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Penn State Football: The Business of Keeping Bill O’Brien

by on January 06, 2013 6:00 PM

Monday marks the start of the 2013 spring semester at Penn State. And as such, it is the first day of the “Introduction to the Sports Industry” course that I teach on the University Park campus.

At 1:20 p.m. inside Carnegie Building – paid for by steely Andrew Carnegie, the shalely Terry Pegula of his day -- all 101 of us will be talking about Bill O’Brien.

The past week is an abject lesson for us all. College football is a business. A big business. No surprise, there. For all the talk of transparency, putting a coach on a pedestal and a specific culture, this much is true: For now, for the massive behemoth that is Penn State athletics and what it pays for, O’Brien was going to get what he wanted. The dollars made it make sense.

And, a very smart man, O’Brien knew it. He played it perfectly.

Was O’Brien going to leave Penn State? Only he, his wife Colleen and his agent really know for sure. As it was, although O’Brien interviewed with the Philadelphia Eagles and at least talked with the Cleveland Browns (interestingly, where Jerry Sandusky’s adopted son, Jon, is director of player personnel), he was never offered a job. That’s in direct contrast to O’Brien BFF Doug Marrone, who was hired Sunday as the new coach of the Buffalo Bills after a three-season, 25-25 stint at Syracuse.

Marrone was clearly NFL-bent. I would like to think, at least, that O’Brien would not have really left after one season at Penn State, after preaching loyalty to his players and trumpeting it to all the Nittany Nation – and America. (Although he certainly talked with some NFL teams about it.)

For the purists, a departure by O’Brien had the potential to be a good thing.

It might have proven that Penn State is not bigger than any one person, that football is not the weighty giant that runs University Park and Old Main and the athletic director. It might have kept Penn State from falling into a trap that others say was already a morass at PSU. It might have said that, yes, we’re a great university for what happens in the classroom, with our students, our researchers, our alumni.

Of course, who’s to say that Penn State football would be all that lousy under the next man up? They said Joe Paterno couldn’t be replaced. He was. No doubt, O’Brien did a great job last season and certainly faces a much tougher task in the coming years. He seems up to the challenge. There’s a decent chance his successor would not be -- or will not be; who says OB’s water-testing won’t be an annual thing?

But as a business decision for Penn State, it was too risky to find out.

O’Brien held almost all of the cards. If he left, labor (players) might quit. The product could suffer. The PR damage could be brutal. The brand could be sullied even more. Sales could continue to drop. And the very real human collateral damage would have been too high. That’s because these days, Penn State is strapped for cash. No OB could have certainly impacted the PSU P&L.

Just two years ago Penn State football generated a profit of $53.2 million. That’s real cash money. PSU’s mom-and-JoePa business made a profit of 73 cents on every dollar it took in, in part because the program was run on a threadbare budget by a cost-conscious Paterno, who by example turned down a raise during a 2009 Penn State pay freeze.

That was then, this is now. Thanks to the Sandusky scandal and its ongoing fall-out, and according to U.S. Department of Education data, July 1, 2011 to June 30, 2012 was first of what are sure to be crappy years for the industry called Penn State athletics and its only real profitable product line, college football.

Over the past year at Penn State, football revenues have fallen $6.5 million, and profits have dropped by $17 million -- the controversial STEP seat license plan had something to do with that, too. Athletic department revenues have dropped $8 million, and profits have dipped by $17.6 million. (Complete numbers since 2006-07 are posted at the end.)

Had O’Brien gone to the NFL, his departure certainly would have eroded that bottom line even more, if only on the short term. And tens of thousands of Penn Staters would have picked up the tab. It is a price that would have been paid by all 31 varsity sports, 78 club teams, tens of thousands of students playing IMs, the athletic programs at the Commonwealth campuses, and everyone who swims, golfs and works out on the Penn State campuses. Right now, Penn State students pay $394 per year in activity and facility fees. That could easily double.

As it is, Gov. Corbett is right about at least one thing – the scandal has been bad for business, according to downtown State College businesspeople with whom I have talked. And it is a big business. According to a study by Tripp Umbach and commissioned by Penn State, “with a business volume impact in 2009 of $161.5 million on the state, the annual operations of Penn State Football have a truly substantial economic impact on the state, but also on the county.”

Certainly the STEP football seat licensing program has hurt Beaver Stadium attendance – but, as athletics officials expected, upped revenues. And yes, Penn State still finished fifth in average home attendance in 2012. But since 2007 there has a precipitous slide, with core product sales down 11.18%. O’Brien certainly knows the following Beaver Stadium attendance numbers, from NCAA.org:

2007 – 108,917 ave., 101.52% of capacity, second in the nation

2008 – 108,824 ave., 100.91%, second

2009 – 107,008 ave., 99.74%, second

2010 – 104,234 ave., 97.16%, third

2011 – 101,427 ave., 95.7%, fifth

2012 – 96,730 ave., 90.16%, fifth

Penn State has reacted by lowering some seat licensing rates and looking for multi-year sales, to wit: On Oct. 3 last year, with Nittany Lion football owning a 3-2 record a few days before Homecoming, PSU athletics and the Nittany Lion Club rolled out a new program. Called “One Team Commitment, (it is) a first-time, 5-Year commitment for NLC membership…”

A five-year loyalty commitment is asking a lot. But commitment is the watchword of the day. For O’Brien, for Penn State.

Penn State has now reacted by convincing Bill O’Brien to stay. Or, perhaps more accurately, Penn State reacted by O’Brien convincing PSU it couldn’t afford not to.

==============

PENN STATE’S P&L SINCE 2006-07

(Dollars are in millions; sources: BusinessofCollegeSports.com and U.S. Department of Education.)

FY 2011-2012: Football -- $66.2 revenue, $30.2 expenses, $36 net income (54%). Athletic Dept. -- $108.2 revenue, $94.2 expenses, $14 net income (does not include $13.2 in debt service).

FY 2010-2011: Football -- $72.7 revenue, $19.5 expenses, $53.2 net income (73%). Athletic Dept. -- $116 revenue, $84.5 expenses, $31.6 net income (does not include $34.6 in debt service and capital expenditures).

FY 2009-2010: Football -- $70.2 revenue, $19.8 expenses, $50.4 net income (72%). Athletic Dept. -- $106.6 revenue, $80.2 expenses, $24.4 net income.

FY 2008-2009: Football -- $61.8 revenue, $19.1 expenses, $42.6 net income (69%). Athletic Dept. -- $96 revenue, $76.5 expenses, $19.5 net income.

FY 2007-2008: Football -- $53.8 revenue, $16.5 expenses, $37.2 net income (69%). Athletic Dept – revenue $91.6, $79.2 expenses, $12.3 net income.

FY 2006-2007: Football -- $44 revenue, $14.6 expenses, $29.4 net income (67%). Athletic Dept. -- $76.3 revenue, $72 expenses, $4.3 net income.



Mike Poorman has covered Penn State football since 1979. He is a senior lecturer in Penn State's College of Communications and teaches a pair of classes in the John Curley Center for Sports Journalism: “Sports Writing” and “Introduction to the Sports Industry.” He created and taught for several years the Center’s course on “Joe Paterno, Communications and The Media.” Follow him on Twitter at http://twitter.com/PSUPoorman. His views and opinions do not necessarily reflect those of Penn State University.
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