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Volume 21 No. 1
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Penn State crisis pushes business into background

With the ugly undercurrent of a child sexual abuse investigation engulfing Penn State University, the embattled school hasn’t even begun to determine the impact on its $92 million athletic business.

At some point in what’s certain to be a long healing process, Learfield Sports will refocus on selling Penn State sponsorships and advertising, IMG College will get back to the business of selling Nittany Lions tickets, and the school will resume its search for a company to install new video boards in each end zone of Beaver Stadium.

For now, though, the school, which has hired Ketchum for crisis management public relations, has more immediate concerns.

Last week, outspoken accusers and the accused drove the story to the front of news for a second consecutive week, leading industry experts to wonder where the damage to the Penn State brand — summed up by its motto “Success with honor” — will end.

Greg Myford, Penn State’s associate athletic for business relations and communications, said any attempt to register the business impact of such a scandal this early would be speculative at best.

Penn State moved forward on at least one front last week, naming David Joyner, a board of trustee member and alumnus, as acting athletic director in place of Tim Curley, who is on administrative leave. Joyner is expected to lead the search for a football coach to replace fired legend Joe Paterno.

“During this time, an AD’s primary focus is not going to be on the fiscal challenges, but on the many human sides of the issues,” said Jeff Schemmel, a former AD at San Diego State and now head of the college consulting division of San Diego-based JMI Sports. “However, a crisis of major public magnitude would likely cause financial challenges in two major areas. The first is marketing and licensed merchandise where the image could be tarnished and sponsors and consumers may distance themselves from the brand. The second is in fundraising, particularly from donors who had previously supported the department but are not necessarily alums. With the right leadership, sensitivity, direction and time, these areas can hopefully be re-established and regain that fiscal support.”

It’ll be a while before any of the Nittany Lions’ partners approach the school about what’s next on the business front.

Greg Brown, CEO of Learfield Sports, which pays Penn State an estimated $5 million to $6 million a year in guarantees for marketing and media rights, said it would be inappropriate to talk to the school’s athletic officials or to even say publicly what the fallout might be among corporate partners.

Of the 50 or so schools that Learfield markets, Penn State is a blue-chip client on the same tier with North Carolina and Alabama.

Even in the face of Paterno’s controversial firing and a national firestorm of media in State College, 107,903 fans filled Beaver Stadium for the Nittany Lions’ loss to Nebraska on Nov. 12. The crowd was the largest of the season, surpassing the 107,846 fans who watched the Nittany Lions play Alabama.

The degree to which Penn State’s athletic business could be affected, though, remains to be seen. The Nittany Lions have budgeted $92 million for the 2011-12 fiscal year, making it the eighth-largest spender among the major colleges. Texas has the largest budget nationally this year at $153.5 million. In Penn State’s conference, the Big Ten, only Ohio State ($126.5 million) and Michigan ($109.8 million) have larger budgets.

Penn State reported revenue of $116.1 million to the U.S. Department of Education for the 2010-11 year. Because many of Penn State’s revenue streams are guaranteed over multiple years, industry analysts don’t expect the school to take a major hit all at once. Learfield’s payments are guaranteed, as are the school’s revenue from Big Ten TV contracts and the Big Ten Network, which is projected to be about $21 million this season.

Industry sources say that multimedia rights contracts like Learfield’s typically contain specific language that protects both sides in case of material changes to the client, the rights holder or the overall value proposition. The clause is invoked so rarely that industry insiders couldn’t remember the last time it was acted upon.

Insiders said more and more companies are seeking similar language in their school sponsorships. “Typically, multimedia contracts have language that affords monetary relief if substantial revenues are lost as a direct result of a major change in circumstances, including a crisis that impacts their ability to generate revenue using the brand,” Schemmel said.

IMG College’s ticket division is another Penn State business partner. The company struck the deal in September. That deal puts IMG College in charge of ticket sales and marketing to athletic events.

These ticketing arrangements usually include a revenue-share agreement with the school, based on new tickets sold.
Another IMG College division, Collegiate Licensing Co., represents Penn State’s marks.

On the facility front, Penn State has been in the process of selecting a company to install new video boards in each end zone of the football stadium. Scoreboard maker Mitsubishi Electric and software company ANC Sports produced the new video boards inside Penn State’s basketball arena, Bryce Jordan Center, but the school has not announced the vendors for the football project.

There already has been some movement on the sponsor front. Sherwin-Williams’ sponsorship puts the company logo on the Penn State backdrop during news conferences. Those logos were missing during press conferences after the scandal hit.

The sponsors page on the official Penn State athletic website,, which in the past has featured Chevrolet, PNC Financial, John Deere, Safeco Insurance, Pepsi and United Healthcare, also was removed in the hours after the scandal broke. A separate page, however, continues to detail promotions by Subway, Pizza Hut, American Red Cross, local grocers and car dealers, and others. Nike supplies the school’s uniforms and apparel.

“As a brand, you have to understand all the media attention that’s coming from this, and that it’s not going to reflect the best light,” said Bryce Townsend, CEO of marketing consultancy GroupM ESP. “But that’s specific to Penn State and that shouldn’t be an indictment of the entire college space.”

Townsend anticipates that the value of Penn State’s brand might suffer in the short term, but it will recover in the long term.

“This is a very resilient space because of the loyalty and passion of the fans and alumni,” he said.