Lessons to be Learned from T. Boone Pickens and His Purchase of the Oklahoma State University Professional Football Team

And One Question – How in the World Did This Man Become Rich?

There are some things to admire about oilman/financial manager T. Boone Pickens.  He is a largely a self made man, he is a strong advocate for using natural gas to replace oil as the nation’s carbon based energy source (as is The Dismal Political Economist.  The DPE would rather see carbon based energy phased out altogether, but he is the ‘Dismal’ Economist, not the ‘Impractical’ Economist.

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T. Boone Pickens's $165 million gift helped 

overhaul Oklahoma State's stadium, above, 

but investment troubles have stalled other plans.

But Mr. Pickens great passion in life has been the football team at his alma mater, Oklahoma State University.  A number of years ago he effectively purchased the team, (like many college football programs, OSU's is amateur in name only) largely by donating hundreds of millions to the school’s athletic programs.  (He has also given to academics, although one suspects that is largely a cover to prevent massive criticism).  A report in the Wall Street Journal illustrates that while the football team has reaped success, the rest of the program has not gone all that well.

Here’s one problem.

Mr. Pickens concocted an unusual plan to supercharge returns for Cowboy Athletics. He sold school officials on a program to generate up to $250 million for the endowment by taking out multimillion-dollar insurance policies on the lives of older Oklahoma State alumni. The expectation was that the death payouts would exceed the premiums.

Both investments turned into big losers.

And here’s another.  The money in donated to athletics at OSU went into Mr. Pickens’s hedge fund.  Didn’t turn out too well.

The hedge fund's energy bets paid off at first. Then the global financial crisis hit and they lost much of their value between mid-2008 and late 2009—and so did the Cowboy Athletics endowment. The endowment's $202 million investment in the fund, which had grown in value to about $400 million, plunged to $125 million by the time the money was withdrawn.

So what was the cause of these problems?  Well there is this

Jerry McCoy, a Washington lawyer who specializes in charitable-tax planning, says complex life-insurance investment arrangements in general "pose a lot of problems," including that "people don't die on schedule" to guarantee returns.

Yeah, the age old problem of people not dying when they are supposed to.  But one of the biggest problems is this.  After the insurance policy scam blew up and generated massive lawsuits, it turned out that

Mr. Pickens dismissed the warnings, referring to one of the consultants in his deposition testimony as a "dumb cluck." Mr. Pickens said he left it up to Mr. Holder to make the final investment decision.

And what was the expertise and background of Mr. Holder to be given the role of making investment decisions on hundreds of millions of dollars?

He had served as the school's golf coach for more than three decades before being named to head the athletics department in 2005, at Mr. Pickens's urging.

Oh, well as everyone knows serving as a college golf coach for 30 years is definitely the person you want in charge of investing an endowment fund.

So what else can be learned from this debacle?  Well the argument that rich people need huge tax cuts to generate jobs doesn’t seem to hold up well.  Not many jobs were created by Mr. Pickens’s gift to OSU athletics.  And assuming the gifts were tax deductible, this illustrates a tax code that forces other tax paying Americans to subsidize gifts to a college football program. 

It is hard to see how America is better off from Mr. Pickens having donated a couple hundred millions to Oklahoma State athletics.  None of the money improves the educational mission of the University.  About all it does is improve the entertainment mission of the University, assuming it does have a mission of providing entertainment for Mr. Pickens and his ilk.

And one final conclusion.  After reviewing the mis-adventures of Mr. Pickens we have unassailable proof that people who make large fortunes largely do so because of luck.  Certainly there is nothing to denote that Mr. Pickens has the skill to have made anything higher than minimum wage.