For four days last June, the Orange Bowl Committee hosted a gathering of several dozen athletic directors, conference commissioners, and their spouses aboard a Caribbean cruise ship, with a weekend agenda that appeared to offer nothing more strenuous than cocktail parties and a day of frolicking on a private island in the Bahamas.
The committee, a tax-exempt charitable organization responsible for the annual Orange Bowl, which took place Monday night in Florida, called the trip “a complimentary getaway” for key individuals in college sports. A former high-ranking official with the Internal Revenue Service, who has filed a complaint with the federal agency alleging various misuses of charitable funds by some bowl committees, calls it “a junket” for insiders.
It’s now up to the IRS to decide who’s right.
“The bowl games are charities, and they are considered to be educational in nature because of the sort of longstanding understanding that college athletics furthers higher education,” said Marcus S. Owens, a Washington lawyer who served for 10 years as director of the IRS division that oversees tax-exempt groups like the bowl committees. But, he added, “it’s not apparent how the bowl committees—and, in particular, the Orange Bowl Committee, with its trip to the Bahamas—really fits into that calculus any more.”
The details of the Caribbean cruise are set forth in a complaint Mr. Owens filed with the IRS last week on behalf of Playoff PAC, a group that opposes the Bowl Championship Series. The group filed a broader complaint in September, alleging various abuses of charitable funds against two other major bowl organizations, the Fiesta Bowl Committee and the Sugar Bowl Committee, as well as the Orange Bowl Committee. (The full complaint can be found on Playoff PAC’s Web site, in the report “Public Dollars Serving Private Interests: Tax Irregularities of Bowl Championship Series Organizations.”)
Mr. Owens said in an interview Tuesday that he hoped the IRS would scrutinize how the bowl committees spend their money—and consider whether their activities are in line with the charitable missions that allow them to forgo paying taxes on their revenue.
“It makes you wonder whether they are serving their intended purpose or if they’ve morphed into something else,” he said of the bowl committees.
Charity, or Business?
Bowl committees got their start decades ago as festivals intended to highlight football and local communities. Now, of course, bowl games are big business, generating hundreds of millions of dollars in revenue and affording some participating athletic programs hefty payouts. The Orange Bowl Committee is one of the most successful, bringing in more than $40-million in revenue in 2008, according to tax documents. And last year the Bowl Championship Series distributed a total of $115-million to the six athletic conferences that are allotted an automatic bid to a BCS bowl.
The committees, though, are still charitable organizations incorporated under section 501(c)(3) of the federal tax code, and they are exempt from paying taxes. This is one key source of Playoff PAC’s ire: In return for that tax-exempt status, the organizations are required by law to serve the public interest and avoid giving “private benefits” unless doing so is essential to fulfilling their charitable purpose. And they are not supposed to use charitable resources to benefit executives or “insiders"—a point that the opposition group has vigorously asserted with its recent complaints challenging some of the bowl committees’ tax-exempt status. The allegations are part of Playoff PAC’s broader campaign to dismantle the current Bowl Championship Series structure, which it views as unfair, and establish a football playoff and a more-equitable distribution of postseason revenue.
As for the Caribbean cruise, Mr. Owens said he believed it clearly ran afoul of the rules.
“There’s nothing about the trip that appears business-oriented,” he said. “There’s not even a gloss of business meetings to talk about next year or anything like that. It’s pure vacation using charitable money.”
The latest complaint includes 21 pages of materials Mr. Owens collected through public-records requests that detail that weekend’s events.
The invitation letter for the “Summer Splash,” as the annual event was called, went out in February of last year to athletic directors and conference commissioners from the 11 Division I conferences, as well as to the National Collegiate Athletic Association, ESPN, “and select others,” according to the filed documents. In it, the committee promised “to show you and your guest Orange Bowl hospitality at its finest.”
That “hospitality” included a day on CocoCay, a private island owned by Royal Caribbean, the cruise line; a day on Paradise Island, in the Bahamas, with a catered lunch; and dinners and receptions every evening aboard the ship. The agenda, which was obtained in the public-records requests, contained no mention of business meetings.
Officials with the Orange Bowl Committee say the cruise served an important purpose: to allow the committee to meet with “key stakeholders” to communicate and advocate its business focus. “This is consistent with our mission because it greatly assists the Orange Bowl in remaining current with matters related to college athletics, and in maintaining its prestigious national position as a BCS bowl,” the committee said in a statement. Such “meetings,” the statement continued, also help the committee to fulfill its mission to enhance tourism and economic development in South Florida.
Possible Outcomes
The complaints against the Orange Bowl Committee and the other bowl groups are somewhat unusual and are likely to catch the attention of the IRS, if they haven’t already, said Bertrand M. Harding Jr., a lawyer in Alexandria, Va., who specializes in nonprofit tax matters. Having the name of Mr. Owens atop the complaint makes it even more noteworthy, he added.
In terms of the Orange Bowl Committee, the IRS could opt to audit the organization, he said, or assess taxes. The agency could also decide the committee abused its exemption, and revoke its tax-preferred status—a highly unusual move. Or, he said, it could do nothing.
The bowl committees are hardly the only entities in higher education—or, for that matter, college sports—to face IRS scrutiny.
More than 30 colleges have been audited as a result of the agency’s stepped-up policing, and a revised Form 990—the annual document that certain nonprofit organizations file with the agency detailing their missions and finances—continues to provide tax regulators with more information about tax-exempt groups.
Within college sports, the tax-exempt issue has surfaced from time to time, most recently in 2006, when members of the U.S. House of Representatives’ Ways and Means Committee asked the NCAA to explain how it fulfilled its charitable mission. And in the early 1990s, the bowls faced, and overcame, a significant hurdle: After the IRS initially directed two bowl games to pay unrelated business-income taxes on the money they received from corporate sponsors, the agency later narrowed its policy, and the bowls were unaffected.
