PSU athletics mulls taking $30M loan
STATE COLLEGE — Under the weight of a $60 million NCAA fine and empty seats at Beaver Stadium, Penn State University's self-sustaining athletic department might borrow $30 million to keep itself afloat.
During a presentation to the university's board of trustees, athletic department officials told school leaders in a five-year budget outlook that they expect the unit's reserve balance to be $3.9 million in the red for fiscal 2014-15. They don't expect to be in the black again until fiscal year 2017-18.
Major expenses include about $3.8 million annually to service debt to cover a $60 million NCAA fine. That penalty was part of sanctions related to the Jerry Sandusky sex abuse scandal and how top administrators responded to molestation complaints against the former assistant coach.
Sandusky, 69, is in prison for sexually abusing 10 boys on campus and in his State College home.
As part of the NCAA consent decree agreed to by Penn State and the Big Ten conference, the university will lose $13 million a year for four years in conference bowl revenue.
That loss comes on top of declining football game attendance that's expected to continue. Beaver Stadium holds 106,572. Last year, attendance averaged 96,730. Through two games this season, attendance has averaged 92,855.
Corporate Controller Joe Doncsecz said the university is exploring borrowing $30 million to support the athletic department's operating deficits and capital needs. The university said last year it would not use state money or student tuition to help pay the fine.
Between $5 million and $10 million of the loan would create a line of credit to offset deficits and another $20 million to $25 million would cover short-term capital needs the department considers “critical.” The department didn't produce a list of those needs.
Trustee Anthony Lubrano said the athletic department's woes are unsurprising given the “enormity” of the sanctions imposed.
“But the question is, can we bring alumni back into the fold?” he said. “Game attendance is a key reason for these fiscal challenges. We can't solve two-thirds of our biggest problems, so our last option is game attendance.”
University spokeswoman Lisa Powers said the athletic department's financial review was “positive,” adding that attendance doesn't always correlate to revenue.
“Athletics doesn't feel like they're in such a bad place,” Powers said. “They're still waiting to see where this season will go. At this point, it's just based on projections. Game attendance is even harder to predict than the weather.”
Penn State intercollegiate athletics is limited in what it can and can't do to stay in compliance with the NCAA consent decree university President Rodney Erickson signed in July 2012.
Associate Athletic Director of Finance Rick Kaluza said operating budgets in place when the sanctions were imposed can't be touched. Trustee Paul Silvis brought up the idea of eliminating a low-revenue sport, but Kaluza said it wouldn't be permitted under the decree.
Athletic Director Dave Joyner said eliminating sports as a cost-cutting measure won't be necessary after 2016, when the sanctions will have lapsed. He defended nonrevenue sports as an important part of the educational experience.
Anna Orso is a freelance reporter based in State College.