Wednesday, February 25

PS4RS Statement on Olbermann Suspension and 11.9.11 Recalcitrants

"PS4RS is gratified that Keith Olbermann was suspended after his atrocious comments attacking the selfless efforts of Penn State students participating in THON.

Once again, when Penn State has been attacked, Old Main has remained silent while students, alumni and other members of the community have risen to its defense. However, it's important to remember that Olbermann's negative perception of the Penn State community is a direct result of the horrific things that Louis Freeh said about us. Our community will continue to suffer these kinds of attacks until this report is finally thrown on the scrap heap of history where it belongs.

It is in the university's interest to publicly release all of the Freeh-related materials that are being sought by the Paterno et al plaintiffs so that the truth of its creation – the collusion between certain trustees with an agenda, the Freeh Group, and the NCAA – becomes known to all. Hiding these materials serves only the interests of those involved in the report's drafting.

We ask the university to publicly release all materials so the public can judge the veracity of the report for itself. The remaining November 2011 trustees have an irresolvable conflict of interest with the university and must resign.”

Maribeth Roman Schmidt
Penn Staters for Responsible Stewardship

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Public Relations

Sunday, February 15

PETITION: NCAA & B1G should match $60 million for child abuse prevention & research

We call on the NCAA and Big Ten Conference to individually match the penalty monies they imposed on The Pennsylvania State University towards the research, prevention, treatment, and support of Child Sexual Victimization

Sign the petition
Jerry Sandusky used his charity, The Second Mile, to find and abuse what is likely dozens of children over at least 20 years in central Pennsylvania. Many outsiders have come to believe, based on the lies and omissions of the media and the Freeh Report,   that Penn State, especially Joe Paterno, was actively involved in a cover up Sandusky’s crimes.   Moreover, the public was erroneously led to believe that it was Sandusky’s access to Penn State football facilities that enabled his crimes.   In summary, the media and Louis Freeh ignored the facts that didn’t fit the narrative of a Penn State cover-up and in so doing kept the public in the dark about how “pillar of the community” offenders operate. 
The NCAA was one of those who simply went along with Freeh Report, without even reading the report in some cases (see depositions of Bob Williams and Ed Ray).   In July of 2012 they handed down unprecedented sanctions against Penn State Football including a 4 year bowl ban, reduction of scholarships, suspension of transfer restrictions, the creation of an athletics integrity monitor, the stripping of 112 victories, and of course a $60 million fine to be used towards child sexual abuse charities. The President of the NCAA stated that Penn State caused “damage” to the victims and their families when announcing the sanctions:
“The Penn State case has provoked in all of us deeply powerful emotions and shaken our most fundamental confidence in many ways. As we – the Executive Committee, the Division I Board and I – have examined and discussed this case, we have kept foremost in our thoughts the tragic damage that has been done to the victims and their families.”
The Big Ten took the opportunity to add to the punishment, instituting censure, probation, ineligibility for the conference championship, and an addition fine equal to 4 years of B1G bowl revenue or approximately $13M. Their statement noted that Penn State damaged the victims and their families:
“We must begin first and foremost, by again expressing our great sorrow for all of those whose lives have been so grievously harmed by the series of failures at Penn State University, particularly the lives of the young victims and their families.”
Many sources have since documented the massive failings of both Freeh’s methodology and conclusions. The Prosecutor in the case, Frank Fina, explicitly stated that no evidence was found to indicate Paterno was involved in any cover up -- and he had vastly more access to evidence than Freeh . Through multiple lawsuits and RTKL requests related to the issue, evidence has since come to light that Freeh was neither independent, nor thorough and due to this, the NCAA and B1G sanctions which were based on the Freeh report have been mostly rescinded. Documents made public in the Corman v. NCAA lawsuit showed that the NCAA and B1G regularly collaborated and guided Freeh, even going so far as to call their move for the consent decree a “bluff.”  The recent settlement in Corman & McCord v. NCAA (which was attempting to keep all fines paid by Penn State within the Commonwealth) restored Joe Paterno & Tom Bradley’s wins, the last of the “on-field” sanctions, but the fine was left in place along with the monitor. More recently the B1G has now stated that Penn State will again receive its full share of bowl revenue.
The only way to logically view such capitulation is that the NCAA and B1G are admitting they had little power to do what they did, and did not want an actual trial to reveal such a fact, or worse.  Unfortunately for them there is still a trial pending, and one they likely can’t avoid, brought by the estate of Joe Paterno.
Interestingly the recent release of almost 5000 pages of evidence in the Corman suit revealed one strategy the NCAA was using to attempt to fight the suit was attempting to embarrass Senator Corman by suggesting the  $60 million meant for children’s programs would be delayed or even removed entirely if he won his suit.  Ironically it was the NCAA’s own lawyers who brought the validity of the sanctions into play and thus the possibility of removal of the money, as Senator Corman was only arguing for the money to stay in state. Per the deposition of Senator Corman by NCAA lawyers:
Q: “Have you explained to anybody outside this room that you're seeking to invalidate the consent decree and that the result of what you're asking for would be no money to the victims and child abuse organizations here in the State of Pennsylvania?”
Judge Ann Covey duly noted previously however that absolutely nothing was stopping either the NCAA or anyone else for that matter from pro-actively donating their own monies towards “child abuse organizations here in the State of Pennsylvania.”  To wit:
“At no time did the court ever deny the NCAA from making contributions to organizations that assist victims of abuse. I have one question: Why hasn't the NCAA honored its original intent of having $60 million go nationwide to assist children who are sexually abused?"
Not only was there no reason that the NCAA or any other concerned party could have donated monies to help child sexual abuse causes, the actual agreement upon which the $60 million was based contained no governance language which stated the NCAA would control the fine, or that it would be used nationally as opposed to in Pennsylvania. Therefore it was actually the NCAA itself what was preventing the monies from being distributed by suing to use the money as they pleased.
The NCAA is a huge corporate entity that generates billions of dollars of revenue. The recent College Football Playoff contract signed with ESPN in 2012 was a 12 year deal for more than $5.6B.  In 2010 the NCAA signed a 14 year deal with CBS/Turner to broadcast the NCAA Basketball tournament for almost $11B According to a USA Today story, the NCAA had over $900M in revenue for fiscal 2013, net assets of $627M (including an endowment of $326M), and a $61M surplus.
That’s a $61M surplus for a “non-profit” entity.
The B1G is a similarly successful entity, reporting revenues of approximately $315M, and an after tax profit of $13.4M in 2013. Not surprisingly both the head of the B1G and NCAA, Jim Delaney and Mark Emmert, got hefty raises for such performance.
For these reasons we call on the NCAA and Big Ten, individually, to match the funds that Penn State Athletics is providing towards the research, prevention, and treatment of child sexual abuse.    
Sign the petition

