Paterno Was Paid Off Even as Scandal Played Out

In January 2011, Joe Paterno learned prosecutors were investigating his longtime assistant coach Jerry Sandusky for sexually assaulting young boys. Soon, Mr. Paterno had testified before a grand jury, and the rough outlines of what would become a giant scandal had been published in a local newspaper.

That same month, Mr. Paterno, the football coach at Penn State, began negotiating with his superiors to amend his contract, with the timing something of a surprise because the contract was not set to expire until the end of 2012, according to university documents and people with knowledge of the discussions. By August, Mr. Paterno and the university’s president, both of whom were by then embroiled in the Sandusky investigation, had reached an agreement.

Mr. Paterno was to be paid $3 million at the end of the 2011 season if he agreed it would be his last. Interest-free loans totaling $350,000 that the university had made to Mr. Paterno over the years would be forgiven as part of the retirement package. He would also have the use of the university’s private plane and a luxury box at Beaver Stadium for him and his family to use over the next 25 years.

The university’s full board of trustees was kept in the dark about the arrangement until November, when Mr. Sandusky was arrested and the contract arrangements, along with so much else at Penn State, were upended. Mr. Paterno was fired, two of the university’s top officials were indicted in connection with the scandal, and the trustees, who held Mr. Paterno’s financial fate in their hands, came under verbal assault from the coach’s angry supporters.

Board members who raised questions about whether the university ought to go forward with the payments were quickly shut down, according to two people with direct knowledge of the negotiations.

In the end, the board of trustees — bombarded with hate mail and threatened with a defamation lawsuit by Mr. Paterno’s family — gave the family virtually everything it wanted, with a package worth roughly $5.5 million. Documents show that the board even tossed in some extras that the family demanded, like the use of specialized hydrotherapy massage equipment for Mr. Paterno’s wife at the university’s Lasch Building, where Mr. Sandusky had molested a number of his victims.

The details of Mr. Paterno and his family’s fight for money seem to deepen one of the lasting truths of the Sandusky scandal: the significant power that Mr. Paterno exerted on the state institution, its officials, its alumni and its purse strings.

Since Mr. Paterno’s death in January, Mr. Paterno’s family, lawyers and publicists have mounted an aggressive campaign to protect his legacy. The family and its lawyers have hammered the university’s board of trustees, accusing members of attempting to deflect blame onto a dying Mr. Paterno. This week, they angrily disputed the conclusions of an independent investigation that asserted Mr. Paterno and other top university officials protected a serial predator in order to “avoid the consequences of bad publicity” for the university, its football program and its coach’s reputation.

On Friday, Wick Sollers, a lawyer for Mr. Paterno and his family, said that it was Penn State that last summer proposed the lucrative retirement package, and that many of the aspects of the proposal — use of the plane, the luxury box — had existed in prior contracts.

Information about the salary paid to Mr. Paterno, one of the longest serving and most successful college football coaches in history, had for many years been hard to come by. In recent years, though, it became fairly common knowledge that he earned about $1 million annually, not counting his television deals and his contracts with shoe and apparel companies.

But speculation about just how long he was going to remain the well-compensated coach of Penn State had been going on for a decade or more. Mr. Paterno survived an attempt to force him into retirement in 2004, and before the Sandusky revelations, his most recent deal ran through the end of 2012.

According to university records, Mr. Paterno first expressed a desire to revisit his contract in January 2011. It was very early in that month that he learned he had been subpoenaed to testify before the Sandusky grand jury.

But it was not until summer — after Mr. Paterno, the university president and two other senior officials at the university had all testified before the Sandusky grand jury — that the idea that Mr. Paterno might retire in exchange for a multimillion-dollar payout gained traction.

By August, a deal had effectively been reached, though it and the idea that Mr. Paterno might make 2011 his last season had not been announced at the time. Details of the agreement were known to a handful of board members but not shared with the full board, according to people with knowledge of the events.

On Nov. 5, 2011, Mr. Sandusky was arrested, and two Penn State administrators — men who were Mr. Paterno’s superiors — were indicted on charges of failing to report to the authorities a 2001 allegation that Mr. Sandusky had attacked a young boy in the football building’s showers.

Quickly, it became clear that Mr. Paterno, too, had failed to go to the authorities or even to confront Mr. Sandusky after he had been told in person of the episode. The prospect that Mr. Paterno, a revered figure, might be fired by the board of trustees was suddenly real.

Mr. Paterno quickly issued a statement saying, in effect, that the board need not act, that he would resign at the end of the season. Neither he nor the university revealed that he had effectively agreed to do so already, in return for an expensive financial package.

The board fired him anyway, a decision that caused rioting and led to an angry and often very personal backlash against the trustees, but it agreed to honor his contract. It was then that the full board came to find out what the university was obligated to pay Mr. Paterno.

Over the ensuing months, as revelations about the role Mr. Paterno and other university officials played in the scandal mounted, a schism developed among the board members, according to several people with knowledge of the events.

There were some who argued that it was unseemly to pay the remainder of the money and other perks owed to Mr. Paterno, according to several people with knowledge of the discussions. They wondered whether, given Mr. Paterno’s failings, it might be possible to nullify the contract, or at least renegotiate it and reduce the payout, the people said.

Others worried about the hostility they would face if they tried to strip Mr. Paterno, still beloved in many quarters of the campus, of money that he was contractually owed — a prospect that grew even more worrisome after he died on Jan. 22 this year. During a conference call, one board member worried aloud that failure to make good on what was owed to the Paterno estate could lead to another “reign of terror” by Mr. Paterno’s supporters, according to a person who was on the call.

With rumblings that the Paterno family was thinking of suing the board of trustees for defamation, the board dispatched its lawyer to negotiate the final payments. All the board wanted in return was a release protecting the university from such a lawsuit.

The Paternos refused. Mr. Sollers said in his statement that “the retention of their legal rights in a case of this magnitude and complexity is customary and appropriate.”

The board of trustees ultimately agreed to make good on the full package anyhow, and in April paid what was owed to the Paternos. Additional demands, like the desire by Mr. Paterno’s wife to make use of the athletic department’s hydrotherapy facilities, were met. The board did draw the line at the family’s request to use the university’s corporate jet, arguing that the contract limited that use to the coach himself. And it refused the family’s demand to retain use of the stadium box next to the university president’s, the one reserved for the head coach, offering the family the choice of two other suites on a different floor.

Still, Frank T. Guadagnino, a lawyer hired by the board in November to handle a variety of aspects of the scandal, suggested that the board felt it did not have much maneuvering room when it came to the discussions with the Paterno family.

“We were providing for payments due under the contract,” he said in an interview Friday. “So we weren’t really negotiating.”

He added that, given revelations in the independent report released this week that suggest that Mr. Paterno knew about allegations of child abuse involving Mr. Sandusky as far back as 1998, the question over whether the university could rightfully renege on paying the Paterno family what was owed under the August amendments was “complicated,” and one that “we haven’t looked at.”

At a board of trustees news conference Friday, Karen B. Peetz, the board’s chairwoman, made clear that the issue would not be revisited. “Contracts are contracts,” she said.