Rigging the game

Posted on October 23, 2012 by bvanrysdam

When you think of non-profits organizations, names like The United Way, The American Red Cross and the Susan B. Komen Foundation come to mind. What might surprise you is that the National Football League is also classified as a non-profit and are given tax-exempt status. How is this possible you ask?

The IRS describes 501(c) (6) tax-exempt status this way…

Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

As you can see, the law only includes “Professional Football Leagues” which leaves Major League Baseball, The National Basketball Association and others sitting on the sidelines. So why did Washington agree to provide preferential treatment to the NFL?

It all goes back to the hey-days of the NFL/AFL Merger. Back in 1966, then NFL Commissioner Pete Rozelle was lobbying to obtain an antitrust exemption for the merger. The antitrust and tax exemptions were put into an undisputed bill and very few people noticed or complained at the time.

That was then, this is now. The NFL is starting to face pressure about their non-profit status, and the worst part for the NFL owners? It’s coming from a Republican Senator. Senator Tom Coburn who represents Oklahoma thinks the government is getting a “Raw Deal” and wants that to change.

A spokesman for the NFL said the league office itself “is classified as a not-for-profit under the tax code because the league office makes no profit.” He said the teams make the profits and they are taxed. This is true, but what he does not mention is that NFL owners don’t pay taxes on the “dues” they pay to belong to the league (an estimated $6 million dollars a year).

Their non-profit status also means they can skip out on paying other taxes because state and local governments usually exempt these organizations from state income and sales tax as well. This was a nice little bonus when the Super Bowl was recently held in Indianapolis because hotels and restaurants did not tax National Football League employees.

And guess what? The NFL actually loses money in a way that would make Enron proud. The NFL paid 8 of its top executives around $53 million dollars in 2009. It would seem the NFL goes out of its way to lose money so they can retain its non-profit status and allow the individual teams to be more profitable.

Now how much additional tax money governments are losing out on is open to debate; it may be a little, or it may be a lot. But when Washington continues to dance on the brink of default and gentle creatures such as Big Bird could be on the chopping block; the government might want to head into the instant replay booth to see if they need to over-turn the ruling on the field and change the 501(c) (6) tax-exempt status law.

Throwing Out The User Experience

Posted on October 23, 2012 by bvanrysdam

The battle for your ears has taken an interesting twist. Traditional over the air broadcasters and internet radio companies are duking it out over something called the “Internet Radio Fairness Act”. This bill, introduced in both the House and the Senate, tries to level the playing field and put the fees internet radio pays for music at the same rate as other digital music providers. Last year, according to Pandora, it paid roughly 50 percent of its total revenue in royalties, more than six times the percentage paid by satellite radio provider Sirius-XM.

“On the surface, the rates paid by PANDORA and other online radio services appear onerous and in need of congressional relief” wrote Richard Greenfield, a media analyst for BTIG. “However, the reason why companies such as PANDORA pay such high royalty rates as a percentage of revenues is because they severely limit audio advertising to protect the user experience and keep people on the platform.”

So their answer is to have Pandora run more advertisements to make up for the revenue (God forbid anyone should “protect the user experience”). A recent radio study by ALAN BURNS AND ASSOCIATES and TRITON DIGITAL showed that radio is less strongly bonded to listeners under 35 because younger listeners want music control and fewer commercials. The response by BTIG brings to mind the infamous quip; “let them eat cake!”

Radio will point to studies showing how many people listen to them during the week, and that number is very impressive, but Internet Radio also has a compelling story to tell. Pandora reported that, in September of 2012, it showed an increase of 67% from 687 million to 1.15 billion of listening hours during the same period last year.

Another point Greenfield raised in his report was “why should the U.S. government allow musicians to be harmed simply to help PANDORA and its investors generate enhanced returns?” It’s an interesting argument because it is the same one used by the radio industry. Many radio executives feel they should pay smaller royalties to musicians because they help promote artists and sell records. Both points of view have merit, but you can’t play both sides.

If radio were smart (and there are many smart people working in radio), they would develop new ways to advertise that continue to produce a healthy profit while enhancing; not hurting its user experience instead of trying to thwart companies like Pandora. Product placement type ads, shorter commercial breaks and smoother insertion of advertisements could all lead to increased listening among younger demos which would result in higher revenues.

Will anyone in radio willing to take the chance, or will they end up listening to Wall Street instead of Main Street.

Roll Up For the Magical Mystery Tour

Posted on October 2, 2012 by bvanrysdam

Beatlemania is trying to remain alive and well with an upcoming re-release of the film, The Magical Mystery Tour. The Beatles had just released the highly acclaimed Sgt. Pepper’s Lonely Hearts Club Band when Paul McCartney came up with an idea to make a film based upon The Beatles and their music.

The film was to be unscripted and feature various “ordinary” people who traveled along with the band in a coach (or what us Yanks call a bus). The story highlighted the travelers who had unspecified “magical” adventures along the way and introduced us to six new Beatles songs (“Magical Mystery Tour”, “The Fool on the Hill”, “I am the Walrus” “Flying”, “Blue Jay Way” and “Your Mother Should Know”) .

The movie was shot in color, but was broadcast in black and white on BBC-TV over the 1967 Christmas holidays and was immediately ripped by the critics. The original Rolling Stone review of the movie was comprised by a one-sentence quote from John Lennon: “There are only about 100 people in the world who understand our music.” The album reached #1 on the US charts, but was only able to reach 31^st on the British charts. The soundtrack was better received than the film winning a Grammy Award for best album in 1968.

The film never was distributed in the US and saw limited distribution around the world. Now it’s being restored and released onto DVD and Blu-Ray on October 9. Apple will also have screenings of the 53-minute film for the first time ever on the big screen in the U.S. and around the world. You’ll be able find screening locations and times at www.thebeatles.com.