How will Penn State sanctions affect school, community?

Posted: July 24, 2012

With a nearly $4.3 billion operating budget, Pennsylvania State University has the financial capacity to absorb the $60 million fine assessed by the NCAA over five years without devastation, experts say.

And that's even with Penn State president Rodney Erickson's assurances that no tuition or tax dollars would be used to cover the penalty handed down Monday as punishment for the university's failure to act on allegations of child sex abuse by its former assistant football coach.

But the bigger and much more difficult question is how fans and alumni will react to the unprecedented sanctions, including the prohibition on participation in bowl games for the next four years and the loss of scholarships.

Will they stop giving to the university? Will they stop attending games, especially if the team's winning fortune begins to fail? Will they stop buying Penn State sweatshirts and eating the grilled sticky buns made famous by Ye Olde College Diner?

And none of this factors in the additional costs of civil suits against the university, which legal experts estimate could reach $100 million.

The implications, which will take months and even years to fully unfold, could be huge for both Pennsylvania's flagship university and its surrounding business community, whose financial well-being has long been tethered to Penn State.

"This is a tremendous financial hit," said Terry Hartle, senior vice president in the Division of Government and Public Affairs at the American Council on Education (ACE). "It's going to have ripple effects not just on the program but on the university and the State College community."

Whatever the impact, Penn State had to pay a price, said Michael DiBerardinis, deputy Philadelphia mayor for environmental and community resources and a member of Penn State's board of trustees until this spring.

"It all sounds right to me," DiBerardinis said of the sanctions. "It matches the severity of the crimes and of the complacency of the university. The [football] program will still continue to play a big role in the life of the university but a more appropriate one."

Penn State football is one of the university's most profitable programs, bringing in an average of $58 million a year over the last four years and helping to subsidize several other sports, according to the annual reports it submits to the NCAA.

During the 2010-11 school year - before the Sandusky scandal broke - football revenue driven by ticket sales, TV and radio contracts, and conference distributions accounted for about half of total athletic revenues at the university.

The program turned a $44 million profit that year, much of which went to support the budgets of less popular sports.

According to the NCAA reports, football and men's basketball are the only self-sustaining sports programs on the campus.

Under the NCAA penalty, Penn State for each of the next five years must pay $12 million into a special endowment to be used for child-abuse detection, prevention, and treatment programs.

To cover the cost, Penn State plans to use its athletics reserve fund and capital maintenance budget and, if necessary, an "internal bond issue," said spokesman David La Torre.

Before the release of the scathing report by former FBI Director Louis Freeh this month that blamed top university officials for covering up abuse allegations, Penn State seemed to be weathering the onslaught of bad publicity without much impact on its finances. Moody's had downgraded the university's financial outlook because of potential civil suits, but donations and applications remained strong.

Erickson noted at a board of trustees meeting this month that undergraduate applications were about 2 percent ahead of last year. There's no telling how the latest blow from the NCAA will influence choices of potential athletes and students in general.

The university, which boasts the largest dues-paying alumni association in the world, received $208.7 million from alumni and friends in the most recent fiscal year, the second-highest gift total in its history.

Whether that level of giving will continue is uncertain.

"Those are things that we really can't predict," said John Walda, president and CEO of the National Association of College and University Business Officers. "If you look a year to two years down the road, you'll have a pretty good idea of what the impact is on giving and on enrollment."

With a fan base as loyal as Penn State's, some may seek to give more to support the university in its time of need. Others may be angry and stop giving, Walda said.

"I think they need the money now more than ever," said Gerry Curtin, a Havertown native and 1969 Penn State grad now living near Atlanta. "Four or five people up there really screwed up big time, but those people are gone. There's no reason why I should hold against a university what a couple guys thought they could cover up."

Curtin, who called the NCAA sanctions "extremely excessive," said he plans to continue donating to his alma mater. He makes it a point to attend at least one football game in State College each year.

It's also unclear how sponsors and advertisers, such as Nike, will respond to the critical penalties.

"Penn State will be offering a less competitive product," said Hartle, of ACE. Some companies may decide "they don't want to have as many sponsorship arrangements."

The impact on the broader State College community could be even harder to predict.

The Nittany Lions generate about $50 million in annual spending in Centre County, according to a 2009 study commissioned by the school. Home games routinely draw more than 100,000 fans to Beaver Stadium up to eight times a year.

In 2009, the study found, the football program itself spent $13.9 million within the community, while out-of-town visitors paid an average of $34.1 million at area hotels, restaurants, and souvenir shops.

Hours after the NCAA sanctions were announced, merchants along College Avenue and the many downtown side streets maintained a stoic yet stunned silence as they tried to process how the actions would affect their bottom lines.

At the Waffle Shop, a packed breakfast spot on home-game football Saturdays, a woman who answered the phone delivered an emphatic "no comment" when asked about reactions to the sanctions. At McClanahan's, which carries all sorts of Penn State memorabilia along with practical goods, a man who answered there said a statement from management might come Tuesday.

"For now, we're still absorbing what happened," he said.

At the Family Clothesline, a distributor of Penn State clothing and Nittany Lion merchandise since 1985, Caroline Gummo in marketing apologized for declining comment, adding: "Feelings and emotions are very high in this town."

Speaking more freely was Alyson Trombulak, assistant manager at People's Nation, an irreverent T-shirt shop.

"It's going to be detrimental. The upspurt in business that comes with every game will be lacking," said Trombulak, 25, a Penn State alum with a degree in philosophy. On football weekends, the store receives "double to triple the number of customers," she said.

Voicing similar concerns was Katelyn Smith, 19, the manager on duty Monday at Ye Olde College Diner.

Smith said she believes crowd sizes at football games "will be big like they always are. You can't take football tradition and pride out of people's hearts that live in this area."

Calling the NCAA sanctions "overly sanctimonious," Ed McCauley is one alum who intends to do his part to keep Beaver Stadium filled - just as he has done since first becoming a season-ticket holder in 1981 with his wife, Mary, who has since died.

McCauley usually gets four tickets for each home game. That involves an investment of $55 per ticket, a $10 per-game parking fee, and a $400 annual Nittany Lion Club assessment.

"I'm a faithful fan, I'll be going," McCauley assured. "The faithful will be there with their wallets singing 'We Are Penn State.' "

But others will not make the same choice.

"The community, like the university, will expect some tough times, and we can use that as a place from which we can evaluate the importance of sports and academics in university life generally," said Larry Cata Backer, head of Penn State's faculty senate and an international affairs professor.

"We will be serving as an example that hopefully will have repercussions throughout the American university system."


Contact Susan Snyder at 215-854-4693 or ssnyder@phillynews.com, or follow on Twitter @ssnyderinq

Staff writers Jeremy Roebuck and Melissa Dribben contributed to this article.

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