for the Tennessee Titans. billion land and tax giveaway for the Washington Commanders.
▶ 0:21:42Different cities, different leagues, but the same unfortunate playbook. Leverage, threaten, relocate, and repeat and send the bill to the taxpayer. From jobs to other investments, these actions by sports franchises can cost the local communities they leave behind. Meanwhile, the communities where they relocate end up subsidizing these corporations that are already worth billions of dollars.
▶ 0:22:13This committee has also given heavy scrutiny to the benefits that teams are currently able to take advantage of. In the House version of the one big beautiful bill, we included a provision to restrict the amortization deductions of sports related intangibles.
▶ 0:22:31When you factor in all the various pieces that make up today's college sports experience, from ticket sales to broadcasting rights, sponsorships and merchandising, the modernization and construction of sports facilities on campuses, not to mention the global reach of this whole enterprise. It is a $23 billion annual business. It is projected to double in less than a decade to 47 billion.
▶ 0:23:01All the while these teams benefit from their classifications as taxexempt under the US tax code because of their affiliation to institutions of higher education. It is this committee's responsibility to ensure the integrity of our our tax code including the rules and regulations governing the nonprofit sector.
▶ 0:23:25At the same time, for Americans like today's college athletes who face an uncertain tax policy landscape, we need clear rules of the road they can navigate with greater certainty. I look forward to hearing from today's witnesses about what more can be done to improve the administration and adherence to our tax laws. I'm pleased to recognize the ranking member for his opening
▶ 0:23:49Uh, thank you, chairman. Uh the limits of affordability and its crisis in America know no bounds. And this hearing comes at a great time as we have had the honor of hosting FIFA and the World Cup. In fact, I might speak for all the citizens of Massachusetts. Now that the Tartan Army has returned to Scotland, there's likely to be more beer for the rest of us. No small considerations. But families are paying more for groceries, housing, and healthcare.
▶ 0:24:17All while staring down the most expensive summer of travel in recent memory. On top of that, they're being priced out of our most favorite pastime, sports. I looked at the biographies of all the witnesses. You know what I'm talking about. You're clear on it.
▶ 0:24:36We share that As we prepare to celebrate the 250th birthday of this great nation on Saturday, too many Americans will find that our great national pastime, baseball has become a luxury experience for the very few. I've seen the transformation of these ballparks. It's unbelievable what's happened. But who can afford the rising dynamic ticket prices that are now in place?
▶ 0:25:03$20 for a beer, $15 for a hot dog, or the billion dollar stadiums that the chairman referenced that taxpayers are A recent Yuggov sports survey showed that 60 67% of fans say that attending a live sporting event is now unaffordable. 86% say it's become a luxury good rather than an everyday experience.
▶ 0:25:32Somewhere along the way, and in some cases collegiate sports and professionals sports linked, it became not about filling the stands with fans and making memories for loved ones, including me. Instead, teams have become assets bought and sold by billionaires, leveraged by investment firms, and squeezed for tax preferences.
▶ 0:25:58All of while we maximize returns, it must be remembered that none of this exists without fans. They fill the seats, they buy the jerseys, and now they are even forced to buy the special subscription to the channel to keep the games at home. I've seen what cable has done as many more sports franchises go to that outlet. The fans are the ones who are loyal.
▶ 0:26:27Their commitment makes these brands worth billions and the owners know that. Yet, they're being asked to fork over more and more of their paycheck while owners, again, as the chairman noted, to ban new taxpayer funded stadiums, it seems, every decade. Even willing to rip the team from its fan base when more favorable subsidies are offered over state lines.
▶ 0:26:54We all want public private partnerships that strengthens our communities. But we cannot enter this endless cycle of bending the knee to the whims of the billionaire class. You can't talk about sports in America right now with it without acknowledging the explo explosive growth of sports betting. It must be examined whether the incentives to participate are serving the fans as has been argued.
▶ 0:27:22Today's hearing is a chance to examine whether our tax code is keeping pace with the changing business of sports. We have a to keep the game with the fans. As a longtime sports fan follows every sporting event conceivable, I'm astounded by the fact that that loyalty that the fans express even in professional sports when the teams are losing, they show up for these games.
▶ 0:27:52Now, to be told that in a bidding war, the franchise might move across state I think the part of this hearing today is to shed some light on why taxpayers shouldn't be left footing the bill while investment firms continue to grow and keep their fortunes. I yield back. Thank you. I will now introduce our witnesses. Mr.
▶ 0:28:14Sam Oto is a former NFL linebacker, ESPN, ESPN college football analyst, and the director of human capital at AWM Capital. We have Mr. Thad Madden is an NIL tax consultant and former IRS revenue officer and fraud analyst. We have Mr.
▶ 0:28:34Robert Ryola is a CPA and the director of the sports and entertainment practice PK PKF Okconor Davis LLP and we have Dr. Dennis Coats is a professor of economics at the University of Maryland in Baltimore County. I want to thank you all for joining us today. Your written statements will be made part of the hearing record and you each have five minutes to deliver remarks. Mr. Mr. Ao, you may begin when you're ready.
▶ 0:29:06Chairman Smith and Ranking Member Neil, thank you both and the entire committee for allowing me to be a witness today. Good morning. My name is Sam Macho. I'm a nine-year NFL veteran, a two-time Walter Payton NFL Man of the Year nominee, a former vice president of the NFL Players Association, and a recent inductee into the College Football Academic All-America Hall of Fame.
▶ 0:29:32Currently, I'm an ESPN college football and NFL analyst and a family office adviser for the athlete family office. This subject matter matters deeply to me. I'm not a fiduciary of any organization that has an interest in this subject matter, nor do I have any federal grants or contracts related to the hearing subject matter. I'm representing myself.
▶ 0:29:57There's a freshman at a school in the who made $750,000 in NIO money last year. He made all the right choices. He wanted to give his family a new opportunity. So, we bought his mom a home. He She was grateful. As a new student in college, he wanted to get from point A to point B, so he bought a car. He had a desire to live off campus.
▶ 0:30:27Nothing too crazy, just an apartment close to the facility. So, he rented an Clothes to wear, food to eat, no chains, no Rolls-Royces, no excessive spending. He was a kid making good decisions. When the director of player engagement met with him towards the end of the year, he asked the player how much of that $750,000 was still left. Player said, "I don't Let me let me look at my phone and check.
▶ 0:30:55He pulled out his phone, showed him a number. It was And no, he hadn't been making estimated quarterly tax payments. So at that moment, the 18-year-old kid didn't know how taxes worked, was left with a $320,000 tax bill, not including penalties and fees.
▶ 0:31:21There's also a senior ranking member Neil actually Mr. Smith who went to your alma mater University of Missouri Columbia. We sat down a few months ago for dinner. He was getting ready for the NFL draft. I was meeting with him to educate him on how money works and what his NFL future could potentially have in store. He heard me speak at the Senior Bowl in Mobile, Alabama, and was looking for He wanted to do right by his money.
▶ 0:31:50He wanted to take care of his family. I asked what his NIL deal was. He said I started to talk to him about estimated quarterly tax payments and the tax bill he had due. He looked at me as if I had four eyes. But it's not all million-dollar deals. There's another player at a school in the Midwest who is no longer with us.
▶ 0:32:19Nick was a true freshman at the University of Kentucky, receiving $100,000 in NIL payments. His family was estranged from him until he began until he began to be their ticket out. So his loved ones, some of the ones closest to him, began asking for money. He would send money home every week. He had a 20% agent fee based off gross income, not net.
▶ 0:32:48So 20,000 went to his agent. When the money ran out, Nick was hoping for a new contract. The team was behind on payments. They had made some promises that they weren't able to keep, and so there was no new contract to be had. They promised the young man an amount that they were not sure they could pay. When the payments didn't come, the pressure persisted.
▶ 0:33:15This young man took his life 22 days ago. He was found by Courtney Love, the director of player engagement at for the Kentucky Wildcats football team. I was on the phone with Courtney last week Friday while on a medical mission trip with my family overseas. Courtney did not hold back. There's a lot of advantage being taken, he began. We got to invite the Lord into every conversation.
▶ 0:33:46We need to help these kids understand that we really care about them. Not just winning games, we got to win life, too. many players from the states, cities, and counties in which you serve are slipping through the cracks. Not just physically, but financially. Payments are being missed. Lives are being lost. That's why I'm here. This topic matters deeply to me.
▶ 0:34:17And that may be why you all are here as well. I propose a the the tax code wasn't written for a 17-year-old college football player who's coming into sudden wealth. Does that mean that we should limit NIL pay? That wouldn't solve the problem. I think this committee is uniquely positioned to change college sports in a meaningful way to do the thing that the NFL Players Association should have done and someone else should have done a long time ago.
▶ 0:34:48Congress must act to help these struggling athletes. One possible avenue could be Congress creating a mandatory withholding that goes into a special retirement account for collegiate athletes. This could be a flat 21% rate for NIL college athletes and the same as whatever the tax holding withholding amount would be, but it can go into an account that could grow over time.
▶ 0:35:12At the end of their time in college or even at the end of each year, the players could have that money go to the IRS to pay their tax bill. the remainder would be in that investable account. This potential solution would ensure that money is set aside for players and that the IRS is receiving their payment. Additionally, perhaps players could be preempted from paying the job tax or other state income at the end of 5 years or their time in college, whichever is sooner.
▶ 0:35:42The remainder of this account could also be rolled over into an individual retirement account that could be accessed at 39 a.5 rather than 59 a.5 with the same IRA withdrawal and penalty rules. This way the player could have access to the money and would be encouraged to save. This potential avenue would also account for the significantly shorter expected duration of earnings that professional athletes We should also implement mandatory financial education for student athletes.
▶ 0:36:09However, um financial education is not enough. We need people like you, members of the committee, to help young people save. Yes, the committee on ways and means is the oldest committee in Congress, but at this point in time, it may be the most appropriate and effective tool to effectuate change. At the end of the day, your goal is to help people, not hurt them. and this committee is perfectly suited to help.
▶ 0:36:40Thank you.
▶ 0:36:41Thank you, Mr. Madden.
▶ 0:36:45I'd like to thank Chairman Smith, Ranking Member Neil, and the other members of the committee for inviting me to testify today. I am flattered and honored to be here and to sit on such a distinguished panel. I retired from IRS on December 31st, 2024 after 38 years as a revenue officer, analyst, and program One of my final projects with IRS was helping to lead an enterprisewide initiative studying compliance with NIL income being earned
▶ 0:37:15by college athletes. I'll limit my remarks today to the tax implications of NIL, combining my IRS experiences with what I've witnessed working NIL issues in the private sector over the past 18 months. I'm currently an enrolled agent authorized to represent taxpayers before the IRS. I'm a tax consultant for Scout, a leading fintech company that empowers athletes to take control of their financial future.
▶ 0:37:44And I'm a certified service provider with athletes.org. Through these relationships, I've witnessed firsthand the everchanging landscape of NIL, which enables me to help college athletes understand and meet their tax obligations. I have personally visited universities throughout the country with the scout team for financial literacy presentations and one-on-one tax consultations.
▶ 0:38:11I have met with hundreds of athletes and school administrators, prepared tax returns, and represented multiple NIL athletes as power of One of the misconceptions in the public is that college athletes are employees of the schools they're attending. That's not true.
▶ 0:38:31They are self-employed independent contractors with no taxes withheld from their earnings, which means they need to pay their taxes on their own, preferably in the form of quarterly estimated payments. That's quite the ask for an 18-year-old fresh out of high school. Any college athlete who receives NIL income immediately steps into a far more complex tax situation than a traditional wage earner.
▶ 0:39:01Since they're self-employed, they must pay social security and Medicare tax in addition to federal income tax. Whether they earn 3 million or $3,000, their federal return, Form 1040, can expand to 12 to 15 pages.
▶ 0:39:18Compare that to a young W2 wage earner with no itemized deductions or other income whose tax return might be only two pages Many of the major stakeholders, including the NCAA, do not support classifying the athletes as employees.
▶ 0:39:37Many in the tax world believe athletes would be classified as employees if the IRS conducted an employment tax examination using the traditional 20 common law factors which focus on control and relationships. A friend of mine recently commented, "It's like these kids hit the lottery." I responded that it might be like the lottery lottery dollar-wise, but not tax-wise.
▶ 0:40:05Because since 1977, when someone wins the lottery or a casino jackpot of more than $5,000, the payer is required under Internal Revenue Code section 3402 to withhold 24% in federal income taxes and remit that money to the IRS on behalf of the winner.
▶ 0:40:29In my opinion, any federal legislation focused on NIL should require some form of mandatory withholding from NIL payments. This would be a great service to the athletes, giving them a head start in being tax compliant as they earn their NIL money.
▶ 0:40:49During my time at IRS, most individual tax delinquents I encountered were self-employed individuals who had no taxes withheld from their income, usually didn't make estimated tax payments, spend all the money they earned, and lacked the funds to pay their taxes by April 15th of the following year. Sound familiar?
▶ 0:41:08It's the exact situation student athletes are facing today as they earn NIL income from multiple sources with no Only a very, very small percentage of college athletes now earning NIL money will go on to play professionally. So, this will most likely be the most money they earn in their lifetime.
▶ 0:41:30It's hard to imagine graduating from college and starting out in life with the IRS pursuing you for unpaid taxes, but that's the reality facing many of these athletes today. I'm seeing more and more athletes leaving college with large tax liabilities and no current means of repaying it. I believe federal legislation is needed to address many of the challenges currently facing college athletics.
▶ 0:41:59I also believe financial literacy training is essential at both the college and high school levels so that these young men and women at least have a basic understanding of the US tax system which is built on voluntary compliance. Thank you for inviting me and allowing me to speak at today's hearing and I look forward to answering your questions.
▶ 0:42:20Thank you Mr. Ryola. You may begin when you are ready. Good morning, Chairman Smith, Ranking Member O'Neal, and other members of the committee. My name is Robert Raola, and I'm director in the sports and entertainment group for the accounting consulting firm PKF Okconor Davies, a top 25 firm across the East Coast. I'm here to talk about a a a couple things that has already been addressed.
▶ 0:42:50Number of which is the NIL income. It's an area that nobody knew anything about five years ago and now is a very hot area. The gentleman who previously spoke addressed the issue of nonwithholding and you know an athlete not realizing that he does indeed have to pay income taxes. So what you're faced to do is to try to limit the tax he would have to pay.
▶ 0:43:16But if a a NIL student athlete gets a million dollars, he's going to have a lot to pay in income taxes. One thing that we do is we look at his sports related deductions such as agent fees uh and other ordinary and necessary business expenses to limit the amount that he has to pay.
▶ 0:43:37The amount that he does owe will be paid quarterly and then reconciled with the IRS on April 15th to make sure he is uh fulfilled his requirement to file form 1040 and pay the necessary taxes. Not only is it regular income tax, but the student athletes are treated as independent contractors and they will pay self-employment tax as well. The these athletes are not schooled uh on financial literacy.
▶ 0:44:06When my children, when my daughter was in high school, she did not take a financial literacy class. However, two years later, when my son was in the same school, he did take a financial literacy class, although neither one of them went on to be student athletes in college. So I think it's very important to to reconcile to recognize that these these issues need to be addressed and these athletes need to be schooled on h how to handle this.
▶ 0:44:36I I agree with Mr. Ao uh that financial literacy is extremely important and that's the one way that this must be taken care of almost immediately. one other area that we can talk about related to NIL income is the forming of what's called a SEP, a simplified employee pension plan.
▶ 0:44:58So that the student athlete, if he's made enough money, can put aside $72,000 in a retirement plan and receive a corresponding tax break. That money is treated like an IRA and cannot be touched without penalty until the student athlete is 59 and a half. but it provides tax savings when he's in a high bracket and it might be worth do doing setting up a plan.
▶ 0:45:23The other issue that these athletes face is the the issue with uh family members and entourage if you will. Sometimes these families think of the student athlete as the way the way out and they go ahead and try to help the student athlete but often putting their own best interest ahead of the student athlete and that does not help the student athlete with cash flow.
▶ 0:45:55One of the other areas that I'll talk about is the jock tax. The jock tax, I'm sure members of the committee are familiar with it. It's it's funny because Washington DC has a tax at 8 and a quarter% for residents, but they do not tax non-residents.
▶ 0:46:15If Washington DC was to tax non-residents, similar to what uh the state of Seattle, sorry, the state of Washington and uh other states have done state recently to try to raise money for their coffers.
▶ 0:46:32So, I think it's important to understand the the job tax and how it works and important to make sure that it's understood so that student athletes or athletes can face uh a road to handling it correctly and not face interest and penalties. Thank you and look forward to being part of the
▶ 0:46:57Thank you, Mr. Coats. Dr. Dr. Coats.
▶ 0:47:03Thank you, Chairman Smith and Ranking Member Neil. My name is Dennis Coats. I'm a professor of economics at the University of Maryland, Baltimore County. That's UNMBC, the first number 16 seed to be the number one seed in the men's NCAA basketball tournament. I am the founding president of the North American Association of of Sports Economists. I am the editor of the journal of sports economics.
▶ 0:47:28I am the recipient of the Larry Hadley Service Award from the North American Association of Sports Economists. And just last year, the association created in my honor and awarded me uh and my co-author the Coat Humphre Research In my written testimony, I tried to emphasize two issues.
▶ 0:47:51the lack of evidence indicating large economic effects from stadiums and arenas and issues with the use of taxexempt bonds to subsidize those facilities. Rather than recap that, what I'd like to do now is to emphasize why this is an important issue and suggest some um solutions.
▶ 0:48:18First, we seem to be entering a new wave of stadium deals. Just since 2020, three new arenas and five stadiums have opened, totaling over $3.2 billion in expenditures. The arenas, interestingly, were almost entirely privately financed.
▶ 0:48:42But the stadiums, $750 million towards those was subsidized by the state and local governments. That was about 42% of that total expenditure. This does not include stadiums in Buffalo set to open this summer, Nashville, Kansas City, or those in Chicago that are not quite set yet, and the District of Columbia.
▶ 0:49:11As these open, clubs with other stadiums will push their communities to be able to uh for a new stadium to a for a replacement, more modern stadium to be able to earn revenues so that they can quote unquote compete with the other guys for playing talent. They need the revenues to be able to hire the best players will be their argument.
▶ 0:49:39These clubs will inevitably hint at relocation. That may be a subtle hint or it may be a not subtle hint as a possibility for leveraging the monopoly power they have to extract concessions from cities held hostage by the monopoly sports leagues. How much are these facilities actually worth to the communities?
▶ 0:50:09Generally whatever a proponent of building a stadium tells you, move the decimal place one to the left. Another way of saying that, it's about 10% of what they Some stadiums or some studies of stadiums use a particular methodology that confirms this sort of result. This methodology is called contingent valuation.
▶ 0:50:35And what it does is asks people a hypothetical something like how much would you pay to assure that to take an example the Jacksonville Jaguars stay forever in and people provide a dollar value.
▶ 0:50:53What we find from these studies is that the typical answer is a substantial positive number, but it is roughly onetenth of the amount of the subsidy that the team is asking So I'm going to end with two potential solutions.
▶ 0:51:15they're not well thought out in the sense of being very specific in the way that um the proposals we've heard from the other panelists have been. The first is address the monopoly situation. Sports teams are able to do what they are able to do because they're the only provider of that service.
▶ 0:51:37If you were to look to Europe, you would see that within the city of London at any given time, there are five or six or even eight or nine teams in the top division. I'm not suggesting that we adopt promotion and relegation in the United States, but I am suggesting that we think about the monopoly power that these leagues have.
▶ 0:52:01The second thing that I would say is remove the ability of state and local governments to use taxexempt bonds to finance stadium subsidies. This is something that I mentioned in my my written testimony has been an issue before Congress for 40 years. Every time it comes up, there's always an excuse.
▶ 0:52:24Oh, we've got all of these stadiums that are in process and it would throw them into havoc if we were to change the rules now. Sometime you got to change the rules if you want to fix the situation. Thank you. Thank you. We'll now proceed to the question and answer session.
