OT: Penn State

[sparky]

I don't see any similarities. This is a case unlike any others. Not only was the Institution complicient,, the community of PSU turned their backs on the whole ordeal. This wasn't something that happened for a year or two, but for perhaps more than one decade. The football team represents the instirution and I believe the institution represents them. Institution control failed, coaches failed, administrators failed, and the community failed. Therefore, lowering the boom should be a reminder to get your houses in order, and perhaps your prioities. Football is a game and a money maker, it won't repair the lives of those they harmed---- ever. BTW Emmert is an

 

[Duncan Idaho]

PSU has 75K undergrads in total, 12MM/year x 5 years. thats $160/undergrad/year

 

[Lefty2one]

It's interesting to see how many people (mostly people with ties to PSU) are irate over the Freeh report even though PSU accepted the results and penalties.

I don't think the NCAA went too hard. I agree with the sentiment that Paterno and the other powers that be did what they did to protect the football program. If the current program, even with all of those evil men no longer associated with the school, got off light then their plan would have succeeded. Innocent bystanders/student-athletes be damned. It'll be a decade before they're relevant again and rightfully so.

As for the SMU comparison, I don't pretend to have followed that situation closely but I guess the big difference is that after the death penalty the school decided not to put a huge emphasis on football again. I can't see the same being true at Penn State. Football is Penn State. Penn State is football. In 2016 the school will have the pedal to the metal trying to be an elite program again (even though they really haven't been for a dozen years anyway).

 

[upstater]

Upstater, You've mentioned that the endowment can't be used to satisfy the cost of this matter a few times. I have no knowlege of the restrictions on the use of the endowment at Penn St. but I suspect that that what will happen is a shift of the percentage of allowable expenditure borne by endowment outlays. Say that a certain identifible portion of the endowment is for widget research and the university current funds that research 20% from endowment funds and 80% from normal university operating funds. The university changes that to 60% endowment and 40% from general funds. In this way 40% of the value widget research budget is freed up for dealing with this mess and no impermissable expenditure of endowment funds has been made. Obviously, I can't say this would be allowable without looking at the underlying documents but I suspect that this is what will happen. I just don't see the university putting the cost of its egregious actions on the exclusively in the backs of the students when it is sitting on $1.8 billion. I'd expect that university will do a bunch of things, including a modest tuition increase, reducing scholarships, etc. but I'd also expect that the endowment will be used to free up cash elsewhere. Do you know of anything that would specifically prohibit this approach?

My responses are twofold.

1. There are already federal laws dealing with such allocations. I asked someone about this, and this is what they replied:
"The first issue is that the contract with the donor of the funds is paramount. Therefore, if a donor gave funds to an endowment to use the "income" for scholarships in Icelandic folklore, then that contract must be respected. In come cases, if the donor is competent and alive, the University might be able to go back and ask for a variance but, in general, that's that. Therefore, large endowments need to track such things on a fund by fund basis. Some endowment gifts are given for general operating funds. For those funds, again the typical idea is that the "income" from the fund is to be used to defray the general expenses of the endowment - presumably that income would be available to pay the NCAA fine.
The question then becomes what is income that can be touched, and what is "principle" that has to remain in tact. Well, again, the donor's gift agreement rules. If there are specific provisions in the agreement about how much can be spent, those need to be respected. However, the use of the term "income" or "earnings' or is generally not specific enough to determine what a donor really mean. Does this income only ordinary income? Does it include capital gain? Does it include capital gain only if it is realized? When do we measure it? etc.
To answer these questions, in 1972 the Uniform Law Commission passed the Uniform Management of Institutional Funds Act (UMIFA), which was later adopted by many states. It basically said that you could spend any amount of what is generally referred to as "trust accounting income " (that is, not income for tax purposes, but think interest, dividends, rents and royalties) and any amount of capital gain over "historic dollar value" (that being the original amount of the gift. Therefore, if someone gave $1.0 million in stock, which appreciated to $250,000 and threw off $100,000 in dividends, they could the $100,000 and the $250,000, but could not touch the original $1.0 million."

