NCAA President Mark Emmert said the school had put "hero worship and winning at all costs" ahead of integrity, honesty and responsibility.
Penn State was not given the so-called "death penalty" that could have suspended its football program but it was banned from post-season bowl games for four years and had the number of scholarships available to players reduced from 25 to 15.
Penn State officials were accused of not taking action after being alerted that Sandusky, a former assistant football coach, was sexually abusing children. The scandal tainted one of college football's leading coaches, the late Joe Paterno, and led to his firing last year along with other top school officials.
The punishment, announced by the National College Athletic Association at a news conference in Indianapolis, was unprecedented for its swiftness and breadth. It was the latest blow to an institution still reeling from Sandusky's conviction last month on child molestation charges.
The case was another blotch on the diminishing legacy of Paterno, who until Monday's action had held the record for victories among big-time U.S. college football coaches in a career that spanned more than 40 seasons. Paterno lost that status since the NCAA's punishment includes voiding the Nittany Lions' victories between 1998 and 2011 - the time period covering when allegations against Sandusky were first made and Sandusky's arrest.
The Paterno family said on Monday the NCAA's actions "defame the legacy and contributions of a great coach and educator without any input from our family or those who knew him best."
"This is not a fair or thoughtful action; it is a panicked response to the public's understandable revulsion at what Sandusky did," the statement said.
Later on Monday, the Big Ten Conference of college sports announced Penn State would forfeit its share of revenues for bowl games organized by the league, and the estimated $13 million would instead be donated to charities devoted to the protection of children.
"TRAGICALLY UNNECESSARY"
Emmert said the NCAA chose not to levy the so-called "death penalty" because it would have harmed individuals with no role in the Sandusky scandal.
"This case involves tragic and tragically unnecessary circumstances," Emmert said. "One of the grave damages stemming from our love of sports is that the sports themselves can become too big to fail, indeed too big to even challenge. The result can be an erosion of academic values that are replaced by the value of hero worship and winning at all costs.
"In the Penn State case, the results were perverse and unconscionable," he said. "No price the NCAA can levy will repair the grievous damage inflicted by Jerry Sandusky on his victims. However, we can make clear that the culture, actions and inactions that allowed them to be victimized will not be tolerated in collegiate athletics."
In June, Sandusky, 68, was convicted of sexually abusing 10 boys over 15 years. He awaits sentencing and could be given as many as 373 years in prison.
This month, former FBI director Louis Freeh released a report that criticized Paterno, who led Penn State to national championships in 1982 and 1986, for his role in protecting Sandusky and the school's image at the expense of young victims.
The NCAA penalty was handed down one day after Penn State removed a statue of Paterno, known to adoring fans as JoPa, from in front of the university football stadium.
Bill O'Brien, Paterno's successor as head coach, said in a statement he was "committed for the long term to Penn State and our student athletes."
"I knew when I accepted the position that there would be tough times ahead," he said. "I was then and I remain convinced that our student athletes are the best in the country. I could not be more proud to lead this team and these courageous and humble young men into the upcoming 2012 season."
Alan Milstein, a sports lawyer who took on the NFL over its eligibility rules, said he agreed with much of the penalty but faulted the NCAA's decision to reduce scholarships and impose a hefty fine.
"I don't know how you can say that money does not come out of essentially the students' pockets, whether it results in increased tuition or a lessening of academic services."
But Jerry Parkinson, law professor at the University of Wyoming and former member of the NCAA infractions committee, predicted "the donors/true believers in Penn State will step up to the plate so that the financial penalty can be absorbed without the impact of some of the other penalties."
College football is a huge generator of money for major U.S. universities such as Penn State because of large television contracts and the millions of ticket sales. Penn State's program was rated the third most valuable by Forbes magazine.
NO NCAA INVESTIGATION
The NCAA acted with unprecedented speed, relying on Freeh's findings instead of conducting its own investigation, though Emmert said the NCAA reserves the right to conduct its own investigation at a later time.
Freeh's report, commissioned by the university's board of trustees and released on July 12, said Paterno and other high-ranking school officials covered up Sandusky's actions for years while demonstrating a callous disregard for victims.
Paterno was fired by Penn State's board in November, days after Sandusky was arrested for the abuse. Paterno died in January of lung cancer.
In 2001, graduate assistant Mike McQueary witnessed Sandusky assaulting a boy in the showers at the Penn State athletic complex. McQueary told Paterno, who told Athletic Director Tim Curley, who subsequently talked with then-university Vice President Gary Schultz and university President Graham Spanier. No one went to the police.
Spanier was fired in November at the same time as Paterno. Curley and Schultz have been charged with perjury for allegedly lying to a grand jury investigating Sandusky and for failing to report suspected child abuse. They have pleaded not guilty.
The university also is under investigation by the U.S. Department of Education for possible violations of the Clery Act, which requires colleges to collect and report daily and annual crime statistics and issue timely warnings.
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