▶ 0:52:42When the owners of the Kansas City Chiefs abandoned Missouri and their local fan base to move across state lines to Kansas, it was a clear-cut example of a sports franchise putting corporate interest ahead of the interest of a community in which it has thrived for over six decades.
▶ 0:53:01Many franchises have made similar relocation decisions due to the availability of taxexempt municipal bonds to finance the construction of of new stadiums at taxpayer expense. And countless more have leveraged communities to achieve generous subsidies that pad teams and owners bottom lines but do little do little for the surrounding communities.
▶ 0:53:28In recent months, just in the NFL, we have seen this dynamic play out with the Chicago Bears and Philadelphia Eagles. We've also seen this in Major League Baseball where Kansas City had to build the Royals a new stadium. The same dynamics plays out in countless other sports. Mr. coats. How do taxexempt bonds impact the cost of building these stadiums?
▶ 0:53:58And to what extent would you characterize these sports franchises as taking advantage of the generous tax benefit to pad their bottom lines while pitting taxpayers in one jurisdiction against those of The taxexempt bonds work in a very specific way.
▶ 0:54:19Basically, what will happen is state and local governments issue the bonds and because of the exemption, they're able to um borrow at a lower rate than the market rate. The idea of the of the franchises is to avoid paying market rates on the interest on the money that they borrow, but rather to pay this lower rate available to the state and local So what happens is the state and local
▶ 0:54:50government borrows the money, uses that money to fund all or part of the stadium construction, and then must figure out how to pay the interest in principle on that bond. The current setting is such that there is a very strong interest for none of the revenues generated by the facility to be used to pay off the interest.
▶ 0:55:13because if they were to do so, it would make the bond no longer In other words, if you use revenues generated from ticket taxes or ticket sales or in the stadium advertising, concessions, parking, anything linked to putting on the event to pay off the bonds, that would mean that they are no longer essentially public bonds, but are private activity bonds.
▶ 0:55:42and that would mean that the interest rate um would be higher. So what this has done is essentially made it so that local governments have to use other sources of revenue, whether it's general revenue, whether it's specific sales taxes that they enact in order to fund these things, whether it's something like um lotteryies or taxes on tobacco and alcohol, things that don't have anything to do with the stadium are used
▶ 0:56:12to raise the funds to pay off these debts. you know, after such general general subsidies, uh, generous subsidies, what impact do the relocation decisions ultimately have on the communities that that are abandoned by sports franchises leaving leaving town? I think of my home state once again, St. Louis, Missouri. Um, they use generous tax benefits to lure the Los Angeles Rams to the St.
▶ 0:56:42Louis Rams and they were there for 20 years and St. Louis is still paying for that stadium that's empty that's now that team is lured back to the Los Angeles Rams. So, as well as the jurisdictions that can put so many resources into bringing a franchise to town. So, how how do you see these communities being affected?
▶ 0:57:02Well, I think that there's two um two classes of relocation and Missouri is a perfect example of both of those. One of those is the case of the Rams where a team comes in from out of state and then leaves for another state. And the other is the case of the Chiefs where essentially the team has moved across state lines but is still within the same metropolitan area. The two situations are similar, but they're also quite different.
▶ 0:57:31And the reason that they're quite different is because in the case of the the Rams in St. Louis, if you are a Rams fan in St. Louis, you no longer have a team to support unless you're going to travel to Los Angeles on a regular basis. If on the other hand, you're a fan of the Kansas City Chiefs. Instead of driving from Kansas City to where Arrowhead was, you're going to drive across the river to the other side of the city.
▶ 0:57:58So, the fans in Kansas City are in some sense not any worse off. That's not the same thing as saying that it's not a bad thing for people in Kansas City on the Missouri side versus on the uh Kansas side, but the situations are different. How is it that they're better off in in Kansas?
▶ 0:58:23Well, if you believe that there are large economic benefits from having the stadium there, then they're going to generate those kind of benefits in Kansas as opposed to in Missouri. I don't believe there are such benefits and I will be happy to talk about the evidence for that. So, in that regard, I don't think Kansas is really getting anything, but I except for the bill. The flip side of that is what's Missouri losing and the answer is well there were businesses there.
▶ 0:58:54Those businesses that built up around Arrowhead that catered to the fans going to Arrowhead probably will have fewer patrons specifically on game days. Those businesses will lose.
▶ 0:59:09the problem with that metropolitan area and I I don't know the environment sufficiently well to be absolutely certain about this but suppose that a fan from I don't know let's say the Las Vegas Raiders comes to go to a g a Chiefs game where do they stay if they stay in downtown Kansas City on the Missouri side both before and after Missouri hasn't lost anything if on the other hand they move and start going to hotels staying in tells on the
▶ 0:59:39Kansas side, Missouri does lose something. So the economic impact is complicated here because of this crossborder but same metropolitan area in a way that most relocations are not complicated.
▶ 1:00:00the the original one big beautiful bill um that was approved by the House last last year included tax reforms that would have reduced the size of deductions franchise owners could take against their personal tax liabilities when purchasing a sports team. Um, right now those team team owners are allowed to amortize the goodwill of their fan base.
▶ 1:00:25Even even though history shows that teams fan bases are durable over time, these team owners often earn vast amounts of money through completely unrelated businesses and this provision allows them to shelter that income from tax just because they also own a sports team.
▶ 1:00:45Ultimately, this provision known as franchise amortization covering intangible benefits like player contracts or or TV rights was dropped in the version that was ultimately signed into law. Mr.
▶ 1:00:59Areola, does it make sense for taxpayers to continue to provide sports teams owners with such a lucrative tax benefit that allows them to sharply reduce their overall tax liabilities, particularly when much of that liability may be completely unrelated to their team ownership?
▶ 1:01:21Thank you. Um what I what I believe is that I don't think that the sports owners should be able to shelter their individual income with the goodwill and other intangible assets s such as contracts in in doing their income taxes.
▶ 1:01:40This is an area that's talked about often and I know the one big beautiful bill has spoken on it and I think that this is something that can be further attempted to remove at least part of the deduction for the ammonization and uh goodwill in that So today's student athletes are navigating unchartered wa waters as was testified um in this new name, image and likeness um landscape.
▶ 1:02:11Um Mr. AO, from your perspective as a former player with personal knowledge about the various challenges and opportunities athletes face, where do you see there being significant gaps in in the type of information that college athletes have access to and need in order to to successfully navigate the NIL environment and and comply with applicable tax laws?
▶ 1:02:39And do you see there being a role for Congress to to play in ensuring access to that information or or should this be primarily a role of the educational institutions they attend? Thank you for the question. Um I absolutely do see Congress having a need to step in. Uh I was at Baylor last week or two weeks ago doing financial education with the revenue generating sports, men's and women's basketball along with football.
▶ 1:03:06And yes, there was an audience, but you can imagine 17, 18, and 19 year old kids aren't the most captive audience when it comes to finances, even if they're making the money. And so, specifically, I think the education does need to come around taxes. Many of the players who I work with on the family office side, even players who I advise when it comes to NIL, they have very little knowledge about taxes. There's a young player who plays for Kansas State, uh, 17year-old, just turned 18.
▶ 1:03:31And I was on the phone with his dad 2 days ago and one of the questions we had he had for me was hey do I need to file an as an LLC or an escorp or we're working with I mean it's these guys are now becoming small business owners and so these are the constant and consistent questions that many athletes and their families these small business owners don't have answers to. And so when it comes to educational institutions, they are doing their best.
▶ 1:03:57Some of them are doing their best to try to educate athletes, but many educational institutions are trying to do their best to win games and not worry about the athlete. These athletes are just rented players. And so if these e educational institutions aren't putting their focus on educating athletes when it comes to taxes, I do think that someone needs to do that. There is no players association for collegiate athletes that is active and running uh at a large scale.
▶ 1:04:23But Congress and specifically this committee, the committee on ways and means has an opportunity to continue to educate these young people, these small business owners on how taxes work. And maybe one of the ideas we heard is maybe withholding some of those taxes at a certain rate. And that way they're not having to worry about realizing if, okay, are these taxes real? Do I get punished? Do I get penalized? I haven't heard about it. My coach didn't tell me. My agent didn't tell me. Very many agents are not having any conversations around taxes.
▶ 1:04:54My financial adviser didn't tell me. Most financial adviserss, they say go and consult your tax attorney. Go to any website of any publicly traded Wall Street firm. Look at the bottom of their website. It'll say before you make any investment decision, contact your tax professional.
▶ 1:05:10So now you're asking an 18-year-old, 17-year-old, 22-year-old kid who has a trusted financial adviser or a trusted agent or a trusted coach to go and contact their financial adviser or contact their tax professional in which they don't have. And so there's something being missed and no one wants to touch those waters. And I think that's where Congress can step in and help these young people.
▶ 1:05:35Thank [snorts] you. under under state tax rules, including the so-called jock tax um in California where the Super Bowl was played, some of the Seattle Seahawks players actually lost money by winning the Super Bowl. So, Mr. Riola, how much [snorts] did Seahawks quarterback Sam Darnold make from winning the Super Bowl, and how much did California tax him for playing in their
▶ 1:06:04Sure. Uh Sam Donald who's a highly paid player and California has the highest t state tax rate in the US is 13.3% with an additional 1.1% for state disability insurance making the total Mr.
▶ 1:06:22Donald earned 178,000 for winning the Super Bowl and the other playoff games, but he wound up paying $249,000 in the income tax. We may ask, how is that possible? The Seahawks will play games in California later in the 26 27 season. So, they they count in the equation and they're entered into as part of the the amount of tax that he'll pay.
▶ 1:06:50And it seems ludicrous that you can play in the Super Bowl and make one amount and yet pay income tax at a higher amount. But that's California for
▶ 1:07:00It's It's crazy to think that winning the Super Bowl cost him money. It cost him money to win the Super Bowl because it was in California. Um, starting next year, under IRS tax rule 162M, sports teams that are publicly held will not be able to deduct up to five player salaries in excess of $1 million.
▶ 1:07:26Those teams have expressed concern that that this provision puts them at an economic disadvantage to the teams they directly compete against. And and so the committee is considering how best to level the playing field. One approach would would be to um apply 162M limitation to all sports teams, not just the the publicly traded ones. Um but Mr.
▶ 1:07:57Raola, would this resolve the potential competitive disadvantage teams are currently poised to face under this provision? And roughly how much revenue would such a change bring in for the federal government?
▶ 1:08:11That would bring in a lot of revenue. Um I think you mentioned taxing not on the you know 162mm and public corpor public companies. I think if it was set up so that that would be on all franchises under the top five paid employees that would raise I can't even imagine how much money would raise but I think it would be uh a step in the right direction and I don't really see why it's only on publicly traded companies.
▶ 1:08:40I believe it should be applied to all companies that owns professional sports teams. I think it's only under the Atlanta Braves and the Knicks and um another team in New York, but the Rangers. Um I now recognize the ranking
▶ 1:08:57Thank you, Mr. Chairman. Um, I thought we were doing great until the California topic came up. And the reason for that is when Walter Ali took the Dodgers out of Brooklyn and Horus Stonum took the Giants out of New York City. I don't know anybody who would argue it was based upon just goodwill and good feeling. Those were two spectacular business decisions that transformed professional sports and also richly rewarded all of those players.
▶ 1:09:24I suspect that Willie Mays was doing a lot better in California than he was doing in New York City. I think that's a pretty plausible argument. But back to the original intent here. John Caliperry had a great line recently. I know him at great years at University of Massachusetts. He said he had just gotten used to managing It looked as though he was going to have to start getting used from college basketball to managing grandparents.
▶ 1:09:53I think that's clear and consistent with the testimony that has been offered. So, as Dr. Coats pointed out, the bidding war is always the same. It's about the fans. It's about the person who is selling peanuts and pennets, pennants outside of the ballpark. We all know better. But that's where the political argument always goes.
▶ 1:10:17Nothing to do with the luxury suites, nothing to do with the naming But then again, the naming rights are only good for a period of time when the name is then taken off if there might be a better deal for sponsorship. Mr. Rachel, you pointed out the frailty of what happens to these kids and you're right on target, but the incentives are misplaced too in terms of how the application plays out.
▶ 1:10:47So the American people to their everlasting credit have the highest tax compliance in the world. 86% of the American people, as Mr. Madden would point out from his IRS days, pay their taxes on time. And the reason for that is That's the genius of the withholding system. And that's why the problem that a lot of young athletes, it's not from a lot of star entertainers. They have many of the same challenges.
▶ 1:11:18But professor professor coats, let me take this back to the point that I I made at the beginning. Public financing of stadiums, we've seen it. There's the threat of moving. The chairman's right and then they leave or they say they're going to leave and in some cases they really do leave. And the sports fans, the loyal fans who show up week after week, sometimes day after day, they're left with a pretty implausible explanation.
▶ 1:11:47But you pointed out that private sports enterprises generally are a losing proposition for taxpayers and a winning proposition for the owners. Let me ask you this, and I assume your first preference is to end all of these subsidies, but assuming politically that that isn't possible. What should these localities be asking in return from these teams?
▶ 1:12:12How can state and local governments who are really exposed for the success or the failure of their teams as they move around draw some general benefit? if not
▶ 1:12:27Thank you for the question. And if I was God, I would probably have a decent answer, but I'm not. So, I'll give you the best answer I can. And that is to hold the line. The problem really is that accept this bidding war process. All it takes is for the city managers to all say, "No, we're not doing that." So that it stops.
▶ 1:12:59But everyone, this is a very standard sort of what's called a prisoner's dilemma situation. All it takes is one to violate that agreement to say no and then the whole thing falls apart because that one that fails to say no gets a stadium or gets a gets a team relocated. So it's a very very difficult problem.
▶ 1:13:24Um but it's one that could be solved I think through agreement amongst state and local governments. to not agree to subsidize stadiums and to the extent that this is a possible thing for Congress to do to make it impossible for state and local governments to compete in this way.
▶ 1:13:50Whether that is in fact constitutional legal I I'm not a legal scholar. I'm not a constitutional scholar. I don't know. But I think that that would would resolve this problem. Just take away the to allow teams to back up the the Brinks truck to the local treasury.
▶ 1:14:11So, the witnesses, your testimony has really been great, all of you. So, we we're all very good at defining the problem onto trying to figure out the solution. Thank you,
▶ 1:14:22Mr. Buchanan.
▶ 1:14:24Thank you, Mr. Smith. Uh, for today, Mr. Jel, I was going to mention to you as one person up there, it's a player. I wanted to get your thoughts on a couple of things and then I'll get on the finance side for a couple of minutes, but I Everybody has a different experience they bring here, but I had two sons that played division one football for Bobby Boutton, Florida State, and uh and Stanford.
▶ 1:14:50And one of the things I don't think it's talked enough about, and maybe that's not the place for it here, but it needs to be said, the risk these kids take on the field every day. And there needs to be as much consideration we can give them as possible. I've seen it. This is their whole life. And the reality of it really hit home with me when you see a freshman, a red shirt freshman going up against a fifth year senior. My son was a top rated fullback in the country.
▶ 1:15:16and he would meet this guy in the in the hole doing gold lion stances and stuff. Uh his name was Monster. Uh big kid and they're five years apart. And at the end of the day, we had seven kids that were division division one kids. Most a lot of them were uh exceptional athletes and everything. And at the end of five years, there was one left offensive lineman. Uh and then I went read a book on Penn State.
▶ 1:15:45Someone had written a book about Penn State and they had followed these kids from their freshman year through a period of five years in their red shirt year and there was like one or two left. So these kids are there's few kids getting rich. They're doing pretty good but there's a lot of kids putting themselves at risk in my situation. My son had a concussion for two months. He couldn't go out of the house. uh had stayed in that way.
▶ 1:16:08But but that happened with a lot of these kids and we just got to keep that in mind as people are making billions of dollars on the other side. What are we doing for the kids? This we should have a way of making sure they they get taken care of because otherwise you want to have people in the stands. What's your
▶ 1:16:29Thank you, Mr. Buchanan. Uh, I spent several years a part of the NFL players association fighting for players rights. I sat down in front of the billionaire owners negotiating collective bargaining agreement and so this idea of player safety means very much to me. I also currently sit on the side as an ESPN analyst and so I understand that TV contracts are also helping to increase the revenue for these uh these teams. And the problem with these TV contracts is well how do you make more money?
▶ 1:16:58Well, you need more games. you need more games. Well, that means players have to play in these games. And now players are accepting the brute of not just a 10 or a 12 game season. When I I went to Texas and I played and back when I played, you know, the last game of the season was the rivalry game, Texas versus&M on Thanksgiving. I'm glad I'm glad that game is back now. That was the last game. And then maybe you got a chance to play in one bowl game. So about a 12game season.
▶ 1:17:23Well, now all of a sudden with the new expanded college football playoff, a team could play in 17 games. And imagine if you're playing for a coach like Bobby Bowen or a coach who's going to have you consistently in the college football playoff. Now all of a sudden you're playing 17 games year in and year out. That's five extra games for possibly 5 years. That's another season plus that these players are subject to potentially being injured.
▶ 1:17:48these young people have chances for concussions, lower extremity injuries, and very limited idea of is there health insurance for these players that have a short earning window. And so I do think there needs to be someone speaking up on behalf of players. Everyone gets all caught up in NIL and transfer portal and these players making all this money, but you rarely hear about number one, the players who are getting kicked off of teams in order to rate make room for the other players.
▶ 1:18:15nor do you hear about the players who are getting injured and not able to continue their career both ath athletically and also academically. You think about your son.
▶ 1:18:22Let me just say I would just say one one big thing is that they need to give it these kids a net number when they pay them. Let the the big guys pay the taxes. If you got someone's make making a a million or two and a lot of them are coming out of in the pros. Uh so what if they got to pay 400 when they build a gigantic stadium? take care of that so they don't get buried in this because 92 92% of small businesses uh that start business go out of business. That's based on the US chambers.
▶ 1:18:49So a lot of them get caught up to someone talks them into this business deal or this thing or whatever and before they know it they've lost most of their money. That's what I've seen and I was in a bit in the business. We franchise businesses across the country. We had a lot of players. So I seen when they'd come in they'd be here and then over a period of three or four years it completely different. But I just want to make sure we don't leave the players out of the discussion because they're the ones making the opportunities to build these big facilities.
▶ 1:19:16And the minimum the minimum thing we should do is take care of their taxes as it relates to so they get a net number at least for the first couple three years and put it in some kind of a fund that'll be there for them uh going forward. Thank you.
▶ 1:19:29Thank you.
▶ 1:19:30Thank you, Mr. Thompson.
▶ 1:19:31Thank you, Mr. Chairman. Thank you to all the witnesses for being uh here today. You know, clearly sports are one of the few things that bring Americans together across every background and every community, inspire young people, strengthen neighborhoods, and create memories that last a lifetime. But they're also an enormous economic engine. In my home state of California, sports support hundreds of thousands of jobs.
▶ 1:19:58From the people working concessions and security to hotel employees, restaurant owners, broadcasters, transportation workers, and countless small businesses that benefit when fans come to town. As California prepares to host the Super Bowl and the 2028 Olympic Games, we have an opportunity to showcase not only our athletes, but our communities and our local economies. That's why today's discussion matters.
▶ 1:20:28Our responsibility on the Ways and Means Committee is to figure out whether the tax code is keeping pace with the changing business of sports. Are taxpayers getting value when federal tax preferences are used to support stadium financing? We have to ensure that young college athletes understand the tax obligations that come with earning significant incomes through name, image, and likeness.
▶ 1:20:58It also means understanding how new business models surrounding sports affect our broader economy. As prediction markets continue to emerge, Congress should understand whether they're creating new economic activity or simply shifting dollars away from existing businesses, including local restaurants, hotels, entertainment venues, tribal gaming operations, all the things that support jobs, public services,
▶ 1:21:29and regional economies. Innovation should strengthen communities, not inadvertently weaken the local businesses and workers who have long been part of the sports economy. Sports have always evolved.
▶ 1:21:44Our tax code should keep up and it should evolve in a way that supports communities, protects taxpayers, promotes fair competition, and gives young athletes every opportunity to succeed both on and off the field. This has been an interesting uh hearing uh Mr. Chairman, but what it uh what it tells me is we need a lot more.
