You don't think negative publicity makes things harder to defend and even promote?
First of all, given the way the story has played out it's not clear to me just how negative this publicity is. I would probably agree that it makes our athletic program look a little small time, but I don't think it has any effect on the public's perception of the university in general. I also believe this is the type of story that will soon be forgotten in a few days. Ohio University is rarely in the media spotlight, so incidents like this can seem like a bigger deal at the time than they really are in hindsight.
Even if it doesn't go away, though, I just don't see how this is going to have more than a trivial effect on funding decisions. Those decisions are made in light of the overall budget climate, the priorities of the administration, the general competitiveness of the athletic programs, etc. The one-time actions of a rogue mascot are not going to significantly alter the opinion of the key decisionmakers regarding athletics at Ohio University.
Do you really think that this incident has changed President McDavis' view of the value of athletics? The faculties'? The trustees'? At the end of the day, these are all fairly rational people/constituencies, who understand that significant decisions regarding the direction of the university shouldn't be made on the basis of a couple days of questionable media coverage that is soon quickly forgotten.