Penn State NCAA Sanctions: What Is The Impact On Non-Revenue Sports?

It's hard to even discuss what the Penn State scandal without first acknowledging the point that Oregon Ducks football coach Chip Kelley made when asked about the matter yesterday: "I didn't look at anything that's gone on at Penn State as a college football person or a college football fan. I just looked at it as a tragedy. I don't think it's a football thing...What resonates with me is the heinous crime that went on that affected kids."

However, that doesn't make the matter of determining an appropriate punishment for the crimes committed by various members of the institution any easier - in being a messy situation that extends beyond football the consequences were bound to extend beyond football as well. But, as Tim Kawakami of the San Jose Mercury News wrote after the decision was announced on Monday, "...somebody had to do something and the new Penn State leaders and the NCAA decided they had a common path to walk. Nobody was going to win this, they just had to get through it."

While there's a lot of merit to Kawakami's argument that the penalty was "swift, harsh, mostly reasonable", there are varying opinions on whether the punishment was fair with some saying it went too far and others thinking that no punishment would ever adequately fit the crimes committed.

Regardless of what we feel about the crimes committed or the consequences, as PSU women's basketball coach Coquese Washington said, the agreed upon sanctions mean that Nittany Lions athletics, "...still have an opportunity to operate." And we found out yesterday that the punishment PSU accepted was more lenient than the alternative: receiving a four-year death penalty.

With some people wondering how PSU's athletic department would survive a $60 million fine, why exactly was a coach of a non-revenue sport "relieved" that PSU got the punishment they did instead of the death penalty?

A quick look at the facts reported thus far might help clarify some things for people - including women's basketball fans - concerned about the impact on non-revenue sports.

Links about the consequences of the NCAA's sanctions on Penn State

• First, and most important to the discussion of non-revenue sports, is that the NCAA specifically prohibited making cuts in other sports in order to make up for losses due to the sanctions, according to Rachel Cohen of the AP.
• Nevertheless, there might be some questions about what specific types of cuts will be prohibited: Stuart London of PhillyBurbs.com suggested that, "...assistant coaches in some sports probably will have to be let go. Recruiting budgets will be slashed, travel budgets curtailed, scholarship money taken away." While it's difficult to imagine assistant coaching positions or scholarships fitting within the parameters of what they're allowed to cut, it will be interesting to know what cuts are allowed.
  
• Alicia Jessop of Forbes Magazine suggested on Monday that another indirect consequence of the sanctions could be that, "Penn State may choose to forgo or delay any planned renovations to its athletic facilities in coming years. Such renovations could include stadium expansions. While it does not appear that Penn State currently is working on any major renovations to its athletic facilities, the possibility exists that expansions and renovations may be necessary."
• The question of those ancillary repercussions of the sanctions has naturally led the people to wonder about how this might affect recruiting across programs - little things like amenities or how facilities compare to other comparable schools in various sports could in theory influence prospect decision making. However, while Washington has experienced no negative feedback from her recruits, Jeff Goodman of CBS Sports reports that PSU men's basketball coach Patrick Chambers acknowledged that, "...this will make recruiting more difficult."
• And similar to Chambers, Gary Parrish of CBS Sports reports that Baylor men's basketball coach Larry Drew, who took over after a scandal there, found out that "...it's difficult to recruit to a ruined brand even if the damage done wasn't your fault." Although the men's and women's basketball programs at PSU appear to be going in opposite directions - and let's not forget that men's basketball does generate more revenue than its expenses - it's worth noting that the hit the school's "brand" has taken in addition to whatever indirect fiscal fallout there is could affect their ability to recruit.
  
• Anyway, obviously the concern for non-revenue sports is the impact of the sanctions on the athletic department's revenue and that's where Washington's relief becomes clear. As Cohen notes in her article, the $60 million penalty will be spread evenly over five years, which clearly lessens the blow they'll take from that.
• In addition, the Big Ten Conference announced that Penn State will not receive its share of the conference bowl revenue for a period of four years. Conference schools are due roughly $2 million per year.
• To get a sense of what would've been lost if the NCAA had given the football program the death penalty, it helps to know what they made last year. The exact revenue numbers vary by the report, but Penn State football made about $53 million in profit last year, second only to the University of Texas, according to Charles Riley of CNN Money (and easily confirmed by U.S. Department of Education numbers).
  
• Riley also reports "an additional $24.1 million in athletic revenue not specifically assigned to one team or sport" mostly from football merchandising and sponsorships. And according to Chris Smith of Forbes Magazine, sponsors are already dropping, which could cost them "millions" of that $24.1 million figure.
  
• But compare that to what PSU and the surrounding community would've lost in the event of the death penalty, according to Erik Matuszewski of Bloomberg News: "A shutdown of the football program would have cost Penn State and the surrounding community more than $70 million, according to an economic study commissioned by the university for the 2008-09 school year."
• Last, as the AP reported earlier this month, Penn State brought in $208 million in donations in the fiscal year that just ended on July 1, the second-most in school history after two decades of declining donations. That was before Sandusky's trial but also in part after his arrest. Now with a fine that seems very unpopular among PSU alums and fans, it wouldn't be terribly surprising if they surpassed that number as their fans rally in support of the institution.