Tuesday, February 10

Bad Faith, Addendum 2: Unintended Costs of the Railroading of PSU

When the BOT inner circle reached its "bad faith agreement" with the NCAA on the Consent Decree, it is likely that they thought the University would incur very little in the way of future expenses.  They were wrong, mostly because they believed their own hype.

Ray Blehar

According to PSU's progress web-site, as of June 30, 2014, the University incurred $79.7 million in expenses not including settlement of claims related to the Sandusky crimes.  Adding the settlements of $59.7 million, the current tab for the scandal is $139.4 million.  However, that does not include the additional $36 million in payments/donations owed from the lNCAA/Corman settlement.  

Adding those brings the total cost to $175.4 million... and counting.  But that figure is an illusion.  The cost to PSU is far lower -- but still a lot more than the BOT inner circle ever expected.

The BOT Inner Circle Misjudged Costs of Scandal
Based on the earliest accounting available, it is reasonable to estimate the scandal's expenses were in the $15 million dollar range when Erickson signed his name on the dotted line on July 23rd, 2012.  

It is also very likely that he and the cabal of Board members didn't believe that the scandal expenses would move much farther beyond that.  They believed they convinced everyone that there was a PSU cover up and that all future litigation in the matter was closed. 

To review, the BOT inner circle:
  • Created a narrative that the PSU "culture" was to blame for enabling Sandusky's crimes;
  • Hired Louis Freeh to conduct a phony investigation and create a report to justify their actions of firing Paterno and Spanier -- and to further indict the PSU culture.
  • Got the NCAA to repeat the "culture" narrative and to praise them for their actions that (allegedly) "saved" PSU football; and, 
  • Attempted to cut off future challenges to the consent decree by giving up PSU's rights to appeal to the NCAA or take other legal actions. 
The BOT inner circle, apparently believing the stuff they were shoveling, likely thought the only things left to happen after the consent decree was signed was that the "moving forward" train would leave the station and that everyone would jump on board.   

As Karen Peetz mistakenly stated, "by the time someone gets here in 2014, it will just be a distant memory." 

Their mistaken beliefs would cost PSU millions.

