"People are surprised ... 'You mean there's a place in the tax code for the PGA or the NFL to hide and not pay money?' And the fact is, is yes," Coburn said.
The PGA Tour stands out, he said, "because they're the one that takes the largest advantage" of the tax exemption. The NBA has always been a for-profit corporation, and Major League Baseball ended its nonprofit status in 2007.
Using tournaments to raise money for charity dates to a $10,000 donation made by the Palm Beach Invitational in 1938; running each tournament as a charity became PGA Tour policy in 1979. That charitable structure helps attract sponsors, volunteers and fans, Votaw said.
"It's a means to an end, and the end is to benefit any number of charities that, in turn, help countless lives," he said.
Here's how it works: Take the FedEx St. Jude Classic in Memphis, Tenn. A nonprofit by the name of Youth Programs Inc. was formed in 1960 as a 501(c)(3) organization, which is the same public charity category as your local humane society, cancer research fundraising group, homeless shelter or Boys & Girls Clubs.
On its publicly available IRS form, the purpose of Youth Programs Inc. is to "host an annual professional PGA Tour sports event for the benefit of charitable organizations." In 2011, it made $15.3 million, about 89 percent of that from the golf tournament. It spent $15.3 million, which included about $6 million in prize money for the golfers and $5 million in TV promotion. It spent close to $1 million on tournament production and $500,000 on food and beverages, most likely at a discount, because Youth Programs is also exempt from paying sales tax in Tennessee.
The amount actually spent on charity -- the money given to St. Jude's -- was $1.5 million, or 10 percent of tournament expenses. Only $253,742 of that was actual cash to the research hospital. The rest went to St. Jude ads aired during the televised tournament, pro-am entry fees and air travel for celebrities.
Youth Programs Inc. president Jack Sammons declined a request for an interview.
Twenty-five of the tournaments on the primary PGA Tour circuit are arranged as 501(c)(3) public charities or private foundations, although not all of them account for tournament expenses in the same way. (The rest are either not run by a nonprofit, take place outside the United States or are run directly by the PGA Tour.) IRS rules loosely dictate how the money raised has to be spent, but charity watchdog groups have set standards to determine what a responsible charity is, and Charity Navigator says -- at a minimum -- 65 percent of the money raised should be spent on providing actual charity.
The 501(c)(3) tournaments average about 16 percent. Only one -- the AT&T Pebble Beach National Pro-Am -- run by the Monterey Peninsula Foundation, exceeded the standard. It's a private charitable foundation and it spent about 79 percent of its money on grants to various charities.