Financial fallout for Penn State: $2 billion fundraising drive in danger?
Penn State reports that its seven-year capital campaign has reached 72 percent of its target. But the remaining 28 percent could present a challenge if donors don't rally around Penn State.
The child sex abuse scandal at Penn State University is driving the school into crisis mode: The new president is issuing statements assuring transparency, and the board of trustees just hired the international public relations firm Ketchum, best known for touting consumer brands, to figure out what steps to take next.Skip to next paragraph
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Amid the moves, the question of how the scandal will affect the university’s economic security over the long term is now coming into focus.
Penn State’s athletic program is certainly expected to take a hit. This week, Forbes estimated that the football program, valued at $99 million, will lose $10 million in sponsorships and donations. Moreover, the university’s endowment – often seen as a measure of a school’s brand value – may also be at risk, especially since the scandal is taking place in the middle of a $2 billion fundraising campaign that ends in two years.
Until today, Penn State has not found it difficult to raise money. In September, the university announced its endowment increased by $392 million this year and is currently valued at $1.83 billion. In fact, the university recently broke donation records. They totaled $136 million for fiscal year 2011 – more than the previous two years combined.
But the scandal could slow the flow of money. The university's seven-year capital campaign, designed primarily to fund undergraduate and graduate student scholarships, has hit 72 percent of its $2 billion target, the university reports. Banking the remaining 28 percent may present a significant challenge.
“Right now they probably won’t be asking for money,” says Stacy Palmer, editor of the Chronicle of Philanthropy. “That’s really a tough position to be in when you’re still that far away from your goal and you still have a lot of fundraising to do.”
A representative from Penn State’s office of development did not respond by press time to e-mails and a phone call seeking comment.
Dealing with a crisis while in the midst of a major fundraising effort is not unprecedented. In 2009, as Binghamton University in Vestal, N.Y., embarked on a $95 million campaign, a crisis broke that involved the school administration lowering admissions standards to benefit its Division I basketball team. In the aftermath, the school’s coach and athletic director resigned, and the university fired two assistant coaches, let go several players, and declined postseason play.
Binghamton officials faced the decision about whether or not to continue pushing for donations, but incoming president Peter Magrath says he moved forward. The result: The university exceeded its goal by $5 million in six months. Mr. Magrath says the key was “honesty, being transparent, and answering all the questions.”
“In my view, being open and putting everything out there, not hiding stuff, built trust and credibility. I think it’s absolutely essential in these types of situations,” he says. While he admits that the Penn State situation is unprecedented, he expects the university’s new leadership will slow down, but not necessarily hold back fundraising.