True costs to Penn State to be determined

July, 23, 2012
7/23/12
3:45
PM ET
The financial penalties levied against Penn State on Monday morning are clear, but the true cost to the university and football program won’t be known for some time.

The NCAA penalized the school $60 million, among other sanctions. The Big Ten followed suit by announcing that it will donate Penn State’s portion of conference bowl revenue over the next four years to charity, which amounts to a projected $13 million.

Penn State logo
On an annual basis, the school looks to lose about $15 million over the periods laid out in the NCAA (five years) and Big Ten penalties (four years). While that is a big number, it’s a number Penn State can absorb if the past is any indicator.

The athletic department had a surplus of $31.6 million in 2010-11, according to Penn State’s financial report filed with the Department of Education. For 2009-10, a surplus of $26.4 million was tallied; it was $19.5 million in 2008-09. Penn State is not subject to public disclosure laws with regards to its athletic department finances, so it’s tough to estimate how much the department has in reserve to assist in paying the penalty.

What we do know is that these reports often do not take into account capital debt service. In supplemental information provided to the Department of Education on Penn State’s 2010-11 report, the university listed $19.6 million in debt service and $15 million in capital expenditures not included in total expenses. It’s unknown if there was any revenue not included in the report, but schools often have to leave out auxiliary revenue such as that generated by a golf course because of reporting guidelines.

The Big 10 penalty is significant – and a first for the conference – but Penn State should still clear $20 million annually from conference distributions, despite the four-year hit it faces. (Last year, Penn State received approximately $24.6 million from the conference.)

But more important than conference distributions to an athletic department like Penn State are donations, the majority of which are tied to football tickets and suites. And that just might be the biggest unknown facing the university.

Penn State’s specific numbers are unavailable, but a look at comparable programs shows just how much of those contributions are attributable to football.

Ohio State attributed 86 percent of its total contributions in 2010-11 to football. For Michigan it was 80 percent. Other schools saw even higher totals, like Florida, which had 94 percent of its contributions come in through football.

“There will still be some concern about supporting the program,” said Harvey Schiller, commissioner of the Southeastern Conference from 1986-90. “People are going to ask questions, they’re going to ask, ‘How are you going to put us in a position to win in the next four to five years?’ It’ll be up to the incumbent athletic department to put a plan together so they have a rebuilding plan for the future.”

That being said, Schiller doesn’t think donors will abandon the athletic program at Penn State wholesale.

He believes about 50 percent of donors will rally around the program: “My experience in the SEC was someone like Alabama could do no wrong. As I would travel around, the anger these [booster] clubs would have against the NCAA for sanctions was unbelievable. It’s in their nature and their DNA.”

Jeff Schemmel, former athletic director at San Diego State University, agrees with Schiller.

“How Penn State handles its next steps from a donor perspective will be critical,” he said. “There’s clearly strong support for Penn State athletics and Penn State football and many of those people will remain on board. I think 50 percent would be a conservative number.”

Schools that have received sanctions have had varied impacts on their finances. USC, which received a bowl ban for the 2010 and 2011 seasons and lost 30 scholarships over three years, took a hit but quickly recovered. In 2008-09, football produced revenue of more than $35.2 million, and the athletic department posted revenue of more than $80.2 million, according to reports filed by the athletic department with the Department of Education. Football saw a sharp decline in 2009-10 to $29 million, which caused total athletic department revenue to fall to $75.7 million. However, football revenue rebounded some in 2010-11 to $31.1 million, the first year of the bowl ban.

Alabama had a bowl ban for the 2002 and 2003 seasons and a 21 scholarship reduction over three years. The financial result? The athletic department saw no decline in total athletic department revenue following its two-year bowl ban.

There’s reason to believe those around Penn State will rally around the program, as Schiller suggested.

Amid the Jerry Sandusky child sex abuse allegations last year, the university posted its second-highest level of donations in its history with more than $208 million in contributions. The only year that number was higher was in 2010 when the university received an $88 million gift to upgrade the hockey program to Division I and build a new arena.

Kristi Dosh

Sports Business
Dosh covers sports business for ESPN. She is an attorney, founder of BusinessOfCollegeSports.com, and joined ESPN in October 2011.
Author of "Saturday Millionaires: How winning football builds winning colleges."

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