It gets a lot more complicated than this, and I won't bore you with the rest of what she wrote but basically, they can use 3 to 5% of income/capital gains on the endowment. It will be an accounting nightmare though because PSU has been reporting losses since 2008 and any gains this year will be offset by those losses. Who knows if there will even be capital gains?

2. My larger point however is that even if they use the endowment in such a fashion, this is money that would otherwise defray the cost per student. So, however you cut it, it's taking money away from the general fund. As for the skim from research budget, it's the same as tuition in my book. It offsets tuition. If you use the contracted skim off of research, you are reducing the subsidy for cost-per-student above tuition. Any way you cut it, it comes down to two options:

Higher tuition or else Program cuts.

But as I said earlier, there may be a way to wring $40 million a year out of the football program. It's expenses last year were $19 million. So, ummmmmm, how in the world are they supposed to cut $40 million froma $19 million budget, especially when the new set of coaches are all making more $$$ than the old set of coaches?

I don't care what Emmert said about no cuts to other sports or academics, it simply can't be done. PSU is about to have $40 million per year in less revenue (assuming a 20% drop in support + NCAA and B10 penalties).

Last I heard, PSU does not have authority to print currency.

 

[upstater]

PSU has 75K undergrads in total, 12MM/year x 5 years. thats $160/undergrad/year

It's coming out of UP's budget, not the satellites. Redo the math. The satellites are not going to pay for this, some have their own ADs.

 

[CL82]

My responses are twofold.

1. There are already federal laws dealing with such allocations. I asked someone about this, and this is what they replied:
"The first issue is that the contract with the donor of the funds is paramount. Therefore, if a donor gave funds to an endowment to use the "income" for scholarships in Icelandic folklore, then that contract must be respected. In come cases, if the donor is competent and alive, the University might be able to go back and ask for a variance but, in general, that's that. Therefore, large endowments need to track such things on a fund by fund basis. Some endowment gifts are given for general operating funds. For those funds, again the typical idea is that the "income" from the fund is to be used to defray the general expenses of the endowment - presumably that income would be available to pay the NCAA fine.
The question then becomes what is income that can be touched, and what is "principle" that has to remain in tact. Well, again, the donor's gift agreement rules. If there are specific provisions in the agreement about how much can be spent, those need to be respected. However, the use of the term "income" or "earnings' or is generally not specific enough to determine what a donor really mean. Does this income only ordinary income? Does it include capital gain? Does it include capital gain only if it is realized? When do we measure it? etc.
To answer these questions, in 1972 the Uniform Law Commission passed the Uniform Management of Institutional Funds Act (UMIFA), which was later adopted by many states. It basically said that you could spend any amount of what is generally referred to as "trust accounting income " (that is, not income for tax purposes, but think interest, dividends, rents and royalties) and any amount of capital gain over "historic dollar value" (that being the original amount of the gift. Therefore, if someone gave $1.0 million in stock, which appreciated to $250,000 and threw off $100,000 in dividends, they could the $100,000 and the $250,000, but could not touch the original $1.0 million."

It gets a lot more complicated than this, and I won't bore you with the rest of what she wrote but basically, they can use 3 to 5% of income/capital gains on the endowment. It will be an accounting nightmare though because PSU has been reporting losses since 2008 and any gains this year will be offset by those losses. Who knows if there will even be capital gains?

2. My larger point however is that even if they use the endowment in such a fashion, this is money that would otherwise defray the cost per student. So, however you cut it, it's taking money away from the general fund. As for the skim from research budget, it's the same as tuition in my book. It offsets tuition. If you use the contracted skim off of research, you are reducing the subsidy for cost-per-student above tuition. Any way you cut it, it comes down to two options:

Higher tuition or else Program cuts.

But as I said earlier, there may be a way to wring $40 million a year out of the football program. It's expenses last year were $19 million. So, ummmmmm, how in the world are they supposed to cut $40 million froma $19 million budget, especially when the new set of coaches are all making more $$$ than the old set of coaches?

