November 29, 2011 10:10 am

Penn State loses lionized fundraiser as well as football coach in Joe Paterno

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Forefront among the challenges that Pennsylvania State University will face as it rebuilds from the child abuse scandal that has rocked its campuses will be the abrupt departure of legendary football coach Joe Paterno, Debtwire reports. Behind Paterno’s role as the primary building block of the university’s reputation lay a fundraising powerhouse who courted potential donors and had a knack for convincing them to contribute to Penn State during his 46-year tenure at the school, a sports consultant said.

Paterno, who led Penn State’s Nittany Lions to over 400 victories in top-tier college football, was ‘a focal point’ for quite a bit of fundraising, said Marc Ganis, president of athletics consultancy Sportscorp Ltd. Paterno is listed as honorary campaign chair in the most recent issue of the President’s Report on Philanthropy and Endowments. “Because Penn State did not have a reputation as a great institution with great breakthroughs in research and things like that, they relied on Paterno to raise their profile, and they did so successfully,” Ganis said.

Though the impact is hard to quantify, Paterno’s dismissal has stirred investors in the municipal bond market, where Penn State has some USD 1.1bn of debt outstanding. The USD 44.24m tranche of the university’s Series 2010 unsecured general obligation bonds maturing in 2040 traded at 104.62 on 17 November, down from 107 where it was quoted in September, according to the Electronic Municipal Market Access (EMMA). Penn State’s debt, yielding 4.18%, is considered higher risk as compared to peer University of Pittsburgh’s whose USD 40m Aa1-rated Series 2009B general obligation bonds yield 3.30% based on the last trading price of 11.08 in October.

Negative headlines also prompted Moody’s, which rates the university’s general obligation bonds at Aa1, to assign a negative outlook to the bonds on 11 November. The ratings agency cited a number of factors stemming from the recent controversy that could contribute to an erosion in credit quality, including declines in philanthropic giving.

Penn State’s private gifts and pledges, totaling USD 124.38m in FY10, represented 2.87% of its USD 4.33bn budget, according to the university’s audited financials posted on EMMA. The former football coach’s departure could result in a funding gap running in the millions to tens of millions of dollars going forward, Ganis said.

Paterno was an important fundraiser for the school inside and outside of athletics, but the university was not dependent on him to bring in alumni dollars, countered Rod Kirsch, senior vice president for development and alumni relations at Penn State. The university is not taking any actions to replace Paterno’s fundraising service in his absence.

Paterno and Penn State are inextricably linked

Rick Barry, a Penn State alum who, along with his wife Sue, gave the Wilkes-Barre campus a USD 1m scholarship gift in September, told Debtwire Municipals that he agrees that Paterno isn’t the sole reason alumni contribute to the university.

“He’s an icon, and he was helpful at fundraising, but I don’t think many people gave to Penn State just because of Joe Paterno,” Barry said, noting that former President Graham Spanier, who was ousted on the same day as Paterno, was responsible for building the school into an academic powerhouse. He said that his thoughts about future giving over the next few years are unaffected by recent events.

But when key figures depart from a university, the institution usually has to act to mitigate the loss in fundraising, said Rae Goldsmith, vice president of advancement resources at the Council for Advancement and Support of Education. Donors are often willing to embrace new leadership, especially when new leaders step in during a time of crisis, but the university must be proactive.

“Particular donors might be connected to a fundraiser regardless of who that is. If it’s a person with a large personality, there could be a gap because a relationship is going to need to be rebuilt – someone who can garner trust,” Goldsmith said. “This is not uncommon when you see an institutional leader change; the institution has to do intentional outreach to rebuild relationships with donors.”

Fundraising outlook

Barry, who has recently spoken with university leadership, said that two separate gifts, one for USD 10m and one for USD 5m will soon be announced. “It’s hard to believe that money is going to come flooding into the university,” he said. “I think people who are loyal to school may delay plans, or think about it for a while, but unless something really nefarious happens … it won’t change people’s minds in the long run.”

The university has also launched a USD 2bn capital campaign, which is 72% complete, according to Kirsch. Annual contributions are higher compared with last year, and Penn State expects to complete its capital campaign ahead of the 30 June, 2012, deadline, he added.

However, this campaign likely targets a smaller quantity of larger contributions and could also be negatively affected, one higher education fundraising consultant said. Since these types of campaigns usually target donors who can give more than USD 1m, the university could run into trouble seeking donations from alumni whose wealth comes from public-facing activities, the consultant said.

Endowment support may fare better than the capital campaign and annual giving, at least in the short-term. Ken Redd, director of research and policy analysis at the National Association of College and University Business Officers, which tracks endowment support nationwide, said that those who give to endowments have very strong ties to their schools. “In general we don’t see people who make those types of contributions changing their minds based on one or two incidents,” he said.

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