Sept. 27 (Bloomberg) -- Penn State’s football team, stung by sanctions that will last five years after the Jerry Sandusky child sex-abuse convictions, is off to its worst start since 2006.
Its revenue-generating ability hasn’t slipped at all.
Fans have bought 68,000 season tickets, about the same as last year; the 60 luxury suites at Beaver Stadium are sold out, and donations tied to ticket purchases are projected to reach a record $17.5 million this season, according to the school.
“The NCAA put a cage around us, it’s just a fact,” acting Athletic Director David Joyner, a former Nittany Lions All-America lineman, said in an interview. “What I like to say is when somebody puts a cage around us, you have to become cage fighters. And that’s what we’re doing.”
Following an investigation that showed university officials looked the other way after learning of Sandusky’s child molestation, the National Collegiate Athletic Association banned Penn State from the football postseason and reduced its annual scholarship allotment by 20 for each of the next four years; fined the athletic department $60 million over five years, and wiped out 112 football victories between 1998 and 2011.
Joyner, 62, a physician who also wrestled at Penn State, said the school communicated with alumni and fans, talked with sponsors and held private meetings with key boosters about what it was doing to fix its failures and maintain its 31 sports.
It then put new coach Bill O’Brien on a bus for a three-week, 18-city tour to face the fans and share his rebuilding plans. In Wilkes-Barre, Pennsylvania, 950 people showed up, and Penn State had to close the event. In Richmond, Virginia, 250 attended a 7 a.m. breakfast. Other stops drew 400-500 people, Joyner said.
“We have an extremely passionate alumni group,” Karen Peetz, 57, chairwoman of the State College, Pennsylvania, school’s trustees, said in an interview last week at Bloomberg LP’s headquarters in New York. “This is something people believe in. We think people will dig deep and say now is the time to support the university.”
Penn State’s response so far received high marks along with a warning from Barry Scanlon, president of Witt Associates, a Washington-based crisis management consulting firm.
Scanlon, whose company advised BP on restoring communities hit by the 2010 Gulf Coast oil spill and Virginia Tech after the campus shooting deaths there in April 2007, said Penn State has changed leadership, communicated with fans and alumni and shown humility. Those policies must be maintained, he said.
“You can survive a losing season,” Scanlon said in a telephone interview. “You can’t survive a lost reputation.”
The Nittany Lions generated $116.1 million in revenue in fiscal 2011 and turned a profit of $14.8 million, according to the school’s NCAA revenue and expenses report. Football accounted for $58.9 million in revenue and $43.8 million in profit, which helped support the school’s money-losing sports. The athletic program will borrow as much as $12 million annually each of the next five years to cover the NCAA fine, and the school will expect football to help pay the debt service.
Joyner said contracts as long as 10 years will keep many sponsors in the fold, giving the school time to repair its reputation. The athletic department earned $55.2 million from royalties, licensing, advertisements and sponsorships in the fiscal year ending June 30, 2011, according to school documents. Sandusky was charged in November.
PNC Financial Services Group Inc., based in Pittsburgh, has a year left on an agreement that includes signs and tickets to sports events, and banking services on campus.
“Our relationship extends beyond signage,” said Fred Solomon, PNC’s vice president of external communications. “It includes helping Penn State students bank and develop financial management skills. The incident does not eliminate those needs.”
State Farm Insurance Co., the U.S’s largest automobile insurer, dropped its sponsorship of the football team in July to show support for the victims, spokeswoman Arlene Lester said at the time. The company, which declined to say how much the deal cost, maintained support of men’s basketball at the school and college football overall.
Penn State is 2-2 this season after beating Temple University on Sept. 22 at 107,000-seat Beaver Stadium, where students wore blue to support child sex-abuse victims. The start is the Nittany Lions’ worst since they were 2-2 six years ago.
O’Brien, 42, is in his first head-coaching job. He succeeded Joe Paterno, the late coach who was fired after 46 years because of his lack of action when told that Sandusky had sexually assaulted a boy in the football building’s shower room. Sandusky was convicted on 45 counts of abusing boys over a 15-year period and faces sentencing on Oct. 9.
The University of Southern California and Ohio State University were punished by the NCAA in recent years for athletic rules violations. Both were stripped of football scholarships and banned from postseason play. Both are back in the Top 25 rankings, playing before sellout crowds after appealing to their fan bases and committing to reforms.
“They have an opportunity to rally around the existing team,” Ohio State Athletic Director Gene Smith said of Penn State in a telephone interview. “The first year will be fine, then a question becomes, ‘How’s it go from here?’”
Pat Haden, a former Southern California quarterback who is now athletic director there, said the university faced its scandal straight on. President C.L. Max Nikias announced $123 million in athletics-related capital improvements right when the university was reeling from the sanctions.
“It was a large statement for us,” Haden said. “We were not going to go away and hide and be embarrassed about what happened. We were going to build for the future.”
Penn State President Rodney Erickson said in an interview that he is preparing for a possible revenue drop and the school is delaying capital-improvement projects, like a $13 million football scoreboard replacement. Under the sanctions, Penn State can’t cut back on non-revenue sports to save money.
The athletic department has collected $282 million of a $300 million fundraising campaign and is projected to exceed the goal by the 2014 target date, Joyner said.
“As one of the football players said, ‘The higher the heat, the stronger the steel,’” Joyner said. “The good word is that the base has been very much energized.”
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