The fortunes of Cowboy Athletics Inc.-- Oklahoma State University's sports development arm-- have soared, crashed and rebounded along with the bottom lines of Pickens' hedge funds. For each of the past two years, Cowboy Athletics reported a negative balance in net assets of more than $15 million, a Tulsa World review shows. "Without Mr. Pickens, what is currently very...
March 10--A nonprofit organization created in 2003 to support OSU's golf program ballooned in less than a decade into an entity with half a billion in assets fueling the dreams OSU's biggest booster, T. Boone Pickens, had for his alma mater's athletic programs.
The fortunes of Cowboy Athletics Inc. -- Oklahoma State University's sports development arm -- have soared, crashed and rebounded along with the bottom lines of Pickens' hedge funds. The nonprofit also wound up in court in two lawsuits in recent weeks, one that places OSU Athletic Director Mike Holder in the awkward position of running an organization being sued by his employer.
For each of the past two years, Cowboy Athletics reported a negative balance in net assets of more than $15 million, a Tulsa World review shows. Records show some of those liabilities are loans from Pickens and the OSU Foundation, lenders not likely to demand repayment before the fund can do so.
After running huge operating deficits in 2009 and 2010, the fund reported a small net profit in 2011.
"Without Mr. Pickens, what is currently very challenging would have been virtually impossible," said Holder, president and founder of Cowboy Athletics Inc. and a longtime friend of Pickens, now 84. "His generosity has been a game changer for OSU and athletics."
Holder also credited fans, who have stepped up in record numbers to buy season tickets despite sharp price increases.
T. Boone Pickens: His pledge of $165 million in 2005 was the largest ever to a U.S. university athletic department.
"We enjoy great support at Oklahoma State," he said. "Everyone who buys season tickets or ticket packages are valued partners with us in building a total sports program."
Some experts said the NCAA discourages universities from leaning heavily on a single donor with deep pockets because it tends to give the donor too much control. Pickens, an oilman and Holdenville native, has given about $500 million to OSU, split about evenly between academics and athletics, a university official said.
In nearly a decade since it was formed, Cowboy Athletics has brought in $354 million in total revenue and spent about $292 million on OSU's sports programs and facilities, according to forms nonprofits are required to file with the IRS.
During those years, Holder went from serving as OSU's golf coach for 32 years to the school's athletic director, at a $600,000 salary. Holder said the funds are "non-appropriated," not public funds.
Pickens does not collect salary or investment fees from managing funds donated to the university but does receive a tax deduction for donating to a nonprofit.
Holder, 63, is also currently entangled in two lawsuits through his role as president of the nonprofit. (He is not a named party in either suit.)
One suit filed in Payne County District Court last month over plumbing leaks at the football stadium put Holder in the bizarre role of running an organization being sued by his own employer, OSU.
In the other suit, Cowboy Athletics Inc. and Pickens are pursuing damages in a federal appeals court over a life insurance program in which Pickens and Holder hoped to make "nine figures" to benefit OSU athletics. Instead the nonprofit lost at least $33 million in premium payments because of projections allegedly based on "a lie."
The first of 27 OSU boosters whose lives were insured under the program, a retired dentist from Stillwater, died in December, the World has learned. Cowboy Athletics has not collected the $10 million payout because it claims the insurance program was based on false claims and seeks a refund of premium payments.
A federal appeals court panel heard oral arguments from both sides in the case Wednesday and a decision is expected later this year.
Said James Ho, a lawyer for Cowboy Athletics and Pickens: "Cowboy Athletics is simply asking for its day in court, so that both sides can present their case to a jury, and ensure the proper enforcement of Oklahoma law concerning the rights of consumers."
Despite financial losses over the years and occasional legal entanglements, Holder and Pickens say plans are on track for more improvements.
"I've made a lot of great investments over the years. OSU tops the list," Pickens said in a statement emailed Friday to the World. "I see the returns in improving academics at the school, and in ever-greater athletic performance and facilities."
Holder said in an email that funds raised and held by Cowboy Athletics Inc. have built "some of the finest sports facilities in the country." He said figures on the fund's 2011 financial forms are 15 months old.
"While it was an accurate reflection of our position at the time, we have seen considerable improvement in our returns as well as raised additional funds in the normal course of our fund raising activities," he said. "... We believe as the economy continues to improve, we stand to see even stronger returns in the coming months, and hopefully, years.
