Major Australian professional sports operate as not-for-profits and do not pay income tax, which many people believe is a major misstep by the government.
The Australian Football League (AFL), National Rugby League (NRL) and Cricket Australia are among the organisations which benefit from the current taxation rules.
However, given the mammoth revenues they are generating, there have been increased calls for the Australian government to take action.
Australia has over 600,000 not-for-profit organisations, and around 59,000 were already contributing $43 billion to the national economy 15 years ago. Some of these not-for-profit organisations are classified as charities, but they must meet strict criteria to qualify for that status.
There are over 200,000 entities receiving tax concessions in Australia, but only 61,010 are currently registered as charities.
Under this system, Australian professional sports leagues and clubs receive income tax exemptions under section 50-45 of the Income Tax Assessment Act 1997.
Clubs or associations that promote a sport can be classified as not-for-profit as long as they do not conduct operations to share profits with members.
There is no clear differentiation between amateur and professional sports. Only amateur sports organisations qualify for these tax exemptions in other countries.
The Revenue in Professional Sports is Booming
The AFL generated north of $1bn in revenue last year, recording a profit of $45.4 million. AFL clubs registered earnings from $50.5m to $105.7m.
The NRL also did impressive numbers, hitting a record $744.9m in revenue in 2024. With these big leagues pulling in such massive numbers, critics wonder why they are privy to tax exemptions.
A large chunk of the money seeping into professional sports comes from the betting industry. The AFL and NRL receive $80m combined each year.
Betting companies sponsor half of the clubs in the NRL, while three teams sold their stadium naming rights to companies in the sector. Some AFL clubs are also sponsored by gambling companies.
Many of the sportsbooks listed on comparison platform MyBettingAustralia have forged strong links with major professional sports organisations in Australia.
The relationship has proved to be mutually beneficial, with betting companies gaining new customers on the back of the sponsorship they provide to sports.
However, the link-up has led to perfectly reasonable questions being asked about the not-for-profit status enjoyed by major professional sports in Australia.
The Issue of Unrelated Business Income
Another key taxation issue in Australia is unrelated business income. This refers to a not-for-profit’s revenue from commercial activities unrelated to its core mission.
For many professional sports clubs, a sizeable proportion of their sources of unrelated business income are generated from gambling revenue.
Some AFL clubs have vehemently refused to accept earnings from poker machines. Victorian Club North Melbourne sold its poker machines in 2008. Collingwood and Hawthorn followed suit.
However, Carlton, Essendon, Richmond and St Kilda continue to profit from their poker machines, pocketing $40m collectively in 2022/23.
Meanwhile, licensed venues are another source of unrelated business income. NRL clubs received $9.8m from regional licensed venues in 2021.
Around $7.2m went to grassroots rugby, while the professionals got $2.52m. Metropolitan venues garnered another $29.67m, of which NRL sides received $12m.
One possible solution to the quandary is introducing an Unrelated Business Income Tax (UBIT). This type of tax is levied on not-for-profit organisations for commercial income unrelated to their mission.
Countries such as the United States of America already use UBIT, and Julian Gillard’s government proposed it in 2011. Unfortunately, the plan was postponed in 2013 before being shelved by the Anthony Abbott regime a year later.
Applying UBIT to professional sports leagues and clubs would help to create a fairer regulatory environment. Under this model, revenue related to promoting the sport, such as membership fees and match-day earnings, is still exempt from tax.
However, income from gambling, sponsorships and poker machines would be taxed. This model would differentiate real not-for-profits from professional sports entities accruing massive revenues from commercial operations.