▶ 1:22:08I mean, we've the the the discussion we've had on uh how these young athletes are put at risk uh that we could spend a whole hearing dealing with that issue, how communities are advantaged or disadvantaged because of the tax provisions that help them uh fund uh new stadiums.
▶ 1:22:27Uh all of this is uh it it's a lot uh to be dealt with and it as I said it could take a whole hearing on any one of these uh specifics. So I want to thank the witnesses who came in. Uh your testimony has been uh enlightening. Mr.
▶ 1:22:45Chairman, thank you for holding the hearing and uh I hope we can figure out some ways to both protect the taxpayers, protect the communities and all the businesses that benefit from this industry and as has been pointed out uh the young people uh who are uh really at risk in a lot of different ways uh from both financial injury and physical injury. Uh we've got a lot of work to do. So, thank you all. Yield back. Thank you, Mr.
▶ 1:23:15Smith.
▶ 1:23:16Thank you, [clears throat] Mr. Chairman, and certainly thank you to our panel and uh everyone for taking time here to have a conversation that uh we we need to have. Uh I think we know that there's probably [clears throat] several individual hearings that could branch off from what we've already discussed here today and and that's uh we haven't even talked about naming rights of of stadiums or or facilities. uh naming rights obtained by a nonprofit organization.
▶ 1:23:43That just seems a little bit uh distorted in my opinion. Uh but fact of the matter is there are a lot of moving parts here. Um but it all boils down to taxpayers, individuals. Mr. Acho, thank you for uh these issues.
▶ 1:24:02I think it's I don't want to get too critical because I don't claim to be an expert or a board member of the NCAA, but it it just seems to me like maybe individual players interests could be better represented than what we've seen from the old version pre-NIL to the current version and then obviously kind of the wild west in in terms of what the policies are. And so uh my my question Mr.
▶ 1:24:32Madden would be you know on the collectives that uh have in terms of tax purposes have been treated differently through over the last few years. Would that be accurate?
▶ 1:24:46Yes. There was a there was a misclassification and I think a misunderstanding when the applications came in and this is only from my experience when I worked for IRS. So, I don't know what's happened uh since I retired. Um but NIL was so new, no one really knew exactly what it was. That's part of the reason we formed the task force to identify it as an emerging issue.
▶ 1:25:09But, um uh some collectives, a number of them were mclass or were erroneously issued tax exempt status and I think that was because of the of the newness of the of the NIL ecosystem, if you will.
▶ 1:25:23Understandable. Certainly. So, could you give us an update, you know, overall of where things stand today? And do any NIL collectives still operate as taxexempt organizations? Uh, and our boosters still able to make taxdeductible contributions to support athletes through the collective?
▶ 1:25:40That I do not know. Um, but I can tell you and I think it's it's been well publicized, the the office of IRS chief counsel in June of 2023 issued an official memorandum stating that for the most part collective should not be granted taxexempt status and and the general reasoning behind that is the collectives were are essentially boosters that have always been there.
▶ 1:26:08But since the the Alolston case, the unanimous Supreme Court decision that allowed athletes to monetize their name, image, and likeness, and the NCAA's decision shortly thereafter to allow them to be compensated, that that created the collectives that led to the rise of the collectives.
▶ 1:26:28And um many of these collectives were just, you know, the boosters pulling their money and paying the athletes so that there would be the best possible team on the field or the court. and they were compensating them for making appearances, maybe autograph sessions or attending alumni events or visiting maybe a children's hospital around the holidays or visiting a sports camp in the summer, but paying them hundreds of thousands of dollars
▶ 1:26:59to do that. And that was not within the the good of the community or a strictly educational purpose. it was deemed to be for the financial interest of the players. So that that's the reasoning behind IRS chief counsel taking that position.
▶ 1:27:15I do not know I haven't had any real contact with collectives other than trying to help individual athletes uh secure their 1099s or determine uh determining the correct amount that a collective puts on a 1099.
▶ 1:27:30So, I don't know how many still might be operating as uh nonprofits under 501c3, but I can tell you from visiting different universities and having contacts with administrators, many of the collectives since the house settlement and the creation of the revshare where the schools can compensate the uh athletes directly, many of the collectives have gone away, have ceased to operate, especially at some of the smaller
▶ 1:27:57Sure. Well, my time is running out. I I think there are many more discussions to be had. I mean, royalties that are that are levied by institutions as well in ways that I certainly have a lot of questions. But, uh, as it relates to overall taxpayers, local economies. Um, obviously athletics is a unifying sports are unifying factor for our country. Uh, even soccer unifies. Uh, so I I'm grateful though that we can have this discussion.
▶ 1:28:26Look forward to further discussion. Thank I yield back,
▶ 1:28:30Mr. Larson.
▶ 1:28:32Uh, thank you, Mr. Chairman. And, uh, I want to thank all the witnesses for your And, uh, Mr. Chairman, I want to I think it's clear that everybody is empathetic to uh, what transpired in uh, your state and what's happening across the nation. Uh, I'd like to uh associate myself with the remarks of uh Mr.
▶ 1:28:59Neil u after we heard all the testimony. As is typical in Congress, uh we hear a lot of testimony and a lot of uh what's going on and what's wrong and then hear very few solutions to how we uh solve the problem. And uh I know my colleagues are probably trying to figure out how I'm going to work social security into this issue.
▶ 1:29:28So uh I just want to be clear that uh Mr. Madden, do uh students uh do these young athletes uh do they are they subject to FICA taxes? Is social security taking out?
▶ 1:29:43Yes, they're considered self-employed individuals. So they would be required to report and pay uh self-employment tax which consists as you know of social security, FICA and Medicare tax.
▶ 1:29:55And so that is the And is it taken out when they get paid?
▶ 1:30:00Oh, it's not taken out. There's no withholding. So there it's their ultimate responsibility to report that on their federal income tax return and and pay it. Yes. 15.3%.
▶ 1:30:12Yes. And so it therein lies another problem waiting for a solution. [clears throat] And I think it's incumbent upon us. But I would I would just add and uh that for over uh 5 million Americans, they get below poverty level checks from Social Security. For 40% of all Americans, the only pensions they'll receive are their social security check.
▶ 1:30:42Uh and uh we do have solutions for that, but we need to spend time on this committee hearing and putting those ideas forward and voting on solutions. Uh that's where the uh answers lie.
▶ 1:31:02And again, I commend the chairman for for bringing this up and the problem that exists out there, which when you hear the testimony becomes but if you're that [clears throat] American couple sitting across the kitchen table trying to make ends meet, I I got to think you're probably not focused on this uh and the problems of a young athlete who comes into enormous sums
▶ 1:31:33of money. You're still trying to figure out how you're going to make ends meet. And especially with an illegal war going on and gas prices soaring out of sight, with uh Social Security not having been addressed in over 55 years in the recent Social Security report coming out again and now
▶ 1:32:03concluding that within six years, just six years, everyone in the country will lose on average per month from their social security check.
▶ 1:32:18Now, [clears throat] that will not impact a student athlete immediately, but it will over the long term and have uh tremendous impact on this country if Congress does not act. And this is the sole responsibility of the United States Congress.
▶ 1:32:41And I believe in this committee and on both sides of the there are solutions here for us to solve the problem. What it takes is the will to do that. And it's my sincere hope uh that this committee facing this directly has a problem that's directly in front of us and we are the committee of cognizance that we take action on that.
▶ 1:33:11And with that I yield back my time.
▶ 1:33:14Mr. Kelly,
▶ 1:33:16thank you chairman. Uh, thank you all for being and I know your your career nine years in the NFL, four years in college, four years in high school, probably started a little football and worked your way up. So, it's a lot longer than just nine years in the NFL and to get through that is quite a test. But today's uh hearing really is about math. Who's paying taxes on what and what are we not seeing and where should that where should that reference go? So, I like Mr. Neil when he started [snorts] off today.
▶ 1:33:45I can remember an article by a guy named Pat Livingston in the 70s when Major League Baseball went on strike. And the question was, "Who does the game belong to?" And the owner said, "It belongs to us because we're the ones that fund everything." And uh I mean, come on. Uh we're the ones that put the money up front. And the players said, "No, it belongs to us because we're on the field and we're doing everything we can to make sure we can win and and to keep our position." And Mr. Livingston came up the idea. He said, "Really? Uh neither one of you are right.
▶ 1:34:15It's up to the fans. Cuz when the fans start deciding not to attend and not to be paying to be there, then all of a sudden there is no such thing as a professional sport. And I uh I really decide what's happened to college athletics. I I like the fact that the NCAA, they started off really because of injuries. That was the concern back in 1910. Was about injuries. It wasn't about revenue. It wasn't about a TV deal. It wasn't about getting out of college football and turning it over to the networks because there was so much money to be made.
▶ 1:34:44I think the last thing in their concern was really athletes and who who was playing paying who for what and how what were the tax consequences because it's always going to be about the tax consequences. And every one of you today that has come here to speak on this, Mr.
▶ 1:34:59Racho, your concern is that what happens to these kids after they're out of school, what happens when they sign an NIL, whatever it was, and this was not a big deal in the past, as you know, when you used to get recruited by to our college, you couldn't accept a hat or a t-shirt or anything. You could accept transportation to get to the school lodging while you were there and your meals. Other than that, nothing was allowed to change hands.
▶ 1:35:22And then we started looking at the math and the NCAA said, "Wait a minute, this is worth a lot of money." So whether it's whether it's the NCAA or professional sports, it's about the money. I will tell you this, I really this in this age of AI, all the states are competing to get these companies to come to their state. Why would it be any difference than people who have some type of an entertainment system? Why should we say no?
▶ 1:35:48You got to stay where you are even though you have a better offer to go someplace else because it truly is about the math. It truly is about the math. Now I uh I think there's so much to cover today and chairman thank you but you led into it. There's so much to be looked over. I would say the most vulnerable of all this are the players. They're always one play away from never playing again. So they have to try to somehow secure their economic future.
▶ 1:36:13And uh so I don't know that any of you have an idea because this what we're talking about today is tax revenue. It all comes down to who's paying taxes on what and are we charging them enough? And why shouldn't if you play in Chicago but you live in Pittsburgh, why shouldn't that day that you spend in Chicago, why shouldn't you be taxed for that time being there? This has become so complicated. But the real complication lies in the fact that it's about money. It's about tax revenue. It's not really about the players.
▶ 1:36:44As long as they pay taxes, we're okay. I don't care if they're 18 years older or 30 years old. Are they paying their fair share? I get so tired of hearing about the fair share. Uh, and everybody worries about the fair share. I don't know what the fair share is. I guess it depends what neighborhood you live in uh, or where you've grown up. So, Mr.
▶ 1:36:58Ara, if you could just start off because we really do do need whenever Jack Swarbuck was here from Notre Dame, his number one concern as he was going retiring from Notre Dame was the financial affairs of students right now because of NIL and that they didn't have any comp any comprehension of what was on the table for them. And, and I love agents. agents do a great job because they got paid. They they pay for what they negotiate going forward and each of you, you're all here today for the same reason. What can we do? What can we do to make it more understandable about what this is?
▶ 1:37:28This is a revenue raiser first of all for the owners and everybody else, but also at the end of the day for the players. So, is there anything that would simplify this? And I agree that this is far more complicated than the hearing we're going to have today. So, Mr. A, first I want to thank you. What you're doing is incredibly important for these young people. Thank you so much, Mr. Kelly. The first thing I would say is that I think that players need advocates, not fans.
▶ 1:37:53Even in my time in the walls of ESPN, some of the biggest names you see, the guys you watch who broadcast the game, they're fans. They cheer, they boo, they laugh, they cry, and that's okay. But often times, you're in the white lines on a football field. A fan cannot help you. Uh, even a family member cannot help you. Your mom can't help you uh when you get an injury.
▶ 1:38:19My my third year in the NFL, I was playing in the Superdome, playing the New Orleans Saints. I just got a sack on Drew Brees. I was fighting for a spot and I felt like I'd earned my spot and beginning of the third quarter, I break my leg out for the season. In the NFL, year three is your contract year. And so, I was hoping for a huge financial gain. And well, all of a sudden, that opportunity was done. It was ended, at least from an athletic perspective.
▶ 1:38:50Thankfully, I was able to go to a school, undergraduate, and even uh high school that had a great education. So, I was able to use my mind and start doing stuff on TV, the local station. I said, "Hey, I'm Sam Macho. I'm the starting linebacker for the Arizona Cardinals. I just broke my leg. Most players when they get injured, they disappear. The ship's at sail. There's a business that needs to be had. It's about the money." I said, "I'm not going to do I'm going to be going around uh really building what I call human capital. So what I would say, Mr. Kelly, is that players need more advocates for them.
▶ 1:39:18Maybe people in these seats who can help them, yes, pay their taxes, understand responsibility. That's important, but also help them help them understand that you're more than just what you do on a football field or a basketball field. Mr. Larson, you made the example of social security, and that's extremely important. I think that withholding some of this revenue could go towards social security, and it should. the the the the money that players pay. That's part
▶ 1:39:40sign me up, right? I'm already paying last year. But but but also in addition, someone had mentioned the idea of the the family sitting at the table at dinner. They may not be worried about the collegiate athlete making millions of dollars. But I would also argue that that family uh may have kids who may go and play in a sport. Maybe it's rowing, maybe it's lacrosse, maybe it's women's basketball, maybe it's golf, maybe it's at a school where they can go and cheer on their their friends. These are classmates.
▶ 1:40:10These are friends. And so my position, that's why I do what I do is I want to be the most trusted adviser in an athletes life. I want to be able to speak up for those who cannot speak up for themselves. And I think if more of us could do that, all of a sudden we'll start seeing our society start to grow. our young people, these small business owners in our cities and our communities, we'll be able to be the example for them and be able to step up and stand in the gap because the schools are not doing it, nor are the coaches.
▶ 1:40:37Well said.
▶ 1:40:38Thank you, Mr. Schwiker.
▶ 1:40:40Thank you, Mr. Chairman. Um Sam, most impressive thing you did an MBA at ASU.
▶ 1:40:48Thank you.
▶ 1:40:49Also the same. All right. Now, now let's actually walk through first a little set of the scale of the math we are facing and or excuse me we are avoiding um United States will probably borrow about 6.3 billion today just today and every tomorrow and the next day and the next day um if I'm doing my quick calculations right now the math I'm looking at on um tax exemption on stadiums
▶ 1:41:20um maybe 300 million um this year, you know, uh because it's what 4.3, but it's divided over 20, not a 10. I don't know why it had a 20-year score. So, we have some scaling issues.
▶ 1:41:36So, if I turned to all of you on the panel and said, "All right, let's just do some solutions here." are my solutions of hey um just as I won a lottery um we're going to go just an automatic withholding model um on these types of contracts um yes multiv you many of you have actually said some um financial education all right terrific um what would each of you do both on the athletes and how we avoid the difficulties here
▶ 1:42:06and then the subsidies of allowing taxexempt bonds taxexempt [snorts] organizations on these. What would you do? Let's start with you, Sam.
▶ 1:42:17Thank you, Mr. Schwiker. I would start with the automatic withholding, but also with allowing that money to be held in an investable account and similar to an individual retirement account. Here's what I mean by that. Some of that money would be withheld. Maybe these are two separate conversations, right? But that money would be withheld and set aside to go to the IRS. But it would be an idea, an opportunity to show athletes what saving looks like. show athletes how money can grow in an in an IRA.
▶ 1:42:45Money can be invested and it can grow.
▶ 1:42:48Okay. So, here's my withholding a mandatory um uh to a retirement account and here's your income.
▶ 1:42:55Yes, correct.
▶ 1:42:56Okay, Madison,
▶ 1:42:59I'd continue to advocate for the mandatory withholding. I think it's a great tool. It's as uh another member said uh it's the reason withholding is the reason we have an 87% compliance rate in this country. Um I have seen one major university that offers withholding to their athletes. Um they they will withhold 30% or a lesser amount. Um or the athlete can opt out.
▶ 1:43:28Um, I've seen a collective that will make estimated quarterly estimated tax payments on behalf of the athlete unless they opt out. I'
▶ 1:43:38mandatory withholding. Would you actually move to a um obligatory retirement account? I would think the mandatory I'm a tax guy so I would say the mandatory withholding should be submitted to the IRS as it's withheld or on a quarterly basis as as employers do to the IRS on behalf of the applic.
▶ 1:44:02Okay. So that's the tax side. Anything on on retirement side or or investment side or compounding of interest side?
▶ 1:44:09I'm not an investment counselor. Okay. But I do know that the greatest asset in investing is time, not timing the market, but having
▶ 1:44:18What would you what would you do in regards to taxexempt organizations and taxexempt on
▶ 1:44:24that is beyond my area of expertise, so I don't feel comfortable offering my opinion on that issue.
▶ 1:44:30All right. Um, M. Roller,
▶ 1:44:35I think it's extremely important, which uh Sam mentioned, that you do have some sort of withholding. The issue to be careful with with the withholding on NFL players, NBA players, NBA coaches, when they get a bonus, the tax is only withhold at 22%. So when it comes time to do the return up to a million dollars is only withhold at 22% and then they go above to 37% once you're above a million.
▶ 1:45:04So if you only have if you're making in the millions which most people in the NBA are you have an issue with not having enough withholding. I think education and sitting down with the student athletes is of utmost importance and the more you can teach them or the key family member the better off you are.
▶ 1:45:23All right. So some type of mandatory holding and um doctor what would you do?
▶ 1:45:31I haven't thought about the NIL issue and the the withholding. Um so I don't feel competent to answer that question with respect to the tax exemption issue. I would do away with it for stadiums for
▶ 1:45:49Absolutely do away with it.
▶ 1:45:51As you mentioned, that doesn't raise a lot of money. And if we're trying to to fill the budget deficit, that several million dollars a year just isn't going to cut it. On the other hand, I'm fairly com comfortable saying I would do away with tax exemptions across the board. And if you want to subsidize any of these activities rather than exemptions, I would use um something that Congress could do, which is a budget item every year.
▶ 1:46:19Now, state and local governments would absolutely hate that. And they'd hate that because they couldn't be sure the money was coming. But that would mean two things. One, it would mean that you didn't have the distortion that a de tax exemption generates. and two, the amount of money that's subsidized through the tax exemption is um less than the amount of money the federal treasury loses.
▶ 1:46:44All right, we're we're up against our time. Um thank you for your patience, Mr. Chairman.
▶ 1:46:48Thank you, Mr. Davis.
▶ 1:46:51Thank you, Mr. chairman, and I certainly want to thank you for calling this as the representative, the congressional representative for the Chicago Bears, the Chicago Bulls, the parking lot, for the White Socks, and for the University of Illinois at Chicago.
▶ 1:47:15Uh sports and athletics are very important part of what goes on in our city across the board any way you look at it. And then of course we've got the Cubs over there also. And and so it's big action big time. So I thank all of the witnesses. Mr.
▶ 1:47:37Madden, I especially appreciated your testimony because you raised important concerns related to this new group of taxpayers who have new resources and in some instances, a lot of them who are essentially being put in situations that create tax debt without guard rails.
▶ 1:48:01And we've talked somewhat about that to help these young adults understand and comply with their tax Of course, as contractors, these young adults must pay the full self-employment tax and then have very complicated tax returns and tax obligations that many of these young athletes and their families are not
▶ 1:48:31familiar with and don't necessarily think a great deal about usage at the moment. We've already explored in some ways and suggestions, but do you have any other things that this committee perhaps could do to make sure that these young taxpayers don't get themselves in more trouble than necessary?
▶ 1:49:04Well, I I keep uh thank you for the question, Representative Davis. I keep harking back to the withholding, but the financial literacy piece, I don't know if this committee has any authority in that regard. Um, I know me from experience, many states uh mandate financial literacy training um at the high school level, but I also know that many of the states do not fund it fully.
▶ 1:49:29I talked to one colleague uh that told me in her home state the financial financial literacy requirement for high schools is handled during norm uh morning announcements of all places which is totally ineffective.
