UPDATE 1-Penn State fundraising may feel sting of scandal
* University in middle of $2 billion fundraising drive
* Assures donors: no money goes toward legal fees
* Hockey benefactor says he stands by Penn State
* Moody's puts university on credit downgrade watch
By Ros Krasny
BOSTON, Nov 11 (Reuters) - It may be years before a sense of normalcy returns to Penn State after the child sex abuse scandal that rocked the campus this week, with fund-raising, sports recruiting and the university's credit rating likely to feel the sting.
"From now, when you mention Penn State, the first thing people will think about is the scandal. The legacy can not help but be tainted," said Dan Lebowitz, executive director of the Sport in Society program at Northeastern University in Boston.
The tumult began when Jerry Sandusky, a former assistant football coach, was charged with sexually abusing boys over 15 years, with some of the incidents occurring on team premises. Two former university officials were charged with not reporting at least one known alleged assault to the police.
On Wednesday, Joe Paterno, who coached Penn State's football team for 46 years, and university president Graham Spanier were removed by Penn State's board of trustees as it sought to start the healing process.
Both had been criticized by state investigative officials for not doing more to intervene after learning that Sandusky was seen allegedly sexually abusing a boy in the locker room showers in 2002 by then graduate assistant, and now assistant coach, Mike McQueary.
Penn State University, a diverse, multi-campus state-funded college with an endowment of $1.5 billion, is well into its biggest ever fund-raising drive. The "For the Future" campaign had raised $1.3 billion by April 30, toward a goal of $2 billion by 2014.
The university this week canceled or postponed several events related to the fund-raising campaign, including the "President's Tailgate" before Saturday's home football game against Nebraska. A tailgate is a pre-game parking lot party.
On Wednesday, campaign chair Peter Tombros appealed to the university's supporters not to turn their backs on Penn State because of the scandal.
"This is not a moment to reconsider our commitment to the university. I urge you to continue to support the campaign and the students whose lives will be transformed by your philanthropy," Tombros said.
The letter included a disclaimer that all fund-raisers surely dread to write: "I also want to assure you that no private funds or philanthropic resources will be directed toward legal expenses for the university employees who have been charged in the case."
The ratings agency Moody's Investor Services said that philanthropy toward Penn State could decline as a result of the scandal. It cited "reputational and financial risk" on Friday in saying it was considering a downgrade on Penn State's roughly $1 billion in highly-rated debt.
At least one major donor is standing firm.
Terry Pegula, a billionaire natural gas tycoon and owner of the Buffalo Sabres National Hockey League team, has donated $88 million to construct a new ice hockey arena and create men's and women's varsity hockey programs at the school.
"Our own support for Penn State and its hockey program is well known and will continue," Pegula said in a statement.
Interim Penn State President Rodney Erickson said he had received "more than 1,000 notes of support" from members of the university's far-flung community.
"Our friends, our alumni, our donors, those who have made significant contributions to the university, are sticking with us," Erickson said at a press conference.
Penn State has more than half a million alumni. Some are prominent members of the business community, including Kenneth Frazier, chief executive of Merck & Co., John Surma, chief executive of U.S. Steel Corp., and Patricia Woertz, chief executive of agribusiness giant Archer Daniels Midland Co.
Surma and Frazier are among the university's trustees. Frazier will chair the special investigative committee into the Sandusky scandal, announced on Friday.
Philanthropy specialists said worries about fund-raising when an institution gets into trouble are sometimes exaggerated -- but acknowledge that Penn State is facing a situation of unprecedented severity.
"In this case, it is difficult to predict how future donations will be affected," said Nancy Albilal, vice president for development at The Foundation Center, a New York-based group that tracks information on philanthropy worldwide.
Typically, she said, when a public scandal hits a large institution, unrestricted donations fall while program-specific donations rise, resulting in no significant change overall.
One thing that keeps alumni engaged in university life and ready to open their checkbooks is a winning football team. But prospects for the Penn State Nittany Lions are uncertain with the 46-year Paterno era now over.
"I think the fallout on recruiting and the team will be extremely long-lived. Joe Paterno is Penn State football," said Josh Helmholdt, a football recruiting analyst at rivals.com.
A top recruit for 2012, offensive lineman Joey O'Connor from Colorado, has already backed out of a verbal pledge to join Penn State, saying he wanted to consider offers from other universities, according to a newspaper report.
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