Trustee decision on settlement driven by secrecy, self-interest, and football

Yesterday's decision by the intransigent "Gang of 19" was secretive, self-serving.

By
Ray Blehar

After taking some time to reflect on yesterday's decision by the PSU BOT, it comes as no surprise that the 11/9/11 trustees and their "Praetorian Guard" (a.k.a., the Gang of 19) used that vote as a means to avoid discovery in the Corman v. NCAA  lawsuit.  If a settlement is reached without going through the discovery, another avenue for finding out the real story behind the NCAA Consent Decree will be shut off.   

The Corman suit was imminent and would have perhaps revealed some of the behind the scenes negotiating and deal making between the BOT inner circle and the NCAA.   With that lawsuit in the rear view mirror, the PSU legal counsel will keep up its fight to avoid turning over information pertaining to the Paterno v. NCAA lawsuit.

BOT Secrecy

Recall that in November 2011, in the immediate aftermath of the Sandusky scandal, the PSU BOT promised to be more open and transparent and in February 2012 launched its openness web-site.  However, when the alumni started asking the tough questions during Erickson's "listening tour" and during time provided at PSU BOT meetings, the Board quickly retreated from its openness position.   As we know from the efforts of Ryan Bagwell, Bill Cluck, and others, Penn State is not about to make an exception about being exempt from the Right-To-Know law and it will attempt to use attorney-client privilege whenever possible to avoid revealing information about its activities.  

Eckel: Protect board reform
discussions by using
attorney-client  privilege

In September 2013, board member Keith Eckel, who chairs the Committee on Governance and Long Range Planning, recommended that the governance consultant hired by Penn State be an attorney so that all discussions would be protected by attorney-client privilege.  

Of course, Eckel is a piker when compared to Kenneth Frazier.  Frazier, who was the General Counsel for Merck when it defended against the Vioxx lawsuits, attempted to preclude all Merck communications that went to its legal department from discovery under the auspices of attorney-client privilege.  The judge in the case, Eldon E. Fallon, rejected the argument and ruled that attorney-client privilege must be determined on a document-by-document basis.  Merck made several other arguments attempting to "blanket" protect information from discovery and those too were rejected by Judge Fallon.

Frazier:  Behind the A/C
privilege moves?

Frazier was elected as a Business and Industry trustee on July 1, 2009 -- not long after the Sandusky investigation had been put before a grand jury.  I'm certainly not implying any connection between Frazier's election to the board and the Sandusky investigation, however the evidence on how PSU responded to grand jury subpoenas indicates that Frazier may have been advising then-PSU General Counsel Cynthia Baldwin on how to avoid turning over information.  

Prosecutor Frank Fina's letter of December 19, 2011 (see exhibit O) admonished Baldwin and PSU for attempting to perform its privilege review without law enforcement supervision.  As Fina rightly stated, that procedure completely defeats the purpose of the subpoena, which was to ensure that materials are gathered in their "natural and unaltered state."

Baldwin: Ultimately responsible for
grand jury subpoena non-compliance

Right-To-Know (RTK) emails obtained from the PA Department of Education revealed that Frazier, Tomalis, and others involved in the Special Investigations Task Force had several discussions about the Fina letter regarding "Grand Jury Subpoena Compliance."  Frazier remarked that he believed there were "issues with the incumbent" (Baldwin).  

Baldwin announced her retirement just one month later in January 2012, with the press reporting her retirement was not related to the Sandusky scandal.  The Fina letter and subsequent email evidence suggests the opposite.

The value of the RTK efforts of Bagwell and Cluck cannot be overstated.  Those efforts have provided the PSU Community with considerable insights into the behind the scenes activities of the Board, the Board's attitude toward the alumni, and the cooperation between the Freeh group and the Attorney General during Freeh's so-called "independent" investigation.  

There is no doubt that the lid is being lifted off what happened at PSU and there really is nothing that the PSU BOT or General Counsel Steve Dunham can do to stop it.  The most positive outcome of yesterday's meeting was that the Alumni Trustees got those who want to maintain secrecy on the record.  While the vote will go down as a vote on a settlement resolution, the real issue that brought the NCAA to the settlement table was undoubtedly discovery in the Corman case.  Secondarily, the Gang of 19 and the NCAA also want to avoid getting egg on their collective faces from a ruling that would invalidate the Consent Decree.

Good Public Relations for the BOT, Not Penn State

The Board's handling of the Sandusky scandal was rated as the top public relations disaster for 2011 and 2012.  Dozens of media outlets wrote stories on how badly the University had mangled the communications, despite the fact the PSU has one of the top communications programs in the country.  

PSU's Dr. Donald Hambrick,
World Renowned Mgmt Expert

That irony shouldn't be lost on any of us, considering that PSU has one of the foremost management experts, Dr. Donald Hambrick, of the Smeal College of Business on staff, yet PSU's management of the University since 11/9/11 has been disastrous.  One would think the Board would be wise enough to turn to some of PSU's own in-house experts for help, but as the evidence has revealed, the Gang of 19 (and it's 11/9/11 predecessors) know what's in the best interest of PSU.  

The Gang of 19's PR efforts can be summed up rather simply.  Make sure that the public knows just how horrible things are at PSU right now and that the University is so fortunate to have a  Board that will fix everything.  Translation: the Board doesn't mind trashing the University, so long as an occasional crumb of good news is written about them.

The most recent example of this was the decision to include the Sandusky crime statistics in the data for 2012, rather than in the years the crimes actually occurred.  30 of the 63 crimes reported for 2012 happened between 1970 and 2011, according to campus safety officer, Gabe Gates.  The overall result of that decision was to (artificially)  thrust into the top position among U.S. colleges and universities for having an unsafe campus environment in the total number of forcible sex offenses for the years 2010-2012.  PSU PR employee, Lisa Powers, remarked that PSU didn't mind the "additional scrutiny" if it meant that the University could "share its best practices."  I'm sure other universities and colleges are beating down the BOT's doors to learn from them.

Seriously?  You can't make this stuff up. 

Moving along to the issue of the Consent Decree, several of the Gang of 19, including Keith Eckel, Kathleen Casey, and Richard Dandrea, stated that one of the reasons the Board should not strike the language about complying with the Consent Decree was that "we" (meaning, "they") had made such progress that it would be wrong to turn back now and send the wrong message about Penn State.  

Cutting to the chase, the Gang was clearly focused on what they believe will be a positive report from former Senator George Mitchell and the positive publicity it will generate about the alleged improvements at PSU.

Mitchell: AIA mointor or PR for BOT?

I anxiously await the report by Senator Mitchell to see if the Board has reigned him in and kept him focused on his role to monitor the 8 of 9 recommendations in the Athletic Integrity Agreement.  Note that recommendation 5.4 Academic Support for Athletes was completed in June 2012 -- before the Consent Decree existed.  In other words,  the inner circle and Erickson accepted a recommendation that they knew wasn't applicable at the time the CD was signed.  The other eight weren't exactly necessary either in terms of improving things, but needed to support the fallacy fixing our "integrity" problems.

If Mitchell's upcoming report is like the previous one, it will be well outside the scope of the AIA and give the Board pats on the back for everything and anything it accomplished.  I also suspect that Mitchell will not be so forthcoming in reporting the "warts" that have popped up since his last report, such as Emmanuil Kaidanov's lawsuit against Dave Joyner and Julie Del Giorno.  The lawsuit maintains that Joyner and Del Giorno fired Kaidanov in part because he was complying with an NCAA rule that required him to investigate potential NCAA violations by one of his athletes.

As the Alumni trustees rightly pointed out, Penn State has been doing things the right way for the last 61 years not just the last two. Penn State football was recognized by Miles Brand, former NCAA president, as the model for combining academics and athletics.  It wasn't just Brand who knew this.  Everyone knew it.  And that is why there is such a gulf right now.  When Mark Emmert condemned the PSU culture, his statements were based on the fallacies contained in the Freeh Report.  PSU alumni will fight everyday (until we die) against having to live a lie.

The Gang of 19 has fully bought into the lies of the Freeh Report and, by extension, the NCAA Consent Decree, as a means glorify their role in "fixing" the culture at PSU.

Blinded by Bowl Games

Closely related to the Gang of 19's desire for the positive report from former Senator Mitchell, was their expectation that the report would also bring relief from some of the sanctions.  Most likely among the relied would be the lifting of the bowl ban and the restoration of a few scholarships.  This too would result in positive publicity on the sports pages for the Gang, but as is typically the case, would dredge up the false narrative of how the football program put its success above the welfare of children.

Perhaps the most interesting comments of the day were made by Gubernatorial Appointee, Kathleen Casey, who said this:

Kathleen Casey: NCAA is her client?

" I think that if the removal of this language is to suggest that we would be backing away from the continued commitment to full compliance with the consent agreement, I think that'd be a horrible message to send, at a time when, again, they're looking at the prospects of additional relief and this relief is not efemoral (sic). This is real, I don't disagree with, I understand very deeply the, the issues that have been raised about some of the alumni. The search for truth and the desire for so greater accounting. What I'd also say though, I can't believe that would result in a statement today that we are disavowing our continued commitment to the clients."

Commitment to the clients?  Is Kathleen Casey actually saying our "independent monitor" (Mitchell) is a client? And the plural statement also implies she views the NCAA as a client, as well.

We understood that Louis Freeh was legally a client of the BOT, but now we've just gone into a whole new realm of understanding the perceptions and priorities of Ms. Casey - and it's rather disturbing.  While she understands deeply the issues of the 600,000 alumni, we're just the cattle. The persons we need to please are George Mitchell and Mark Emmert.  I think that's the message here and given what has transpired over the last two years, she's not the only one of the Gang who believes that.

To summarize, the wishes of the alumni "for truth and the desire for greater accounting" shall be trumped by the good publicity generated by the roll back of a few sanctions.  That is not just Casey's view, but also made clear by Dandrea and Eckel.

As Lubrano succinctly put it, "trading integrity for football.We're not interested in becoming that."

Financial Impacts

Goldstein, Lord, and Lubrano also brought up the financial side of the decision, with Goldstein making the cogent argument that more time should be spent to analyze the outcome of this decison.  Lord said it was far more than a $5 to $15 million decision and rather another $100 million  decision.  

Clearly, the Gang of 19, and their predecessors no the 11/9/11 Board had little appreciation of the financial impact of their decisions.  John Surma's remarks on that fateful day was that the board made the best decision to serve the "long term interest" of the University. 

That ill-fated decision to fire Paterno and Spanier and tacitly admit guilt for enabling Sandusky's crimes is nearing $200 million in additional costs in fines, consulting and legal fees. A November 2013 accounting by the Pittsburgh Post-Gazette put the total at $171 million.  

The 11/9/11 trustees also erred in concluding that the victim settlements would be paid by PSU's insurer - The Pennsylvania Manufacturer's Association Insurance Company.   The policy in effect specifically excluded payments for sexual abuse and molestation.  As a result, the $59.7 million in settlements paid to the victims were from University funds.  The University is suing in an attempt to recover the monies, but has little chance of winning the lawsuit.  Its policy which has been in effect since 1992 states that sexual abuse and molestation is not covered.

The other side of this equation are revenue declines, which are not just related to athletics but to overall giving to the University.  The issue of openness and transparency rears its head here  as well, because the AD didn't publish its Nittany Lion Club renewal information for 2013 and 2014.

Nittany Lion Club

Once upon a time, the NLC would provide a letter or email each year updating the NLC membership and point standings. That allowed members to gauge were they might fall in the pecking order for seating and purchase of away game and bowl tickets.  

The latest figures from the NLC only cover the years 2008 to 2012 and they revealed a decline of nearly 1,500 members in the NLC from 2011 to 2012.  

Also, note that 2011, the first year of STEP, showed a spike in lower level contributors.  That is exactly what STEP was supposed to encourage - bringing new fans to Beaver Stadium using the lure of premium seating.  But it appears that 2011 was a fleeting success, as the sour taste of 11/9/11 surely had much to do with the decline from 2011 to 2012.  We are left to wonder where membership was in 2013 and 2014.

Merchandising

Merchandising is a rather important metric because it is a gauge of perceptions about the University.  If people like you, they buy your t-shirt.  T-shirt sales are down.

From 2011 to 2013, Penn State fell from #10 to #19.  Interestingly, from 2011 to 2012, PSU had fallen just two spots to #12, but when the Freeh Report went unchallenged, which by extension meant that the Board allowed PSU's reputation to be smeared, the bottom fell out.  In terms of dollars, PSU 2013 revenues from merchandising, royalties, advertising, and licensing came in around $5.1M.   

On a related note, local businesses reported a 20% drop in revenues since the scandal.  This was noted in the film,  365 Days: A Year in Happy Valley.

Ticket Sales

Attendance has been on a constant decline since peakng in 2007, however the drop off from 2012 to 2013 was visible to the naked eye.  One only need to look around Beaver Stadium in 2013 to get a reminder of what the 11/9/11 decision meant to PSU's once loyal fan base.  For most games, the tops of the both the East and West stands were vacant as were patches of premium seats around mid-field.  The upper decks were perhaps 2/3 full (for most games).  The AD reported that the average attendance from 2012 to 2013 dropped by only about 143 fans per game, from 96,587 per game  to the 2012 average of 96,730.  Who should we believe, the AD or our own eyes?  

Donations

Overall donations to the PSU athletics fell from $34.2 million to $25.5 million between 2011 and 2012.  In 2013, it fell by $1.1 million to $24.4 million. 

2013 PSU Report on Philanthropy and Giving

Penn State took a rather dramatic decrease in gifts and endowments from 2011 to 2012.  The major spike in 2011 was due to a very good year in bringing in new commitments. On average, there are about $275 million new commitments per year, but in 2011 that spiked to $353.3 million. The decline from 2012 to 2013 was very modest and appears to be a return to "normalcy" if viewed optimistically.  However, it is also possible that 2011 could have been the "new normal," but the Sandusky scandal took away those gains.

Sanctions Impact Will Be Felt Long After 2016

Yesterday, Eckel and others were equally oblivious in their assessment that the settlement decision was a short term deal and that the end of the sanctions is just around the corner.    Eckel also opined to fight the NCAA though litigation would drag on for years and that PSU is better off to get this behind them.

Earth to Eckel -- most any litigation would end long before the "punishment" ends for the Athletic Department -- and that punishment was given to the AD by the 11/9/11 Board, not the NCAA.

The reality of the situation is if things go as planned, the AD will be done paying on its loans related to the scandal in 2047.  That would be the end date of the internal loans that PSU would provide to the AD to finance the fines.  A quick back of the envelope accounting reveals that providing the AD a 3% interest loan over 30 years would result in the AD paying out about $3M annually in principle and interest on the loan.  That's $3M off the bottom line and essentially offsets the average Big Ten annual bowl revenue share.

Rejecting the Consent Decree Remains As The Right Decision

Complete rejection of the Consent Decree results in savings of $60M to PSU immediately and turns what would be a zero net gain in bowl revenue over the next 35 years into a positive cash flow.  

It seems that the Gang of 19 (and their predecessors) don't have any appreciation of the concept of fiduciary responsibility.  The simple math here is $60M vs. $10-15M.  Reject the consent decree and PSU keeps its money and only taking a small hit for the remaining bowl revenue loss.  Part of the rejection of the CD would also be terminating Mitchell from his unneeded role as AIA monitor.  Perhaps, Mitchell could offer his services elsewhere.  I hear the Governor is looking for a new education advisor to replace Ron Tomalis.

Yesterday was a major opportunity lost.  

The Commonwealth court drove the need for the settlement discussion when it questioned the validity of the CD.  Even the dissenting judge on the panel remarked that spending the previous agreement by the Board to pay the $60 million in fines was a violation of fiduciary responsibility as the purpose was outside the mission of education.

The NCAA is taking arrows from all sides and the public's opinion of it as an organization couldn't be lower.  It was time for the Board to take a stand.   

Telling the NCAA to take a flying leap would have also done wonders to repair the damage between the Board and PSU alumni, fans, and friends.  

People who are withholding donations would again open up their wallets.  Those of us who decided to forego our "extra" football tickets would likely buy them back.  Quite honestly, that decision would have moved PSU toward real unification for the first time since 11/9/11.

But it was not to be.  

Secrecy and self-interest is standing in the way.

Senator Yudichak sees what we all see.

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