Announcements

Sandusky Sex-Abuse Scandal Has Cost Penn State $46 Million

Advertising Age, March 25, 2013

By Michael McCarthy

Penn State University officials still can't bring themselves to say the name "Jerry Sandusky." Hard to blame them.

In addition to the human tragedy of young lives damaged, Advertising Age estimates the Sandusky sex-abuse scandal has cost Penn State $46 million and counting since November 2011. And though some sponsor dollars look to be trickling back, it's still a pittance compared to the loss.

On a site devoted to the Sandusky case, Penn State said it shelled out more than $41.1 million in NCAA fines and legal and consulting fees through Dec. 31, 2012. Ad Age estimates Penn State lost more than $1 million in sponsorship/advertising dollars from the likes of General Motors, Cars.com and Sherwin Williams. Another $700,000 in licensing royalties from merchandise sales was also lost. And next month, the Big Ten Conference will dock Penn State $3.25 million as the first installment in a four-year, $13 million penalty, according to Scott Chipman, the conference's assistant commissioner. That represents Penn State's share of conference-bowl revenue from the 2012 football season and will be donated to children's charities.

Total cost to Penn State: $46 million.

The coming $3 million hit to Penn State's bottom line caps a nightmarish 17-months in "Happy Valley." The revelation that Mr. Sandusky, coach Joe Paterno's defensive coordinator, molested at least 10 boys over a 15-year period sent shock waves through the school and its sponsors.

The NCAA levied an unprecedented $60 million, five-year fine and four-year ban on postseason play. On the ad front, General Motors' Chevrolet stopped sponsoring Nittany Lions football, although it continued to sponsor other school athletic programs. Cars.com pulled its TV spots from the school's ESPN football telecasts. State Farm suspended radio ads. Sherwin-Williams removed its logo from the banner serving as backdrop for the team's football news conferences. And Nike pulled the late Mr. Paterno's name off a child-care center at its world headquarters.

During the crisis, Learfield Sports, which handles Penn State's multimedia rights, held "town halls" with ad clients to address their fears, said CEO Greg Brown. Still, the normal 20% annual growth went out the window in 2012.

The good news: Although many sponsors/advertisers went dark in 2012, they didn't abandon Penn State football, said associate Athletic Director Greg Myford. The program retained key partners such as Nike, Pepsi and Highpoint. With new coach Bill O'Brien leading the team to an 8-4 record last season, the school is optimistic about 2013. "We were very fortunate that we didn't have any fall-off," Mr. Myford said.

Besides existing clients going dark, or shifting inventory to other properties, the scandal "created an environment where it was difficult to approach any new clients," Mr. Brown said. "If there was damage, that was the biggest impact we felt."

Now, though, with fans, donors and alumni excited about the new coach, advertisers are coming around. Cars.com returned to Penn State football telecasts in 2012 and will do so again in 2013. The company pulled its ads in late 2011 "out of respect for those involved," it said in a statement.

While Chevy passed on sponsoring Penn State football during the 2012-2013 academic year, "no decisions have been made" for 2013-20014, spokeswoman Ryndee Carney said. State Farm may also return to radio after sitting out 2012, said spokeswoman Mia Jazo-Harris.

Sherwin-Williams' logo is still missing from the banner. But the company "never dropped" its sponsorship of Penn State, said spokesman Mike Conway. "We still support football, basketball and wrestling."

Even the disgraced Penn State brand is showing signs of life, according to promo shop The Marketing Arm. In June 2011, Penn State ranked as one of the top five most-trusted NCAA properties. By January 2012, it had plummeted to dead last among 104 schools measured nationally. But it rebounded in 2012, and is now No. 63. at about the same level as Harvard (60), Stanford (68) and Michigan (66).

The rise wasn't due to marketing. Cynthia Hall, Penn State's acting chief marketing and communications officer, said Penn State has not increased its overall marketing budget over the past 17 months to help deal with the fallout.

The school has, however, hired PulsePoint Group in Austin, Texas, to help formulate its "vision" for the future, according to Ms. Hall.

Lions' Share: Cost Breakdown of Scandal's $46M Price Tag
Crisis PR: Penn State's Board of Trustees spent $5.4 million on "communications," "consulting" and "legal services" through Dec. 31, 2012, according to the university's special website. Among agencies listed are: Edelman, Ketchum, TAI Group and Kekst & Co., all in New York, and Domus in Philadelphia. (Ketchum and Domus said they are no longer working with Penn State.)

NCAA Fine/Freeh Report: The biggest chunk, $12 million, went to paying the first installment of the five-year $60 million NCAA fine. The second-largest, $8.2 million, went to former FBI Director Louis Freeh's law firm, Freeh Sporkin & Sullivan. To try to protect Penn State's squeaky-clean image, the Freeh Report concluded that Mr. Paterno and three key administrators "failed to protect against a child sexual predator harming children for over a decade."

Advertising/sponsorships: Penn State Associate Athletic Director Greg Myford said it's hard to specify how much advertising/sponsorship support Penn State lost due to Jerry Sandusky or other factors, such as the economic recession. But Jim Andrews of IEG estimated 2012 losses as "north of $1 million."

Licensing: The school typically collects $3.5 million in royalties from annual sales of licensed merchandise, according to Mr. Myford. Those royalties fell 20% from the first quarter of 2012 through the first quarter of 2013, he said. That would amount to around $700,000.

Penn State Donations Rose While Enrollment Stayed Flat
The fallout from the Jerry Sandusky child-molestation scandal did not send students fleeing to other schools or cause alumni donations to dry up.

Average football-game attendance fell during the 2012 season. But student enrollment remained steady, both overall and at the main University Park campus in Happy Valley. Donations went up as alumni rallied around their alma mater.

Penn State's average football attendance dropped 4.6% to 96,730 in 2012 vs. 101,427 the year before. That was the fifth-straight year of falling attendance, so it probably had as much to do with the economic recession as disgust over Mr. Sandusky.

Yes, the Nittany Lions football program lost some blue-chip football prospects. But the university's total student enrollment stayed flat at 96,562 in 2012 vs. 96,519 in 2011, according to an annual snapshot taken during the fall semester. That was helped by a 16% growth of students signing up for online courses. Enrollment at University Park rose slightly to 45,351 from 45,194.

With the school in crisis mode, Penn State received $208 million in donations for the fiscal year ending July 2012, the second-highest amount ever. Membership in the Penn State Alumni Association (which bills itself as the world's largest), grew 2.4% to 169,209 for the year ending June 30, 2012, according to Executive Director Roger L. Williams.