▶ 1:49:43Um, when I was in high school, um, many years ago, we had a social studies teacher, I believe it was our junior year, but during tax filing season, one of our assignments was he handed out blank tax returns, gave us Mach W2s and 1099s, and the assignment was and and a tax table and an instruction booklet, and the assignment was complete a 1040 income tax return. And I still remember that to this day.
▶ 1:50:10I don't know if that's why I I uh had a 38-year career with IRS. Um but it it certainly stuck with me and I know for a fact things like that are not being done today. So anything that can be done uh for financial literacy like I said at both the high school and the college level because it hasn't been mentioned yet but NIL income is filtering down to high school athletes.
▶ 1:50:35Thank you very much. Um Mr. Coach, in your testimony, you talked about how federal tax exemptions cost the federal government revenue. If we were to close the loopholes that we know exist for wealthy investors, would this have any impact on local governments and the role that they play in this partnership of developing facilities and stadiums?
▶ 1:51:06I I'm sure that it would because in effect they would be would have to borrow at the market rate rather than the tax exempt rate. It could be ameliorated by instead as I mentioned um in to the previous questioner if Congress were to enact the same dollar value of subsidy but to do it directly rather than indirectly through the exemption in which case it would make the local government whole and it would also save um
▶ 1:51:37the inefficiency the wasted amount of money from the federal treasury that doesn't end up in the hands of the benefici Thank you very much. Thank you, Mr. Chairman. I yield back,
▶ 1:51:49Mr. Le Hood.
▶ 1:51:51Thank you, Mr. Chairman, and appreciate you having this hearing today. And I want to thank our witnesses for uh your valuable testimony here today on this important topic. I represent the state of Illinois and as been as has been alluded to, we're having a debate in the state right now regarding the Chicago Bears and whether the Bears should be playing their home games in the future in Hammond, Indiana or in Illinois. And I I frankly think it'll be political malpractice if we allow the Bears to go to Hammond, Indiana.
▶ 1:52:21Um, and but that debate is on full display in the state of Illinois right now. And there are obviously political and economic risks moving forward on what direction uh we decide to go on this. And Mr. Coats, I know you've spent a lot of time on stadiums. Um from a taxpayer perspective, what should be top of mind for taxpayers as we look at this debate between Indiana and Chicago?
▶ 1:52:50want to distinguish between the federal taxpayer and the taxpayers of Illinois and Indiana. So the federal taxpayer in general um is putting some of the bill for whatever subsidy wherever they go, wherever the Bears end up. And so my first sort of question would be is there any particular reason that somebody from Mobile, Alabama should pay for the stadium in Chicago or Hampton, Illinois?
▶ 1:53:19My gut says nobody in here would think that that's the appropriate thing. Now, let's think about the taxpayers in Illinois and Indiana. If the taxpayers in Indiana want, and I think it's not clear that they do, but the politicians and certain advocates clearly do, then they should be perfectly allowed to subsidize the move of the Bears and bid for them.
▶ 1:53:49Similarly for taxpayers in Chicago. Now, I said that I don't think that they do. And the reason I don't think that they do is that referendums frequently have not passed when they've been put to the people. And so what has happened over roughly the last 20 to 25 years is that city governments and state governments have said essentially, yeah, we can't trust the voters to subsidize the team, so let's do it ourselves.
▶ 1:54:20And so my my reaction would be let's ask Chicago. Let's ask the people of il in Indiana if this is what they want their tax dollars going for. Now when I say that I also say let's tell them the truth. Let's not have an economic impact report produced by the bears to say what the value of the bears is to Chicago.
▶ 1:54:48have an independent analysis done that will look at not just what goes on with a subsidy to the Bears, but would look at using that same money for a variety of other purposes and then decide based on that which is the best return for the city.
▶ 1:55:05That's the way these things should be done instead of whoever is the loudest voice with the greatest touting a value that frankly is just No independent researcher ever believes the results that come from an economic impact report produced by a stadium proponent. They're just silly.
▶ 1:55:30And so I would say do a real analysis independent of the people who have a stake in the outcome and provide that information to the voters and let the voters decide.
▶ 1:55:42Um Mr. Coach, you've spent a lot of time and research on stadium financing and while each project is different, uh what factors distinguish investments that generally benefit a community from those that primarily shift cost to taxpayers?
▶ 1:56:03Most of the people who would say that those that benefit the community um would say that the the facilities are embedded within the community as opposed to um what was the norm in the past of a large facility out in the suburbs surrounded by a sea of parking lots. So put it downtown so that take um what's it called now?
▶ 1:56:28the the ver the capital not capital cap one arena whatever it's called these days um take that as an example the claim is that putting it there benefited the city because of the bars and restaurants and other [cough and clears throat] activity around it if there is a case that is probably the best case now I would argue that's not a good case because anybody who's spending money in a bar or a restaurant on I think it's 6th Avenue is not spending that money in bar,
▶ 1:56:58restaurant in Georgetown. All you've done is move money around and that's just pure redistribution of activity within the metropolitan area. I don't see that as a as necessarily a good thing. If somebody wants to lay out a case that that redistribution from this neighborhood to that neighborhood somehow makes us all better off, I'm willing to listen to it. But they typically don't.
▶ 1:57:23Thank you. I yield back,
▶ 1:57:25Mr. Estus. Thank you, Mr. Chairman, and and thank you to our witnesses for being here today to to provide your expertise on the future of tax policy as it relates to sports. You know, the federal tax code uh should not be used to pick winners and losers by subsidizing one state or local government over another, using tax exempt bonds for business relocation. I've been a longtime skeptic uh against uh the star bonds programs in Kansas, and and sometimes they work, sometimes they don't.
▶ 1:57:53and but the federal taxpayer shouldn't be on the hook supporting those types of tax advantage bonds. But that's the current rules we live under. If we need to change the rules, then that's what the committee should do and that's one of the reasons why we're having the hearing today. Uh for me personally, it's disappointing that the Kansas City Chiefs are going to be leaving Arrowhead Stadium. You know, I've enjoyed many tailgates and games at the at the loudest stadium on the planet. Uh but I'm glad the leaders in my home state fought to keep the Chiefs in Chief's Kingdom.
▶ 1:58:21Kansas City Chiefs uh will uh and their fans will continue uh whether you live in Garden City, Kansas or or whether you live in Cape Gardo, Missouri will still be able to uh continue to support and enjoy watching the Chiefs games. While this particular deal was may not be perfect, it it does require the Chiefs to have skin in the game that will keep them in the Kansas Missouri market for years to come.
▶ 1:58:44Uh beyond professional sports a committee needs to take a much deeper look at the tax implication of the name manage and likeness deals uh that have been become a permanent fixture in college collegiate sports. NIL activity reached an estimated $2.3 billion in recent years and broader college sports market size is expected to grow to a staggering 47 billion. It's not small scale.
▶ 1:59:06It's it's a massive uh microeconomy and for many of these student athletes as mentioned before the income products and benefits they receive through an ideal mark the first time these young men and women interact with the US tax code uh without clear accessible guidelines and rules from the IRS. Many of these athletes are struggling to get their filings done correctly.
▶ 1:59:27Uh they're often blindsided, as mentioned, by self-employment taxes, non-cash compensation, like free cars or gear that counts as taxable income, and multi-state filing requirements. Um these athletes aren't corporate executives with teams of accountants that can handle those requirements are trying to balance full-time class load, grueling practice schedules, and suddenly complex paperwork. Uh additionally, we need to ensure that NIL deals do not unfairly advantage certain taxpayers over others.
▶ 1:59:55I'm glad the IRS has drawn clear lines to recognizing that third party NIL collectives do not meet the requirements to be taxexempt. Uh more discussion and clarity is needed to ensure that other NIL donations and revenue sharing agreements uh with universities directly are treated similarly. Let's take this hearing opportunity kind of look at how we can make it easier for student athletes. Uh Mr. AO um a a u a student athlete who plays in 15 states and may end up owing taxes and filing returns in most of them.
▶ 2:00:25It gets a lot worse if the school's not withholding uh estimated tax payments. How can we as Congress uh make it easier and simplify for athletes to file in those different
▶ 2:00:37Thank you, Mr. Estus. One idea is the idea of having just a flat tax rate simple similar to corporate corporations. there's a flat 21% tax rate. I understand the graduated rate that we have for people who are making more money or less. But that's one idea. Another idea is potentially to uh exempt some of these players from filing taxes in all these different states in which they play. So the state tax may not be there, but the federal tax at least will be paid.
▶ 2:01:02Um those are the only the only two options I see to try to help out a player outside of that player having an entire team around him of CPAs to be able to file taxes for him or her in all the different states that they play. Yeah. Well, I I'm I've been uh very interested in your comments around financial literacy that several of you mentioned, but obviously um that's that's an important part for anybody and uh one of the things that uh I have a strong interest in uh for years through that.
▶ 2:01:30So, um you know, student athletes that are making similar amount of money or significant money are being told to set up companies or LLC's or escorps. I mean, that's typically what a business does, but it's new territory for a 19-year-old. Um, how are student athletes being advised and are they adequately being advised to manage these
▶ 2:01:50Many student athletes are not adequ adequately being advised to manage these businesses. What you see is uh large companies I'll use JP Morgan Chase as an example. They have these commercials with Tom Brady and Serena Williams and saying we are the solution for athletes in this growing landscape of NIL and athletes aren't realizing that they have nothing to do with taxes. And then on the second piece, taxes while they are important, financial literacy matters as well. the the biggest strength of these athletes is their youth, right?
▶ 2:02:16Compound interest works in their favor, them being young, 19 and 20 year olds and starting an individual uh an IRA or maybe a 401k retirement plans like those the power of those over 40 years like is a huge opportunity and so athletes both need to think about the tax implication but also need to be saving for their future selves in the form of retirement
▶ 2:02:38Yeah. Well, great. Well, thank you all for being here. I I've got a lot more questions I could ask and talk about, but we appreciate your counsel for us in this. Mr. Chairman, I'll yield back.
▶ 2:02:46Thank you, Miss Soul.
▶ 2:02:47Thank you, Mr. Chairman. I want to thank our witnesses. Uh, Professor Coats, before coming to Congress, I was a uh securities, corporate securities and public finance lawyer. And as a bond lawyer, I worked on lots of uh bond issuance in my home state of Alabama to help uh cities uh as well as historically black colleges um even the University of Alabama to do public projects including stadiums.
▶ 2:03:12Uh and so I share your concern about how public finance and municipal bonds are being used to subsidize professional stadiums uh and their construction. In your testimony, you stated that taxexempt financing for financial for professional uh sports facilities is an inefficient subsidy because many of the benefits do not directly go back to the communities rather to the investors and the owners. Um how can we flip the switch?
▶ 2:03:41How can we make sure that communities benefit that where these stadiums are located actually do benefit uh from um all the money that's being made? I think the best way to make sure that the communities are benefiting is to make the I should be clear. If it's a professional stadium,
▶ 2:04:08that's what I'm talking about.
▶ 2:04:09Then the owners should pay for it,
▶ 2:04:11right? And that would whatever benefits are generated by having that facility in the community will redound to the community because they don't have to pay anything for the development that presumably will happen around it.
▶ 2:04:25And when they leave, like in the case of my chairman's uh uh state, um that they wouldn't have to continue be paying on something that they're not benefiting
▶ 2:04:35Exactly. they wouldn't continue [clears throat] to pay. If the if the stadium we're talking about was for the University of Alabama,
▶ 2:04:42which worked on several of those,
▶ 2:04:44some other um public entity, then I think that the case is much stronger for the use of the tax exemption precisely because we're providing a public service to the community, something from which the community
▶ 2:05:01benefits whether it's and so this the exemptions were essentially developed to enable governments to provide state and local services that they might not otherwise do. And so
▶ 2:05:14I wanted to also get on NIL. So I I wanted you to say what you just said, which is that tax exempt financing has a purpose. That purpose uh is especially utilized when we're in the public space to allow for libraries to be built and to allow, you know, city uh city halls to be built and other public projects as well as um as well as private activity bonds which you you talked about.
▶ 2:05:38Um Mr. Ho, I wanted to talk a little bit about what you said. You said a lot of things that really resonated with me. My dad was a high school basketball coach in my hometown of Selma, Alabama at Selma High School for 42 years. And he really poured into so many young men uh during that time. And um I'm sad that he didn't live to see uh those players get compensated.
▶ 2:06:02He was always one of those uh player, one of those coaches that felt that um these young men uh were being um you know were not being able to get the benefit of their full talent and others were leveraging that. Um and so my question to you though is and I also totally agree with you on the sentiment that what we need are advocates for them not fans. And I consider myself to be one of those advocates. I have the great honor of representing the University of Alabama in Congress as well as the SEC headquarters.
▶ 2:06:31um in Birmingham and um we're all kneedeep in trying to figure out how to put up guard rails around NIL and I think too often the players get lost in this that the they are the talent and look I grew up my dad believed in the student athlete. I believe in the student athlete um and ath the student part of it needs financial literacy.
▶ 2:06:53the athlete part of it needs advocates as you said and so what do you think is a long-term impact on young players by not having um you know advocates work on their behalf? We're talking a lot about the score act and there's another bill over on the Senate side and in lost in all all of this is that the universities benefit by getting um you know reduced liability or no liability.
▶ 2:07:19Uh, and the players, yes, they get to play and they get to get money, but they don't get to get those that money withheld. And so, so many of them, the the the example you gave, an SEC player that had $750,000 and at the end of it all had no money to pay his taxes, is a story that I'm hearing over and over again. What can we as a committee do? Um, I know you talked about automatic withholding. I'm very interested in that.
▶ 2:07:46Uh, but I'm also very interested in making sure that um that when they get into the NFL, they also continue to be able to have financial literacy and success. Your thoughts on that?
▶ 2:08:00So, I think that the what I would love the committee to understand is that teams are not incentivized to educate and empower players.
▶ 2:08:10Even college teams,
▶ 2:08:12even college teams, specifically college teams, they're not incentivized. Their incentive is to try to win games for the most part and so someone on the outside needs to be that advocate. Miss Su, it seems like you are one of those people that wants to be that advocate. People who have uh jurisdiction
▶ 2:08:27territory too many predatory folks are out there.
▶ 2:08:30Correct. And it's not just the agents. It's sometimes the general managers of
▶ 2:08:33or the collectives
▶ 2:08:34or the collectives. I I've had conversations with many general managers who are running uh who are helping running the the the teams and they're saying, "Man, if I can get a player for half the price that he's worth, I'm happy with that." Yeah.
▶ 2:08:44And so it needs to be more people like you, people in seats like yours that come in and step up for the players as opposed to say they're getting millions of dollars. Let's forget about them.
▶ 2:08:54Thank you, sir. And thank you so much, Mr. Chairman, for indulging me.
▶ 2:09:01Excuse me. Just remind everybody, and I know this is good conversations, but please limit your remarks to five minutes. That includes asking giving time for questions and answers. So, thank you. Next, I'll recognize the gentleman, Mr. Smucker from Pennsylvania. Thank you, Mr. Chairman. There was an earlier discussion about the Chiefs, and I want to say as a Pennsylvania resident and an Eagles fan, I don't much care whether they're located in Missouri or in Kansas, I'm just happy that we came back to dominate them in last year's Super Bowl.
▶ 2:09:28So, Dr. Coats. Um, you've been talking and I may ask um a few others this question as well, but you've been talking about um the tax exemption of bonds as it relates to building stadiums.
▶ 2:09:45And I'd like to know whether you have an opinion as well on the tax exempt status, the nonprofit status of some of these large university sports programs and even of the of the collegiate conferences as well.
▶ 2:10:01And this is I think um uh in the context of a broader conversation we've been having about our nonprofit sector which obviously we extend nonprofit status to um organizations that are providing a public good and in return for that we give up um the taxes.
▶ 2:10:21But we've seen an explosion of nonprofits over the past um few decades and we've had some of the large hospital groups here uh some of the huge public uh university endowments. Um the question is we really whether that's continues to be a fair um tradeoff and I'm just wondering if um you know as we've seen the business of college athletics like dramatically grow in recent years they're looking more and more like professional teams which
▶ 2:10:52um in I think in all cases certainly in almost all cases they are for-profit um companies the the um the leagues are as well. Should we be um looking at that uh relationship? Is it does it still make sense to allow uh some of the large college programs to be nonprofits?
▶ 2:11:18I struggle with this this exact issue um partially because it's related to the the question from um Miss Su I think that there are public purposes and most of the university I think serves those public purposes and the tax exemption is perfectly reasonable in that case. But the athletic department, it's not always clear what the public purpose is.
▶ 2:11:49if that could be made clear, then I think the tax exemption would make But to, as you've said, it looks more and more like they are for-profit entities. And if they are for-profit entities, then they should be subject to tax just like every other for-profit entity and not receiving the tax the, you know, as they say, the devil's in the details and exactly identifying how an athletic department that is
▶ 2:12:21very much intertwined with the university is a for-profit entity and the rest of it is not.
▶ 2:12:28Yeah, I think it is a tough it's a tough question, but I think it's a question that that uh we need to ask. Uh Mr. Raola, any opinions on the topic?
▶ 2:12:39M Mr. Madden anything
▶ 2:12:42I haven't se [clears throat] I haven't seen the books or records or tax returns of any universities but I do know that uh some schools some power conference schools are are looking into and some have actually initiated having their athletic departments form their own business entities. Uh I think part of the reason for that is to bring in private equity to help fund them.
▶ 2:13:03Um, I also know from reporting and talking to some administrators that many of the of the major power conference schools, the powerhouses are operating at significant deficits year after year. So, um, it'll be interesting to see how that plays out going forward, but I don't think an a separate athletic department could have a could have taxexempt status. I don't see how that could be a possibility.
▶ 2:13:27Thank you. Dr. coats, would your comments essentially apply to a collegiate conference as well? I mean, these are these are organizations that are not directly um providing the educational benefit. Um, you know, huge over a billion dollars in revenue um you for for the Big 10. I think it was over a billion dollars for the SEC as well. Um should they be uh nonprofits?
▶ 2:13:57To the extent that the revenues that they collect stay with the organization as opposed to get passed through to the universities, I think absolutely. To the extent that the revenue just they act as a pass through to the universities that are part of the conference, then I think not. Um, I think that this private entity aspect that um was suggested, there is some evidence that that that exists. I think it's the University of Iowa.
▶ 2:14:27Their athletic department is 100% separate from the rest of the university and maybe legislation that made that hold across would would resolve this issue.
▶ 2:14:38Yeah. Thank you.
▶ 2:14:41All right. Next, a recognized gentleman from Oklahoma, Mr. Hearn.
▶ 2:14:46Thank you, Mr. Chairman. Um, let's let's expound on this a little bit. Uh, because if you look at something that's really the American people are demanding uh of this committee and others and certainly their legislators uh and the federal government is transparency.
▶ 2:15:01And you know, the more that the universities delve into the NIL issue, the more they uh, as my friend here from Pennsylvania said, they really start straining that relationship of being a taxexempt status, something that the American taxpayers pay for in their individual states uh, on their universities where they're getting other taxexempt areas. So, they're sort of playing in with one foot in hot water, one foot in cold water. On average, they should feel pretty good.
▶ 2:15:30But it's looking pretty obvious that as these get into businesses where uh students are making, you know, upwards $20 million in IIL money that um these are looking more like sports programs wrapped in some educational ideas in order to continue their tax exempt status. And you know, Mr. Madden, you you spoken earlier in your conversation.
▶ 2:15:55And I I don't remember if it was right in your opening statement where you talked about standing the test of the 20 provisions to be uh a nonW2 entity. Um having been in the business world for 35 years, um I didn't know there were 20. Uh but I I I looked that up. There are a lot. I didn't know if you wanted to expound on that a little bit because I think that really does start identifying some of the things that I'm talking about.
▶ 2:16:19Yes, thanks for the question, uh Representative Hearn. Um the IRS has conducted employment tax examinations for decades. Um many times in the construction industry um where maybe drywallers or painters were working for one company and that company was telling them where to go, where to work, provide pro providing all the tools of the trade, giving them their hours, but treating them as independent contractors.
