Excerpts from an article in the Austin Statesman:

… John Colombo, a professor at the University of Illinois College of Law, [asks]: “Is Texas paying Mack Brown $5 million for his contribution to the educational environment at the university, or because it wants to win football games?”

How policymakers answer is worth millions of dollars to large and successful programs such as UT’s. Federal laws require a nonprofit’s income and expenses both to be tied to its charitable mission. But a number of critics, as well as a recent federal report, say the nation’s biggest college athletics programs are raising and spending money in ways increasingly divorced from education.

… The nonprofit tax breaks could even be driving sports spending. [A] Congressional Budget Office study found that big sports programs tend to plow much of their earnings back into athletics, creating pressure for yet more growth and spending.

Salaries are one example. Eighty-five percent of college presidents in [a] Knight [Foundation] survey labeled football and basketball coaching salaries “excessive.” But the paychecks continue to grow. The universities of Florida and Alabama pay Urban Meyer and Nick Saban $4 million annually, according to USA Today, which maintains a coaching-salary database. The University of Southern California’s Pete Carroll earns $4.4 million.

… Universities are considered charitable organizations because they perform a social good — education. As a reward, they enjoy several tax advantages. For starters, they don’t have to pay corporate income taxes.

… Over the years, the NCAA and other college sports supporters have convinced the Internal Revenue Service that athletics are a genuine part of the educational experience. Yet big college athletic programs also have become more business-minded as their costs have risen. On average, the Congressional Budget Office found that about two-thirds of the athletics revenue at large universities comes from activities such as sales of tickets, TV rights, advertising and merchandise that would be taxed if the schools were ordinary businesses.

… [The University of Texas] received about $11.3 million in Big 12 conference contributions in 2008, according to the database. Nearly all of that money derives from the sale of television rights — income that is taxed in the business world, but not UT’s. That’s because 30 years ago, the IRS ruled that money colleges earn from the sale of broadcast rights is no different than money collected from stadium ticket sales, which has always been tax-free.

“The IRS should have gone after (the TV income) then,” said Richard Kaplan, a law professor who in 1980 wrote a much-cited paper on college athletic income. Since that time, the money the NCAA collects for broadcast rights has skyrocketed. In 2008, it earned $143 million on the men’s basketball tournament alone, the CBO found.

Another benefit educational charities enjoy is tax-deductible contributions from alumni and other benefactors. Often against the IRS’ recommendations, Congress has consistently allowed businesses and individuals to write off their donations to college sports endeavors, helping schools to increase their income stream.

In the mid-1980s, the IRS questioned the cash contributions that universities were requiring fans to pay in order to buy football or basketball tickets. The government argued such donations should not get a tax break, because they were part of the market cost of buying a ticket or a better seat. As entertainment expenses, sports tickets are not tax-deductible.

The decision caused an uproar in Congress, led by then-U.S. Rep. Jake Pickle, a UT alumnus. In 1988, Congress effectively overruled the IRS, passing a special law allowing an 80 percent deduction on the ticket-qualifying donations.

… In 1997, Congress reversed an IRS ruling that corporations could not take tax deductions for naming rights on college athletic facilities. Today, the money schools earn from smaller sponsorship deals, from car dealerships to shoe companies, also is not taxed.

“Historically, any time the IRS has come along and said these revenues are taxable, Congress has taken a sledgehammer and beaten them over the head with it,” Colombo said.

… [M]uch of the money earned by athletic departments pays for expenses — stadium construction and coaching salaries — whose sole purpose is simply to enhance large, revenue-producing sports programs. “I know that there is $32 million at the University of Kentucky that isn’t going toward women’s tennis,” Colombo said. “Because it’s going into John Calipari’s pocket.”

The money made available through tax breaks also has helped maintain an upward spiral in which competing sports programs push each other to spend more, the CBO report said. “The current subsidy to athletic departments may simply encourage an ‘arms race’ between schools, in which universities spend increasing resources on measures of athletic success that, at most, benefit their own institutions at the expense of others.”

Even the money the sports departments return directly to academics in scholarships for student-athletes may not be as generous as it seems, given the end goal — a college degree — proves elusive for many players. Marquette’s Mitten notes the worst graduation rates typically are found among student-athletes in basketball and football — the sports responsible for the most income.

Last year, according to the ESPN database, UT granted about $7 million worth of aid to student-athletes. The school also employs an army of counselors and tutors to help the student-athletes navigate the rigors of a full course load plus the equivalent of a full-time job playing sports.

Despite the help, of the classes that entered the school during 1999-2002, only 49 percent of Longhorn football players earned their degrees within six years, according to the NCAA’s latest figures. The basketball team’s graduation rate was 47 percent; the baseball team’s was 37 percent.

… “When we get to salaries of more than $1 million, we have to start asking how much of a charity an organization really is,” said Sandra Miniutti, vice president of Charity Navigator, which tracks nonprofit spending and earning. “Is it the kind of organization we want our tax exemptions to go to?”…