Over the course of the last several months, there has certainly been a public outcry regarding the acts and omissions that allegedly occurred at Pennsylvania State University (“Penn State”).  First, the public hurt for the victims associated with the heinous acts attributed to Jerry Sandusky.  Then, the public bemoaned the purported acts of administrators that allegedly covered up the heinous acts.  Penn State administrators are awaiting their day in court and have publicly indicated they were unaware of the acts of Jerry Sandusky.

In an unprecedented move, the NCAA mandated historic sanctions on Penn State that are more thoroughly addressed here.  Several politicians in Pennsylvania and members of the Board of Trustees at Penn State have challenged the NCAA’s authority to render the sanctions against Penn State and have challenged the Consent Decree.  Pennsylvania Governor Thomas W. Corbett, Jr. has joined those denouncing the authority of the NCAA to issue these sanctions.  On January 2, 2013, the Commonwealth of Pennsylvania filed antitrust litigation in United States District Court, Middle District of Pennsylvania.

The lawsuit calls Penn State football an “important economic engine supporting Pennsylvanians across the Commonwealth” and complains that the NCAA arbitrarily and capriciously applied its enforcement power without processing the matter through the NCAA enforcement procedures.  Further, the lawsuit argues that the NCAA’s actions were not tied to NCAA legislation, but were taken “to burnish its own often derided public reputation.”  The lawsuit also claims “[i]nstead of allowing the justice system to resolve this series of events, the NCAA used Penn State’s tarnished public image as an opportunity to force the university to endure harsh, unjustified, and unprecedented punishments…without citing a single concrete NCAA rule that Penn State has broken.”

The lawsuit went to great lengths to present Dr. Mark Emmert as a man on a mission to clean up the reputation of the NCAA as soft on punishment and to profit from big-time college sports.  The lawsuit states “given the NCAA’s pivotal role in creating and profiting from the ‘culture’ it now decries, its stated justification for its attack on Penn State and the Commonwealth must be viewed as a pretext for the real motives of the NCAA and its president: the opportunity to gain leverage in the court of public opinion, boost the reputation and power of the NCAA’s president, enhance the competitive position of certain NCAA members, and weaken a fellow competitor.”

The Commonwealth of Pennsylvania claims “[t]he football program was found to create approximately 2,200 jobs for hardworking Pennsylvanians both direct jobs, such as box office and concessions staff, ushers, and parking attendants, and indirect jobs, ranging from shopkeepers to restaurant staff to housekeepers at local hotels.”  The antitrust complaint filed pursuant to Section 1 of the Sherman Act sets forth three relevant markets harmed by the NCAA’s actions with a nationwide geographic scope: 1) a market for postsecondary education; 2) a market for Division I football players; and 3) a market for the sale of college football-related apparel and memorabilia.

The lawsuit cites the following irreparable damages suffered by the Commonwealth of Pennsylvania based on the sanctions mandated by the NCAA on Penn State:

1.  A decline in the success of the football team during the four-year period in which the sanctions are imposed, as a direct result of the reduction in the number of available scholarships, the inability of Penn State to promise high school recruits that they will have the opportunity to compete for a national championship, and the ability of existing Penn State players to transfer to other schools without penalty or to leave the Penn State football team without losing their athletic scholarships.

2.  A decrease in the success of the football team beyond the four-year period in which the sanctions are imposed. The effects of the sanctions are likely to become more pronounced with each progressive year during the period of the sanctions as an increasing number of “blue chip” recruits shun Penn State for other programs that do not face Penn State’s competitive disadvantages. By the time the sanctions period is complete, the anticompetitive harm inflicted by the NCAA will have caused severe damage to Penn State football, and the program that once attracted recruits from across the nation will be unrecognizable to a new generation of high school football players who can remember Penn State only as a noncompetitive program. This is precisely what happened when the NCAA imposed the “death penalty” at Southern Methodist University for only a single season. The team had only one winning season over the following twenty years.

3.  A significant decline in the Penn State football program’s role as a revenue-generator for the university. As a result of the loss of revenue, Penn State necessarily will be required to either (i) reduce the availability and/or quality of some of its programs and/or (ii) raise tuition, either of which will necessarily have an adverse effect on Penn State’s status as a first-rate university and on Penn State’s ability to attract the quality and quantity of student body that has contributed to Penn State’s success. These effects, in turn, can be expected to harm the university’s ability to compete for high-quality faculty and research programs, which in turn will further affect Penn State’s attractiveness to incoming students, creating a downward spiral. Indeed, there is already empirical evidence of this harm. According to one recent news report, Penn State’s football program has already dropped significantly in profits in 2011-2012: “Perhaps most glaringly absent from the top 10 most profitable programs is Penn State, which held the second spot just a year ago and third the previous year. After a tumultuous year off the field, Penn State fell to 11th place” with a 10% decrease in revenue.

4.  Reduced alumni interest in the Penn State football program, which will likely result in reduced alumni contributions to Penn State.

5.  Irreparable injury to the quality of campus life at Penn State. For more than forty years, Penn State has rallied around its football team, and the role that Penn State football plays in campus life has been important to Penn State’s ability to attract students from within and outside the Commonwealth. The inevitable decline in the football program that will result from the NCAA sanctions threatens to significantly and irreparably injure Penn State’s use of this invaluable recruiting tool.

6.  Irreparable injury to the “brand” of Penn State football. As the fate of the football program on the field declines, apparel and memorabilia sales can be expected to decline as well. As difficult as it will be to rebuild the on-field success of Penn State football, rebuilding of the Penn State football “brand” will be far more difficult, and will take far longer, than reassembling a winning football team.

The lawsuit also claims the NCAA’s sanctions of Penn State inflict and/or threaten to inflict the following harm:

1.  Harm to the many Pennsylvania citizens who depend heavily on the Penn State football program for their jobs and livelihoods, ranging from souvenir vendors to hotel and restaurant employees to tuition-paying students.

2.  Harm to the state revenue base from diminished football ticket sales. Attendance at home football games is substantially down in 2012 as compared to recent years, and Penn State’s inability to sell out home games necessarily has an economic effect on the secondary market for tickets.

3.  Harm to the state revenue base from lessened hospitality revenue due to fewer visitors to the Commonwealth on game weekends, as well as a substantial reduction in apparel and memorabilia sales.

4.  Harm to the state revenue base, and especially to Penn State related businesses, from the four-year postseason football ban and the vacation of all football wins between 1998 and 2011, further reducing hospitality revenue and substantially reducing apparel and memorabilia sales, including the highly lucrative sales of bowl-related apparel and memorabilia.

5.  Harm to the state revenue base from the expected decline in jobs attributable to a diminished football program, in the form of loss of recirculation within the Commonwealth of income lost as a result of these lost jobs.

6.  Harm to the state revenue base from diminished spending by Penn State on capital improvements, goods, services, and supplies.

7.  Harm to the state revenue base from diminished interest in and attendance at collateral Penn State football events, such as summer football camps, fantasy camps, and coaches’ clinics, all of which generate substantial attendance from out-of-state visitors.

8.  Additional harm to the Commonwealth from the $60 million fine, which will necessarily be paid through some combination of tuition hikes and increased appropriations from the Pennsylvania treasury.

9.  Harm to current Penn State students, in the form of a diminution in value of the Penn State educational and community experience to which they and their families have made a significant and long-term financial commitment, relying in part on the prominence of the Penn State football program.

For any questions, feel free to contact Christian Dennie at cdennie@bgsfirm.com.