PSU scandal likely to cost hundreds of millions
Last year, when Penn State Athletics generated $116 million in revenue, the football program accounted for $73 million, or 62 percent.
Nittany Lion football is one of the most profitable college sports programs in the country, across all sports. With the sexual-abuse scandal tearing through the ranks of the football staff, the university surely will see some impact on this extraordinary moneymaker. But with the scandal spreading into the administration, and the details so readily available to the public, PSU faces other potentially significant direct costs and lost revenue:
- Legal liability: Victim settlements easily will reach into the tens of millions, approaching or exceeding $100 million, depending on the number of victims and the details that come forward through legal proceedings.
- Legal defense: The university will incur legal fees through criminal and civil court matters. It is also paying for the legal defense of Senior Vice President Gary Schultz and Athletic Director Tim Curley. Those fees could mount if other PSU employees are charged.
- Fundraising: The backlash of upset alumni and fans will hurt PSU in two ways: The Nittany Lion Club, the booster organization for PSU athletics, raised $27 million in 2009 and is critical to the success of the entire athletic program. The greater cost, though, likely will be to capital fundraising. Joe Paterno was named the honorary chairman of the current $2 billion capital campaign and has been a key fundraiser in previous campaigns, but will probably never act on the behalf of the university again. Every 1 percent shortfall in that campaign would cost $20 million.
- Sponsorships and brand value: Companies might decide they no longer want to be associated with PSU or the football program, similar to the reactions after the Tiger Woods allegations. The brand has been tarnished — not only by the actions of the football staff, but by administrators, as well as students who rioted after Paterno’s firing. To some people, merchandise might not be as attractive as it used to be this holiday season.
Taking shares of all of the above costs, the total probably exceeds $200 million.
Regardless of your interest in college football or PSU, the scandal’s costs might matter if you’re a Pennsylvania taxpayer. The university’s 2011-12 operating budget includes a $270 million appropriation from the state. Unfortunately, PSU is exempt from most reporting requirements of the Right To Know law. While we might not ever know the true cost of the scandal, let's hope it's enough to make sure other universities would never make the same tragic mistakes.
Bill Sayer is a financial analyst in the insurance industry and holds a degree in economics. A native of Upstate New York, Bill enjoys watching college football, the NFL, NHL, and Premier League soccer from his home in Palmyra. Have a suggestion, link, or question?