▶ 2:16:46the IRS would come in and do a employment tax examination or audit and using those 20 [clears throat] common law factors that have sort of over the years been um uh um summarized into about three, but mostly it's around responsibility and control and relationships. um but de reclassify those independent contractors as as employees and then charge the the employer with the applicable uh withholding tax.
▶ 2:17:15Usually it's one half of the uh social security and Medicare tax on what should have been wages and not non-employee compensation. Many in the tax world, as I said in my opening statement, believe if the IRS were to go to a school, athletic department, um, and conduct an employment tax audit and use those factors that the athletes would be reclassified as employees.
▶ 2:17:39So, might I ask this? What's what's the penalty for a company classifying somebody as a independent contractor versus an employee after an audit from the IRS? Well, number one, it would be the additional tax and any applicable penalties and interest. And then there's also the possibility for civil fraud penalties if it was deemed to be uh intentional and being done with knowledge uh that civil fraud could be assessed. that that that's a much higher standard than just
▶ 2:18:07so it's safe to say the NIL industry is still the wild wild west right now and violating pretty much every uh established law on employer employee/independent contractor uh every business in America would love to have an independent contractor status because it lessens the burden administratively on those businesses just as it does universities and the collectives um are a pass through uh Some might argue they're are laundering money uh from big donors directly to these students.
▶ 2:18:38And it just happens in my last minute that I have a uh former student athlete from my district uh very successful high school uh player. He and his brother both went to college and I always ask my interns to do a bill they'd like to work on. And then last week he presented a bill to me in my office along with all my staff watching on this very topic because we're talking about it from a legislative issue. But if you're a student on the receiving end, as Mr.
▶ 2:19:06Ao said, this is a devastating experience in your life. And when you're a college athlete, and you've seen this time and time again over the short period of time that we've seen NIL money really become prevalent in sports, it's devastating not only financially, but personally and emotionally to those student players who came out of high school. In fact, his brother was the first NIL money earner in the state of Oklahoma just a few short years ago.
▶ 2:19:33So this is something he's seen in his early career of his life going through college and seen others going to the pro world that Mr. Au you didn't see when you were coming through college many years ago and it's been devastating not only financially but emotionally and tearing families apart for the very reasons you all testified. I appreciate you all being here sharing your expert testimony. Mr. Chairman, I yield back.
▶ 2:19:57General lady from California, Miss Chu is now recognized. Five minutes. First, I want to acknowledge that sports can play an incredibly important role in our communities. My district is home to the Rose Bowl, one of the most iconic venues in the country. After the Eton fire devastated Aladena and Pasadena, the Roseb stepped up to support relief and recovery effort, serving as an emergency response hub for our community during one of its darkest moments.
▶ 2:20:27That is the very best of what sports can represent. Which is why I find today's hearing so baffling at a moment when families across this country are struggling to afford health care, housing, groceries, and child care.
▶ 2:20:44When communities like mine are still rebuilding after devastating natural disasters, I cannot understand why the majority has decided that the tax treatment of the multi-billion dollar sports industry deserves this committee's attention The Ways and Means Committee has jurisdiction over some of the most urgent economic challenges facing the American people. We could be examining why health care costs continue to rise.
▶ 2:21:11We could be addressing the millions of Americans losing affordable health coverage after Republicans allowed the enhanced affordable care act premium tax credits to expire. We could be discussing how to help working families keep more money in their pockets or how to support communities recovering from Frankly, this hearing is a slap in the face to the millions of Americans looking to Congress to take their challenges seriously and deliver real solutions.
▶ 2:21:41And unfortunately, it isn't Just one year ago, this committee spent nearly 18 hours marking up one of the most regressive pieces of legislation in modern American history, the big ugly bill. Throughout the night, Democrats fought to make the bill less harmful to working families. We offered amendment after amendment to protect health care, make the tax code fairer, and ensure that the wealthiest Americans paid their fair share.
▶ 2:22:12Republicans blocked every single one, including my amendment, to stop people making more than $10 million a year from receiving another tax cut. That night, Republicans made their priorities unmistakably clear. Protect tax breaks for the wealthiest Americans while forcing working families to pay the price.
▶ 2:22:37Next year, households making less than will see their taxes spike by over 9%. And those making over $1 million yearly will see their taxes decrease by almost And all of this was paid for by kicking over 15 million people off their health care, the biggest cut to health care in our country's history.
▶ 2:23:07And that's not even counting the damage caused by Republicans decision to let the enhanced affordable care act premium tax credits expire, driving up health insurance premiums for millions of Americans and pricing many families out of coverage altogether. That includes over 61,000 of my constituents like Laura from Pasadena whose premium is skyrocketing from $56 to $552.
▶ 2:23:35That's an 886% increase. She isn't asking Congress to debate tax policies for professional sports. She's asking how she's supposed to afford healthc care insurance. And now Trump is refusing to sign one of the most significant pieces of bipartisan housing legislation in decades that will make it easier for working families to buy a home and achieve the American dream.
▶ 2:24:04It shouldn't be a surprise considering he himself said that he doesn't care about Americans financial situation. While families are struggling to afford health care, housing, groceries, and childare, this committee shouldn't be spending its time debating the tax treatment of one of the wealthiest industries in America. We should be focused on lowering costs and improving people's lives. I yield back.
▶ 2:24:35gentle lady from West Virginia, Miss Miller, is now recognized to speak on the hearings topic.
▶ 2:24:43Thank you, Mr. Chairman, and thank you all for being here today. The older I get, the more generational I become. I can remember my grandmother talking about my grandfather, a good Catholic boy, John Francis Divine from Chicago who talked N Rockchnney into going to Notre Dame with him. He played football. My grandfather held the world record in the 880.
▶ 2:25:10My father was also a student athlete and he ran track with Jesse Owens at Ohio State and he said all I ever saw was his back. I mean it the opportunities that these young men at that time that that they could actually get an education while using their talent was very special.
▶ 2:25:34I mean what we've become today um it's just grown and evolved the you know the professional teams the student athletes the universities and and it just becomes more and more complex and I understand why we're talking about taxes and I'm you know I'm hearing about these young people who just thought it was free money and they didn't understand yes I want to put my mom in a nice house and yes it'd be really nice to have a car.
▶ 2:26:03Um it just the growth in name and image and likeness opportunities that the universities are creating for these new companies to accept outside money. It's important for all of us to really understand where that money is coming from. Sovereign wealth funds and government money from places like Saudi Arabia have been pouring into sports worldwide and these groups are now circling college sports. Next, Mr. Madden.
▶ 2:26:31If a golf sovereign fund takes a stake in a school's new athletic company or bank run bankrolls an NIL operation, could it be earning returns on American college sports essentially tax-free? And is this better tax treatment than an American investor might be getting who's putting in the same dollar would get?
▶ 2:26:52Thanks for the question, Representative Miller. not familiar with um money like that pouring into college athletics. Um and I'm not sure what the tax treatment would be. I do know the PIFF, the uh the investment fund that funded things like uh live golf um you know really changed the landscape of of the of professional golf the PGA Tour, but I'm not familiar and I don't feel qualified to comment on what what the tax advantages or disadvantages
▶ 2:27:23of that would be.
▶ 2:27:24Thank you very much. I I'll turn to Dr. How has the cost of building new stadiums changed over time? And and what is really driving this change? And if you can get into any of the bank rolling or the things you know about, please share it with us.
▶ 2:27:42That the change over time is very real. It arises essentially from two things. One is the obvious increase in the cost of materials and the other is what I'll call the Taj Mahal effect. Basically, we want it to be the most you know, elaborate facility possible with as many possible ways of extracting revenue from the fans.
▶ 2:28:09So, high-end eeries, video game arcades, stakes, uh, steak restaurants, whatever you might imagine going inside the stadium is there in order to extract revenue from fans and that builds up the cost. But our aspect is who's paying taxes on this? You know, money in, money out. How does this work? You're the economist.
▶ 2:28:38The the payment for this is basically twofold. There is the private sector does pay some of it and the public sector pays some of it in the form of state and local government bonds typically which are then financed with increases in sales taxes, lottery sin taxes, a variety of other methods to generate the funds to pay the bonds.
▶ 2:29:06But what if I mentioned Saudi Arabia, but what if another country's investing in there? Do they get advantages not be be taxed the same way?
▶ 2:29:19I'm not a tax accountant or a tax lawyer. So what I would say is the investment that Saudi Arabia or anybody might do is to become a partial owner and then as far as I understand they would be subject to the same sort of tax uh liability as any other owner of a a sports franchise.
▶ 2:29:39Okay. Thank you so much. I yield back.
▶ 2:29:42Recognize myself for for five minutes. Uh I was at the College World Series the other day and Mr. Hearn from Oklahoma is not here. Congratulations to him. His team cheated, but that's a whole different thing. Um uh you know, I was interesting talking with the athletic directors there about the NCAA and all that's turned into NIL. I think they rushed into this and to your point, Mr. I, I think they rushed into it without thinking two steps ahead, three steps ahead, four steps ahead.
▶ 2:30:06So many of these kids come from impoverished homes that are not used to paying taxes and then all of a sudden they get out of the blue the boogeyman comes. They don't know understand they also have to pay their agent their 20% and then the hangers on etc etc. There's so much financial literacy that does not happen in so many places and then to have so much money dumped on them. It's great for them but um doesn't usually last very long. So real one quick question Mr. at Rayola.
▶ 2:30:30If if uh a an athlete goes to California, a professional athlete goes to California and has to pay California taxes for the day, do they then get forgiven those taxes back in New York or somewhere?
▶ 2:30:42They get a credit in their resident state for the taxes paid to California.
▶ 2:30:46When did all this when did all this
▶ 2:30:48Interesting that you rise raised that question. The myth is back in the early 90s when the Bulls were playing the Lakers, the Bulls uh Chicago legislature got wind of the fact that the um was taxing the franchise tax board was taxing professional athletes. So, they built in the same kind of law and it's it's all over the place.
▶ 2:31:15But the problem if you pay tax to California is they have the highest tax rate. Yeah. So,
▶ 2:31:20you can't get a full credit in the state you're resident.
▶ 2:31:22Yeah. Seems uh like you're running around with a bunch of, you know, it makes just an crazy thing for your tax burden at the end of the year or you're just paying tax attorneys and accountants. Um, you know, I I think just talk I think this is actually a fascinating topic because there's so many permutations that we can talk about. You know, when we think about nonprofits, people usually normally think about the United Way, the Red Cross, the Girls Club, uh the Boys and Girls Club. They don't think about the NHL.
▶ 2:31:49they don't think about the uh PGA and you know nonprofit status now has just exploded in this country and um for some good reasons but for some other ones that we're now pointing out to um the fact that professional sports franchises are non for are for non for our for-profit entities while sports leagues may qualify for tax exemption status under current rules begs the question so the justification for the taxexempt status is that leagues operate as quote business leagues leagues that
▶ 2:32:19serve as exempt purposes association of persons having some common business interest. So, professional sports leagues are beginning to follow a trend of voluntarily giving up their tax exempt status, which is a good thing. I think Major League Baseball did it 2007, NFL did it in 2015, but the NHL, the PGA, and the LPGA still retain their tax exempt status. So, Mr. Madden.
▶ 2:32:46Should this committee think about removing the tax exempt status for these professional sports leagues, the ones that are I'd have to look at every individual situation to make an informed, uh, opinion on that. Um, uh, Representative Murphy, um, I know the PGA Tour is in the middle of, uh, total restructuring that they announced last week.
▶ 2:33:08Um, I didn't read anything about them giving up their tax exempt status, but I certainly think it's something that this committee certainly has the jurisdiction and the authority to consider.
▶ 2:33:17Yeah. You know, if you have other professional sports doing it, um, you know, it's not going to be a huge thing. It's not going to take us out of debt, but I think given the fact that they receive so much um so much of an exemption, I think it's
▶ 2:33:29I do know that the PGA Tour uh donates an incredible amount of money to charity um through their tournaments that are held throughout the country. Sure.
▶ 2:33:38Um probably I'm not certain, but it seems like it's more at least in proportion to some other of the other sports leagues that you mentioned.
▶ 2:33:45And that's wonderful thing. That's uh you know the the top 1% gives a true a crazy amount of money to charities which are not seen as taxable events, but um it's great that they do that, but also they should also play along the rules with with everyone else. You know, I think this begs the question is what's fair, what's not fair, what are other people doing, not people doing. Um, and I think that the professional world just like the quote amateur world. I I don't know that the term Mr.
▶ 2:34:11Achu is uh professional I mean student athlete is really much of a fair term anymore. Um I've seen athletes now five teams five years. Um they don't get an education. They walk out and um they may have a little bit of money left. They don't have an education and they sure don't have a loyal alumni following.
▶ 2:34:31Um, but that's a whole different thing because, you know, if you're a scrub on a team and you stay on it for four years and even though you you graduate with a degree, you've got a loyal alumni network that loves you and you're going to have a job, you're going to have opportunities, but these kids now bouncing around chasing the dollar, which I think does them in most instances not a good thing, um, is a real challenge. So, I'll yield back. Uh, Mr. Bole from Pennsylvania is now
▶ 2:34:55Well, thank you. Um, I'm first of all very appreciative that uh this hearing is being held. Frankly, I think it's a topic that's long overdue. And it seems to me listening uh this really great conversation and great witnesses over the last two plus hours. We have two different but related issues that we've been talking about. First are all the issues related to college sports.
▶ 2:35:20There have been more changes uh in college sports specifically with money in the last five years than the previous 50 and beyond. And that's because of a couple things. First, NIL, which came in uh was legalized by unanimous decision of the Supreme Court about 5 years ago, almost exactly 5 years ago to today.
▶ 2:35:40Then separately in parallel you had the house settlement which of course now allows for direct payment of players from Independent of those two major landmark things. You have court after court going after the ability of conferences in the NCIA to rule on certain matters. Most recently the absurd Brendan Sorsby situation.
▶ 2:36:06And I'm sorry to see a fellow Brendan who brought the name in disrepute, but the idea that you would have I mean maybe it should be called the Pete Rose rule. The idea that you would have an athlete still be allowed to play a sport even though he bet on games in that sport, including games of his own team. Absolutely absurd. So because of everything I just mentioned, you have various efforts going on here on the hill to attempt to tackle all of this.
▶ 2:36:34There's been uh legislation, the SCORE Act was was mentioned as one. There's other House legislation independently. You have the effort being led in the Senate by Senators Canwell, Cruz, and Coons, which passed out a committee just a couple weeks ago. But then it seems like we've also been having kind of a separate conversation specific to sports stadiums and financing.
▶ 2:36:59Uh we have one situation most in which the state of Missouri is now losing the Kansas City Chiefs going over the river to Kansas and you have a very wealthy sports owner, a family worth billions of dollars getting huge amount of taxpayer subsidies from the state of Kansas. You might uh be seeing that situation repeated with respect to the state of Illinois and Hammond um Indiana.
▶ 2:37:28So I want to address uh both of these matters and let me start with the latter first. Um I am very concerned that we have a system today which is essentially a race to the bottom in which you have municipalities and states that are falling all over themselves to give billions of dollars of taxpayer subsidies in order to lure franchises away from one city to a city in their
▶ 2:38:00If the state of Missouri 30 40 years from now repeats what Kansas did and state of Indiana does this to Illinois and then a different state maybe New Jersey does it to Philadelphia and to Pennsylvania, this is ultimately a race to the bottom in which in the end it's all the taxpayers that lose.
▶ 2:38:19So, I'm in the beginning stages right now of working on legislation at the federal level to disscent state uh disincentivize states and localities from engaging in this sort of practice. One of the things that we're looking at is the possibility of a federal excise tax. And so, I wanted to open it up to the panel, maybe in particular to you, Dr. Coats.
▶ 2:38:42I'm open to any ideas and suggestions on how we can end this practice once and for all, which ultimately it's the fans and the taxpayers who lose. I would love to hear about your excise tax proposal, honestly. Um, how exactly that would work.
▶ 2:39:03As I've I've said before, I think that the best way to do it is or the the way I would recommend doing it is first to get rid of the tax exemption for state and local government bonds used to finance stadiums. The second thing I would do is restrict the ability of the leagues to be monopolies.
▶ 2:39:26And the way that you might do that, I think, is have strong um supervision by the Federal Trade Commission or others that res that re in essentially extortionate kinds of that that clubs use to get stadiums and arena subsidies.
▶ 2:39:50Well, let me just sorry, I reclaim my time since I only have 5 seconds left and I don't want to go over I didn't have time to get to the second aspect of what I wanted to talk about in terms of state income tax and college athletes. Um, so let me just say again, I applaud the panel and I look forward to following up with uh at least one or several of you as Congress continues to get attempt to get its arms around this multi-billion dollar challenge that we're facing in so many different facets. With that, I yel back.
▶ 2:40:19The chair now now recognizes Mr. Koff from the great state of Tennessee for five minutes.
▶ 2:40:24Thank you, Madam Chairwoman. Uh, thank you to the witnesses for appearing today. And Mr. Ro, if I could with you, I I represent part of Memphis. It's my understanding that the University of Memphis partners with Robin Hood uh money drills to offer a four credit for personal finance course that teaches student athletes things like budgeting, credit, and how to manage NIL income.
▶ 2:40:52Are you aware of any other schools or universities that are uh partnering with anybody to teach these skills to Uh, Mr. Casoff, I'm aware of a few schools that are partnering with organizations to try and teach financial education and financial literacy. The University of Texas, the other UT got a chance to bring in some people to do financial education for their school. But, uh, these opportunities are few and far between.
▶ 2:41:19It seems as if these universities are illequipped to bring in the right types of people to educate their athletes.
▶ 2:41:26I'm asking this very naively. I don't know how many agents there are out there now for for college athletes. My impression is it's probably ballooned and mushroomed over these last few years. Yeah, you I really appreciate your your testimony and you gave some real stories of real people and how how this has affected them from a tax standpoint.
▶ 2:41:49Do you think these agents should have any degree of training as it relates to tax so that they could educate and inform their their clients?
▶ 2:42:02No, I don't I do not think that agents should have the the burden or the degree of training. I do think that the athletes need some training in taxes. I heard from one of the gentlemen who was a witness saying that he had a chance to fill out a W2 as a high schooler. I went to one of the number one high schools in the country. I went to the University of Texas. Got my, you know, was a business honors major. Went and got my MBA from the number one international business school in the world. At that time, the Thunderbird School of Global Management. Now it's a part of Arizona State University.
▶ 2:42:30Was voted top 20 smartest athletes in all of sports. There was never a class that I had about taxes. And I think that's the biggest issue. No one's teaching or having conversations. I don't think it should be the agent. Um, it should be someone helping the players understand those taxes.
▶ 2:42:47Thank you very much. Dr. Coach, you were asked earlier by uh Mr. Smoker and maybe Mr. Murphy. Mr. Smoker for sure about the college conferences and their tax exempt status. If I can maybe focus on the on the top four or the the top four that generate the most revenue.
▶ 2:43:13your opinion, do they serve a public purpose or are they a commercial entertainment business?
▶ 2:43:24As a copout, I'm going to say they're both because certainly the organization of the league, the setting of the schedules, the hiring of the the referees, that's all absolutely necessary for putting on the league competitions. and and that is a public purpose public service. I believe the flip side of that is as I said to the previous uh questioner was what happens with the revenue.
▶ 2:43:48If the revenue is predominantly staying with the league and ending up as salary for the league administrators and so on, then it seems to me that that's a business and if it's passed on instead to all of the the schools with just bare cost being retained by the league, then I think that it's really a public purpose entity and that the tax exemption is
▶ 2:44:12Thank you, Dr. Co. Mr. Mr. Roy, if I could, I'll ask you the same question. I you look at these conferences, some of them have the major game of the week. It's uh it's big viewing. They get big revenue from the networks and the streaming services. Are these conferences are they a p do they serve a public purpose or are they a commercial entertainment business?
▶ 2:44:38Um I would say it's if you really look into it, it's probably a commercial entertainment business. they are earning a big amount of money and as their players play in other states uh they're subject to the jock tax which is non-residents who are playing in other states.
▶ 2:44:57It doesn't it it although it applies to executives it's not really enforced athletes are or student athletes high profile high salary and easy to track where they've been. So the uh state tax is also an issue, but that's how I answer that
▶ 2:45:17Thank you very much. My time is expired. I'll yield back.
