Penn State penalties threaten to rock local economy

Reuters News
|
Posted: Jul 24, 2012 3:31 PM
Penn State penalties threaten to rock local economy

By Edith Honan and Hilary Russ

(Reuters) - For as long as business owners in State College, Pennsylvania, can remember, home games for Penn State University's beloved football team meant big crowds, packed hotels, busy restaurants and cash registers flush with visitors' dollars.

But the announcement on Monday that the National Collegiate Athletic Association had imposed historic penalties on the university for its failure to report child sex abuse by former assistant football coach Jerry Sandusky has potentially damaged the Nittany Lions brand, and with it the local economy.

"It's going to impact every household in that county and that region. Everyone's going to feel it," said Gerald Cross of the Pennsylvania Economy League. "It's like the loss of a major industry."

For decades under the leadership of late coach Joe Paterno, swarms of fans and alumnae made regular pilgrimages to central Pennsylvania for the half-dozen home games, and football became the lifeblood of the college town of about 42,000.

But the sanctions, including a $60 million fine and a four-year ban on bowl games, are likely to weaken Penn State football -- and take local tax revenue with it.

The penalties will cost the school $15.5 million each year for four years and $12 million in the fifth year, according to Diane Viacava, the lead analyst for Penn State at bond rating agency Moody's Investors Service.

That's a tiny portion of the nearly $4.6 billion that Penn State made in revenue last year, making the immediate financial impact of those penalties on the school "minimal," Viacava said

The university has about $5.2 billion on hand, including cash, investments, bank funds, endowment money and reserves.

While tuition made up about $1.4 billion -- nearly a third -- of revenue in 2011, football generated $60 million, which was less than 2 percent of the university's revenue, she said.

Still, the penalties could turn promising players away from Penn State and hamper recruiting for the football program.

"Any four-or five-star player is not going to come to Penn State because you can't compete for Big Ten championships and you can't compete for a national championship and you can't go to a bowl game," said Jed Donahue, owner of The Pennsylvania Sports Network and a radio sports talk host for 20 years.

BRACING FOR FEWER FANS

Without home games with star players, the town is bracing for fewer fans -- and the economic drag that would mean.

Nancy Noll, the innkeeper of The Queen, a Victorian-style bed and breakfast in nearby Bellefonte, said the impact on area businesses, including hotels, would be "devastating."

On game weekends, hotel rates can go up by as much as five times and restaurants roll out more expensive menus. A couple visiting for the weekend could easily spend $1,000 in addition to the price of tickets, said Noll.

"If they don't have a team that plays well, they won't come to the games," she said of fans.

There are 3,400 rooms in local inns and hotels, according to the Central Pennsylvania Convention & Visitors Bureau.

"For certain businesses, the football weekend brings a huge percentage of their annual sales," said Scott Dutt, the owner of Happy Valley Optical in downtown State College. "(Football) keeps the visitors coming, and then coming back."

Fans also pay taxes on hotel rooms, fuel, purchases and other items, all of which translate into municipal sales tax revenue.

"When you have an extra 100,000 people in town, everyone benefits," said George Arnold, executive director of the Downtown Improvement District in State College.

(Reporting By Hilary Russ and Edith Honan. Additional reporting by Mark Shade in State College, Pennsylvania; Editing by Cynthia Osterman)