Update on cost to Penn State for that abomination in their football program. Massive cumulative amount is in the range of a cost of doing business.

Pennsylvania State University (Penn State). Fisher Fine Arts Library building. Photo courtesy of DollarPhotoClub.com
Pennsylvania State University (Penn State). Fisher Fine Arts Library building. Photo courtesy of DollarPhotoClub.com

The sexual abuse in the Penn State football program has actually had a large dollar cost for the University. Will look at that in a moment and then consider the magnitude of the cost in relation to revenue.

This is in addition to the minor, now-in-the-distant-past, merely-a-cost-of-doing-business penalty paid by the football program itself.  See my previous discussion: NCAA agrees to restore Penn State’s wins. Apparently sanctions for covering up child molestation are merely temporary in addition to being mild.

Financial costs to date

As for the university itself, the AP at USA Today reports Penn State abuse scandal costs approach a quarter-billion. Reported costs are up to about $237,000,000. That’s in the range of a quarter of a billion dollars.

Here is my recap of the costs mentioned in the article, summarized in the way I put them together: 

     $93.0 payments to 33 molested individuals
       48.0 NCAA ‘fine’
       27.0 legal fees to defend lawsuits
       14.0 legal defense costs for criminal defense of three administrators
       12.0 verdict in McQueary whistleblower suit
         5.3 crisis communication and other consultants
         2.4 federal fine for campus crime reporting violations
       65.3 other costs, not described in article
      (30.0) recovery from insurance company
   $237.0 total costs mentioned in article

Just to make sure we understand the severity of the issues under discussion, read that first line again. It says Penn State has settled with 33 individuals. Thirty-three people whose lives have been devastated. 33.

Relative magnitude of costs

Estimated costs of attendance for Pennsylvania residents is in the range of $30,130 to $33,130. Let’s call that $33K.

That means the financial cost of dealing with the evil that was running loose in their football program is roughly comparable to the amount of tuition that 7,200 students would otherwise pay ( $237M / $33K = 7,182 ).

That seems like a lot of money.

On the other hand, the undergraduate attendance at Penn State is 46,606 students. Doing simple math, that suggest the cost is somewhere in the range of something like 15% of one year’s revenue from undergrads ( 7,182 / 46,606  = 15.41% ).

Consider that the molestation occurred over 14 years.

Now amortize that 15% of undergrad revenue over 14 years.

That puts the cost at about 1% per year ( 15.4% / 14 years = 1.1% ). One percent of undergrad revenue. (Revise calculation for portion of students who do not live on campus if you wish.)

You may evaluate that as you wish, but in my opinion (which carries so little weight) it looks to me like that $237M is merely a cost of doing business.

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