OOPS!  The Scandal Won't Cost PSU Anything

Unfortunately, the "smartest people in the room" were not only foolish to believe their own hype about the PSU culture being responsible for Sandusky,  but they were also foolish enough to believe their faulty assumptions about the costs of the scandal.  

According to a media source, PSU spokesperson David LaTorre stated that the scandal wouldn't cost PSU anything.  The University stated the situation a bit more eloquently.

"The University maintains General Liability and Directors & Officers insurance policies which are expected to cover the defense of claims brought against the University and its officers, employees and trustees. Legal and other expenses not covered by insurance are expected to be funded from interest revenues related to loans made by the University to its self-supporting units. As a common business practice, the central University -- which has the ability to finance bonds backed by its credit rating --is able to loan its self-supporting units money for special projects. These units do not have their own borrowing authority, but they are all part of the University's credit profile. As an example, in the case of the most recent $100 million Beaver Stadium expansion, the University bore the risk to finance a bond at a variable rate during a favorable financial period. The University then loaned funds at a fixed interest rate to Intercollegiate Athletics, which then repaid the loan with interest from its ticket sales, club seats leases, sponsorships and other income generated. The interest from this loan is then placed into a fund that can be used for more projects in the future or in emergency situations. Therefore, uninsured expenses can be covered by this interest and will not be funded by student tuition, taxpayer funds or donations. Compensation paid to all such attorneys, consultants and firms will be regularly updated and all expenses are audited."

The interest expected from the series of loans to PSU athletics is estimated at $43 million over the terms of the loans.  As the accounting shows, however, the university did not issue bonds and instead used funds from the institutional support budget.  That decision was likely driven by the fact that there were too many eyes watching the Board's every move.

Regardless of how the costs were funded, they total at around $32 million -- which is a lot more than zero.  

Sandusky Injury Claims ($59.7 Million and Counting)

Lubert's sub-committee blew it.
The legal and compliance sub-committee of the PSU BOT culminated research it began in February 2012 and in October 2012 the Board approved a resolution which stated the University was liable for injuries suffered as a result of the crimes of Gerald Sandusky.  Among the many reasons why this was a bad decision, the foremost was that the decision was made under the premise that  PSU's insurer would reimburse the University for the claims (up to the specified coverage limits).  The insurer, the Pennsylvania Manufacturer's Association (PMA) Insurance Company, denied the claims.  PSU sued and the case is scheduled to go to trial in March 2015. 

The "plain language" of PSU's policy indicates that the University will lose.  Molestation and sex abuse aren't  covered.  

Also, there are three pending cases against PSU regarding the Sandusky case -- all which rely heavily on the Freeh Report as evidence that the University was at fault for Sandusky.  These are civil cases and the burden of proof is on the victims to show a preponderance of evidence supporting their respective cases (that PSU was a "third party" who contributed to or facilitated the crimes).   Obviously, the attorneys will also point to the language of the BOT's resolution that states the University is liable.   

PSU isn't looking good in these cases and they know it.  According to PSU's 2013 financial statements (p. 36), the University believes "a loss is reasonably possible in future periods which could have a material adverse effect on our current and future financial position, results of operations and cash flows."   

NCAA/PSU Unexpected Litigation Expenses ($8 million)

Given that the consent decree contained derogatory/defamatory statements about Paterno and other PSU leaders, it provided grounds for those individuals to sue for damages.  The Board's inner circle and the NCAA's belief a single sentence in the consent decree could stop damaged parties from litigating was rather foolish to say the least.  

The group of litigants claiming damages because of the University's, Freeh's, and NCAA's statements and actions include: Mike McQueary, Bill Kenney and Jay Paterno, the Paterno Family (et al), and Graham Spanier.   

As mentioned earlier, the BOT inner circle also erred in concluding that insurance would pay for Sandusky claims.  As a result, it hired Jenner & Block, LLP and Lee, Green & Reiter Inc. to litigate the PMA lawsuit.  

The legal tab incurred by PSU since the outset of the scandal is approximately $17 million. About half of those costs were unexpected.

Externally Initiated Investigations ($4.5 million)

The costs for externally initiated investigations has exploded since July 2013, when they were just $842 thousand.  Those costs were inclusive of the services provided by Margolis and Healy for consulting on Clery Act compliance.  The Department of Education issued its initial Clery Act compliance report in July 2013.  In addition, those costs included the services of Gene Marsh, who was brought in allegedly negotiate with the NCAA.

