Wednesday, June 6, 2012

The Price of a Scandal

On the eve of jury selection in the Jerry Sandusky child sex abuse trial, Penn State University today provided figures indicating that costs associated with the scandal involving its former assistant football coach are now approaching $10 million.

The $9,631,822 sum covers a five-month period from November through March 31.
The costs reflect payments by the state's public flagship university for legal fees, consultants and public relations firms.

The university has said the money will not come from tuition, taxpayer money or donor gifts.
However, the tally does not capture all costs related to the Sandusky case.
For instance, Penn State has said it will not provide the settlement agreement with former Penn State president Graham Spanier, citing confidentiality language. Nor does the sum include the settlement agreement with late legendary football coach Joe Paterno.

Penn State trustees fired Mr. Paterno and accepted Mr. Spanier's resignation Nov. 9 as the university faced mounting criticism for its failure for a decade to alert law enforcement to one alleged sexual assault by Mr. Sandusky on a boy in a campus shower.

M. Sandusky, 68, is charged with assaulting 10 boys over a 15-year period, including a number on Penn State's campus. His trial is set to begin June 11.

Roughly two-thirds of the updated cost total, or $6,519,946, involves the internal investigation headed by the firm of former FBI Director Louis Freeh, along with crisis communication expenses, according to Penn State data. Firms covered by the total include Freeh Group/Kekst Public Relations; Reed Smith/Ketchum Public Relations; Domus Inc. and the The Academy Group.

Penn State has paid another $1,793,487 for university legal services and defense. That sum includes payments to Saul Ewing; Duane Morris; Lanny J. Davis and Associates; Schnader Harrison Segal & Lewis LLP; Jenner & Block LLP; ML Strategies; Lee, Green & Reiter Inc. and Klink & Co.
Externally initiated investigations account for another $49,788 and include payments to Margolis & Healy.

Penn State said it also has spent $543,079 in legal defense for Mr. Spanier, who is not charged with any crime, and for both Tim Curley, who is on administrative leave as Penn State's athletic director, and Gary Schultz, retired as senior vice president of business and finance, both of whom are charged with one count each of perjury and failure to report.
Penn State said its bylaws state that, except as prohibited by law, "every trustee and officer of the University" is indemnified by Penn State against expenses including counsel fees and financial liability.

The school listed other institutional expenses related to the scandal at $724,623.
Penn State has pledged not to spend tuition revenue, taxpayer dollars or donor gifts on scandal-related expenses and said any costs not covered by insurance will be paid out of a pool of interest income from internal loans. That pool "is in excess of $10 million, " Penn State President Rodney Erickson told the Pittsburgh Post-Gazette on Friday.

The biggest portion is from a loan the university made to the Milton S. Hershey Medical Center for investing in equipment and facilities as the center split from Geisinger Medical Center about 12 years ago, he said. The loan has since been repaid.

Another source involves the $100 million expansion of Beaver Stadium and a loan to the athletic department paid back with interest from ticket sales, club seat leases, sponsorships and other income generated.

Penn State has said it is confident it can absorb all Sandusky related costs, but citing litigation, it has declined to offer public projections of what those costs might be. Bill Schackner: or 412-263-1977.

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