Penn State to Compensate Sandusky Victims, Erickson Says

Pennsylvania State University plans to settle with victims of the Jerry Sandusky sex-abuse scandal, President Rodney Erickson said.

The university is working with outside lawyers and plans to announce a process that will result in the settlement of “ideally all” of the civil cases so that “victims will not have to be dragged through a long litigation process,” Erickson said in an interview yesterday at Bloomberg LP’s headquarters in New York. The money will come from insurance policies and funds set aside from interest on internal loans, Erickson said.

“We certainly haven’t forgotten about Mr. Sandusky’s victims,” Erickson said. “We want to make sure that we do the right thing in terms of providing a just outcome for them.”

The 157-year-old university has been under intense scrutiny since the November 2011 indictment of Sandusky, a former assistant football coach, for the sexual abuse of 10 boys over a 15-year period. Sandusky was convicted by a jury in June of 45 criminal counts. The scandal and coverup tarnished Penn State’s image, and a university-commissioned investigation concluded that fear of bad publicity and a “culture of reverence” for the football program steered the school’s handling of the allegations.

“It’s been a series of waves we’ve been confronted with,” Erickson, 65, said of the post-Sandusky fallout. “Yes, that happened and yes, we can’t forget that, but it’s about moving on.”

Erickson’s pledge to reach settlements follows the university’s statement after the verdict that it would establish a forum to address victims’ concerns and possible compensation.

October Sentencing

Sandusky’s sentencing, scheduled for Oct. 9, will bring some closure to the victims and the State College, Pennsylvania-based school. The case against Sandusky led to the firings of Erickson’s predecessor, Graham Spanier and late football coach Joe Paterno, who were faulted for failing to act. Paterno died in January.

The university is the subject of investigations by the U.S. Department of Education and the U.S. Attorney in Harrisburg, Pennsylvania. It faces at least three victims’ lawsuits and in July was fined $60 million by the National Collegiate Athletic Association, which stripped the football team of its wins from 1998 through 2011.

Two Penn State officials face trial in January on charges they lied to a grand jury about a 2001 sex-abuse allegation against Sandusky.

The $6.5 million university-commissioned probe by Louis Freeh, a former federal judge and director of the Federal Bureau of Investigation, found that school officials ignored numerous red flags involving Sandusky for more than a decade.

Multiple Cultures

Now, 10 months after Sandusky’s indictment, the school has changed its governance structure, implemented management changes, created more transparency and is about to embark on a search for a new president, Erickson and Board Chairman Karen Peetz said in the interview. It will soon resolve accreditation issues and has no plans to suspend the football program even as it defers capital projects to prepare for a possible decline in revenue, Erickson said.

“There’s no one culture at Penn State,” Erickson said in response to criticism of the football program’s prominence. “You can’t paint Penn State with one brush.”

Penn State’s football team had an operating profit of $43.8 million in fiscal 2011 on $58.9 million in revenue, according to school records. That profit helped fund other teams within the athletic department, which generated $116.1 million in operating revenue and posted a $14.8 million operating profit.

NCAA Sanctions

The team also brings about $70.2 million to state and local businesses each year, according to an economic impact study commissioned by the university for the 2008-2009 school year.

While Penn State avoided a total football shutdown, it was banned from bowl games for four years and lost 20 total scholarships annually for four seasons. The team is ineligible to receive its share of the Big Ten’s bowl revenue during the postseason ban, a total of about $13 million a year. The athletic department is borrowing on an internal loan from the university to pay the NCAA fine.

In 46 years as head coach, Paterno led Penn State to five undefeated seasons, Associated Press national championships in 1982 and 1986, and 409 wins, a record at college football’s top level. The NCAA’s ruling stripped Paterno of 111 victories, including the 2005 Orange Bowl win over Florida State.

Facts Concealed

Paterno, Spanier, Timothy Curley, an athletic director; and Gary Schultz, a former vice president in charge of campus police; knew of allegations against Sandusky dating back to 1998 and concealed critical facts to avoid negative publicity for the school, according to the Freeh report, released in July. Lawyers for Spanier denied the allegations, calling the report a “blundering and indefensible indictment.”

Curley and Schultz face a trial in January on charges they lied to a grand jury about their handling of a 2001 sex-abuse allegation against Sandusky by a former assistant football coach and failed to report the incident.

The school spent almost $17 million through June 30 on the Sandusky crisis, including $1.6 million on legal defense for Schultz, Curley and Spanier, according to the college. Curley took a leave of absence two days after being charged. There’s been no decision on his employment, Erickson said.

Sandusky, 68, spent 31 seasons as a defensive assistant under Paterno before retiring in 1999. Prior to coaching, he was a defensive end on the school’s football team.

During a two-week trial in June, prosecutors portrayed Sandusky as a serial child molester who used Second Mile, the charity he founded, to recruit his victims, befriending them with trips to Penn State football games and money.

Insurance Battle

Many of the incidents allegedly took place in a locker room in the Lasch Football Building on Penn State’s main campus. Some of the victims took the witness stand to recount their dealings with the coach at his home and on campus.

Among the pending lawsuits is a complaint filed by an alleged victim who wasn’t part of the state’s criminal case. Lawyers for other alleged victims have said they planned to sue the university for negligence.

The school is battling one insurer over general liability coverage. The Pennsylvania Manufacturer’s Association Insurance Co., which sued the school in January in state court in Philadelphia, is asking a judge to rule that it isn’t required to pay for coverage of clams and defense costs stemming from Sandusky’s abuse.

Penn State filed its own complaint accusing the insurer of breaching its contract. The school has multiple policies with other insurers from which to draw for a settlement fund, Erickson said yesterday.

Players Transferred

Since Sandusky’s arrest, the school has struggled in its football recruiting, and nine players have transferred since the NCAA sanctions. The team began the 2012 season 0-2 for the first time since 2001, losing to Ohio University and the University of Virginia. The Nittany Lions beat Navy 34-7 on Sept. 15.

Paid freshman acceptances in the state university system are at 16,088, including 8,041 at the main University Park campus, Lisa Powers, a spokeswoman, said in an e-mail. While those figures are about 2 percent above last year’s totals, the college has yet to count its official new enrollment, she said.

The Middle States Commission on Higher Education will rule on the university’s accreditation following a site visit next month, Erickson said. The commission notified the school last month that its accreditation was in jeopardy.

The school is required to file reports on its compliance with accreditation standards by Sept. 30. A ruling will be issued after that date, Erickson said.

“I’m hoping that we’ll have that fully lifted,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE