Penn State loses 1 sponsor as cost of abuse scandal rises

Wall Street threatens to downgrade school's rating

7/25/2012

STATE COLLEGE, Pa. -- State Farm is pulling its ads from Penn State football broadcasts, while General Motors is reconsidering its sponsorship deal, and Wall Street is threatening to downgrade the school's credit rating, suggesting the price of the sexual abuse scandal could go well beyond the $60 million fine and other penalties imposed by the NCAA.

Bloomington, Ill.-based State Farm said it had been reviewing its connection to Penn State since the arrest of retired assistant football coach Jerry Sandusky last November. The insurance company said it will pull ads from broadcasts of Nittany Lions home games but continue to advertise during Penn State's away contests.

"We will not directly support Penn State football this year," State Farm spokesman Dave Phillips said Tuesday. "We just feel it was the best decision."

The NCAA imposed unprecedented sanctions against Penn State on Monday, including the fine, a four-year bowl ban and a sharp reduction in the number of football scholarships it may offer.

The governing body also erased 14 years of victories, wiping out 111 of coach Joe Paterno's wins and stripping him of his standing as the most successful coach in the history of big-time college football.

NCAA President Mark Emmert said he relied on a report by former FBI Director Louis Freeh, who found that Paterno and three top officials concealed child sexual abuse allegations against Sandusky more than a decade ago to protect the school and its powerful football program.

With Penn State's once-sterling reputation in tatters, the university could face an exodus of sponsors unwilling to have their brands linked to scandal, said Kevin Adler, founder of Chicago-based Engage Marketing Inc.

Mr. Adler said he would advise sponsors to pull out of their deals with Penn State, adding that most contracts have morality clauses giving advertisers an out.

"I think the public perception is pretty clear and definitive at this point. That brand is damaged beyond the point of short-term repair. It is the sponsorship partner's obligation first and foremost to look after the health of their own brand," Mr. Adler said.

So far, though, Penn State appears to be hanging on.

GM spokesman Pat Morrissey said the automaker is reviewing its sponsorship but has not made a decision.

Other sponsors said they plan to stick with Penn State, including Purchase, N.Y.-based PepsiCo Inc., Pittsburgh-based PNC bank, and Pennsylvania's largest health insurer, Highmark Inc.

"Highmark's partnership with Penn State is about health and wellness. We do have a sponsorship with the athletics program. While we routinely evaluate all of our sponsorships, we plan to continue at this time," spokesman Aaron Billger said.

PNC Financial Services Group issued a statement after the July 12 release of the Freeh report that its "ongoing engagement with the university signals our support of the students and traditions of Penn State. ... We believe that the university will learn from this experience and become stronger."

Moody's Investors Service said Tuesday that it may cut the school's Aa1 rating. The Freeh report, along with the NCAA sanctions, could hurt enrollment and fund raising, and the school is still under state and federal investigation, the rating agency said.

A downgrade could make it more expensive for Penn State to borrow money for expansion or other projects.

Around State College, Penn Staters and business owners worry that the NCAA sanctions will drive down attendance at home games and hurt the hotels, restaurants, and university-themed clothing shops that rely on the Nittany Lions' loyal football fans.

"Football is absolutely intertwined with the university, therefore the town," said graduate student Will Ethier. "Such hard hits really will hit the town economically." He added: "If one gets sanctioned, everybody else gets sanctioned."

Average attendance at the 106,500-seat Beaver Stadium has long been robust. It ranked no lower than fourth nationally in average attendance each year since 1991, a university spokesman said.