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The Impact of a Possible Death Penalty

by and on July 20, 2012 11:16 AM

Penn State has more to worry about than just the NCAA and whether it will shut down the football program.

The U.S. Department of Education is looking into possible Clery Act violations, which can be punishable up to $27,500 per violation. More than a steep fine, however, is the potential for denying Penn State all federal aid, a threat that could force the university’s hand to take action on its own football program.

To that end, the Department of Education has never taken away federal aid. The biggest Clery Act-induced fine is the $357,000 fine Eastern Michigan University was slapped with in 2007 after covering up a student murder, said Alison Kiss, executive director of the Clery Center for Security on Campus.

But that was a singular incident with other unreported crimes tacked on over a three-year period. Penn State is being investigated for several child rapes that occurred on its campus over the course of more than a decade. Federal investigators put Penn State on notice days after Jerry Sandusky was arrested on a litany of child molestation charges, requesting crime log data reported to any campus security authority from 1998 to 2011.

Penn State and the Department of Education have repeatedly declined comment on the ongoing investigation.

The NCAA should receive Penn State’s response to its letter of inquiry from Nov. 18 within a few weeks or less. It would seem unlikely the NCAA would impose any sanctions until legal matters are resolved in the perjury cases against former top university officials Tim Curley and Gary Schultz.

Penn State, however, could take preemptive measures and self-impose sanctions as soon as the 2012 season.

But what impact would egregious action -- be it federal or by the governing body of college athletics -- have against the university?

What would any action mean to the local economy in State College, the Penn State athletic department and even the millions of Pennsylvania residents?

Beyond State College

In 2008, Penn State commissioned Tripp Umbach to conduct an economic impact study that found the university to be the single-largest contributor to the state’s economy, generating more than $17 billion annually in overall economic impact.

Additionally, the university generates $8.48 billion annually in net economic impact to the state of Pennsylvania and supports more than 67,000 jobs, according to the report.

To put that in perspective, according to similar studies Ohio State generated $5.7 billion in net economic impact, and Alabama generated $2.6. billion.

By 2013, the total direct and indirect economic impact of Penn State is expected to approach $10 billion, and total employment attributable to Penn State is projected to reach 75,000, according to the study.

Further yet, the report also estimated that the university also generated $646.8 million in tax revenue for the state Pennsylvania in 2008.

“The economic impact of Pennsylvania State University’s operations and employment is only the first chapter in a powerful economic story that affects every community within the Commonwealth,” the report reads.

To wit, Pennsylvania -- already facing immense budget issues and an aging population -- needs Penn State.

Impact on Varsity Sports

Before we eulogize Penn State athletics if the so-called death penalty is implemented on the football program, it remains to be seen how big an impact shutting it down for a year will have on University Park athletics.

One athletics source said the 28 other varsity sports Penn State fields would face no threat of having to be placed on the chopping block.

Of course, varsity sports are only one piece of the athletics pie and do not include athletics programs at commonwealth campuses, intramurals, club sports, etc., And with other expenses such as travel, scholarship money and equipment, there’s more than enough room for casualties.

But here’s what matters when it comes to the big picture.

USA TODAY Sports' annual analysis of college athletics finances shows Penn State is one of only 22 Division I schools whose athletic department operates in the black. The number of athletic departments that are entirely self-sustaining is even lower. Naturally, Penn State is one; in the past it received no money from the university’s general budget, which was something to boast about before the scandal hit Nov. 5 and boasting became moot.

Comparatively, Alabama, a school with as big a football pedigree and profits as Penn State, received $5.2 million in subsidies from its university, according to USA Today. It should be noted, its athletic department contributed $6.5 million to academic programs last year, according to Forbes.

Let’s crunch some numbers that PSU associate athletic director of finance Rick Kaluza submitted to the Department of Education as part of the school’s mandatory Title IX compliance; the numbers are for fiscal year July 1, 2010 to June 30, 2011.

In that time period, Penn State spent nearly $84.5 million on athletics and brought in a bit more than $116 million for a net profit of $31.6 million.

To put that in perspective, Ohio State, another fully self-supportive athletic department, which offers 36 varsity sports, spent $113.1 million and brought in $131.8 million for a net profit of $18.6 million.

Penn State football expenses in 2010-11 were $19.5 million, while its revenue was $72.7 million -- a net profit of $53.2 million.

Without football, expenses were nearly $65 million and revenue was $43.4 million for a net loss of $21.6 million.

In other words, Penn State needs to find about $21-22 million in additional revenue in order to break even, not including unforeseen expenses of the last year. Those bills would not include severance packages for the assistant football coaches not retained under first-year coach Bill O’Brien, money for Joe Paterno’s retirement package and memorial service, and bowl revenue donated to child sex abuse charitable efforts.

To help foot the bill, teams can face reality for a year and endure spending cuts to their programs.

And at last count in January, Penn State had about $17 million left in its athletics reserve fund, which acting athletic director Dave Joyner coined as the department’s “savings account for a rainy day.” Penn State had already dipped into its athletics reserve fund for severance packages for the seven assistant coaches who lost their job.

One likely scenario would be for Penn State to reach into its general fund or its $1.7 billion endowment in order to keep the athletic department churning and avoid the public embarrassment of having to cut sports just for the sake of keeping the athletic department separate from the university.

If revenue numbers hold — or even slightly dip — once Penn State returned to the field, it makes up for that lost football season within a year and the sky turns a shade of Nittany Lion blue.

The only unknown would be whether Penn State football would come close to matching that net profit postmortem.

Impact on Local Business

Mark Morath is president of Hospitality Asset Management, Inc., which owns seven hotels in the area. He said hotel bookings for football season at Penn State is akin to property rentals on the East Coast shoreline during the summer.

Morath said the guaranteed occupancies means the hotels can increase rates during football season, as well.

The only other weekend that happens in State College is during spring graduation, though Morath said non-football weekends draw crowds, too, including tour groups and wedding parties.

“We have 14 nights where we are fairly assured of having a full house,” Morath said. “The occupancies are generally 100 percent.”

Losing even one season of Penn State football would be huge for the borough of State College, said George Arnold, director of the Downtown Improvement District.

“There’s no doubt about it. On football weekends, there are 90,000, 100,000 additional people coming into the downtown,” Arnold said. “If those people aren’t here, it will certainly have a negative impact on businesses.”

Local business owners budget for football season and anticipate it, year-to-year, knowing it will help their boutique, restaurant or store.

Arnold said many business owners are just operating “30 days at a time,” not knowing what the next month holds. News of potential sanctions by the NCAA broke just weeks ago.

“Football season is so big that it’s something businesses have come to depend on,” Arnold said.

“Like it or not, summers are light for business. Football season gives them that extra boost, it puts them in the black.”

Arnold said the loss of a football season would be devastating – if not the death knell itself for some businesses.

“It is a shame that the actions of a few individuals will potentially come to bear upon other aspects of the university and the local community,” he said.



Nate Mink covers Penn State football and news for StateCollege.com. He's on Twitter as @MinkNate.


Laura Nichols is a StateCollege.com news reporter and @LC_Nichols on Twitter.
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