Charity case: how taxpayers subsidize failing philanthropies.

• Author: Keohane, Georgia Levenson
• Position: With Charity for All: Why Charities Are Failing and a Better Way to Give - Book review

With Charity for All: Why Charities Are Failing and a Better Way to Give

by Ken Stern

Doubleday, 272 pp.

In 2006 the oil tycoon T. Boone Pickens gave $165 million to his alma mater, Oklahoma State University, to build a new football stadium, marking one of the largest charitable gifts on record to an American university and the most gargantuan to an athletics program. Pickens directed that the money be spent on a new west end for the Boone Pickens Stadium, for fields and practice facilities, and for a residential village and dining buffets for OSU athletes.

Less than an hour after Pickens's donation landed in the bank account of Cowboy Golf, one of the athletic department's fund-raising arms, the money was rerouted to BP Capital Management, Pickens's hedge fund, where it was soon matched by an additional $37 million in unrelated donations that the university had agreed to invest as a condition of Pickens's largess. With the funds now illiquid, OSU took on debt to construct the stadium--a strategy, notes author Ken Stern in With Charity for All, that is not unusual for a nonprofit organization, which can "leverage" its tax-exempt status to borrow at lower rates and invest existing assets in matching but higher-yield, taxable securities. The resulting arbitrage, in theory, produces a lower-risk cash flow for the organization, particularly when the matching funds are allocated in a relatively conservative way. OSU's investment with Pickens, in an oil and gas fund betting on changes in commodity prices, initially spiked in value to $300 million. Then, in the 2008 crash, BP Capital Management lost more than $1 billion--and with it most of the OSU donations, Pickens's and otherwise.

Stern's account is not an indictment of college athletics nor of university resource management, though the Pickens affair begs important questions about both--particularly in the wake of this recent recession, which has nearly eviscerated state and private financing for education programs in many institutions of higher learning across the country. Nor does Stern single out Pickens, a man who, as he says, "never did things in a small way," whether as a ruthless corporate raider, the sponsor of the Swift Boat attack ads that helped derail John Kerry's presidential bid, or the godfather of OSU sports. After all, Stern concedes, "it was Pickens's money and he had the right to dispense with it as he pleased," as did the philanthropists John D. Rockefeller and Andrew...