Why is the US Olympic committee tax-exempt?

The US Olympic committee is a tax-exempt organization and might soon ask for direct government support. 

Watching the made-for-TV Olympics the other night, I could not help but wonder: Why does the federal government subsidize the United States Olympic Committee by granting it tax-exempt status? The question is especially interesting because The Washington Post reports the USOC may soon ask for direct government support. 

The law provides a specific tax exemption for organizations that “foster national or international amateur sports competition,” according to the IRS.  But much of the competition the USOC fosters is not amateur at all. True, amateurs still participate in some minor sports. But marquee U.S. team sports like hockey and basketball, and the glamour individual sports such as skiing and ice dancing (is this really a sport?) are dominated by professionals. Ski racer Lindsey Vonn, for instance, made an estimated $3 million last year from race winnings and endorsements. We've come a long way from the days when the Olympics stripped a track-and-field gold medal from Jim Thorpe because he made a few bucks playing semi-pro baseball. 

Then there is the matter of the way the USOC itself makes and spends money. To learn more, I pulled the committee’s IRS Form 990 for 2007  and  2008.

On the income side, the USOC is a massive marketing operation that makes money by charging  for sponsorship and broadcast rights. In 2007, a year in which there were no games, USOC had revenue of  $147 million. More than half—over $78 million—came from corporate royalties. The story was roughly the same in 2008, although, because  summer games were played that year, the numbers were far bigger (including $123 million in broadcast rights). USOC is in a titanic battle with the International Olympic Committee over how to divvy up that TV money. In 2003, NBC paid the IOC a staggering $2 billion for the rights to broadcast the games through 2012.

In contrast to its carefully crafted public image, the olympic committee gets relatively little from individual charitable donations. According to The Washington Post, the group expected to raise only about $10 million in such contributions in 2009.

The way USOC spends its money is even more troubling. For context, the American Institute of Philanthropy recommends that charities spend at least at least 60 percent, and preferably 75 percent, of income on programs. Yet in 2007, the USOC spent about two-thirds of its revenue on administrative expenses, including almost $35 million on salaries, benefits, and other compensation. In 2008, at least 20 of its top executives earned $200,000 or more.

In  '07, the committee distributed about $57 million--or less than 40 percent of its income-- to its member athletic organizations, various foundations, and individual athletes. For instance, the speedskating association got $2.8 million, Hockey USA got $1.3 million, the curling association got $635,000, and the badminton association got $237,000 (I guess those birdies are cheap).  

Much of the money pays for coaches and training costs. What do the athletes get directly? In 2007, the USOC distributed a total of about $14 million in “grants” and spent another another $3 million on health insurance for elite athletes. And, no doubt, some who play less commerical sports could use the help.  

But let’s not kid ourselves, it has been a long time since the Olympic movement was about the love of sport. Today, the Olympics is about big bucks entertainment provided mostly by highly-paid athletes. It would be an outrage if, in an era of $1 trillion-plus deficits, Congress provided direct funding for the USOC. It is bad enough the Olympic committee enjoys tax-exempt status. I can’t image why Washington subsidizes a private organization to create commercial  entertainment. The producers of American Idol--the winter games' prime-time competition-- seem to do a fine job of running made-for-TV competitions without government subsidies. Why can’t the Olympic movement?     

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