Penn State penalty hits business’s bottom line

The sun sets behind Beaver Stadium on July 22, 2012 in State College, Pa. The NCAA fined Penn State $60 million and imposed other penalties today that will have economic ripple effects in State College, Pa., for years.

Tess Vigeland: The NCAA fined Penn State University $60 million today. The money part of the penalty for what the NCAA chief Mark Emmert called the "tragically unnecessary" child molestation scandal involving one of the school's coaches, Jerry Sandusky. Beyond that, the college sports governing body voided the team's victories for the past 14 seasons and banned it from post-season bowl games for four years.

Beyond the big fine and the serious damage to the university's reputation, the financial impact is expected to ripple across the area's economy for years. Here's our senior business correspondent Bob Moon.

Bob Moon: Don't tell the people who live in and around State College, Pa., that it's "only a game." Penn State football is a key part of their livelihoods. Last year, average attendance was more than 104,000. When those people flock to home games six or seven weekends each fall, they also pack restaurants and stores. Hotel rooms can go for $300 to $400 a night.  

Which explains why Betsey Howell is grateful the football program wasn't suspended outright. She heads the Central Pennsylvania Visitors and Convention Bureau.

Betsey Howell: I think this is a harsh penalty, but it could have been worse, had they taken away their opportunity to even play at all.

How much would that have cost the local economy? By one estimate, the football program generates more than $160 million in business every year. That might be easier to make up if the team were located in Los Angeles or Chicago.

But at the University of Chicago, sports economist Allen Sanderson says it's not so easy in a small town. Now the games can go on, though, loyal fans and alumni could, at least initially, help soften the blow.

Allen Sanderson: If 80,000 fans show up instead of 100, and you're still employing about the same amount of workers inside the stadium and contiguous to it -- hotels, restaurants -- it's not like nobody's going to go to the games.

Sanderson still worries that four long years of reduced scholarships and weakened recruiting efforts could yet end up being bad for business.

Sanderson: One has to admit straight up that Penn State won't be as competitive on the field for several years -- many years. Are people willing to come to watch a, you know, I don't want to say inferior product, but a less stellar product than they have in the past?

Sanderson says the program could end up with a kind of death penalty -- death by a thousand cuts.

I'm Bob Moon for Marketplace.

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Great way to expose the total lie that is the "student athelete". College sports is a profit-making enterprise, pure and simple.

Penn State should use this opportunity to pioneer a new model: spin off the athletic department completely and license the logo, etc to the new "company" just like any other dealer. The "company" would be responsible for any funding of atheletes and any related ethics violations, allowing the university to concentrate on its core mission: education. The company would be responsible for paying dividends to the shareholders -- including the university -- and facilities upkeep for the "entertainment" buildings.

The whole "scholarship" farce would be off the table as well -- athletic scholarships become clearly what they are: payments in kind to students to generate revenue for the university indirectly via the athletic department. Downside of this, of course, is that it would make the money flow visible -- and probably taxable -- unless the "company" bought positions in classes for their employees at a market rate and then gave them to the "student/employee".

C'mon Penn State, use this as a real moment for change. The 800 lb gorilla is now visible; don't let it go back and hide behind the drapes again.


Perhaps rephrase this? Penalty= 1 year's "profits" on the program. Officials (who were part of NCAA core management) get no hit. Dead person get's statute torn down.

Which is worse? Continued coverup of child molestation or "a recruiting violation"? - if SMU gets the "death penalty" - then how is it that truly criminal behavior gets "brushed over"... yeah.. $60M is a lot.. Almost 1/2 the salary of a good NFL QB, isn't it?

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