"We operate very conservatively. We prefer the pay-as-you-go approach."
Cowboy Athletics is one of three nonprofit organizations that are "component units" of OSU. It is overseen by a seven-member board that includes Holder as president and Pickens as a director.
A joint resolution between the OSU foundation and OSU's board of regents states the foundation is responsible for managing all "non-athletic gifts and recognizes Cowboy Athletics Inc. as the entity responsible for the coordination and management of a development program for athletic gifts."
Cowboy Athletics was formed in 2003 as a fund to hold donations and revenues related to OSU's storied golf program. Holder coached the men's golf team when it won eight of its 10 national championships.
"Boone Pickens was one of the donors, but far from the major donor at that time," he said.
Holder said he was able to raise $6.6 million more than was needed to build Karsten Creek Golf Club west of campus.
In September 2005, Holder was named OSU's athletic director and soon started to put the heat on his friend Pickens for a major gift, larger than the $20 million he had donated for stadium renovations.
Pickens' $165 million pledge, made on Dec. 29 but not announced for several weeks, was the largest single donation to a U.S. university athletic department.
Holder outlined his plan during a Dallas meeting with the Texas oilman, then 77, for "one of the nation's most comprehensive collegiate athletic complexes." The plan included state-of-the-art facilities for OSU's baseball, track, soccer, tennis and equestrian programs, as well as an indoor practice field.
The university began buying up dozens of small homes near campus, causing some critics to label the move a land grab due to OSU's use of eminent domain.
Some of the funds were also to be used to complete the Boone Pickens Stadium reconstruction, a $283 million overhaul of the aging facility that began with the earlier Pickens gift.
The funds were in OSU's control for less than a day before they were transferred to Pickens' BP Capital for his investment team to manage. The investment profits and losses are listed on Cowboy Athletics Inc. annual financial reports.
"Don't leave here thinking that I gave it and they gave it back," Pickens said during a press conference. "I gave it and we're investing it for them."
Complaints from fans
The nonprofit soon began reporting staggering growth. Records show the net worth of Cowboy Athletics' assets shot up from $20 million at the end of 2004 (before Pickens' gift) to more than $500 million at the beginning of 2008, more than a 20-fold increase.
Some fans grumbled at the record price hikes for season football and basketball tickets, especially at a time when Pickens seemed to have his checkbook open for the school's athletic program. But those funds were for future facilities in the athletic village and not the ones already built, Holder explained.
OSU reported record season ticket sales in 2008 and 2009.
The fund took a huge financial hit around that time, losing about half its value during three months in 2008 as the market spiraled down.
Because the bulk of the fund's assets are based on "speculative trading of energy and energy-related commodities," auditors warn of a higher level of risk for Cowboy Athletics.
"The Corporation's lack of diversification in investments significantly increases the risk that, in the event of a prolonged downturn ... their return on investments could be significantly affected," states Cowboy Athletics' most recent publicly available audit, dated Dec. 31, 2010.
Actually, the fund had already survived the worst in its history and managed to report an operating profit of $369,000 last fiscal year. Its "net assets" -- the value of all assets after debts are taken into account -- were still deeply in the red, however.
Cowboy Athletics' 2011 report to the IRS, the latest available, shows Pickens has an outstanding loan to the organization of $40.6 million. In recent years, Pickens has delayed payments on interest and even principal on some outstanding loans to Cowboy Athletics, records show.
Pickens said he is pleased with the financial performance of Cowboy Athletics Inc. and the achievements OSU's sports programs have made.
"They have streamlined their management of athletic spending, and Cowboy Athletics has been a key part of that success and the progress they continue to make," Pickens' statement said.
'Good old boy network'
Some experts interviewed by the World questioned heavy reliance on one donor to fund a university's athletic programs. Others said two years in a row of negative assets totaling $15 million or more should be a cause for concern regardless of how deep that donor's pockets are.
"Generally speaking, schools need to protect themselves," said Stephen Ponder, president of the National Association of Athletic Development Directors and senior associate executive athletic director at Ole Miss.
Ponder, who said he was speaking about all programs and not any one school, said the NCAA discourages schools from relying largely on one donor who calls most of the shots. He said it is quite common for universities to create separate nonprofit entities for their athletic programs, and schools should seek a broad base of financial support.
"The good old boy network that exists at every school has a history where there's a few that try to set all the rules," Ponder said. "You can't have someone come in and try to run everything."
