Why is the US Olympic Committee (USOC) a tax-exempt organization? Oh, I know that there is a special provision in the tax law that grants non-profit status to organizations that “foster…national or international amateur sports competition.” The USOC does foster international sports competition, though professional athletes have dominated the high-profile sports for years. But, more to the point, the USOC operates far more like a business than a charity. And that raises the question: Why does the tax law grant non-profit status to an entity whose primary business model is to create content for television and other media.

True, the USOC provides some modest support for Olympic and Paralympic athletes. But it is not too cynical to suggest that it does so because those athletes—and their human interest stories-- are the product the USOC (through its partners at the International Olympic Committee) sells to NBC.

A business, not a charity

Washington Post columnist Sally Jenkins got me thinking again about the USOC when she asked for my help on a piece she just wrote about the organization. Her focus was mostly on the compensation and perks that USOC executives lavish on themselves (she identified first class air travel, $300 dinners for two, and $150 bottles of wine) and the relative paucity of the organization’s support for athletes.

My concern is slightly different. The USOC’s 2016 Form 990 reads like a description of a business, not a charity. 

In 2016, the USOC reported $336 million in revenue. More than $293 million came from just two sources—broadcast rights and royalties. That looks an awful lot like any other TV content provider—think the Apprentice in singlets.

A $7.75 billion deal

The broadcast revenues were the USOC’s cut of NBC’s payment to the International Olympic Committee for the right to televise the games. In 2014, the network agreed to pay the IOC $7.75 billion for exclusive broadcast rights through 2032.     

Another $6.9 million came from fees the USOC charged for use of its training centers. Another $5.5 million came from professional service fees. It even generated a small amount of revenue from its drug control program. Only about $14 million came from gifts—many of which were in-kind contributions from makers of equipment and apparel.

How did the USOC spend its money? About $55 million went to National Governing Bodies (NGBs). These are the organizations that promote specific sports and train athletes. They have their own non-profit status and leadership but are closely tied to the Olympic committee. To learn more about the NGBs, read this Jenkins column.

Where did the money go?

But the variation in the size of the USOC grants is enormous. It gave the US Racquetball Assn $53,901 in 2016 while the US Ski and Snowboard Assn. got $5.2 million, US Swimming got $4.4 million, and USA Gymnastics got almost $3 million. While USOC aggressively promotes its support for Paralympics, it gave the National Wheelchair Basketball Assn. only about $300,000 while USA basketball got over a $1 million. The US Assn. for Blind Athletes received about $271,000. 

The Form 990 does not explain the rationale for these differences. But it sure looks like the USOC’s biggest gifts went to those NGB’s whose sports generate the biggest TV audiences—skiing and snowboarding, swimming, and gymnastics.

How much does the USOC give directly to athletes? According to the Form 990, the USOC distributed about $28 million to directly to individual athletes in 2016 though cash stipends, health insurance and other medical benefits, bonuses for winning medals, and tuition assistance.

Less than minimum wage

How much is that? Here is one way to think about it. About 800 athletes represented the US at the most recent summer and winter games. Assume USOC gives some support to 2.5 athletes who compete for each spot. That works out to $14,000-per-athlete per-year, well below the minimum wage for someone working a 40 hour week. It is no wonder that so many Olympic hopefuls must work day jobs to support themselves while they are training.    

The $28 million that USOC gave directly to athletes represented about 8 percent of its 2016 revenues. By contrast, the organization spent about $6 million on compensation for its top executives, and $39 million on other employee wages and salaries. It paid 129 employees $100,000 or more.

USOC spent $1.5 million on conferences and conventions, and $21 million on travel. 

Not a soup kitchen

Its total 2016 expenses were $257 million, meaning USOC ended the year with a profit (oops, I mean a positive margin) of $78 million. That’s a sweet 23 percent return on gross revenues.

Without its tax-exempt status, USOC would have owed something like $25 million or $30 million in federal corporate income taxes in 2016 (when the rate was 35 percent). In addition, individuals who contributed to the organization would not have been able to deduct those gifts from their own income taxes. 

What do we have here? An entity that spends about $28 million on athletes and $55 million on the NGBs—or about $83 million to, you might say, create a product that generated $336 million in revenue and lots of perks for its trustees and top executives.    

And that leads to a simple question: Should an organization such as the USOC enjoy the same tax-exempt status as, say, your neighborhood soup kitchen? Do they really deserve the same special tax status?