Fiesta Bowl scandal, nonprofit status
The Event always deceives us. It distracts us. It pulls our eyes from what we should see and directs us toward what we want to see. Even when The Event is pure torture (see: Monday's NCAA tournament championship game), we watch.
In magic, it's called "misdirection." In some neighborhoods, it's the "okeydoke."
Whatever your term, we were all apparently bamboozled by the yellow jackets who ran the Fiesta Bowl. Last week, two months after that organization staged a thrilling BCS National Championship Game in which Auburn defeated Oregon 22-19, an independent 276-page report outlined a litany of improprieties by its leadership.
According to the report, there were shady political contributions (and an even shadier $46,539 in reimbursements to employees who may have been encouraged to make those contributions), outlandish perks (including interest-free loans, travel for an employee's family and wedding party, multiple nights spent at the Ritz-Carlton and other expensive hotels, an extravagant birthday party and Fiesta-paid family trips for CEO John Junker), and a big-bucks night at a strip club that was termed a "security site" discussion because Junker attended with the man who managed security for the bowl. (You really should read the report; you'll be shocked and entertained.)
The Fiesta Bowl board of directors quickly fired Junker, the architect (and major beneficiary) of the scandal, whose salary was $674,000 last year. But it couldn't stem the reverberations. Almost immediately, BCS director Bill Hancock said the Fiesta might be in danger of being booted from the BCS' four-member fraternity, adding to CBS Sports that he was "dead serious." He later back-stepped a bit, telling the Arizona Republic that any speculation about the Fiesta's BCS status was "way premature."
Frankly, I couldn't care less whether the BCS replaced the Fiesta Bowl with the Sweet Pickle Bowl.
Besides, that isn't what we should be watching anyway.
Look this way instead: The Fiesta Follies are not simply another sordid tale of a powerful and greedy sports figure. No, this desert scandal shed light on a little-reported side of sports business that could use at least a tad more scrutiny: sports entities that exist as tax-exempt, "charitable" enterprises.
Despite the millions upon millions of dollars (and in some cases billions) generated by major sports events and leagues, Joe (or Jane) Fan probably believes that those enterprises pay taxes just as he (or she) does. But that assumption is as off as a Butler jump shot.
Rather than being set up as for-profit enterprises and thus subject to taxes, myriad sports events, leagues and governing bodies -- including bowl games, the PGA Tour and Tour events, The PGA of America, the NFL and numerous major college athletic departments -- are set up as tax-exempt 501(c)(3) or 501(c)(6) entities.
Don't worry. I won't bore you with a tax-code tutorial on the difference between the two. Primarily, 501(c)(3)s are supposed to operate in the public interest, meaning their monies are supposed to help people. Donations are tax-deductible, and the organization is not allowed to lobby the government. By contrast, 501(c)(6)s are associations or leagues that can lobby on behalf of their members, and donations are not tax-deductible.
The Fiesta Bowl is a 501(c)(3). In fact, it's really four nonprofit entities: the Arizona Sports Foundation, Fiesta Events Inc., the Valley of the Sun Bowl Foundation and the Arizona College Football Championship Foundation. According to Article III, No. 2 of the ASF's articles of incorporation, the foundation is supposed to "operate without profit and so that no part of its net earning or assets shall ever be distributed as a dividend or inure to the benefit of any private shareholder or individual and thereby to promote, foster, encourage and increase collegiate sports events, contests and activities in the metropolitan Phoenix area. The proceeds, if any, from such events and activities shall be used for educational and charitable purposes."
Don't fall for it.
The articles also say that the Fiesta Bowl itself exists to allow the ASF to accomplish those "charitable and educational purposes" and that "all funds not paid to the participating colleges shall be used by the corporation for educational and charitable purposes."
Clearly, the Fiesta Bowl has lived up to its mission of promoting collegiate sports. But almost everywhere else it has done nothing but fumble, particularly in the lavish benefits for its staff and allegedly violating political prohibitions.
At minimum, the scandal calls into question whether bowls and some other sports entities should be allowed to avoid taxes when they're spending money like drunken frat boys with trust funds. Yes, some of them have raised millions for various local and national charities. But at a time when states and cities are being squeezed by budget cuts, when teachers are being fired, when infrastructures are deteriorating and people are still unable to find work, should not some of these entities be contributing to the tax kitty rather than allowing their leaders to live like corporate moguls?
Thanks to Junker and the Fiesta Follies, it just might happen. Veteran tax attorney Wayne Henry told CBSSports.com senior writer Dennis Dodd: "There's greater scrutiny by the federal government and state government of nonprofit, tax-exempt organizations, in part, I think because there is a large federal and state deficit."
This past fall, a political action committee called Playoff PAC, which is trying to abolish the current bowl system for a playoff, filed a complaint with the IRS alleging that three of the bowls (including the Fiesta) violated their tax-exempt status by offering excessive salaries and perks and conducting undisclosed lobbying. At the time, Fiesta Bowl officials called the charges "dated, tired and discredited," adding, "The Fiesta Bowl is confident that it has always fully complied with tax laws and rules in its operations and activities."
Uh, not so much.
In the report that precipitated Junker's demise, the Fiesta Bowl quotes its onetime CEO as saying the entity had "$15 million to $20 million in the bank." After an extensive look into the organization's tax records, the Republic reported that the organization generated $17 million last year, mostly ($15.2 million) from ticket sales. Yet expenses were reported by the newspaper to be $15 million, and beyond contributions made to the game's participating schools (also nonprofits), the report cited only nominal charitable donations (nothing more than $10,000) to organizations such as The 100 Club (which supports police officers and families dealing with tragedies), the Boys & Girls Club of Tucson, Hospice of Arizona and The Pat Tillman Foundation. The organization also made donations to schools attended by the children of Junker and other board members.
I'm not a toss-the-baby-with-the-bathwater guy. Nor am I at all indicting every bowl game or tax-exempt sports enterprise. Plenty appear to fulfill their charitable mandates.
The PGA Tour, for example, proudly boasts that it and its events (most of which are independently operated by local nonprofits) have donated $1.6 billion to charities since 1938, $1 billion of it in the past 17 years. Last year, according to executive Ty Votaw, the Tour (which generated "north of a billion" last year, according to EVP/CFO Ron Price) donated $124 million to charities nationwide, primarily to the local organizations supported by Tour events.
"Charitable giving is ingrained into the culture of our sport, and our business model," Votaw said from Augusta this week.
But he's not naive. "We read the newspapers. And [the Fiesta Bowl allegations are] certainly something we noted and discussed. But we feel good about our governance and the structure of tournaments, which are analogous to the bowls. Many of our tournaments have been around for decades, and their governance policies and oversight have stood the test of time and prevented any missteps."
Let's hope that's also the case at other bowls and sporting events run by nonprofits, but I'd be more convinced with numbers from outside audits.
"My hope is it will serve as a warning shot that every other board in every other community that runs a bowl game makes sure they're doing the oversight, compliance and due diligence," NCAA president Mark Emmert said.
The IRS has yet to hear the Playoff PAC case against the bowls, but experts say the agency is eager to ensure all exemptions are justified. "The IRS has said, 'We're going to be in the compliance arena now,'" added Henry, the tax attorney. "What was acceptable in the past is no longer acceptable in the future."
If that's truth, I'll enjoy The Event even more now that our hosts are being charitable by staying at the Holiday Inn Express, not the Ritz-Carlton.
Roy S. Johnson is a veteran sports journalist and media consultant. His blog is Ballers, Gamers and Scoundrels.
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