The issues raised in the Freeh Report about the actions of top Penn State executives in the University, Athletic Department and football program, including legendary coach Joe Paterno, with respect to Jerry Sandusky may result in NCAA sanctions, and perhaps civil and federal claims against the University. These sanctions and claims raise a number of concerns for Penn State University but could also have impact on other stakeholders in college athletics. One concern that is not necessarily self-evident is the economic impact of the scandal on Penn State University’s athletic department and also on the Regional Sports Network (RSN) created by the Big Ten Conference.
The NCAA is currently investigating whether Penn State lost institutional control over its athletic program. On July 16th, NCAA President Mark Emmert stated that he has “never seen anything as egregious as this in terms of just overall conduct and behavior inside a university.” Emmert indicated that the NCAA has not ruled out any sanctions, stating that nothing is “off the table”. The most severe penalty that the NCAA can institute with respect to an athletic program is the so called “death penalty”. This penalty results in a school being banned from competing in a sport for at least one year. In the history of the NCAA, only one football program, Southern Methodist University, has received the death penalty. The impact of the death penalty sanction on the SMU football program was catastrophic. Only recently, after more than 20 years, has it begun to recover. While less severe than the death penalty, the NCAA has other powers to penalize that can still cripple an athletic program. For example, the NCAA has the power to reduce the number of scholarships that may be awarded by such athletic program.
Penn State also faces potential federal sanctions as the result of the Sandusky scandal. Among other things, the United States Department of Education is reviewing the case to determine whether there were Clery Act Violations. The Clery Act was passed by Congress in 1989 and requires colleges and universities that participate in federally funded financial aid programs to keep and disclose information about crime on and near their respective campuses. Violations of the Clery Act can result in fines to an educational institution or, in extreme cases, loss of federal funding to that institution.
The Penn State football program, like most other Division I schools in major conferences, is the primary revenue source for the athletic department at Penn State and is responsible for funding many, if not most, of the other Division I sports teams at Penn State. Therefore, if Penn State’s football program were to be shut down, or severely crippled, investigations and sanctions arising from the Sandusky scandal, not just the football program would be affected. In fact, it is possible that the budgets for other Penn State athletic programs would have to be significantly reduced, or perhaps some of those programs would need to be eliminated entirely, as the result of reductions in revenue from the football program.
Recently, the Big Ten Conference created a RSN called the Big Ten Network. This RSN, which relies largely on sports other than football to supply a large part of the programming, has become a very valuable asset for the conference and its member institutions. Other conferences, such as the Pac 12, the Big 12 and the SEC, have either begun the process of creating such a RSN or are seriously contemplating creating such a RSN. In the particular case of Penn State, consider the effect that a significant devaluation to the Penn State athletic program would have on the Big Ten Network. Penn State has one of the most storied sports programs of any school in the Big Ten. Penn State also has among the largest student bodies in the Big Ten, which would also that the alumni base is among the largest. Finally, Philadelphia and Pittsburgh, presumably two markets that are very interested in the Penn State programming featured on the Big Ten Network, are two of the top television markets in the Big Ten Network market footprint.
The potential sanctions that Penn State faces highlights an issue worthy of consideration for college RSNs and other related college sports stakeholders. A college RSN that relies heavily on the fan base and programming from each of its member institutions would be well served to consider how to minimize the exposure that it faces if one of its member institutions has its football program sanctioned. One way to accomplish that is by spreading the risk, which the Big Ten, for instance, has done by recently adding University of Nebraska to its conference and RSN package. Obviously, the more schools that a conference has, the less exposure it has if one or more of its member schools is sanctioned or otherwise has issues.
Another way that a conference can protect itself against risk exposure to its RSN is by enacting a self-imposed code of conduct for its member institutions that establishes checks and balances and watch dog provisions similar to the measures that have been applied to corporate America through Dodd-Frank. This type of process, if implemented at all member institution schools of a conference with an RSN would enable the conference to better identify, prevent and monitor issues that develop with its member institutions that could threaten its business model. With so much financial and emotional investment in college sports, it seems that there should be a regulatory threshold established by the colleges and conferences and applied themselves rather than relying solely on the punishments administered by the NCAA, the Department of Education or other independent organizations.
Furthermore, one wonders if these college and conference RSNs need an “ombudsman” role to keep an independent eye on what is happening at their member institutions. The Big Ten Network, for instance, has received a lot of criticism for not covering the Sandusky trial or the Freeh Report in real time. The Big Ten Network says that it is focused on the “on the field” aspect of Big Ten sports and not the off the field, but that explanation has not satisfied the masses looking for a better explanation. Regardless of the facts and circumstances behind this situation, the internal checks and balances that an independent ombudsman could provide might be very useful to college and conference RSNs and media partners.
Conferences, universities, RSNs, cable television partners and corporate advertisers and sponsors involved in the business of college sports should all be mindful of these considerations as they manage their existing properties and evaluate new ones. The vulnerability of a Penn State, which went from one of the jewel sports programs in the country to one that is now facing so many issues in less than 1 year’s time, makes it clear that no institution is immune.