PlayoffPAC Files 27-Page IRS Complaint Against BCS Bowls

While I said I wouldn't write anything more about the BCS this year. It certainly does not mean we won't paste in a very newsworthy release that was sent our way. The following is not the work of any writers at GrabBagSports; but its highly worth reading. - Wedge:

---

WASHINGTON, DC--Playoff PAC, the principal opposition group to college football's Bowl Championship Series ("BCS"), today filed a 27-page legal complaint with the Internal Revenue Service against bowl organizations affiliated with the BCS.  The complaint lists significant tax irregularities discovered through a methodical review of over 2,300 pages of tax records and public documents. 

The complaint was submitted to the IRS on Playoff PAC's behalf by Marcus S. Owens, former head of the IRS's Exempt Organizations Division, and Joseph M. Birkenstock, former Chief Counsel of the Democratic National Committee.  Both attorneys are Members of Washington, D.C. law firm Caplin & Drysdale.

Playoff PAC co-founder Chad Pehrson said: "BCS Bowls all claim to be '501(c)(3)' public charities--the same tax designation as the American Red Cross--to make their revenues tax-exempt and obtain other taxpayer-funded benefits.  Playoff PAC's review uncovered a disturbing pattern of BCS Bowl organizations using their charitable funds to enrich Bowl executives, pay registered lobbyists without disclosure, fund political campaigns, and heap frivolous benefits on Bowl insiders.  The BCS Bowls' activities raise important concerns under federal tax laws and we anticipate that the IRS will give these issues due attention."

EXECUTIVE SUMMARY

INFLATED SALARIES AND PERKS PAID FROM CHARITABLE FUNDS

Federal law prohibits BCS Bowls from abusing their favorable tax status and using their charitable funds to enrich Bowl executives.  However, Bowl officials are rewarded handsomely for promoting the BCS's once-a-year events with lavish salaries, sweetheart loans, and generous perquisites.  The findings of Playoff PAC's review include the following: 

• The Sugar Bowl's top three execs received $1,225,136 in FYE 2009 on revenue of $12.7 million, meaning that just three people skimmed almost $1 of every $10 the Bowl earned.
• Fiesta Bowl CEO John Junker received $317,717 in FYE 2009 for working just 21 per week from the Arizona Sports Foundation, the Bowl's lead entity.  Mr. Junker's total compensation package from all Fiesta Bowl-related entities was $592,418 for FYE 2009, nearly quadruple the CEO pay at similarly sized charities.
• The Fiesta Bowl gave two Bowl executives $240,000 in unsecured interest-free loans, reportedly to pay for their personal memberships in a private golf club.
• Sugar Bowl Exec. Dir. Paul Hoolahan received $645,386 in FYE 2009, a year in which the Sugar Bowl lost money despite receiving a $1.4 million government grant.  Mr. Hoolahan collected $25,000 more than the Rose Bowl's top three executives combined.
• BCS Bowls use charitable funds to fly Bowl execs and spouses first-class, pay private club dues, and foot the bill for employees' personal income taxes.  The Orange Bowl, for example, spent 756,546 on travel in FYE 2009 for its employees.

To be clear, BCS Bowl officials should receive "reasonable compensation" for their efforts.  But BCS Bowl officials are not entitled to appropriate charitable funds for their own benefit in the form of above-market salaries and excessive perks.  To do so is an abuse of their organizations' favorable tax status.

UNDISCLOSED LOBBYING PAYMENTS MADE WITH CHARITABLE FUNDS

Federal tax laws require all tax-exempt charities, including the BCS Bowls, to disclose fully all lobbying payments to the public and the IRS.  But Playoff PAC's review has uncovered rampant failures to disclose activities that clearly constitute lobbying.  The Fiesta Bowl has somehow repeatedly affirmed on its federal tax returns that it does not "engage in lobbying activities."  Yet the review has found that the Fiesta Bowl has engaged in the following activities:

• Gave $1.2 million for "consulting" to one registered Arizona lobbying firm and retained two other registered lobbying firms for undisclosed sums;
• Paid $123,637.93 for state officials' entertainment and out-of-state travel expenses;
• Registered with the Arizona Secretary of State as a "principal" each year from 2005 to 2010, signifying that it employed lobbyists to "attempt[ ] to influence the passage or defeat of ... legislation by directly communicating with any legislator" on its behalf; and
• Pushed specific legislation that required taxpayers to, among other things, bear game costs while forgoing all ticket, concession, and advertising revenue at a state-owned stadium.

