Friday, September 17, 2010

Newsflash! Penn state receives an $88 million gift for. . . . .

Penn State announced today the receipt of the largest single gift in its history, $88 million, from alumnus Terrence Pegula and his wife Kim. As one could imagine, a gift of this magnitude coming at a time when the university is facing such constrained resources is a huge boost for the institution.

Pegula made his money in the natural gas business, and evidently had invested much money in the Marcellus Shale, the huge gas field that spreads across parts of Pennsylvania, New York, Ohio, and West Virginia.  Earlier this year, East Resources Inc., the privately-held firm of which he was founder, CEO, and a principal shareholder (according to the Penn State press release), was sold for $4.7 billion to Royal Dutch Shell.

The campus is buzzing and the excitement is impalpable as people think about the potential for such a large gift. Well, at least until you read past the headline and discover that the $88 million is going to be used for. . . . hockey. Yes, you read correctly: $88 million for hockey.  To be a bit more precise, the money is going to help build a "state-of-the-art, multi-purpose arena," as well as provide operating funds for the men's and women's hockey clubs to move to Division 1 status, according to the press release issued by Penn State today.

Penn State is fortunate in that it has not faced the same kind of funding constraints faced by other public universities, especially those in states such as California, Arizona, Florida, and Nevada. Nevertheless, the last couple of years have forced the university to make some difficult choices, including raising tuition at rates well in excess of inflation, withholding raises and keeping salaries flat last year, and instituting additional cost sharing for health insurance for employees (to be implemented next January 1).

Penn State is not a poor university by any means; according to the Chronicle of Higher Education's endowment database, Penn State had the nation's 45th largest endowment as of June 30, 2009, at $1.23 billion (since increased to $1.4 billion as of last June 30, according to a report provided to the trustees yesterday).  A key difference between Penn State and our peers with billiion dollar plus endowments, however, is the size of the university.  Penn State's endowment has to support 24 campuses and approximately 90,000 students.  Contrast this with Wellesley College, two spots above PSU at number 43, whose endowment of $1.27 billion supports its one campus and 2,324 students.  For those who don't want to do the math, this means that Wellesley's endowment per student is 40 times greater than Penn State's.

It is difficult for any university to look the proverbial gift horse (or alumnus, in this case) in the mouth and say, "No thanks" to any gift, particularly one as sizable as this. Those of us who work in universities and study their operation know that when donors get an idea in their heads of what they want to fund, it can often be difficult to get them to consider more pressing needs. I don't know how much the university tried to convince the Pegulas that Penn State had higher priorities than a new ice rink and Division 1 hockey teams. But clearly this was a priority for them, and in a couple of years we'll be able to gaze upon our new "state-of-the-art" hockey rink, right next door to the nation's second largest football stadium, our four year-old baseball stadium (capacity 5,406 and 20 luxury suites), and the now somewhat aged in comparison Bryce Jordan Center.

One can't wonder about what else $88 million could have bought for the university, if the Pegulas had been convinced to invest in the core of the university's business, i.e., teaching and research, rather than intercollegiate athletics. But here are just a few ideas of what $88 million could purchase:
  1. The university could announce attainment of its goal of raising  $100 million in its Trustee Matching Scholarship Program.  Announced in 2002, the university had achieved 63% of the original goal (as of last November).  This is a wonderful program, with the scholarships all going to undergraduates eligible for Pell Grants, meaning they come largely from families with incomes below $50,000.  Yet raising the money has been a bit of a struggle for the university.  The Pegulas could have allowed the university to reach its $100 million goal and still had plenty left over.
  2. Roughly 1,500 full-tuition, 4-year scholarships for enternig freshmen this year.
  3. Roughly 2,500 half-time graduate assistantships this year (stipend and tuition waiver), or tuition waivers for approximately 5,300 graduate assistants
  4. 88 endowed professorships throughout the university (such as in the Department of Education Policy Studies in the College of Education, to provide just one suggestion)
  5. An endowment that could fund annually into perpetuity:
    -- 300 undergraduate full-tuition scholarships, or
    -- 270 graduate tuition waivers
I'm sure many on campus and off will be rejoicing over this gift, and as I stated earlier, nobody wants to look a gift donor in the mouth.  You may even find me in a few years sitting at the new Pegula Arena cheering on the Penn State hockey team when Michigan comes to town.  But it is hard not to speculate about some of the missed opportunities of such a sizable gift.


  1. That list of possibilities just knocks me down. When you put it in those terms, the gift seems all the more ridiculous.

  2. Faculty (and administrators) across the university are under a good deal of pressure to find revenue-enhancing opportunities, whether it be externally-funded research, or development of new on-line programs through the World Campus. It's not unreasonable to think that some are going to look at something like this and say, "How hard should I be working on this when the university just invested just south of $100 million in one sport?"

  3. This really puts it in perspective. I was about to write the same thing on my blog, but I've just linked to you.

  4. Thanks, veblen. I'm sure I'll return the favor at some point.

  5. Don,

    I think the financial equation in PSU's athletic department has dramatically changed over the last 10 years with the advent of the Big Ten Network. There's speculation that PSU's hockey team means a Big Ten hockey conference is coming, along with hockey games televised on BTN (and perhaps in an online stream). College hockey fans aren't nearly as numerous as football and basketball fans are, but they are VERY loyal, and it's almost certainly the 3rd-most popular collegiate sport in "Big Ten country."

    I suspect the University may get a decent return on investment here... certainly not enough to cover the new building, but perhaps enough to support the team, plus a small annual surplus coming in (again not counting construction costs).

  6. Shawn -- good points. And PSU is one of the few places where the athletics department runs a "surplus," i.e., isn't subsidized by tuition or other revenue sources. Nevertheless, the juxtaposition of this largesse enjoyed by the athletic department at the same time the academic side of the house is being told to cutback is interesting.

  7. Fascinating to see what other people think of this. Being a figure skating coach, I'm 100% for this, as we've been promised a new rink for the past 15 years. And important thing to keep in mind is that ice rinks generate more money than people think, especially at the D1 level. Hockey can be a huge generator, and having a professional, two bed ice rink will help us catch up (state of the art my ass) with other competing rinks in the area, so even when there's no hockey season, we'll still be able to host skating competitions and other sporting events. It also opens Penn State up, as a whole, to hosting events like the Keystone Games.

    Your argument is exactly the reason WHY this rink has been so delayed. Penn State didn't want their largest donation in history to go towards an ice rink, but the donors insisted.

  8. Nathaniel - good points regarding the other uses for the rink. As for whether the facility actually generates a financial surplus is yet to be seen; clearly a lot will depend upon what attendance the hockey games get. I haven't seen any details on whether the Pegula gift includes any endowment to cover the operating expenses of either the facility or the two D1 teams, so it's hard to tell whether a surplus will be possible or not.

    From a very selfish perspective: Will the rinks be available for curling, I wonder?