First of an five-part series

STATE COLLEGE, Pa. – When Penn State's football team took the field against Toledo last weekend, it was a scene steeped in American sporting lore.

The players wore plain blue-and-white uniforms, a nod to their straitlaced coach, Joe Paterno. Beaver Stadium swelled with loyal fans, many of whom had traveled hundreds of miles to take in the game. And in the distance, towering above the south end zone, rose Mount Nittany, hinting of cool autumn evenings and turning leaves.

But look carefully behind that simple, almost pastoral scene and another picture emerges – one colored by the relentless pursuit of money that defines big-time college sports today.

Those uniforms include a Nike swoosh, advertising for which the Beaverton, Ore., company paid dearly. Most of the fans are not students but boosters and alumni wealthy enough to shell out thousands of dollars to acquire season tickets. And those lovely hills? Next season, they will be blotted out by a 28,000-square-foot lounge, 58 luxury skyboxes, and a commercial-laden replay screen – part of a $94 million expansion that will increase Beaver Stadium's capacity to nearly 105,000.

Down on the field, Rashard Casey isn't just a student-athlete. He's an endowed quarterback, whose scholarship is underwritten by a $250,000 contribution from Kerry Collins, a former Penn State quarterback – the same way a donor would endow a professor's chair in the humanities. It is one of 16 endowed positions on the team, from middle linebacker to tight end to tailback.

Seventy years ago, the Carnegie Foundation warned that commercialism threatened to cast"the darkest blot upon American college sport. " That prophecy has come to pass – and then some.

At Penn State and scores of other large universities, sports is a multibillion-dollar business fed by corporate sponsorships, television and cable deals, booster payments and advertising.

Games have become marketing tools to promote the college brand and gain national acclaim. Entertaining alumni and boosters has become more important than encouraging enjoyment and participation among students and athletes – the original idea behind college sports.

A flood tide of television and corporate dollars has allowed athletic departments to operate like separate entertainment divisions of their universities, with their own employees and budgets, not subject to the same financial scrutiny as academic departments. Now television networks, boosters and corporate sponsors have as much a stake in a team's success as the university.

That's not to suggest that all schools make money from sports. Most don't, and the gap between the haves and the have-nots is widening. Some schools, like Temple, lose millions each year in an attempt to break into the elite.

A six-month Inquirer investigation of the business of college sports, including a review of the financial records of nearly every major school from Alabama to Yale, found a $3.5 billion enterprise sheltered from most taxes. It is an enterprise in which profit margins of some powerhouse football and basketball programs dwarf those of Fortune 500 companies.

In the world of big-time college sports:

Top-tier programs are increasingly selling their names and logos to corporate America in return for millions of dollars in tax-free payments, blurring the lines between professional and amateur sports.

Celebrity coaches are paid CEO-type salaries and receive lavish perks, ranging from luxury cars to lakeside homes to memberships in exclusive country clubs. Meanwhile, coaches at some smaller schools earn so little, they qualify for food stamps.

The cost of putting athletes on the playing fields in big-time programs can run to nearly $90,000 per athlete annually – about the cost of a fully tenured professor at those schools.

Buoyed by a boom economy and hefty booster donations, elite athletic programs have been on an unprecedented spending spree, with expenses in the '90s having increased at a rate four times that of inflation.

At some schools, athletic programs have larger budgets than biology, history, English and most other academic departments, and the cost of athletic scholarships outpaces merit awards for student scholars.

Administrative overhead has soared as athletic departments have added battalions of middle-level administrators, advertising and marketing executives, academic advisers, tutors, and sports psychologists.

Schools are engaged in a risky $4 billion stadium building spree, adding thousands of luxury suites and club seats aimed at attracting well-heeled fans. In the last seven years alone, spending on athletic facilities has increased 260 percent, a recent NCAA study found.

There are still some critical differences between college and professional sports.

Penn State and other schools pay no taxes on the millions they take in from ticket sales, booster payments, television revenue and corporate fees. Boosters also enjoy tax breaks on the donations they make to secure season tickets. In 1988, Congress triggered a flood of such donations by deciding that those payments are the equivalent of charitable contributions, the same as checks to a children's hospital or a homeless shelter.

And unlike the pros, college athletes form an unpaid labor pool, though tremendous pressure is placed on them to win. Of Casey, Paterno said this spring:"There's no one else to get the job done. He's got to get it done. "

Paterno has continued to play Casey even though he faces charges of assaulting an off-duty police officer. The coach has expressed confidence that Casey will be exonerated.

A small percentage of athletes are pros-in-training. Penn State's Courtney Brown and LaVar Arrington, the first two picks in the NFL draft last spring, signed contracts worth a combined $100 million. But most never see a payday.

Athletic programs don't earn profits in the usual sense. The surpluses they generate don't go to shareholders. They are used to cover losses by women's sports and other money-losing sports, to expand facilities, and to pay for the ever-growing ranks of middle managers and support staffers.

For most schools, profits are a pipe dream. There is a growing financial gap between large athletic programs like Penn State's, which dominate college sports and receive the most television revenue, and smaller, more modestly funded programs.

Consider that the 114 schools that comprise the big time – Division I-A of the National Collegiate Athletic Association – account for six of every 10 dollars collected by athletic departments each year. That leaves more than 800 schools – think of them as the have-nots – to fight over table scraps.

The athletic programs at those schools often wallow in red ink. Losses are typically made up from student fees and general funds, adding to the cost of tuition.

One could fairly ask what all of this has to do with education, a university's reason for being. In some elite programs, the answer is: not much.

Schools admit athletes with dismal academic records, then spend millions to keep them eligible, in some cases even paying graduate students to make sure that the athletes attend classes. Even so, graduation records are an embarrassment at some schools, as low as 13 percent for basketball players entering the University of Cincinnati in 1992. (By contrast, Penn State graduates more than 80 percent of its football and basketball players.) And academic fraud continues to plague major programs, such as those at the University of Minnesota, where an academic adviser admitted to having written scores of term papers for athletes.

"College athletics have been transformed into a multibillion-dollar entertainment industry that has compromised the academic mission of the university," said Jon Ericson, a professor at Drake University in Des Moines, Iowa, who heads a group trying to strike a better balance between academics and athletics.

"We're definitely in the entertainment business, and I think we have been for a long time," said Jim Delany, commissioner of the Big Ten Conference. "We're also in the education business and trying to balance it in a way that there are reasonable outcomes. We're not always as successful at that as we would like."

At Penn State, athletics are both a form of entertainment for alumni and boosters and a vital part of student life, according to Graham Spanier, the school's president.

"We're very mindful of maintaining that balance," said Spanier, who spoke with pride of Penn State's ability to juggle athletics and academics. "I think we come as close as anybody to upholding the principles that have provided the foundation for intercollegiate sports."

As for entertainment, Spanier said,"We want people to come to our events, have a good time, and feel proud. We want them to tune in and watch us on television. To the extent people are proud of Penn State athletics, we believe that enhances the image of the university."

The transformation of big-time college sports into a money-driven enterprise has been going on for decades.

More than a century ago, athletes were paid under the table at some schools, and colleges charged admission to popular games. Notre Dame and a handful of other football teams barnstormed the nation, attracting huge crowds.

What has changed is the extent of the commercialization. Some stadiums and arenas are now cluttered with advertising, from the playing field to giant scoreboards that flash corporate logos and advertisements for products. Other schools have literally traded their names for cash.

"We've tried to stay as pristine as we could," said Budd Thalman, an associate athletic director at Penn State. "But the bottom line is, in the year 2000, in order to fund some of these programs, you have to begin to make some compromises."

Penn State athletic facilities are now decorated with logos for Pepsi, Unimart, AT&T, Hershey Foods, Nike, Mellon Bank and Toyota, among others. A huge new electronic scoreboard towering over the north end zone is being paid for with corporate advertising. Penn State also gets ad revenue from its new sports home page on the Internet. Advertisers include CoachPaterno.Com, a Web site offering advice to coaches and athletes, with Joe Paterno as a major shareholder.

"I go to these meetings, and sometimes you wonder whether you are in the same profession," said Gregory Kannerstein, the athletic director at Haverford College. "Don't get me wrong. My counterparts at large schools have a tough job. But it does seem their concerns and ours are always different."

Nearly half of the 1,100 students at Haverford, an elite liberal-arts school on the Main Line, participate in varsity sports, compared with 2 percent at Penn State. All of the Haverford coaches are teachers, and they often help to run events. Revenues from sports? There are none.

"We don't charge for games," said Kannerstein, who had a budget of $1.3 million last year. "We don't raise money. We get our money from the general college budget, just like the English and French departments."

At Penn State, the athletic department operates like an autonomous business. With a $42 million budget, it is responsible for raising and spending all of its own money. It has its own CEO, a cadre of middle managers handling administration, marketing and ticket sales, and a well-oiled publicity machine.

Penn State spends twice as much on athletic scholarships – $5.5 million annually – as it does on academic aid for its top students. The budget for its 14-person sports-information staff – $578,479 – is bigger than the entire athletic budgets of many smaller colleges.

Penn State officials stress that they receive no state funds to cover operating costs and that athletic-department surpluses are used to underwrite money-losing sports, including most of its women's programs.

"I'm fortunate to be at a university where intercollegiate athletics is self-supporting," Spanier said. "I wouldn't want to be in a situation where you are using university funds. It's hard to draw the line – especially when funding is scarce."

None of the department's revenues get funneled to academics, with the exception of $830,000 that last year was used for tutors, academic advisers, and study halls for athletes.

"We operate as an auxiliary enterprise that allows us to generate some additional revenue if we're able to do it," athletic director Tim Curley said.

Penn State appears to have little trouble raising money.

Beaver Stadium has undergone seven expansions since it opened in 1960, doubling in size, and is now, with a capacity of about 94,000, the fourth-largest stadium in the nation. The ticket price – $38 a game – ranks among the most expensive in the Big Ten. And, adjusted for inflation, booster payments to secure season tickets have grown 46-fold since 1965.

Last year, Penn State collected nearly $8.8 million from its football seating plan, which rewards boosters based on the size of their tax-deductible payments. It raised another $5 million in endowments and gifts for the athletic department, bringing total donations to about $13.8 million – nearly all of the money tax-free.

Those donations have been used to build state-of-the-art facilities for athletes, especially football players. The $14.7 million Mildred and Louis Lasch Football Building includes a huge wood-paneled locker room that rivals any in the NFL, a two-story weight room, a spa, and a 180-seat auditorium for viewing game film.

As of July, Penn State's athletic department had an endowment of $18 million to fund scholarships and other projects, one of the largest such funds nationally. It had another $6 million in reserves available to cover emergencies and other expenses. Even so, Curley worries about whether the school can continue to cover costs, which have increased 50 percent in five years.

"We think about it a lot," he said. "It's a real concern. If this [budget] pie continues to grow, so do the risks associated with funding it."

In some nationally elite programs, despite prodigious revenues, the cracks are showing. Some of Penn State's main rivals in the Big Ten have begun scaling back their athletic budgets after having gone on spending sprees.

Last year, Ohio State slashed its $73 million athletic budget by 5 percent and ordered a moratorium on all new athletic construction after a $300 million building binge had caused loan payments to increase fivefold. Meanwhile, the University of Michigan is considering hitting season-ticket holders with a $100 surcharge to cover a $2 million deficit in its athletic budget.

College sports suffers from an"arms race" mentality in which bigger is always seen as better, Gary R. Roberts, a law professor at Tulane University in New Orleans and an expert on sports law, told Congress in 1997.

"It creates a never-ending, upward-spiraling need for more revenues in order to beat the other guy," Roberts testified.

The $4 billion building boom and explosion of spending on college sports in the '90s occurred against a backdrop of unprecedented economic expansion.

"I don't think we'll see another 10 years like it," said Delany, the Big Ten commissioner.

What happens when the economy slows down?

"That's when we get tough and tighten our belts," said Delany, acknowledging that doing so is difficult because the impulse at big schools is to expand spending to match revenues.

"If you've got $22 million in revenue, you're going to spend $22 million," Delany said. "If you have $38 million, you'll spend $38 million. Right now, all of the effort is to grow the program. Nobody wants to hear that they don't compete nationally."

Schools that aren't part of the sports elite have trouble paying the price of winning.

Toledo, Penn State's opponent last weekend, lost $4.6 million on its $9.7 million sports program in fiscal year 1999.

Penn's athletic department lost $2.5 million, Drexel's $5.4 million, Temple's $6.2 million, Princeton's $6.6 million, Lafayette's $6.9 million, Villanova's $7 million, Pittsburgh's $7.7 million, and Lehigh's $8.4 million. Delaware's loss – $887,000 – was more modest, and Rutgers broke even, thanks to an infusion of university funds.

These schools offer a variety of reasons for continuing to spend heavily on sports, ranging from a desire to compete at a national level to providing opportunities for students to have a rounded college experience.

"We have a different philosophy," said Eve Atkinson, athletic director at Lafayette. "We're not like the Penn States of the world. Penn State is a model of an auxiliary enterprise. We are an integral part of the college. Just as the college will spend money for the chemistry department, it will spend money for football."

With one of the largest and best-funded sports programs, Penn State attempts to compete at a national level in all sports.

More than 900 athletes compete on 29 varsity teams, with about half receiving scholarships. The football team alone has nine assistant coaches. New facilities have cost millions. Shower stalls for football players are even done in a special"Nittany Lion tile."

Most of the money to cover these costs comes from football – something that is also true at other schools with elite sports programs. Football is the cash cow that underwrites poorer sports, funds expansions, and helps turn some coaches into millionaires.

An Inquirer study of the top 50 football programs found that they made total profits of $403 million last season – an average of $8 million each. That works out to an average profit margin of 50 percent – a return that outshines those in nearly all other businesses.

In fiscal year 1999, Penn State operated the fifth-largest football program in the nation, taking in $25.4 million in revenue. The program had expenses of $9.8 million. That's a surplus of nearly $15.6 million – a 61-percent margin.

Ticket sales generated far and away most of that revenue: $15.7 million. Television and bowl-game income accounted for $5.6 million. Concessions brought in about $1 million. The rest came from corporate sponsorships, advertising, licensing royalties and program sales.

The revenue figures don't include nearly $8.8 million that boosters and alumni paid to obtain season tickets. Including those donations, football accounted for a total of $34.2 million – 82 percent of the athletic department's $42 million in revenue.

Penn State declined to provide a full breakdown of its expenses. It also turned down Inquirer requests for information on its corporate sponsorship agreements, historical budget data, and its contract with Nike, which company sources described as one of the most lucrative in the country.

Joe Paterno's salary? That's a state secret, though he is wealthy enough that he and his wife, Sue, were able to donate $3.5 million to the school to expand its library.

"We don't disclose salary data for any employees," said Spanier,"and we don't disclose contracts."

Officials asserted that Penn State was a private institution not subject to the state open-records act, although the school receives $300 million in state aid. Overall, the athletic-department budget has doubled in the last decade. The staff of 287 – from athletic trainers to academic counselors – has increased by nearly 25 percent.

Athletic scholarships alone run $5.5 million a year. That's more than double the $2.5 million in scholarships that Penn State awards to its top academic performers – students who enter the university with average SAT scores of 1420 and perfect 4.0 grade point averages. They receive $2,250 a year as members of the Schreyer Honors College – an amount equal to less than 40 percent of in-state tuition.

The total budget for the honors program is about $3.5 million. It includes 1,500 students – about 600 more than the number of varsity athletes.

"For the size of an institution we are, we have very little in the way of [academic] scholarships," said Kevin Musick, coordinator for student financial aid.

The cost of supporting an athlete at Penn State – including scholarship, coaches' salaries, travel, and all other expenses – is about $44,000 annually. That's nearly equal to four years' worth of tuition plus room and board.

At the other end of the spectrum, Williams College of Williamstown, Mass. – a regular winner of the Sears Cup, awarded annually to the strongest overall athletic program at the Division III level – spent just $1,887 per athlete.

Penn State zealously guards its athletic finances, and it can count on a friendly state legislature for help.

In January 1997, the State College Area School District levied a 5-percent amusement tax on admissions to Beaver Stadium and the Bryce Jordan Center, Penn State's basketball arena. District officials contended that the events held at those places were entertainment, not part of the university's larger educational mission.

The legislature came to the university's rescue, crafting a law on Penn State's behalf that barred school districts from enacting amusement taxes. Penn State saved hundreds of thousands a year in taxes.

"The university has a very powerful lobby in Harrisburg," said J. Ross McGinnis, the attorney who represented the school district. "And when this case came about, they used all of their influence. It was clear that the university had gotten to the legislature."

Spanier said that Penn State pushed for the legislation. He added that the university should pay its fair share and has agreements with several communities and school districts to make payments in lieu of taxes.

"But, at the same time, we don't want to be perceived as an institution with deep pockets for all kinds of taxes," he said.

Penn State has a long-standing tradition of giving free tickets to members of the legislature. Seventy to 80 of them attend each home football game, sitting on the fourth floor of the press box straddling the west-side stands. That adds up to nearly 500 free football passes a season.

Penn State officials are lobbying the Ridge administration for $15 million in public funds to help defray costs for its stadium expansion. If they are successful, it would not be the first time that the state has helped out.

In the mid-'90s, Harrisburg supplied $33.8 million toward the $55 million Bryce Jordan Center, which seats 15,000 and is home to numerous athletic-department offices. The balance came from private donors whose names appear throughout the arena.

Penn State needed its new basketball arena to remain competitive with other members of the Big Ten and to recruit elite players. Until it was built, the Nittany Lions had played home games at Rec Hall, an antiquated bandbox with limited seating.

Big Ten basketball opened an important new revenue stream for the athletic department. Since Penn State started Big Ten play in the early '90s, its annual revenue from men's basketball has more than doubled, to $4.3 million, with most of that coming from conference television agreements.

The Penn State-Toledo game illustrated a formula that elite schools use to pad their early-season schedules with games against smaller and presumably weaker teams. Penn State agreed to pay Toledo $350,000 to come to Beaver Stadium.

For Toledo, its payment represented about a third of its annual football revenue and more than double what the Rockets take in for one of their own home games. The Nittany Lions expected an easy victory that would impress pollsters and whet their fans' appetites for bigger games down the road.

That formula worked yesterday when Penn State defeated Louisiana Tech, 67-7. But last week, the fans looked stunned as they walked out of Beaver Stadium and past the naked girders of the unfinished construction. A bedraggled Paterno wore the same expression at a somber postgame news conference.

With a 24-6 victory, Toledo had upset the Nittany Lions – and college football's economic realities.