Summary

• That fine of approximately $73 million dollars is a big number if you add the NCAA fine to the Big Ten penalty. But that is also divided over the course of five years - it will be a loss of approximately $14 million over the first four years and $12 million in the fifth.
  
• Put simply, the NCAA has asked PSU to pay just under half of the profit they would be expected to make (based upon last year's numbers) for the next 5 seasons. In other words, PSU is more than capable of paying this amount of money with athletic department revenues even as football suffers.
  
• Just to put that in perspective using the athletic department's total profits based on the U.S. DOE's Equity in Athletics Disclosure Act (EADA) Survey, last year the PSU athletics department made $31,619,687 in total profits. Take away what they are expected to lose due to NCAA/Big Ten sanctions and they still make between $17-18 million in profit per year. We don't know exactly how much lost sponsorship dollars will cost them - we can probably expect more lost sponsorships to come as football draws closer - but that will come out of that 24 million that Riley reported and obviously be no more than that. So where might the total cost of this thing leave PSU compared to what other Big Ten programs made last season?
  
  

  School	Total athletic revenues - expenses
  Indiana	$5.3 million
  Michigan State	$13.5 million
  Northwestern	$0
  Ohio State	$18.6 million
  Penn State	$31.6 million (2011)
  Purdue	$6.8 million
  U of Illinois at Urbana-Champagne	$1.8 million
  U of Iowa	$5.3 million
  U Michigan - Ann Arbor	$26.6 million
  U Minnesota - Twin Cities	$0
  U Wisconsin - Madison	$655 thousand

  Total revenues minus expenses for Big Ten athletic departments in 2011.

  First, it should be clear that the NCAA sanctions will by no means cripple Penn State's athletic department - it will take them from the top of the conference in reported profit to about Ohio State level. As a Michigan alum, I could offer some choice words about what Buckeye-level means, but suffice it to say that they manage to get by.

  But second, the bottom line is that the PSU athletics department would have to lose around $18 million dollars somewhere to even be at the level of the least profitable schools in the Big Ten. That would mean either a) making less than half of what PSU football made last year or b) losing 2/3 of that $24 million figure that Riley reported from sponsorships. The reality is that they'll probably lose some on both those football-related fronts, but $18 million is still a solid cushion to work with.

• As Washington alluded to, that's much better than the death penalty would've been or at least gives them an opportunity to operate if football can maintain those numbers. Here's a comparison of what the death penalty would cost them compared to the penalty the NCAA actually imposed:
  
  

  Comparison of the death penalty to the NCAA's actual sanctions

  Type	Yr 1	Yr 2	Yr 3	Yr 4	Yr 5	Total
  NCAA Sanctions	12	12	12	12	12	60
  Death Penalty	53	53	53	53	0	212

  
  In summary, the death penalty would have cost PSU at least more than three times the amount of these NCAA sanctions because football's profit would be gone (not including the additional Big Ten revenue sharing penalty). That's not including the cost to surrounding businesses that not playing football would result in as described by Nelson. Needless to say, a four-year death penalty would have forced an almost total reorganization of athletic expenses (based on last year's DOE numbers, the school would've been $21 million in the hole last year without football profits).
  
• However, as others have said elsewhere, these sanctions don't necessarily make football less important or change that "culture of reverence" - ironically, you could actually argue that the NCAA sanctions make football more important because football profit is the only way they can hope to pay this penalty without serious fiscal damage to other sports or the university at-large. That doesn't change the fact that Nittany Lion football is going to struggle mightily on the field for years due to these sanctions, but changing a culture that made football the #1 priority is hard to imagine given that it will still carry the fiscal weight of the department even in the event of significant losses.
  
• Ultimately, based on the record number of donations last fiscal year, it wouldn't be shocking if they found a way to simply raise the approximately 14 million per year they need to pay the NCAA and Big Ten fines over the next five years.
  
• It is possible that all PSU sports - men's basketball and non-revenue - suffer some recruiting difficulties as a result of this and maybe some of the other smaller cuts that London mentioned above, depending on the terms of the NCAA sanctions. But losing non-football scholarships or non-revenue sports will not happen as a result of this because it's not allowed.
  
• In the case of women's basketball in particular, their success in recent years under Washington could continue to be a draw on its own (in contrast to the men's basketball team, which has struggled over the past few years). The institutional stigma could hurt across the board, but women's basketball might be well-positioned to overcome that due to its forward momentum - making the Sweet 16 is a big deal and Washington is a rising star in the coaching ranks that will attract talent.
  
• Another loss could be that they won't upgrade athletic facilities as other Big Ten schools and schools around the nation have, which could put them at a competitive disadvantage in recruiting. In basketball, for example, Michigan just upgraded their facilities.
  

Again, this is neither an argument for whether the NCAA sanctions are appropriate and/or fair nor a justification for the sanctions; this is simply a look at the fiscal impact on the athletic department - and particularly non-revenue sports - based on early reports from around the web.

There's certainly still room for debate on the matter of fairness for all the reasons others have mentioned elsewhere. But the argument that a) the university will not be able to pay this fine out of its athletics budget or b) they'll have to make serious cuts to non-revenue sports is a bit of an exaggeration based on the information currently available to us. It's also a stretch to say non-revenue sports will be unharmed by this.

Yet as Washington said these sanctions still give them a chance to operate whereas its very difficult to argue the same had they gotten the death penalty.