These facts show that the Fiesta Bowl undeniably engaged in lobbying as defined under federal tax rules, and should be held accountable for its failure to disclose properly over $1.2 million in lobbying fees and expenses.  The Orange Bowl also appears to have made several large payments to registered lobbyists that were inadequately disclosed.

POLITICAL CONTRIBUTIONS MADE WITH CHARITABLE FUNDS

            As a public charity, the BCS's Fiesta Bowl is strictly prohibited by federal law from using charitable funds to contribute to political campaigns. 

Despite this ban, The Arizona Republic reported that five Fiesta Bowl employees made contributions "at the urging of [Fiesta Bowl CEO John] Junker and were reimbursed a few weeks later."  Donating charitable funds directly to political candidates is clearly against the law; funneling donations through employees by arranging to reimburse them is no less illegal.  The Fiesta Bowl attempted to stem the controversy ensuing from The Republic's reports by paying a consultant to perform a cursory internal review.  But after the Arizona Secretary of State conducted a real investigation, he recommended that the state Attorney General open a criminal investigation on potential violations of state election laws.

            The Fiesta Bowl's use of charitable monies to support a politician's legal defense fund also appears to violate the federal ban on "political intervention" by tax-exempt charities.  Despite the fact that its purpose is supposedly to promote amateur athletics, the Fiesta Bowl made monetary contributions out of charitable funds to former Congressman J.D. Hayworth's legal defense fund.  At the time, Mr. Hayworth was testing the waters as a U.S. Senate candidate and pitching donations to his legal fund (which was used to settle politically related legal expenses) as a way to jump-start his candidacy.

FRIVOLOUS SPENDING OF CHARITABLE FUNDS

Bowl organizations have long justified their existence, if not their tax-exempt status, by trumpeting their magnanimity.  But as reported in the press, the 23 bowl games run by charitable groups "combined to give just $3.2 million to local charities on $186.3 million in revenue."  Playoff PAC's review of charitable giving by BCS Bowls revealed a similarly lackluster record.  While BCS Bowls were relatively frugal with their charitable grants, they were positively spendthrift when it came to less worthy causes.

• Gave $1.2 million for "consulting" to one registered Arizona lobbying firm and retained two other registered lobbying firms for undisclosed sums;
• Paid $123,637.93 for state officials' entertainment and out-of-state travel expenses;
• The Orange Bowl spent $535,764 on "gifts" in FYE 2006;
• The Fiesta Bowl spent $1,325,753 on "Fiesta Frolic," an "annual weekend golf retreat for college-football officials at a Phoenix-area resort" from FYE 2005 to FYE 2008;
• The Orange Bowl paid $331,938 for "parties" and a "summer splash" in FYE 2004;
• The Sugar Bowl spent $710,406 in FYE 2007 and FYE 2008 on a mysteriously vague category called "special appropriations;
• The Fiesta Bowl spent $91,020 on "travel or entertainment expenses" for "federal, state, or local public officials" in FYE 2009;
• The Orange Bowl spent $111,492 on "postage and shipping" in FYE 2008;
• The Sugar Bowl paid $201,226 for "gifts and bonuses" and $330,244 on "decorations" in FYE 2008;
• The Fiesta Bowl spent $444,948 on "hospitality" in FYE 2009; and
• The Orange Bowl paid $42,281 for "golf" in FYE 2004 and FYE 2006.

This BCS Bowl spending calls into question the Bowls' need for the substantial government assistance they receive.  If the Orange Bowl can afford to spend $535,764 on "gifts" and $756,546 on travel for its personnel, why does it deserve charitable status and the resulting "free ride" on paying taxes?  If the Sugar Bowl shells out $201,226 for "gifts and bonuses" and six-figure sums for its crony-filled "Football Committee," why has it received $5,448,539 in government grants the past three years?  And if the Fiesta Bowl has had the money to spend $331,438 per year on a "Fiesta Frolic," why did it need a hefty taxpayer-funded subsidy from the State of Arizona?  These are among the important questions raised by Playoff PAC's review.