▶ 2:45:20The chair now recognizes Mr. Subie from the great state of Florida.
▶ 2:45:24Thank you, Madam Chairman. Um, thank you for the witnesses for being here today. I want to focus [snorts] on an issue that directly affects my district in Southwest Florida. The Atlanta Braves hold spring training at Cool Today Park in Northport, which is in Florida's 17th Congressional District. For my constituents, it's not just a baseball facility. It's a major part of our local economy. It brings families and visitors to Northport, fills restaurants and hotels, supports local jobs, and has helped drive continued investment in the surrounding community.
▶ 2:45:51Over the last 5 years, the Braves have invested roughly 93 million in the Sarasota Northport market, including their portion of construction costs associated with the ballpark, the surrounding complex, and their academy. During that same period, they've contributed approximately uh to local organizations and community efforts, including field refurbishments, disaster relief, which has been hu huge during hurricanes, youth baseball organizations, public safety, the Boys and Girls Club, and other nonprofits across the area.
▶ 2:46:20So, when we talk about federal tax policy and sports, this is not an abstract issue for my district. It affects real communities, real jobs, real small businesses, and real local investment. One area I'm particularly concerned about is section 162M provisions from the Democrat passed American Rescue Plan Act of 2021. That provision was originally written decades ago to limit deductions for certain executive compensation at publicly held corporations.
▶ 2:46:46The policy concern was corporate executives who have influence over the company and in some cases influence over their own compensation. But professional athletes are not corporate executives. They're not sitting in the boardroom. They are not managing the company. They're not setting corporate strategy or deciding their own pay. Their compensation is determined in a competitive labor market governed by contracts, leagues, and collective bargaining. Yet, because the Braves are publicly held, this provision treats the Braves differently than every other Major League Baseball team in the United States.
▶ 2:47:16The same player salary that would be deductible for a privately held MLB team is limited for the Braves. Not because the Braves operate differently on the field and not because their players are executives, but because of the ownership structure of the team. That strikes me as exactly the kind of unintended consequences Congress should take seriously. And the upcoming expansion to even more employees will create an even larger disadvantage. This is not about whether a team should pay taxes. Every business should pay what it owes under the law.
▶ 2:47:45But the [snorts] tax code should not arbitrarily single out one team in one league and put communities like Northport and Sarasota County at a competitive disadvantage. If a federal tax rule affects a team's ability to invest in players, facilities, jobs, and the surrounding community, then this committee should understand that impact and determine whether the law is working as Congress Uh Mr. Raola, my [snorts] district is home to the Brave Spring Training Facility in Northport.
▶ 2:48:11When a professional sports team supports local jobs, tourism, and surrounding small businesses, should Congress at least be cautious before allowing an unintended tax change to disadvantage that team relative to its competitors?
▶ 2:48:25Yes, I believe I believe that would be true. The uh there are a number a small number of teams that are publicly held like the Rangers and the Knicks are held by MSG and um the Braves as well is publicly held. I think um it seems unfair to just tax the publicly held companies and not the other companies.
▶ 2:48:50They could raise a lot more money if they went after privately held businesses and did that as well. But to your point, it does make a big difference and it's un unfair competitive advantage to the certain cities where you're uh where you work out of and represent. If a team faces a new limitation on deducting ordinary player compensation, could that affect decisions around payroll, facility investment, staffing, and other community-f facing operations?
▶ 2:49:17Most definitely.
▶ 2:49:18Um, just change gears to the NIL for a second. Uh, Mr. Acho. Um, earlier today, I introduced the Hustle Act with my colleagues on this committee, Mr. Bole. This bill would create NIL investment accounts for student athletes that would exclude contributions from taxable income and grow their earnings tax-free. Up to up to 35,000 could be rolled over into an IRA after graduation.
▶ 2:49:43How else can Congress incentivize student athletes to save their NIL earnings while accounting for the unique investment and tax liability challenges that athletes face?
▶ 2:49:55Mr. Subie, thank you for sharing. And I have not heard about that, Bill, but it sounds very interesting. It sounds like the type exact type of thing that a young athlete needs. The biggest strength that an athlete has is their time. And so in teaching them how to invest early at a young age is exactly what an athlete needs. So maybe I would argue maybe more provisions, maybe a a higher limit rather than 35,000, maybe increasing that limit maybe to 72,000 like you see in uh you know the the 401k some of the 401k opportunities, individual 401ks.
▶ 2:50:24Well, my time's expired, but I'd love to work with you on that, and I'm sure Mr. Bor would love to work with you on that as well. Thank you guys for being here. Thank you. I yield back. The
▶ 2:50:32chair necker now recognizes Mr. Ber of the great state of Virginia for five
▶ 2:50:36Madam Chair, thank you very much. And ranking member Horford. Um, forgive some of my redundancy, but I was a kid in Washington DC when the Washington Senators moved from Washington to Minnesota. We had an expansion team and 10 years later they moved to Arlington, Texas.
▶ 2:50:56I still remember March 29th, 1984 when Robert Irve moved the Baltimore Colts in the middle of the night um to Indianapolis, the number one bumper sticker in Baltimore for the next 10 years was exploitative deleted Robert Irving. Um, so it's over the past 50 years through the misuse of tax advantaged government bonds, ordinary taxpayers have been on the hook for billions of dollars in construction costs for privately owned and operated stadiums.
▶ 2:51:25We just had this fight in Alexandria, Virginia a year or two ago on moving an arena to Alexandria. That uh was with the same problem. Many of these stadiums are owned largely or in part by some of the richest people in the world. And these billionaire owners continue to take advantage of our tax and political system to shift the cost of their new arenas onto working and middle class Americans while they take in more profits. They pit cities and states against one another.
▶ 2:51:51As we've talked about, threatening to pick up and move their franchises if they don't receive sufficient public financing to cover the cost of their brand new structures. Their arguments the stadiums boost job creation and economic development have been discredited over and over again. One of our witnesses, Dr. Coats writes that there's little evidence the stadiums built for professional sports franchises result in measurable increases in incomes, tax revenues, or in employment in the cities that built them.
▶ 2:52:18And any benefits that do exist are usually found within a mile or two of the facility. With that in mind, and in a time where there's a debate over whether the country can afford investments in child care, health care, education, or fighting climate change, it's ridiculous to even contemplate the continued radical misuse of publicly subsidized bonds. It's a long past time to fix this egregious practice. It was indefensible 50 years ago. It's even more so now.
▶ 2:52:43Uh, I lead a bipartisan and biccameal legislation that ended taxpayer subsidies for the construction professional stadiums with Congressman Gothman, Senators Langford and Booker. Dr. Coats, obviously you're one of the leading experts on this issue and this legislation we have is certainly not the first attempt to eliminate this practice.
▶ 2:53:04Can you explain how the tax the authors of the tax reform act of tried to use end the use of tax exempt municipal bonds and how did local governments and team owners find a way to work around it?
▶ 2:53:18Thank you for the question. Um, the basic way that that they attempted to get rid of this was by limiting the amount of money that could be used from the entity, say the stadium to pay off the bonds. And it had been 25% prior to the Tax Reform Act of 86, and they moved it down to 10%.
▶ 2:53:41and they thought that by doing so it would be harder for um the revenues to be used in such a way as to be a taxable bond. what they failed to recognize and Senator Moyahan when he proposed legislation in 1996 admitted that they didn't ever imagine that what would happen is instead of cutting back on this they would just find ways to pay the bonds off without using
▶ 2:54:11any revenue from the stadium. And so essentially what you have is the law of unintended consequences. we do one good thing and smart people figure out how to undo it to their advantage.
▶ 2:54:24So the bottom line was to fund the stadiums through these taxexempt bonds, they came up with alternative schemes, things like using lottery revenues, using um hotel and rental car taxes, using taxes on tobacco and alcohol and a variety of other schemes including something called a pilot payment in lie of taxes in order to come up with the revenues to pay off these bonds.
▶ 2:54:53I think in Virginia they were going to use the the uh income tax revenues of the players uh to pay for the bonds for example. You know uh Congressman Stwie talked with pride about the things the Braves had brought. Um hard to argue against but Dr. Coats looking past that. Can you tell what's the better idea of the cost of the citizens beyond just being able to put the names on the little league jerseys?
▶ 2:55:18I'm sorry I didn't quite catch the question. What [clears throat] your research has shown that there's little connection between the presence of a new stadium and economic growth. Can you just expand on that? Well, oh,
▶ 2:55:30In your seven seconds. Basically, it's all redistribution. So, any money that you spend in the stadium is money you're not spending someplace else in the community. And so, there's not a net increase in spending. There's just a a swapping of one place for
▶ 2:55:46Thank Thank you very much. And I yield back. Thank you very much. The chair now recognizes Mr. Moore from the great state of Utah.
▶ 2:55:54Thank you, Chairwoman. Appreciate your witnesses for being here. Uh very important discussion we're having. Um, college sports, as we know, are woven into American campus life, local communities, family traditions. But letting foreign entities funnel money and sponsorships into college athletics risks undermining the integrity of the game and exposing universities to unintended foreign influence or national security concerns.
▶ 2:56:20This is why I've introduced the No Foreign NIL Funds Act, which bans most foreign contributions to NIL agreements and prohibits certain high-risisk countries from making investments into collegiate athletics revenue streams, sponsorships, and official events such as tournaments or bowl games. I'm sure you've all studied this legislation at depth, right? We put it out a little while ago, and so I I know you're very up to speed on it. But Mr. Madden and Set the dollars aside for a second.
▶ 2:56:50When a foreign government linked entity is funneling money to college athletic programs, what is act what is it actually buying? Is this about a return on investment or is it about access, influence, and a foothold inside these institutions that sit at the center of American community life? Mr. Madden,
▶ 2:57:09you're right. Representative Moore, I'm unfamiliar with the legislation, but I'll be certain to uh review it. Um I can't comment. Uh it's not my area of expertise. Um um I just think the schools from my experience in talking to administrators and visiting universities, they're desperate to find new revenue streams. Um it's the race to the bottom.
▶ 2:57:33You know, um the University of Louisville is on record as saying um this is totally unsustainable that their reserve funds have almost been depleted in trying to keep up. So I see it as the universities just looking for those different revenue streams whether it be patches on uniforms, naming rights of stadiums, naming rights of fields, looking for uh bringing private equity in uh to continue to fund as many athletic directors have testified here in Congress.
▶ 2:58:03Um it's, you know, the 21 million in revshare, it's not like that was just sitting there ready to be handed out. They need to find it somewhere. So, I think that's where it's coming from, but I'm sorry that I can't.
▶ 2:58:13No, absolutely. You're highlighting the actual issue. They're going to get so desperate. They're going to make they're going to be willing to make big bets. Hey, if we just,
▶ 2:58:21you know, spend a little bit more on this, then we're going to be able to overcome these deficits that we're now seeing colleges across the country. And then foreign money all of a sudden becomes an easy option. And then what happens there? Mr. Ola, any thoughts on the foreign aspect? you mind turning your um mic on
▶ 2:58:46a little closer?
▶ 2:58:47Thank you.
▶ 2:58:48As as these non-resident aliens come into the US, they are subject to income tax. So if you have a kid come in from Denmark, he spent some time in the US, he's paying federal and state taxes. As far as the colleges are concerned, they're they seem to be grabbing, like the gentleman just said, they seem to be grabbing whatever revenue they can and they're in tough straits to try to raise as much revenue so that they compete with each team.
▶ 2:59:18A a lot of there's are several states that have decided to not tax NIL income as a way to gain an advantage. So uh that is another way that aspect that we that should be
▶ 2:59:33Thank you. So I mean we already accept certain aspects of of foreign influence and foreign investment are not not not not not good or healthy defense infrastructure farmland things like that. At what point do American universities become part of that? So it's it's an important question to ask. Uh the no foreign NIL funds act as a part of that. It's been part of the discussions that we've been working on as far as legislation to correct some of these these these um these wrongs that have that have taken place over the years. Mr. Au, I just want to finish up. Uh your testimony was awesome.
▶ 3:00:02Uh hearing your perspective, you trying to be a mentor to some younger athletes. Uh it was really inspiring and the examples that you gave, they're it's so easy to come by like oh the influx of 50,000 100,000 $500,000. They're not thinking that they're going to have to pay taxes on it. It's um well, they're also not thinking about their future. They're thinking about the here and now.
▶ 3:00:25Too often as as as you mentioned in the in the um in last year's tax legislation, we created the investment America the Invest America initiative created individual investment accounts for every child born in the next four years. But every kid, it's every every teenager up to 18 can start these. So this is the beauty of it. They're going to get an NIL money from from their playing days and they're going to have to have an avenue to put it into.
▶ 3:00:55Every kid in America under under the age of 18 should now be able to have these accounts as of July 4th this year. And then it's an easy option. They just put the money right there. It's already built into their account. They have an app for it. It's very simple. Hopefully, they get it when they're seven years old or 12 years old. And then when they go get that opportunity to play college football, they can all of a sudden say, "Hey, I'm going to put $5,000 in this year." and they've got it already built in and it's already going. That's the beauty of that. I would welcome any partnership to work and and educate people on that. Thank you for the work you're doing. I yield back.
▶ 3:01:24Thank you very much. The chair now recognizes Miss Tiny from the great state of New York for five minutes.
▶ 3:01:29Thank you, Madam Chair. And I [clears throat] think you're uh just to reiterate for uh our viewing audience, um the title of this hearing is important. It's the growing business of sports reviewing federal tax policy in this multi-billion dollar industry growing every day. And uh I just want to thank the witnesses for being here for your expertise, your excellent testimony today and and and representing a very diverse set of of of viewpoints across a lot of different sports.
▶ 3:01:56And I want to bring up an issue of great importance uh which the president has talked about as recently as this week that is protecting women's access to sports. Um nobody questions why women don't play in the National Football League. We all understand that there are real physical differences between men and women that matter in athletic competition that aren't social constructs. They're actually biology. And that's precisely why we created separate categories for women's sports in the first place.
▶ 3:02:23Not as an afterthought, but as recognition that without it, women could be locked out of the same athletic opportunities as men. That's the entire premise behind Title Nine, which was not very active when I was a young person uh playing sports. Uh for over 50 years, Title 9 has guaranteed women and girls access to athletic opportunities, scholarships, roster spots, podium finishes that simply just would not exist if they were forced to compete head-to-head against biological men.
▶ 3:02:49If biological males are allowed to compete in women's sports, we are not expanding opportunity. We are taking it away from the very uh women Title 9 was designed to protect. This principle was upheld in a Supreme Court decision announced just hours ago. Uh, Justice Brett Kavanaaugh wrote, and I quote, "Consistent with Title 9 and the equal protection clause, we hold that the states may maintain girls and and women's and girl sports for biological females.
▶ 3:03:16They may determine eligibility for women's and girls sports based on biological sex. The Constitution and Title 9 do not require an overhaul of women's and girls sports throughout America. While this decision is monumental is a monumental step to protect women's sports, Congress can't take its eye off the ball. That's why I introduce the No Goodwill for harming women act.
▶ 3:03:38Right now, when one purchase purchases a professional sports franchise, section 197 of the Internal Revenue Code allows them to claim valuable deductions tied to goodwill, the brand value, the broadcast rights, the intangible worth of the franchise, all these things you've been talking about today.
▶ 3:03:57My bill simply says if a professional women's sports franchise chooses to let biological males compete against women, American taxpayers should not be subsidizing that decision through the tax code. And I'm not going to ask you guys any questions on that at this point. But I do want to talk to you a little bit uh about executive compensation. And you've done a great job talking about this today. Um and that is uh I I think Mr. uh uh Rayola to this.
▶ 3:04:25I answered this and I want to answer ask you again kind of in reference to what Mr. Stwie had asked you. Um uh in publicly traded companies generally can't deduct the compensation above 1 million for their top executives and several of their highest paid employees. This role reaches into professional sports too with several teams including two prominent franchises in the state of New York where I'm from uh being owned by public companies. So, it applies to them in a way it doesn't for most franchises. And I think I'd like to see you address this again if you could, Mr. Riola.
▶ 3:04:55Does this tax treatment effectively penalize these franchises relative to their privately owned competitors? And is that disadvantage significant enough to affect the parity of a league of leagues long-term if we see more franchises become publicly traded?
▶ 3:05:13I think that the uh 197 tax definitely hurts the publicly traded companies and that own sports franchises and since there's only about four or five of them, two of which are in New York like you th those team those programs are definitely adversely affected by this.
▶ 3:05:35I am not sure why it's been if it has been considered, but if they're going to disallow deduction, why not expand that and expand that to teams, any franchise that's owned? So, I I think it's a big disadvantage to the publicly traded companies, especially the ones in New
▶ 3:05:53Yeah, thank you. I appreciate that. And I think that it it it you know, we we obviously support our our teams. We love that the Bills are the only truly New York team. We just opened up our new uh stadium last week at a beautiful ribbon cutting. So, we're happy to have the Bills in Orchard Park for another 30 years. But it it is I do feel I agree with you. I think that this parody uh lack of par uh with franchises that are publicly traded or not are is could help could harm the long-term stability of them to compete uh with other teams.
▶ 3:06:21So, uh I'm sorry I couldn't get to the rest of you. My time is expiring, but I greatly appreciate all your expertise and I yield my time. Thank you,
▶ 3:06:28Mr. Petta. Thank you, Mr. Chairman. Gentlemen, thank you all for being here. I appreciate your time. Appreciate your testimonies and the fact that you've made it clear, very clear that there are a lot of evolving tax issues um at the intersection of sports with sports. So, uh, thanks. And especially when it comes to our college athletic programs with the amounts of the ridiculous amounts of money in NIL revenue, uh, flowing just being given to students.
▶ 3:06:57uh which I think it's important that you're here today and I do appreciate this hearing that we kind of have a responsibility to get the tax rules right to modernize a tax code and ensure that it remains as best as you can with a tax code clear consistent and so easy that student athletes can comply with it. Now u and I apologize Mr. Ao that's cool Mr.
▶ 3:07:23AO um appreciated your testimony about the need to ensure that college athletes have that type of guidance they need to navigate uh these increasingly complicated tax obligations. But I guess and I and you you hit on this, but if you could repeat yourself when it says to when when you say who is the best position to provide that guidance, should it the responsibility primarily fall on universities, NIL collectives, booster organizations, agents, who?
▶ 3:07:55I think you. I really do. I think that Congress has a great opportunity to continue to educate not just athletes, but I think the word that was used is young taxpayers. I mean, I look think about my time in in college and and post college. There's been very little tax
▶ 3:08:13Very very little. Even financial education has a very broad scope. I do not think that an agent should be responsible for tax guidance. You could argue that financial advisors should be, but for whatever reason, many financial large financial publicly traded institutions are passing the buck as well. And so I think that's where Congress can step in and and potentially mandate financial education or tax education if there's a an opportunity for that.
▶ 3:08:37Let let me So I, as I say, we do a great job authorizing bills. We don't do so good of a job implementing bills. And so I get the authorization part of it, but let's talk about the implementation part of it. Who do you think would be the best entity to deliver these types of regulations if we were then to put them in effect and authorize them?
▶ 3:09:01Correct. Mr. Pettis, so if you were to authorize it, I think it would be incumbent upon the universities to implement that type of financial and tax education and enforcement.
▶ 3:09:10Would there be a conflict though? How could we ensure that it's in the athletes best interest though?
▶ 3:09:17That's that's another phenomenal question. Now we're talking. Uh so a little bit of the work that I get a chance to do is and why I do what I do. Yes, I'm on ESPN, but I work at an athlete family office. And the way we say is we're the only family office that's thinking about the next hundred years for athletes. We're not publicly traded. We're privately owned. And our job is to come alongside athletes and be that trusted adviser. And so I'm stepping in that role along with some of my colleagues to go and and give that advice.
▶ 3:09:44And that's advice that's specific to the athletes we work with in baseball and football and basketball and golf and women's sports as well. And so there are organizations that could do that on the outside that would not have that conflict of interest, but they cannot be these publicly traded financial institutions where you see their name brands on stadiums or on commercials because they have different incentives. Their incentives are to increase shareholder value, not to do what's best for the athlete. Yeah, understood. Thanks for that answer. I appreciate that. Um, I guess, uh, Mr.
