The university -- in a settlement with the National Collegiate Athletic Association after former assistant football coach Jerry Sandusky was convicted of sexually assaulting boys on campus -- agreed to the fine, to be spent on programs for abused children.
Sandusky is serving a 30-to 60-year sentence for molesting boys he met through a children's charity he founded.
A state judge in Harrisburg rejected the NCAA arguments Wednesday that state Sen. Jake Corman, a Republican whose district includes Penn State, and state Treasurer Rob McCord, a Democrat, have no standing to intervene in the case, the Pittsburgh Post-Gazette reported.
The NCAA said it has not yet decided whether to appeal.
"Sen. Corman and I have never disputed the intention to spend the money on child abuse prevention and victim assistance," McCord said. "But I know this money should stay in Pennsylvania, and the NCAA should not be exempt from complying with Pennsylvania law."