Bad Economics Backs Calls to Spare Penn State from the Death Penalty

IMDB HERE

[Ah, Maria Ouspenskaya... "Whoever is bitten by a werewolf and lives becomes a werewolf himself...Heaven help you!"].

OK.  So Penn State did not get the death penalty.  Some argued they should have, but I'm more interested in the economic arguments I've read about why they shouldn't get the death penalty.

John Luciew of the Patriot-News (of Harrisburg, I believe) makes the case as well as anybody I read ("A Year without Penn State Football?  NCAA 'Death Penalty' Would Hurt Local Economy"):

"It would be the equivalent of an economic bomb... Hotels all over State College would go from being overbooked as soon as the football schedule is released to wondering where all of the guests have gone.  Bars, restaurants, shops, grocery stores, beer distributors and gas stations would instantly feel the pinch if the parade of Penn State alums ceased their pigskin pilgrimages...According to a university-funded study in 2009, Penn State football has an estimated annual impact of $161.5 million on the state of Pennsylvania."  [Note:  Luciew is not alone.  See articles by Houston Mitchell at the LA Times, John Wilner at the San Jose Mercury News, Dashiell Bennett at the Atlantic Wire.  Joe Nocera at the NY Times buys into the logic but says "Throw the Book at Penn State" anyway.]


The Luciew article states that the study assumed only 15% of the activity was from out of state.  I leave it to the real experts on impact analysis, but this seems both impossible and absurd to me.  In order to qualify as "new" economic activity, the measurement standard, rather than just redirected spending from elsewhere in the state, it would have to be the case that all all of the activity comes from outside the state of Pennsylvania.  Luciew also cites other sources that claim revenues will fall on the academic side.  Who knows?


But the rest of the logic is truly awful:

"Football pays the bills for most of Penn State’s sports.  Football brought in about $72.7 million in direct revenue in 2010, and about $53 million went toward funding the rest of Penn State’s athletic teams.  Without football, funding for those other sports would have to come from elsewhere.  'The nonrevenue sports could be hurt because there may not be as much money for them,' said Dr. Donna Pastore, a sports management professor at Ohio State University. The impact would depend on how much money the athletic department has in reserve.  University spokesman David La Torre said Friday that Penn State would not speculate on how these programs would be funded if the NCAA institutes the death penalty."

But there is no reason at all to suspect that the rest of the sports at Penn State would necessarily fall on hard times.  It is clear that the numbers cited in the article come from the OPE data for 2010-11.  Indeed, football did generate operating revenue of $72.7 million and, yes, the net after operating costs was $53.2 million.  [Men's basketball also had an operating surplus of $4.6 million.]  It is also the case that all of the other men's sports, individually, and all of the women's sports, individually, at Penn State had operating costs larger than operating revenues:  -$5.3 million for the rest of men's sports and -$8.6 million for women's sports.  It is also true that the football and men's basketball surpluses were more than enough to cover these losses as well as all of the costs of the rest of the athletic department.  Significant other non-operating revenues allowed the athletic department at Penn State to show a $31.6 million overall surplus for 2010-11.


But the question is what would happen if football revenues fell to zero under the definition of the death penalty.  Of course, the answer is to be found at athletic departments where football and men's basketball do not generate revenues sufficient to cover the operations of the rest of the sports.  The current number of offerings in men's and women's sports at Penn State has been made in the presence of these nice revenues from football and men's basketball.  If the football surplus were not forthcoming, the Penn State athletic director would simply make different choices, just as nearly one-third of the rest of the FBS athletic directors have done for years.


37 FBS departments in the OPE data set have managed to operate the rest of their men's teams so that they break even, rather than show net operating losses.  All of these but one (Rutgers) also have managed their women's sports so that they just break even or better.  11 more actually show an operating surplus on the rest of their men's teams and all but 2 of these have managed to at least not lose any money on their women's sports.  The take away is that 46 FBS schools are able to run the rest of their men's sports and all of their women's sports without any help at all from football and men's basketball.  The rest look pretty much like Penn State, operating their other sports in the presence of strong football and men's basketball revenues.


Indeed, the last death penalty recipient, the athletic department at SMU, managed to operate so that all sports, men's (including football and men's basketball) and women's, broke even individually in 2010-11.  Now, this program has fewer men's sports and fewer women's sports than Penn State, but not all of the other 45 programs have a lower number of sports.


So, the most likely outcome is that Penn State will just look like one of these other 46 programs, less enviable than it has been in the past, but surely not a tragic outcome for the rest of the sports.  The idea that the death penalty would have substantially injured the rest of the sports is simply not born out by the very same data used to show the surplus at Penn State that existed prior to the recent NCAA sanctions.