▶ 3:10:13Madden, do you see a role for the IRS in providing additional guidance? And if so, what areas would benefit the most from greater clarity?
▶ 3:10:25Yeah. First of all, I'd like to just follow up if I may, please. Um, the firm that I represent as a tax consultant, Scout, I mentioned in my uh opening statement, has contracts with approximately 40 schools throughout the country to provide they do payment processing, getting the money from the schools to the athletes, but also financial literacy training, investment advice, uh, business structures, taxes. So, um, I'm proud of my relationship that I've developed and that's that's one way.
▶ 3:10:56the schools, the universities, there's great diversity there. Some are extremely interested in making sure the athletes have that up that knowledge upfront, whether it's an orientation or team sessions, uh, one-on-one sessions. Uh, some coaches are very active in having their athletes set up. I've seen them set up Roth IAS for an entire team, and some others say they're making the money, let them figure it out themselves. So, I just wanted to be on the record on the record.
▶ 3:11:24In regards Oh, and I appreciate that and I got six seconds left. In regards to the IRS,
▶ 3:11:28IRS has issued through their the taxpayer advocates service advice for NIL athletes and collectives, but it's not really specifically geared towards them. It's what would be available for any um self-employed individual. Um it's all new. There's no regulations. There's no industry standards. There's no tax court cases for president because NIL is so new, but they have made that effort.
▶ 3:11:54Great. Again, gentlemen, thank you. Thank you, Mr. Chairman. I yield back.
▶ 3:11:57Thank you, Miss Vanine.
▶ 3:11:59Thank you very much, Mr. Chairman. This is fascinating. I I love hearing this conversation. Um, I wish that this was happening 15 years ago.
▶ 3:12:07So, before I entered into Congress, I was actually on the city council in Irving, Texas. I was mayor of Irving, Texas. And I was there when we were having all the negotiations between the owners of the Dallas Cowboys and the cities in the Metroplex trying to figure out where they were going to put the next stadium. We were trying to make a bid for it. You were exactly right. If other if other city councils didn't make those decisions, city managers didn't make those decisions, we wouldn't be spending hundreds of millions of dollars.
▶ 3:12:32So Texas Stadium was owned by the city of Irving, which meant that they didn't have to pay any property taxes on it. Sales taxes from um um food sales, alcohol sales in the stadium were rebated. Ticket taxes were rebated. The only thing really that the city got from it was $ 1.5 million a year in a lease, that $1.5 million was put into a Texas stadium fund to pay for the maintenance of that stadium. And when the owner decided to move to a different city, that was scrubbed.
▶ 3:13:00So when we were like having to face the dilemma, okay, does the city pay what they were asking for at that time, which was going to be $325 million for the price of a new stadium? That was just going to be the city's portion, which ended up being, if you added, it would have been with interest in fees about $490 million. Did Did it make sense for the city to be able to do that? We weren't even asked to compete because quite honestly when you said that those dollars are going to other areas.
▶ 3:13:26What we had to choose between is either funding our public transit system or not. That's where those dollars were going. And so the city of Arlington was the largest city without a public transit system. They had that 1 cent in sales tax that they could give to build a new a new stadium. So they foregoed they they they forewent their um um infrastructure development in lie of getting a a stadium there.
▶ 3:13:51And now when you sit here and you think about I saw all the economic impact studies and they were very let's just say generous at best. They included everything that was spent in that city from restaurants from gas from hotel. We are actually getting more money now on game days than we were when the stadium was in the city of Irving. And what we did is instead of foregoing our public transit and other things, we started investing more in our in our in our infrastructure, in our business practices. And as a result, the city of Irving has thrived.
▶ 3:14:21We have not lost anything since the Cowboys decided to move to Arlington. We've actually thrived. So we've had businesses, small businesses that have come, one of the largest, you know, fastest growing cities uh in the state, in the country. McKesen, Caterpillar, Wells Fargo have all relocated to the city of Irving. We haven't lost anything. But what I think what what did happen is you have a city right, you know, uh uh next to us that had to contribute $325 million to this.
▶ 3:14:50And exactly what you were saying, what was the economic impact to the region? I would say hardly anything. I don't know that they grew anymore just by moving a city over, but they made the cities compete. they made this the cities actually have to fork over those dollars. So, I very much appreciate this this pattern though of the economic impact studies and cities will say that they're great because they have to basically defend the actions in in the votes that that their elected officials have made. But this pattern raises really important questions for I think federal tax policy.
▶ 3:15:19When taxexempt municipal bonds subsidize these projects based on optimistic projections, federal taxpayers help underwrite outcomes that frequently fall short. And as we examine sports industry tax rules, we really need to consider stronger independent verification of economic claims, greater accountability, and reforms to better align federal tax advantages with verifiable net public benefits. Mr. Coats, you've researched this extensively and you've expressed a lot of pessimism around whether these local economic benefits actually materialize.
▶ 3:15:49I'm interested in the case of the Dallas Cowboys, in your opinion, who would you say in Texas gained and who lost in the Cowboys relocation from Irving to Well, Jerry Jones gained for sure. There's no doubt about that. Um, who else gained? Well, I would say any any fan of the Dallas Cowboys who lived sort of west of halfway between Irving and Arlington. And who lost?
▶ 3:16:17Any Dallas Cowboys fan who lived east of halfway between the two because it increased their commute or decreased their commute. Um, I I found it interesting that you mentioned, Miss Van Dy, that that you take in more money on game day now than you did. And I think that's not terribly surprising, but very few people ever mention such a thing. And why is that the case?
▶ 3:16:41Well, maybe people don't want to do that extra drive and so they're staying in the bars and restaurants that already exist in their community as opposed to going into the stadium. And so those restaurants and bars in the local community see that benefit and you know if you go into a sports bar you can watch every game and that's one of the things that happens. So yeah absolutely I think that the people who benefited are on one side of the city the people who lost are on the other side of the
▶ 3:17:09I appreciate that and yield back. Thank
▶ 3:17:12Thank you Mr. Finstra.
▶ 3:17:14Thank you uh Mr. Chairman and ranking member. I I really appreciate this hearing. Uh the business of sports continues to grow. I mean it's probably the econom most important economic engine in our country. I mean it just continues to flourish. You see what's happening whether it be the NBA, NFL, collegiate sports. It is just phenomenal what's happening in our country. So I applaud that. Here's the problem. I have three kids. They all play collegiate sports.
▶ 3:17:41So, when they graduated from high school at the age of 18, all of a sudden, they become their own little independent contractor. Think about that. This 18-year-old kid who has played sports all his life, probably doesn't know a lot about business, and now is in line to be their own independent contractor.
▶ 3:17:58Sources of NIL, NIL income, content creator, sports, uh, social media influence, brand endorsements, sponsorship deals, autograph fees, promotional appearances, marketing brands, guest appearances, exhibition endorsements, gifts, giveaways. So taxable income, all right, from the re department of revenue can be inind, it can be cash, it can be non-cash compensation, right? Kids have no idea what that is. They get a 1099, they what is this?
▶ 3:18:27Now, on the other side of it, on the other side of the ledger, all right, if these kids understood what it means to be an independent [snorts] contractor, they could deduct some of this ordinary and necessary income. They could deduct marketing materials. They could deduct professional websites, agents, legal fees, equipment, and it goes on and on. No one's telling these kids this stuff. So, I'd like to ask you, Mr. Ma Matt, Mr. Madden and Mr.
▶ 3:18:52uh what can we how can we put some parameters on this but how can we have the nil collectives and the universities say hey we got to teach you about this before we go down this path how do we go down how do we start doing this uh that's the million-dollar question isn't it um the young people that are coming into college sports and like I said earlier it's trickling down to the high school level I think there was a report last week of a high school
▶ 3:19:22athlete that's claims he spent $80,000 on his senior prom.
▶ 3:19:27Um I've met with athletes, one athlete helped prepare their return. They had 13 income documents they had to find,
▶ 3:19:33Including their 1098TS they had transferred from one school to the other. But um one of the misconceptions in the NIL world uh by both athletes and administrators is that tuition is tax or scholarships are taxfree. That's only partially true.
▶ 3:19:48It's partially that's right. the tuition and any related fees and expenses related to tuition is tax exempt but room and board which all of them are receiving is fully taxable as ordinary income not self-employment tax. So um the collectives that I've had experiences with don't seem to be that um interested in that financial literacy portion.
▶ 3:20:12It's it really goes to the universities and having many of the universities now have directors of NIL and staff under them and that's in my relationship with scout that's who we deal with and
▶ 3:20:24if I guess the larger you know SEC big 10 can do that division two where my my kids played NIA
▶ 3:20:32all right that's a whole different game and yet this thing still apply
▶ 3:20:35I'm sure there's still some opportunities for them to earn NIL income I had one athlete that came to me to help him prepare his tax return and he had won 1099 from his collective and it was for $240,000. And I said, "Well, there's our starting point." He said, "I did not receive $240,000. I did not." I said, "Well, go back to the collective." And I tell the story for several reasons. Said, "Go back to the collective and ask for an itemized list of where this 240 comes from." And he did. And guess what? They bought him a truck.
▶ 3:21:04There you go.
▶ 3:21:05$50,000. They paid his room and board, an off-campus apartment. paid all of his utilities. He even got in a dispute with the landlord over some damages to the apartment. The landlord sued him. The um collective paid $8,000 to make that suit go away. Guess what? It added up to His tax bill was about 75 to 80,000. Fortunately, he saved the money. He thought he had enough money. He graduated. He didn't get drafted.
▶ 3:21:33He has a a young wife and a child. And he thought he had enough money for a down payment on a house. Guess what? He spent sent that money to the IRS.
▶ 3:21:41Yep. H can you exp what what what do we as Congress need to do?
▶ 3:21:45One one option is to uh mandate that anyone who's giving advice to these athletes has to have a fiduciary responsibility to these athletes. So think about it if you are uh under the SEC or you're under FINRA SEC your fiduciary independent adviser or FINRA you have to you know it's uh what's reasonably best for them. And so that's one area. Many of these athletes that we work with that he you know Mr. Madden works with they have financial adviserss
▶ 3:22:10and they think they're doing the right things but those financial adviserss are not giving them their the best advice. They're sitting on the opposite side of the table.
▶ 3:22:16Exactly. I'm sure none of them are taking the deductions they probably could. I mean that's the other side of it. Anyway, thank you so much all of you. I'd love to ask more questions but I'll yield back. Thank you
▶ 3:22:25Mr. Horford.
▶ 3:22:31Thank you to the chairman and to the ranking member. Uh just over a month ago, the Allegiance Stadium once again demonstrated why world-class venues matter to Southern Nevada. Four soldout concerts, BTS concerts, brought hundreds of thousands of visitors to Las Vegas. They stayed in our hotels, dined at our restaurants, shopped at our small businesses, and explored neighborhoods throughout our valley. The impact was extraordinary.
▶ 3:23:00The Las Vegas Convention and Visitors Authority estimated that those events generated more than $340 million in economic activity. Some retailers reported sales increases of 50 to 60%. And that's just one example.
▶ 3:23:17According to the Raiders 2025 impact playbook, Allegiance Stadium welcomed nearly visitors across 30 events last year alone, including more than 536,000 people who traveled to Las Vegas specifically because of those events.
▶ 3:23:37Together, these events generated more than $1.1 billion in economic activity, including $123 million in hotel spending and 179 million in gaming revenue. This is why it makes it the highest revenue generating stadium in the United States. That success reflects a uniquely Nevada partnership. The Allegiance Stadium is publicly owned, privately operated.
▶ 3:24:07It was built by labor, supported by local government and our business community and the community at large. Today, it stands as one of the most successful sports and entertainment venues in America. The lesson, worldclass talent creates extraordinary economic value. The same principle applies to college athletics in my opinion. Talent creates economic ecosystems.
▶ 3:24:36According to the Knight New House College Athletics database, division 1 athletics generated billion dollar billion with the B in revenue during the fiscal year 2024. More than every major professional sports league except the NFL. Student athletes drive media rights, sponsorships, ticket sales, merchandise, tourism, and university branding.
▶ 3:25:05Entire industries benefit from the value that they create. So, with all due respect, student athletes are not the problem. The question before Congress isn't whether student athletes create economic value. They're the reason it exists. It's their talent. The question is whether our tax policy ensures that they are the primary beneficiaries of the wealth that their talent creates, not some rented players, as Mr.
▶ 3:25:34Ato rightfully pointed out. Mr. Acho, you've listed and lived this experience firsthand, and I want to thank you for your advocacy and putting the focus on student athletes and the need for them to have access to financial literacy.
▶ 3:25:52As Congress considers the future of NIL, should our priority be ensuring that student athletes, not just universities, collectives, conferences, agents, broadcasters, and everyone else around them are the primary benefits of the economic value that they create. Yes or
▶ 3:26:11Yes. And if I may briefly add, I know you have the time. Oftentimes you'll hear at different panels and committees and see coaches like Nick Sabin well respected but we forget that some of these coaches are getting paid 10 11 12 million dollars and they're fine. You're from you're from commissioners and they're fine but the players are the ones struggling.
▶ 3:26:28So so instead of talking about what the student athletes are spending their money on let's talk about what the uh college uh and and coaches are spending their money on. Mr. Mr. Chairman, I'd also like to address one final issue that is critically important to Nevada, especially tourism and gaming remain at the heart of our state's economy. Yet, the majority recently changed the tax code in a way that penalizes people who don't actually earn income.
▶ 3:26:55For decades, uh taxpayers pay taxes on their net gamb gambling winnings. If someone won a h 100,000 and lost a h 100,000, they broke even and owed no tax because they had no income. Today, because of Senate changes made in HR1, gambling losses are deductible only up to 90%. That means someone who breaks even can still owe federal income taxes.
▶ 3:27:24That is fundamentally unfair. And I want to thank and appreciate Chairman Smith for your commitment in working in a bipartisan way along with Congressman Max Miller for partnering with me on the full house act to restore fairness to the tax code. Mr. Ryola, why should taxpayers be required to pay taxes on income they never actually owned or
▶ 3:27:49That's definitely a a law that's got to be changed. And we talked about teams moving. The Raiders moved from California to to Nevada to win Nevada. Yes. Which was a windfall.
▶ 3:28:05Sorry. Grew up in New York. Um, so
▶ 3:28:10it was a windfall for the players because they went from the state playing in the highest state tax rate, California, to note state tax, Nevada.
▶ 3:28:20I It's Nevada. Nevada. Okay. Thank you.
▶ 3:28:24So, as as much as uh there's no way that a a a gentleman or a woman who gambles and breaks even should pay any tax, that's just not right.
▶ 3:28:34I agree with you that with that. We'll keep working on how to pronounce our state. Thank you, Mr. Chairman, for this hearing. I yield back.
▶ 3:28:40Thank you, Mr. Kerry. Uh
▶ 3:28:41I want to thank the chairman. I also want to thank the [snorts] ranking member for convening this hearing on a hearing on sports and tax treatment of both collegiate and professional levels. I know there's been a lot of talk about professional teams, their identity to a certain area. I I would just make mention of the fact that the Rams first move wasn't from Los Angeles to St. Louis. As a matter of fact, it moved from Cleveland, Ohio in 1945.
▶ 3:29:09Now, the identity with the Rams in Cleveland kind of changed because Paul Brown, who was the one of the best coaches in Ohio State's history, uh wound up creating the Browns in Cleveland, Ohio, who subsequently then left and then moved to the team up north of this city, uh which I will still not mention their name, but I mean, Ohio has had a long history with sports teams going back to the Cincinnati Reds stockings in 1869, uh to obviously the Cleveland, I believe it was called the Forest Cities before they were
▶ 3:29:40ultimately the Spiders and now today the Guardians. But I do want to highlight a couple things that Ohio does and I think it's important because we have had professional sports teams throughout since 1869 in the state of Ohio. But [clears throat] in Columbus, for example, right now we are working with the National Women's Soccer League on an expansion team.
▶ 3:30:00And so the ownership group has worked with the city of Columbus to collaboratively construct a deal to build a new women's professional soccer team and a new training facility. And we're working out some of those details. But one of the things that we have been able to do um has been working in a in a kind of a a a by a a a multi- a multi- community. It's called the new community authority.
▶ 3:30:27And this is um a statutoily created political subdivision. Um and it actually comprises of both the public and private sectors which has the authority under the Ohio revised code to actually do its own type of bonds. In this way, the city of Columbus gets all the new tax income from the new jobs and the Franklin County gets all the new sales tax.
▶ 3:30:50The way they do this is the ownership group agreed to a self-imposed ticket tax of an additional 2% on all of the men and women's sporting events at Shots Miracle Growth Stadium, which is where the Columbus Crew plays and serves as a dedicated revenue stream revenue stream to retire the bond debt.
▶ 3:31:11The new community boards are less expensive for a project's capital tax, both because of the tax exempt status and the better credit ratings generally on the barn bond market. There are creative ways for local governments to work with professional teams in a private public partnership to create significant to new revenue for local and state government. So I wanted to highlight that which we are doing in Ohio.
▶ 3:31:40And of course, Ohio has many other sports teams, but I do have one question, Mr. Manite, and I wanted to get into the the co collegiate side of it, but a foreign athlete can have a flat percent skimmed right off the top. Correct. Plus a pile uh of treaty questions uh many schools don't know the answer to.
▶ 3:32:03So, are these athletes getting shut out of money their teammates are taking home or walking into tax trouble that they never saw possibly coming?
▶ 3:32:13Yeah. Well, until the uh Thank you for the question, Representative Kerry. Um, until the House settlement around this time last year was implemented, I believe July 1st of last year, international athletes were not earning any NIL income whatsoever due to the uh employment restrictions that come with their F1 visa.
▶ 3:32:34Uh many times I have to remind athletes, their families, even school administrators that an F1 visa is to attend uh the the college or the university uh not to play the sport that they're there for. So that that they're there for. So that's the reason for that employment restriction. Uh with the p with the settlement of the house case, um many of the schools and some immigration lawyers uh there's some disagreement.
▶ 3:33:02Some some have floated this as totally acceptable, some have some issues with it, but they thought that classifying revshare payments to internationals as passive royalty income would allow for um wouldn't wouldn't re reach the threshold of the employment restrictions on their F1 visa.
▶ 3:33:23So many international athletes are now earning revshare uh income from the schools, but the contracts are carefully worded to make sure that it is not active income. They're not being asked to do anything actively like make appearances or promote products or anything like that.
▶ 3:33:40Well, and and I have a few more questions. I will submit them for the record, but uh again, thank you, Mr. Chairman. Thank the witnesses for being here. And with that, I yield.
▶ 3:33:48Thank you, Mr. Fitzpatrick.
▶ 3:33:50Thank you, Chairman Smith. Thank you to the witnesses for being here. Um, as has been discussed um, throughout this hearing, one of the less discussed aspects of NIL is that the tax consequences can be just as significant as the compensation itself. As NIL marketplace has grown in size and student athletes are increasingly confronting the financial and tax issues that would challenge even the most seasoned tax professional.
▶ 3:34:16Unlike a traditional employee receiving a W2 paycheck, student athletes may receive compensation through a variety of arrangements that can create tax liabilities before they even see cash in hand. A good portion of NIL so-called payments are not cash at all. They're not checks or not deposited deposits. They are assets. It could be a vehicle. It could be free gear, travel, or sometimes a piece of a company.
▶ 3:34:41As a result, student athletes can find themselves owing taxes on income that they received in forms other than cash, creating financial obligations that many do not fully anticipate or even understand. Um, Mr. Riola, the IRS treats those items uh as taxable and failing to report them is one of the quickest ways obviously to get audited.
▶ 3:35:06When an athlete gets handed um an asset, it could be a vehicle, um they owe real taxes on it, but they cannot exactly pay a cash tax bill with a um a physical asset. Um how does um how does that get sorted out in practice?