Holder was eager to do Pickens' bidding quickly when arranging the "Gift of a Lifetime" insurance program in 2007, pleadings claim. Insurance agents allegedly promised the plan would produce a $225 million profit by insuring the lives of 27 OSU donors at $10 million each.
Lawyers for the Lincoln National Life Insurance Company produced emails in which Holder said he was under pressure to finalize the deal or "I will be in a cave with Bin Laden," according to an Associated Press story last year.
Cowboy Athletics and Pickens have lost rounds in two courts, but the case is still alive before the 5th U.S. Circuit Court of Appeals, which heard oral arguments last week.
Holder said while he agrees schools shouldn't rely too heavily on one donor, OSU is fortunate to have a patron such as Pickens.
"I will add that athletic directors at other universities often tell me they wished they had a donor as generous as Boone Pickens," Holder said. "Few donors can transform a program with their generosity. Boone Pickens can and did at Oklahoma State. In doing so, he's inspired many others to step forward with donations."
Other alums, such as the late Tulsa businessman Sherman Smith, have also given large gifts to the school's athletic program. Smith donated $20 million to OSU for the indoor practice facility. Smith died shortly before construction began in 2011.
The 92,000-square-foot Sherman E. Smith training center was expected to be open in time for spring football practice this year. Holder said Saturday the facility isn't expected to be complete, including installation of artificial turf, until July.
Holder said the fund has improved since the $16 million net loss in 2011 but acknowledged "the environment is very challenging."
"Our donors, led by Mr. Pickens, have really come through for us in the past five years," he said. "I think we have more success for the dollars we generate and raise than most peer universities."
Cowboy Athletics Inc. Board
President and director: Mike Holder, OSU athletic director since 2005; golf coach for 32 years, winning eight national championships. Holds MBA from OSU and, along with his wife, donor of $2.5 million to OSU, including $1 million to the Spears School of Business.
Gary Clark: OSU vice president and general counsel since April 2011. Former chair of the OSU A&M Board of Regents, practiced law in Tulsa for almost 30 years, former general counsel of OSU Foundation and VP of University Relations.
John Clerico: Former Chairman of ChartMark Investments Inc., a Tulsa firm that provides financial advice and management. Formerly chief financial officer for several companies, including Praxair. Donated more than $1 million to OSU's library system to establish an endowed chair.
Rick Cooper: Chief executive officer and president of W&W Steel Company of Oklahoma City. The company was the steel contractor for renovations at Boone Pickens Stadium and also a contractor for the Dallas Cowboys stadium.
Joe D. Hall: Rancher and owner and CEO of Joe D. Hall General Contractors LLC, of Elk City. Appointed in 2003 and reappointed in 2011 to serve on A&M Board of Regents. His term expires in 2019.
Ross McKnight: Texas rancher, banker and oilman who led OSU's "Branding Success" campaign to raise $1 billion. McKnight gave $15 million to OSU in 2010 to fund scholarships, matched by Pickens' scholarship fund.
T. Boone Pickens: Holdenville native and oilman who manages the BP Capital hedge fund. Graduated from OSU in 1951, founded Mesa Petroleum and became a famed corporate raider. Now promotes alternative energy through his "Pickens Plan." Has given or pledged an estimated $400 million to OSU, about $265 million for athletics and the remainder for academics. OSU named its stadium and geology school in Pickens' honor.
Staff members: Jason Lewis, board secretary; Mike McGraw, manager/golf coach; Scott Tucker, accountant; Andrew McGee, manager; John Houck, manager.
Sources: Cowboy Athletics Inc. 990 form, OSU website, Tulsa World archives
Cowboy Athletics Inc:
Total revenue: $11.6 million
Total expenses: $11.3 million
Net gain/loss: $369,284
Net assets/balances end of year: ($16.4 million)
Total revenue: $6.6 million
Total expenses: $42 million
Net gain/loss: ($35.4 million)
Net assets/balances end of year: ($15 million)
Total revenue: $37.5 million
Total expenses: $161.7 million
Net gain/loss: ($124.1 million)
Net assets/balances end of year: $22.8 million
Total revenue: $95.3 million
Total expenses: $30.5 million
Net gain/loss: $64.8 million
Net assets/balances end of year: $142.1 million
Total revenue: $41.7 million
Total expenses: $28 million
Net gain/loss: $13.7 million
Net assets/balances end of year: $339.1 million
Ziva Branstetter 918-581-8306
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