AP Exclusive: PAC challenges tax-exempt status of Fiesta, Sugar and Orange Bowls

Opponents of how college football crowns its champion accused three of the nation's premier bowls of violating their tax-exempt status by paying excessive salaries and perks, providing "sweetheart loans" and doing undisclosed lobbying.

Playoff PAC, a political action committee that wants the bowls replaced with a championship playoff system, plans to file a complaint with the Internal Revenue Service on Thursday against the operators of the Fiesta, Sugar and Orange Bowls, three of the five games that constitute the Bowl Championship Series (the others are the Rose Bowl and the BCS title game). The Associated Press obtained a copy of the complaint prior to its filing.

A team of six lawyers and one accountant, working for no compensation, reviewed 2,300 pages of tax returns and public documents associated with all four bowls, said Playoff PAC co-founder Matthew Sanderson. The Pasadena, Calif.-based Rose Bowl was found to be "fairly free of these irregularities," Sanderson said.

The bowls operate as 501(c)3 charities, meaning their operations are tax-exempt and donations they receive are tax-deductible. Such groups may not operate for the benefit of private interests.

Playoff PAC said it found the following in the bowls' tax returns, which are publicly available:

— Paul Hoolahan, CEO of the New Orleans-based Sugar Bowl, received a $645,000 salary in 2009, a nearly $200,000 increase from his 2007 salary.

— John Junker, CEO of the Arizona-based Fiesta Bowl, received a salary of nearly $600,000 from the bowl and related organizations in the fiscal year ending in 2009, a hefty bump from his 2006 salary of $415,000. Also, Junker and the bowl's then-vice president for marketing, Doug Blouin, both received $120,000 worth of zero-interest loans in the early 2000s, and Junker received an additional $4,500 loan whose interest level was not disclosed.

The AP independently confirmed the figures by reviewing the tax returns.

In a statement Wednesday, the Fiesta Bowl called Playoff PAC's allegations "dated, tired and discredited," adding, "The Fiesta Bowl is confident that it has always fully complied with tax laws and rules in its operations and activities."

Sugar Bowl spokesman John Sudsbury said in an e-mail Wednesday that Hoolahan's salary is set by the board of directors after a review that includes input from a professional compensation analyst and a compensation committee. His organization is audited every year by an outside firm and has always complied with IRS regulations, Sudsbury said, and he dismissed the complaint as "rehashed information" routinely trotted out by those against the bowl system.

Playoff PAC argued that the executive salaries are "above market" and "an abuse of their organizations' favorable tax status." The PAC cited a 2009 NonProfit Times survey, which calculated an average chief executive salary of $185,000 at nonprofits with similar operating budgets ($10 million-to-$25 million).

In addition, the PAC noted, top executives at the Rose Bowl and Florida-based Orange Bowl are paid roughly $280,000 and $360,000, respectively, which makes the salaries paid to Hoolahan and Junker seem "extravagant" and "a legally troublesome use of charitable funds."

University of Miami law professor Frances Hill, a specialist in nonprofit tax law who reviewed the complaint at the AP's request, said the loans to the Fiesta Bowl officials could be a serious matter.

"If there are zero-interest loans being given to insiders, that's wrong," Hill said. But even if the IRS takes issue with this, she said, it wouldn't necessarily mean the bowl's tax-exempt status would be revoked; other penalties such as fines are available. Hill added it was difficult to predict what the IRS would do in this case, but that the agency has been more aggressive in recent years in reviewing tax-exempt organizations and in some cases, yanking their status.

The PAC also criticized the bowls for what it called overly generous perks, citing the $750,000 in travel expenses for the Orange Bowl in 2009 and the Sugar Bowl's $200,000 in "gifts and bonuses" in 2008; and "frivolous" use of funds, such as the Orange Bowl spending more than $1 million in entertaining and catering in 2009, and the Fiesta Bowl shelling out nearly $400,000 for its "Fiesta Frolic" golf retreat in 2009.

In an e-mail Wednesday, Orange Bowl spokesman Larry Wahl said, "We run one of the nation's premier college football games in a forthright and honorable manner that is compliant with IRS rules and regulations."

The complaint accuses the Fiesta Bowl of not disclosing lobbying activities. The IRS says that an organization can't qualify for 501(c)(3) status "if a substantial part of its activities" involves lobbying, although some lobbying is allowed.

The PAC noted that the Fiesta Bowl reported paying around $1.2 million in fees over the last five years to lobbying firm Husk Partners Inc., yet in each of the last five tax returns, the bowl checked "no" on whether it engaged in lobbying activities or attempted to influence legislation. In addition, the Fiesta Bowl registered with the Arizona Secretary of State lobbying disclosure system during this period.

Tax-exempt organizations are also forbidden from making campaign donations. Former Rep. J.D. Hayworth listed the Arizona Sports Foundation — the entity for the Fiesta Bowl — as making a $2,000 donation to his legal defense fund, prior to his unsuccessful challenge to Arizona Sen. John McCain in the GOP primary. The PAC said Hayworth was testing the waters for a Senate race, making the contribution suspect.

And the PAC pointed to an Arizona Republic story last year, which reported that several past and present Fiesta Bowl employees said they were encouraged to contribute to friendly politicians and then were reimbursed by the bowl. Such an arrangement, which the Fiesta Bowl denied, would violate state and federal campaign finance laws, as well as the prohibition against charities engaging in electoral politics.

As to whether the complaint, even if successful, will help the PAC's goal of a playoff system, Sanderson argued that "when we raise awareness about these types of irregularities, the need for change becomes more apparent."

The complaint was signed by Sanderson, a lawyer at Caplin & Drysdale who served as campaign finance lawyer for John McCain's 2008 presidential campaign, and two partners at the firm — Marcus Owens, former director of the IRS exempt organizations division, and Joe Birkenstock, a former chief counsel for the Democratic National Committee.