▶ 3:35:23Sure. They take a look at the fair market value and the MSRP [clears throat] of the vehicle and they're that's what they pay tax on. This happened um when with the Mets with Juan Sodto promised a car to rep Batty if he made certain achievements and he had to give him a car and Batty was taxed on the value of the car.
▶ 3:35:46So you're correct, vehicles are taxable, but there are other things like uh equipment, you know, cell phone, whatnot, other things that are not cash but would be taxable to the student athlete.
▶ 3:36:00And Mr. Mr. Madden, who determines the dollar value of something like this? Is it the athlete, the collective, the company giving it away or someone else?
▶ 3:36:07Ultimately, it is the uh provider uh whoever provides the asset in our in this situation to the athlete. Um the athlete can dispute that. The athlete could go back to the collective or the uh maybe it's the car dealership itself uh to dispute that value. uh the athlete is under no obligation uh to list [clears throat] that full amount on their tax return.
▶ 3:36:31They can provide an explanation if they disagree with it, but then it would be up to them to whether it would uphold to the scrutiny of an audit if the tax return got audited. But to answer your question, uh Congressman, it's up to the uh payer to provide the value of that asset on the 1099.
▶ 3:36:50Yeah, I think these valuation questions pretty much highlight the larger challenges that are facing our student athletes uh as NI NIL arrangements uh become in increasingly complex um to any of our witnesses um from a compliance standpoint uh are there best practices uh that schools, collectives or third party organizations could adopt to help ensure student athletes understand both the immediate value of a deal and the tax obligations that follow.
▶ 3:37:20One option could be for contracts to be stated uh not just in what could happen but actually guaranteed income. So there's that revenue portion and there's the NIL portion. The NIL portion a lot of the athletes aren't seeing that NIL portion because some of those uh offers are getting rejected by that NIL go group. Whereas the revenue share piece of the contract is guaranteed.
▶ 3:37:44You see in professional contracts, you'll see a player sign a three-year, $90 million contract, but only 30 million of that is guaranteed for skill and injury. And so, that's one potential option just to show uh the guaranteed portion of those
▶ 3:37:58Got it. I thank our witnesses. Mr. Chairman, are you back?
▶ 3:38:02Miss Mallet Takis.
▶ 3:38:04Thank you, Mr. Chairman, uh for holding this hearing and I thank you all our witnesses for appearing here today. for our committee. As the only member of this committee from New York City, I' I'd like to recognize the incredible championship series, a season of the New York Knicks first and foremost. It was great to see the team after 53 years bring the NBA trophy back to the greatest city in the world, New York City. And it's for the first time in my lifetime. I'd like to commend Coach Mike Brown, James Dolan, and the team's outstanding players.
▶ 3:38:34But I'd also be remiss if I did not highlight a provision of the tax code that affects both the Knicks and New York's hockey team, the Rangers. Section 162M of the tax code limits how much compensation a public company can deduct for certain highly compensated executives. The American Rescue Act of 2021 expanded this provision to also apply to a company's next five highest paid employees.
▶ 3:39:01Now, that change has a delayed effective date and will take place for the first time at the end of this year. But now, here's the problem. It expands the provision to cover employees, not just executives. And it creates a unique and unintended consequence for our professional sports. Using the Knicks as an example, once this provision takes effect, the team will no longer be able to deduct the salaries of its five highest paid players, while every other NBA team will still be able to do so.
▶ 3:39:30Now, that will cost the Knicks more than $50 million each year, while every other NBA team faces no additional tax burden. And this is not a case of excessive executive compensation or golden parachutes. The NBA operates under a collective bargaining agreement that establishes both minimum and maximum player salaries. Teams do not independently determine player compensation in the same way that corporations set executive pay. This expansion raises a fundamental fairness issue.
▶ 3:40:01Professional sports teams should not face a competitive disadvantage simply because of their ownership structure. In fact, this issue affects only three professional sports franchises nationwide. the New York Knicks, the New York Rangers and the Atlanta Braves. So are so they are the only because they are the only publicly traded sports teams. Every other team in the major professional sports leagues are obviously treated then very differently. Uh Mr.
▶ 3:40:28Chairman, I would like to enter into the record a letter from our colleague from Georgia, Mr. Brian Jack, who has been working with me to address this competitive
▶ 3:40:38Without objection. Every other team in major professional sports as I said is treated differently under the tax code uh because they are not owed by owned by a publicly traded company. Now uh with that said my question is to Mr. Raiola um only these three professional sports franchises are subject to the executive compensation deduction limitation because of their ownership structure. Does the current tax treatment create unnecessary complexity for the teams that are subject to it?
▶ 3:41:05And if so, are there administrative or legislative changes that Congress should consider to simplify compliance?
▶ 3:41:12I don't know that the changes I'm about to recommend would simplify. I think it should be for all professional sports teams, not just for the Knicks, the Rangers, and the Braves. And it's part of if you guys put it into law, it's part of what would exist. And then teams have to learn how to deal with it and how to comply with it. So either everybody's got to do it or nobody does it from the sports world is what you're
▶ 3:41:37I think it's it's having growing up in New York and being a big Nick fan, I have a problem with that that even though these guys make plenty of money, but um I I don't think that's correct you know,
▶ 3:41:51we should clarify, we should clarify that it shouldn't be these sports uh teams that are publicly owned.
▶ 3:41:56Should [snorts] be all
▶ 3:41:57great. Um and then I also want to bring up another issue. Uh, New York sports fans are increasingly being forced to buy multiple streaming subscriptions just to watch their local teams. Yankees and Mets games are spread across different platforms. And the Buffalo Bills first regular season home game in their new publicly funded stadium will be streamed nationally on an exclusive platform.
▶ 3:42:20In fact, if you are a Bills fan, you'll need to spend about $600 in subscriptions for these platforms to watch the entire season. And that seems really unfair, especially for New York taxpayers who helped finance the stadium. And so, you know, there wasn't a hearing another committee had on this issue. I encourage both the FCC and the Department of Justice to examine whether these broadcast and streaming practices are limiting consumer access or harming competition.
▶ 3:42:50and to ensure that local sports remains accessible and affordable for fans. The bottom line is you shouldn't have to be paying three subscriptions to be able to watch a full season of your favorite sports team. Do you guys agree? Mr. Archo,
▶ 3:43:05Mr. Madden,
▶ 3:43:07Mr. Raola,
▶ 3:43:08yes. Stephanie.
▶ 3:43:09Dr. Coats.
▶ 3:43:10All right. Four for four. You guys agree with me? And I think that Congress needs to address this if it needs congressional action and may be able to be addressed already by the FCC and Department of Justice by looking at antitrust laws. Thank you very much. I yield back.
▶ 3:43:24Mr. Yakam.
▶ 3:43:25Thank you, Mr. Chairman, for holding this hearing and thank you to our witnesses for being here today on this very important and complicated topic. It's no understatement to say that name, image, and likeness or NIL has represented a sea change in college athletics. I hail from the Hooser State and I'm proud to represent Notre Dame which is in my district. Of course, it has a storied football tradition and history. But this year was a little bit different for the state of Indiana.
▶ 3:43:51A different university the in the state demonstrated how transformative NIL can be. The IU Hoosiers, which had won just three bowl games between 1899 and 2024, won three bowl games this past year in just 19 days in route to winning their first national championship in football. We can and should celebrate IU's Cinderella season. But that's a story about just the team itself. What about the individuals?
▶ 3:44:22NIL can be transformational for athletes, too. life-changing sums of money for kids from all walks of life, including those they didn't necessarily grow up in the best of circumstances. Mr. Ao, what you lay out in your testimony is a side of NIL that everyone should be talking about so much more. Sometimes money is promised and not delivered.
▶ 3:44:45Sometimes money is delivered without any guidance or mentorship on how to handle the boring stuff like IRS paperwork or the really really difficult stuff like dealing with agents or family or friends who are asking for a cut of the money. There the heartbreaking stories that you shared and laid out uh are certainly bringing light to some of the things that we should be talking about and I certainly appreciate you doing so. I also appreciate the fact that you brought some ideas to the table as well.
▶ 3:45:13This committee does have some work to do on this topic and at the same time there's plenty that can be accomplished without needing an act of Congress. Ultimately, Congress shouldn't have to tell athletic departments to take care of the kids. They should just do it and act on it. Out of curiosity, I reached out to Notre Dame before this hearing to see what they do. In 2024, they rolled out a program they call for for Forever.
▶ 3:45:39It's available to any student athlete who participates in NIL and even the ones who don't. Their program rests on four pillars: career and connection, community and belonging, life skills, and life after Notre Dame. I won't get into all that what that entails, but for the purposes of our hearing today, they help with things like tax education, financial literacy planning, mentorship, and some of the tough questions that I mentioned earlier.
▶ 3:46:08This initiative has four full-time employees that bring in outside experts and on legal and financial questions as needed. From my perspective, it's pretty comprehensive, but I know our panelists have seen heard and heard and done more on this topic. So, Mr. Ancho, imagine that you're the athletic director of your your alma mater in Austin or maybe somewhere else where donors basically have their checkbooks and they're willing to give you as much cash as you want to fund your department.
▶ 3:46:37What policies and practices does AD an AO institute to build life skills and financial literacy in the age of NIL? And does it look like what Notre Dame is doing or is there another school you think that's doing something that's worth highlighting?
▶ 3:46:51I'm really honored to be be able to respond to that question. I was a part of that for forever program. from Notre Dame brought me and my team in to do not only financial education, but we also they also brought us in a second time two years later to talk about athletes being CEOs now that they're running their own small businesses. And the whole idea was don't build a brand, build a business. We talked about the five skill sets that it takes to be a CEO. One of those skill sets, as you can imagine, is taxes.
▶ 3:47:17And so if I were the athletic director of any school, I would implement the exact program that Notre Dame has implemented under their former director of player engagement, Amir Carile, who is now a part of the NFL office, who is now leading this initiative for the NFL and NFL teams.
▶ 3:47:32And I would force is not the best word, but I would encourage uh college teams to implement not just financial education, but also business education for these student athletes about understanding branding, understanding agents, understanding contracts, understanding how they need to create value, how they can capture that value, how they can convert that value into a business asset and that and how they can continue that value for the next hundred
▶ 3:47:58Thank you so much. Appreciate your engagement here today. Okay, Mr. Chairman, with that I yield back.
▶ 3:48:03Mr. Miller.
▶ 3:48:07Thank you, Mr. Chairman. [clears throat] Growing up in Northeast Ohio, just a 20-minute drive away from downtown Cleveland, been a sports fan my entire life. Uh, mostly all professional. Uh, but has resulted in only one professional championship between the Browns and the Cavs and the Guardians. So, thankfully, we have Ohio State to keep, you know, our spirits up a little bit in the state of Ohio. So, the business of sports in the United States has never been bigger than right now.
▶ 3:48:32Although my younger self might be embarrassed to hear me say this, the federal tax questions this growth raises have never been more consequential. We're here to grapple with a number of issues, including how NIL has fundamentally altered the economics of college athletics, to examine whether professional sports league should continue to receive nonprofit status, and determine if the tax code written for a very different era has kept pace with a multi-billion dollar industry that touches every congressional district in America.
▶ 3:49:02These aren't abstract issues. They affect families, universities, and local economies as both fans and as taxpayers. As we've heard throughout all day today, in general, publicly held companies cannot deduct compensation over 1 million for some executives and a number of their highest paid employees. A few sports teams are impacted by this limitation, specifically the Atlanta Braves, the New York Knicks, and the New York Rangers. Mr.
▶ 3:49:30Raayola, what is the impact of this limitation for select teams on the competitiveness of professional sports? Will this be a significant competitive disadvantage for those teams?
▶ 3:49:43Be another business expense that won't be deductible. Um, is starting in 27. I think like I me mentioned previously, if it's going to be done, I think it should be done to all professional sports teams and, you know, remove the unfairness to the three teams in question.
▶ 3:50:02Thank you, Mr. Roach. I'd like to build on the line of questioning some of my colleagues were pursuing handinhand with the decisions around tax withholding is the broader issue of foundational financial literacy for college students. In all honesty, when I was in college, I couldn't have told you the difference between a W4, a W2, or a 1099. Actually, the financial literacy that I got was through the United States Marine Corps when I graduated through boot camp.
▶ 3:50:29And when young Marines got $6 to $8,000 in their checking accounts and they thought they hit the lottery. And I remember drill instructors educating us on where things should go and if we should put money in Navy Federal or Paris Island Federal Credit Union, whatever it may have been. And and so, you know, I that's just the reality of where we are. I think I've had a great education in this country, but not one educator who and I have a college degree and that's great. Uh it's not what got me here.
▶ 3:50:57I believe the Marine Corps did and work ethic but um it's very scary. So given the reality, I I want to move past the if and get to the how. In your view, where should the primary responsibility for this compliance lie? Is it with the institutions, the athletic departments, or governing bodies? And what specific oversight or mandate should this committee consider to ensure the burden of financial navigation isn't just falling entirely on the student alone?
▶ 3:51:24Well, thank you for your question, Mr. Miller. I think this committee specifically when it comes to over overseeing taxes uh could have an opportunity to enforce that people who are around athletes are actually searching for the best interest of those athletes. Some of that could be this idea of withholding taxes so tax so taxes are getting paid.
▶ 3:51:43Another could be this idea of whether it's agents or specifically financial adviserss if we're not going to go to the institutions are mandated to um be a part of that tax conversation somehow someway. and maybe it is uh being overseen by the securities and exchange commission. So it seems as if uh universities are not going to take that opportunity and so if it is going to be the financial advisers in these athletes lives, they have to have some sort of uh oversight to make sure they're looking for the athletes best interest.
▶ 3:52:11Yeah. And I'm okay with an amicable solution, but I do think it it is a little bit astonishing that the universities haven't accepted some responsibility as you are a student of that university. in that university when I went to a couple, you know, pledged to take care of me uh and look out for me in all of my best interests, right?
▶ 3:52:29And so you would think that this is something that in my opinion they would just want to have just a little bit of oversight of because, you know, being very direct for people who can come into money very fast and they don't have the familiarity on what to do with it. It can do a lot of damage and it can lead people to go down very dark roads very quickly. And that is a big concern that I've seen with many people, even some friends of mine, who have hit it big at a young age and have gone down a very very dark road. So, I mean, I I I love the conversation that we're having.
▶ 3:52:58I feel very positive on the outcome of how this is going to be handled, but I do put a little bit of pressure on universities to make sure that their student athletes are being, you know, emotionally and mentally okay with the amount of money that's coming in. U but thank you very much. Thank you all, Mr. Chairman. I yield back.
▶ 3:53:13Mr. Marian,
▶ 3:53:15thank you, Mr. chairman and good afternoon panelists. Thanks for uh hosting this meeting, this important committee hearing today. Mr. Chairman, I appreciate all of your insights, particularly as they relate to the NIL issues. Uh this is a uh an interesting topic that's come up uh for the federal government, not not the one that you would expect to come up. I know you guys have had a long day today. I want to start with you, Mr.
▶ 3:53:37and just tell you first of all uh how um how taken back and appreciative I was at your comments when uh when you started out your your opening statement particularly about uh understanding that there needs to be a faith-based approach uh frankly uh when you're when we're talking about these kiddos uh and their youth and their age I've got kids in that same age neither one of them are college athletes but certainly there's still a lot of life to learn about and uh we are giving them so much money at a moment in time when
▶ 3:54:08they don't have that support structure or the the education or the knowledge and the wisdom. That's really what it's about is the wisdom to know know what to do with it. Uh so I want to just tell you up front I think your your idea uh about financial education for student athletes and creating opportunities for student athletes to utilize tax advantage savings and investment accounts to help them prepare for the future is brilliant. I was texting my staff saying this is a great idea. We need to jump on that.
▶ 3:54:36Is there something that you haven't said about that today that you want to reemphasize? You want to make sure that you have had an opportunity to sell that idea because I think this is a really great idea.
▶ 3:54:47I think the first thing I'll say, Mr. Moran, is these are more than just athletes and more than just students. They're also humans. And humans sometimes make bad decisions, sometimes make good decisions. And so what I'm after is human flourishing. And that's not just athletically. That comes with faith, you know, family. You could argue football, whatever sport you do, and also financially.
▶ 3:55:11So, you may be flourishing financially, but if you have no idea of your no background in faith, it's probably not going to end up very well. You might be flourishing in your faith, but if you've squandered and wasted your wealth, it's probably not going to end up very well. And so, we need to think of a more holistic approach. Part of that is the financial education piece. The other part of that is thinking about my my sister, right? She works at the Federal Reserve Bank in Dallas. They have a thrift plan where there's automatic uh not even withholding but automatic uh employer match.
▶ 3:55:39I understand these athletes are not employees, but one thing we've seen that 87% rate that we've talked about uh when it comes to forcing people to save, right? Think about 401ks, making people save money. When I was a part of the NFL players association, my job was to speak up on behalf of all the players. And some things that we did was finding ways to have players save money. And so if I were just to reiterate the point, the point would be to allow athletes to save a certain amount of money.
▶ 3:56:03Maybe it's similar to how they do in an individual retirement account or a 401k and have that money be able to grow tax deferred and then give players access to that money earlier than that 59 12 time frame. Because think about it, the average career in the NFL is three years. I played in the NFL, I played for nine, I finished at 32 or 31 years old. That's still 20 more years before I get access to that money.
▶ 3:56:26I think you're right on target. And my kiddos, the way I tell them about it is, look, you're going to have a lot of liberty in life. You're probably going to have a lot more prosperity than most folks, but what needs to come with that is responsibility. There's got to be self-responsibility built into that or it won't last. Even this weekend, I was having a conversation with one of my kids about a matching plan for a job she's at now. And I told her, I said, "You know what? The answer is always when that is presented to you, the answer is always yes. You want to participate.
▶ 3:56:52You want to be involved in that." Uh, so thank you for your advocacy on that. Uh I want to come back to Mr. Madden and Mr. Rail as well because I want to talk about uh the IRS and its its use of or it it's view of the NIL collectives as sometimes um taxexempt and sometimes not.
▶ 3:57:12So the IRS has found that many NIL collectives should generally not qualify for tax exempt status because the private benefits they provide to student athletes do not serve a tax exempt status or purpose. Mr. Mr. Madden and Mr. Rayola, could you talk us through the rationale NIL collectives provide for their taxexempt status? Why might it make sense and why might it not? I'll start with you, Mr. Raola or Mr. Matt.
▶ 3:57:37Yeah. Uh, thank you for the question, Representative Moran. Um, as I testified earlier, the collectives uh many of the collectives throughout the country after the uh Alustin Supreme Court case and the NCAA's decision to allow athletes to monetize their NIL uh that that gave rise to the collectives which are essentially boosters pooling their money and many of them applied for taxexempt um status through the IRS through the it would be the taxexempt and government entities business unit of IRS.
▶ 3:58:07NIL was brand new. No one really knew what it was. When I suggested that we have a nationwide enterprisewide task force to study NIL at IRS, many of the commissioners, executives asked me what NIL was. And I think uh no fault of anyone at IRS because it was brand new. Um many of the collectors were erroneously granted taxexempt status.
▶ 3:58:31It's the reason why in June of 2023, IRS chief counsel issued a memorandum clearly pointing out that most of the collectives as they saw them did not qualify for DA tax exempt status because what they were doing is um pulling their money and uh paying athletes hundreds of thousands if not millions of dollars to make maybe two or three appearances a year.
▶ 3:58:54maybe at an alumni event, maybe signing autographs, going to a children's hospital around the holidays, attending a sports camp in the summer, and it just didn't line up with the public good or a solely educational
▶ 3:59:06Yeah, Mr. Ra, we're out of time, but I'll just say in rel relation to that, that donors, a lot of them gave thinking it was going to be taxexempt and now they've got some tax issues related to that because it was unrolled in a lot of situations. Big complicated area even in the tax space. Appreciate all your testimony. Uh, with that, Mr. Uh, chairman, I yield back.
▶ 3:59:25Thank you. I would like to thank our witnesses for almost 4 hours for for being here before our committee. Please be advised that members have two weeks to submit written questions to be answered later in writing. Those questions and your answers will be made part of the former formal hearing record. With that, the committee stands