Josh vs. The BCS Part 1

Overview of the Problem

The Bowl Championship Series (BCS) is a 501(c)(3) system used in NCAA college football as a means to determine their national champion. The BCS is comprised of the Fiesta Bowl, Rose Bowl, Orange Bowl, Sugar Bowl, and BCS National Championship Game. The system is not without controversy; however, while many feel that the system does not actually determine a “true” national champion, this will not be the focus of this memorandum. It must be mentioned that many people do not feel that the system works because of how the system is currently abusing taxpayers’ trust with its exorbitant and egregious misusage of funds. The BCS is grossly misusing taxpayers’ dollars and violating its status as a non-profit organization which is supposed based on charitable contributions. The BCS needs to have its non-profit status revoked or there needs to be a massive overhaul in the oversight of expenditures being written off as tax-exempt.

Problem Statement

It is the belief of these authors that the Bowl Championship Series has violated the requisites for a non-profit organization in such a manner that it no longer deserves this status. The BCS has violated its fiduciary duty and misappropriated a large sum of funds that came from honest and hard-working taxpayers and spent funds on items that have no business being recompensed by those taxpayers. According to Davidson (2011), the Fiesta attempted to “reimburse $46,539 in improper campaign contributions” (p. 1). Additionally, Staples (2011), states that Fiesta Bowl CEO John Junker had a “$1,241.75 excursion in September to a gentleman’s club called Bourbon Street with a bowl employee and a consultant” (p. 1). These items are but a few of the frivolous expenditures that were reimbursed as a result of their non-profit status. Despite the fact that, as a non-profit organization, these bowls are required to submit federal documentation regarding their expenditures and reimbursements, these organizations are allowed to submit fairly ambiguous reports which allow them to disguise their hidden spending without fear of reprisal. According to Wetzel, Peter, & Passan (2010), an expense report filed to the IRS from the Sugar Bowl in 2005, ’06 and ’07 included the following: “$455,781 on ‘special appropriations’ in 2006, $201,226 on ‘gifts and bonuses in 2007, and $260,062 on ‘other expenses’ in 2007” (p. 28). These vague descriptions of expenditures have not been called into question until the recent internal investigation conducted by the Fiesta Bowl in 2011 alleging impropriety. These expenditures were written off as tax-exempt due to the current 501(c)(3) status enjoyed by the bowls currently aligned as BCS designates.

Issues

The issues addressed in this memorandum with regard to non-profit tax exemption and the misuses thereof are: misuse of taxpayer revenue, lack of in-depth federal oversight during expense reporting process, and the economic impact vis-à-vis bowl reimbursements and charitable donations in the name of a non-profit organization.

Misuse of taxpayers’ revenue: The Fiesta Bowl is presently under investigation for their gross misuse of funding for a non-profit organization. After the Arizona Republic blew the lid on the misappropriation of funds carelessly spent on personal agendas rather than for the interest of the bowl’s goals and objectives, an internal investigation into the expenditures of the Fiesta Bowl was conducted in March of 2011. The results were a 276 page public report detailing every expenditure made by the Fiesta Bowl and its executives. According to Cain (1999), “when applying the UBTI (unrelated business taxable income) to any potential non-profit direct marketing activity, the non-profit marketer and/or tax advisor must keep in mind the tax-exempt organization’s goals regarding the activity” (p. 328). The excuse provided by John Junker with regard to his gentleman’s club expenditures was outlined in Murphy and McKnight (2011), when he said “We are in the business where big strong athletes are known to attend these types of establishments. It was important for us to visit and we certainly conducted business” (p. 1). Surely a visit to a strip qualifies as an unrelated business taxable income, right? Wrong, these expenses were reimbursed, in full, to the CEO.

Lack of in-depth oversight federal oversight: When submitting their reports to IRS these bowls currently enjoy a rigor-free, superficial, expense reporting process. Bowls are capable of filing these expenditures under pseudonym categories which may or may not even exist. According to Wetzel et al (2010), “the Sugar Bowl has an actual ‘committee on golf’ and a ‘special committee on ladies’ entertainment’—which may or may not have anything to do with all those liaisons” (p. 28). None of these committees designated by the bowls have been questioned until the recent investigation of the Fiesta Bowl. These committees are assumed to be bowl related and have not, until now, received scrutiny regardless of how ambiguous the filed report may have seemed. The college bowl system, on the whole, enjoys the luxury of vague reporting techniques to disguise their expenses to the federal government. These expenses are unacceptable from any taxpayers’ standpoint and in-depth oversight could prevent such erroneous spending.

Economic impact vis-à-vis bowl reimbursements and charitable contributions: Because the major bowls enjoy state and federal subsidies there is an undoubted economic impact that takes place. Derrick Fox, the CEO of the Alamo Bowl testified before congress about the nature of the bowl’s current non-profit status. According to Wetzel et al (2010), Fox testified that “up to one-quarter of the proceeds from the games are dedicated to the community” (p. 26). Furthermore, Wetzel et al (2010) state that the “Sugar Bowl, for instance, received $3 million in direct funding from the Louisiana state government, according to its 2008 tax filing” and that the bowl:

gave nothing. Not a buck to the Hurricane Katrina reconstruction effort. Not a dime to a New Orleans after-school program. Not a penny to Habitat for Humanity. The Sugar Bowl, one of the richest bowls in existence, didn’t give back 25 percent of its proceeds to the community. It hogged everything, including the $3 million in taxpayers’ money (p. 27).

The bowl received its funding from the citizens of Louisiana yet did not give one cent back to those citizens. A city facing severe economic crisis funded a bowl to the tune of $3 million dollars and that bowl did nothing to improve the current situation.

Solutions

Addressing these concerns is actually rather rudimentary. The federal government and state governments, as the financiers for these bowls, need to conduct two audits of these bowls. One of them prior to the distribution of funds is requiring the bowls to detail how they intend to spend the money along with the previous year’s expenses. Then, a secondary audit which closely analyzes every penny spent as a “bowl expense.” No longer can these financiers accept expense report statements title “other expenses” and such. These bowl executives need to account for exactly where this money is being spent and how it is being spent. Additionally, testifying before congress that these bowls are charitable when they are, in fact, not donating what they claim to be donating. According to Wetzel et all (2010), “of the 23 tax-exempt bowls the total payout to charities: a combined $3.2 million dollars” (p. 29). The state of Louisiana donated $200,000 less than the combined payout of 23 tax-exempt bowls. This is simply unacceptable. If these bowls are testifying before Congress that they are, indeed, charitable groups, then Congress ought to have the luxury of holding them accountable for these statements. Bowls receiving public funding ought to be required to give back to the public. Their donations need to be documented and included in their expense reports to the IRS. Bowls that fail to comply with this should have their non-profit status revoked.

Conclusion

In sum, federal regulatory procedures need to be increased and implemented into non-profit organization law to ensure that this type of fleecing cannot continue. While not-for-profit organizations undoubtedly are not “non-profit” in the traditional sense of the term, these profits need to be closely micro-managed and evaluated to ensure that the public is not funding visits to strip clubs and golf resorts. A federal or Congressional oversight committee that closely monitors the expenditures of these bowls addresses two of our three concerns. Lastly, the implementation of charitable donations and reimbursements for expenses needs to be stressed. One cannot perjure themselves before Congress by saying they are a charitable organization when they have given back only $200,000 more as an entire entity than one of their bowls received in general public funding.