I don't care what Emmert said about no cuts to other sports or academics, it simply can't be done. PSU is about to have $40 million per year in less revenue (assuming a 20% drop in support + NCAA and B10 penalties).

Last I heard, PSU does not have authority to print currency.

A lot of good info, thanks. It seems to me that nothing you wrote would really stop the approach I suggested, except a limitation of principal invasion. So the answer is that their are likely to more options then a tuition hike or staff reductions. That's a good thing. I think that we agree that impacting the schools main functions due to the Sandusky mess would be unfortunate and ought to to be minimized. I think we also agree that it won't be avoided entirely.

 

[upstater]

A lot of good info, thanks. It seems to me that nothing you wrote would really stop the approach I suggested, except a limitation of principal invasion. So the answer is that their are likely to more options then a tuition hike or staff reductions. That's a good thing. I think that we agree that impacting the schools main functions due to the Sandusky mess would be unfortunate and ought to to be minimized. I think we also agree that it won't be avoided entirely.

On the tuition part, since any income from the endowment would be otherwise used to defray the climb in tuition, then this will without a doubt impact tuition or cause cuts--unless they take it out of sports. Which they are forbidden to do. It's kind of like the European debt crisis. Um, where is the money going to come from?

I always thought that it was proper that the damages for victims would come out of both sports and academics. As well, the Clery Act fine would come out of academics. PSU has already started a program through Sociology on child abuse. But the NCAA fine, constructed as it is, preventing any sports spending cuts, and then involving PSU faculty into it by forbidding any involvement from Sociology and such--that's a bit invasive, though obviously just as invasive as what they did to Caltech last week. It becomes hard to understand how the NCAA is now in position to dictate the curricula of these schools. But, you know, you gotta pay to play.

We'll see what happens in the future.

 

[willinphilly]

Curious if the football players will stay or go. Would be an interesting contrast to Alex and Roscoe...

 

[Brochacho]

Curious if the football players will stay or go. Would be an interesting contrast to Alex and Roscoe...

This. As of right now it seems like most of the players are on board with sticking out a Penn State to play for the reputation of the school and coaches. The incoming freshman at Penn State will never play in the postseason, more than likely never be in competition for the Big Ten title, but yet they are choosing to stick it out. Say what you want about PSU, but they know how to recruit high character kids.

Heck we get a one freakin year post season ban and we lose what, 5 out of 12 players?

 

[rman726]

I understand that the guys at Penn State did/covered up for terrible things, but nobody that really deserved to be punished is still there. Those guys with incredible administrative jobs and football jobs are essentially never going to work again. And some of them may even face criminal charges. Nobody in the current administration did anything wrong, nor the players. So what is penalizing the bad guys former employer going to help? The penalties were crazy IMO.

Future people were going to learn from what happened to those guys and decide whether or not covering up is a good idea. They aren't going to look at the potential penalties their school will face if they get caught covering it up, because they will have already lost their jobs at that school before the NCAA does anything.

It's like a player taking money. They are going to consider the consequences that if they get caught, they will have a tarnished reputation, could never play college sports again, and lose their past victories. You think Reggie Bush really cares that USC couldn't play in a bowl game last year? But at least in that case, the administration that allowed it to happen was still around at USC, so a postseason ban made sense for them. In the Penn State case, nobody was still around, so the punishment just doesn't do anything.

 

[willinphilly]

This. As of right now it seems like most of the players are on board with sticking out a Penn State to play for the reputation of the school and coaches. The incoming freshman at Penn State will never play in the postseason, more than likely never be in competition for the Big Ten title, but yet they are choosing to stick it out. Say what you want about PSU, but they know how to recruit high character kids.

Heck we get a one freakin year post season ban and we lose what, 5 out of 12 players?

Seriously...if Silas Redd and others stay at PSU -- then Oriahki and Roscoe are a bunch of disloyal jerks, or we don't know something...