In August 2013, PSU released another statement revealing externally initiated investigations cost PSU about $1.1 million.   However, as of June 30, 2014, the cost of those investigations reached a whopping $5.6 million.  

Based on the firms listed, the monies are being paid to Buchanan Ingersoll, a governance consulting firm (but not Holly Gregory's)  and the law firm of Saul Ewing.  Saul Ewing holds the documents and related information related to the Freeh Report and has been supporting civil litigation efforts since the early days of the scandal.  The costs related to civil litigation and hiding the truth about the Freeh Report have escalated as the litigation efforts continue.  Given that some of  these cases are tied to Sandusky's criminal acts and some may be eventually be tied to criminal acts, it is unlikely that D & O insurance will cover the costs.

Indemnified Persons' Legal Defense ($4.1 million)

According to documents uncovered in the investigation, prosecutor Frank Fina advised PSU officials that he expected "C + S to flip" on Spanier.   Had that happened, the costs for the legal defense of the indemnified persons would have been much lower.  The Curley, Schultz, and Spanier cases would have been resolved by now, Spanier would have a criminal record, and the University would been done paying legal fees for indemnified individuals.  

Of course, none of that happened.

Much to the chagrin of Frank Fina and the BOT,
PSU officials have maintained their innocence. 
The three former PSU administrators have maintained their innocence and continue to fight in the courts.  

As of December 31, 2012 -- about two months after the OAG issued the Conspiracy of Silence grand jury presentment, the cost of indemnified persons defense was $5.8 million.  At the last accounting the cost was $9.9 million and counting as more Penn State officers file lawsuits.

Public Relations (Unexpected Direct Costs, $3M) 

Freeh, like Mitchell, was hired for PR purposes.
Considering that the hiring of Freeh and George Mitchell were nothing more than public relations ploys, the cost of PR for the scandal has reached $20.7 million.  Not so ironically, in the earliest accounting for the scandal, the Freeh investigation and public relations costs were combined in the same category.  

In February 2012, that total was $5.75 million.   However, the costs of Freeh and Mitchell ($11.6 million) were expected at the time of the consent decree.

As noted above, the OAG and PSU expected one or more of the PSU officials to roll and bring an end to the scandal and its related costs.  The cost of PR calculated at the end of 2012 was $6.2 million.  PR costs have now unexpectedly reached $9.2 million

Firms providing early PR support were:  Reed Smith LLP, Ketchum, Kekst and Company Inc. and Domus Incorporated.   Firms added in April 2012  at a cost of $2.5 million for a 12 month period were: Daniel J. Edelman, Incorporated and La Torre Communications.

It is notable that Edelman's advice to PSU is likely to cost more than 40 times what the firm was  paid.  Here are his remarks from August 2012 about PSU's consistent messaging.

"Look, the school has lived through three major news cycles in the 
last two months, the Sandusky trial and verdict, the Freeh report, and then the NCAA

sanctions. In all three of these situations we've been responding to events not in control of

the events, but in each situation we've been able to provide consistent messages.

"And those are as follows: First, we take responsibility to insure this sort of thing

never happens again, and that we are going to fix the shortcomings so we're a stronger
institution in the future. 

"Second, we're committed to developing and supporting specific programs to protect children on and off campus.

Edelman: Learned nothing from Duke
"Third, we have a plan to improve the school's governance which will be informed in part by the Freeh Report's recommendations and will make this great University even greater in the future. This University has received praise in many corners in the past two months, despite these three big events in the sense that you have been willing to hold nothing back in the investigation and to take very strong actions, such as the removal of the statue in front of the football stadium prior to the NCAA sanctions.

In summary, Edelman's consistent message was to confirm that Penn State and Paterno was responsible for Sandusky's actions.   It should be noted that Edelman also advised the Duke administration's public relations efforts after the rape allegations lodged against its lacrosse team.  In that case, he relied on the media and the court of public opinion to form his beliefs and suggested that it might be right for Duke to do the same.  

It seems some people never learn from the past.


At this point in time, the unexpected costs for the scandal are $75.2 million -- well over the $44 million in interest that the University expected to cover everything.  Of course, those costs will continue to rise as the litigation continues and more potential lawsuits are filed over a variety of issues related to the Board's continued poor decision making.

Clearly, the BOT inner circle's analyses were flawed when they underestimated the direct costs (and indirect costs) of the scandal.  The only thing they may have underestimated worse was the resolve and intelligence of the University's alumni.

Next: Underestimating the alumni.