Already a Bloomberg.com user?
Sign in with the same account.
Lincoln National Corp
Bank of America Corp
Southwest Bancorp Inc/Stillwater OK
One morning in September 2007, billionaire oilman T. Boone Pickens and 27 men and women gathered in the lobby of Oklahoma State University’s Gallagher-Iba Arena to celebrate that they were all, one day, going to die. Three things united the orange-and-black-clad Cowboy fans: They all were more than 65 years old; they all loved their alma mater; and they all had passed a rigorous physical. “We’re partners in a deal,” Pickens, a graduate of the class of ’51, said once the chatter had died down. “It’s a good deal.”
The deal in question was called Gift of a Lifetime, a name meant to be read literally. Each of the 28 partners had allowed the school to take out a $10 million insurance policy on his or her life, with the annual premiums to be paid by Oklahoma State. For donors, the appeal was simple. The plan cost them nothing. In return they received a bronze statue of the school mascot (a bucking bronco named Pistol Pete), a plaque on the side of the stadium, and the knowledge that their deaths would enrich the school they loved.
Photograph by Tony Gutierrez/AP Photo
For Oklahoma State, life (or, more appropriately, death) was not so simple. To make money, the school had to outsmart Lincoln Financial Group (LNC), the insurance company behind the polices. Pickens believed he had found a better formula than Lincoln had for figuring out when people were going to die. With this edge, the school predicted that Gift of a Lifetime would eventually net its athletic department as much as $225 million. “Imagine endowing all of OSU’s Athletic Scholarships,” read the program literature. “Sound too good to be true? It’s not.”
Life insurance is the rare investment where policyholders don’t mind losing money, since doing so means living longer. The practice of investors trying to make money on death did not take hold until the 1980s, when they sought out people with AIDS, paid out part of their death benefits, and then waited to collect the profits once the patients died at an early age. Pickens and Oklahoma State envisioned something different: Instead of making money on existing policies, they’d take out their own. And they weren’t the only ones considering the plan. “Everybody is looking at it,” Pickens assured the crowd at the Gift of a Lifetime launch.
Many of the school’s biggest rivals were doing their best to cast Pickens’s plan as morbid. “It has a bad feel to it,” Joe Castiglione, University of Oklahoma’s athletic director, told the Los Angeles Times. Privately, more than 100 schools, hospitals, and nonprofits were already looking to create their own version of Gift of a Lifetime, including four universities that, like Oklahoma State, belong to the Big 12 Conference.
This dynamic—criticized in public, copied in private—was a familiar one for Pickens. Early in his career he’d gained infamy as a corporate raider, making the cover of Time in 1985 after trying to buy energy giant Gulf Oil. At 79 years old, he now was eager to see his alma mater’s fortune change, and in possession of nearly $3 billion to make more change happen.
The Cowboys needed the help. When a pay-to-play scandal put the football team on probation in 1989, the school began treating its athletic department the way a family might treat a member who gambles compulsively. Spending on basic maintenance dropped so low that rivals began referring to the football team’s Lewis Field as “Rust-Oleum Stadium.” In a conference full of billion-dollar endowments, the Cowboys were paupers. Then came Pickens.
After helping install his own handpicked athletic director, Pickens opened his wallet. From it flowed nearly half a billion dollars, half of it earmarked for sports. Gift of a Lifetime would create its own billfold of cash, and Pickens was so confident he had begun looking to sell the idea to others in exchange for a healthy commission.
Unfortunately for Oklahoma State, Pickens, and the other men and women who thought their demise would benefit their favorite university, Gift of a Lifetime has turned into the Present from Hell. First it fell apart. Then came the lawsuits. And this past March came a decision from a federal judge who declared that not only was the university not entitled to a refund of $33 million in premium payments, it was also responsible for the court costs incurred by the people it had sued.
So how did a sure bet turn into a lost cause? Pickens and the school aren’t talking, as they’ve since appealed the judge’s decision. Neither are the insurance brokers and agency that sold the policies. Yet because it’s a matter of interest in federal court, the arc of Gift of a Lifetime’s downfall can be traced in the thousands of pages of internal e-mails and deposition testimony that are now a part of the public record. Those documents reveal a plan sunk by impatience, hubris, and a belief that the hour of death could be predicted. One that all began when Pickens took his shirt off.
According to his autobiography, The First Billion Is the Hardest, the seeds of Gift of a Lifetime were planted during a routine physical. An athlete all his life, Pickens had adopted racquetball as his sport of choice at age 30. Mesa Petroleum, his first company, had once been named the fittest in the U.S. by the President’s Council on Physical Fitness and Sports. And though he was almost 80, Pickens still woke at 6:30 every morning to work out—a fact not lost on his doctor, who told him he was in such good shape he could be insured at a standard rate. “I had an immediate thought,” wrote Pickens: “Can you monetize good health?”
That thought led him to consult Glenn Turner Jr. and John Ridings Lee, two brokers who had recently sold the billionaire $100 million worth of life insurance. The pair concocted a plan that required the university to take out a $165 million loan to cover the annual premiums, with the interest on that loan paid through a $20 million gift from Pickens. The loan would be gradually paid back as the alumni died, which the broker’s “matrix”—the name they’d given to the actuarial table of their own design—forecast would start happening in the third year. That meant the school thought it would be out no more than $20 million—itself a gift from Pickens—before the money started rolling in. Even if the alumni lived years longer than the matrix indicated, Lee and Turner predicted the school’s final take would be $157 million. Assuming that the university stuck to the plan.
Over the next six months, Lee and Turner presented their plan multiple times to members of the Oklahoma State University Foundation, the school’s fundraising body. Each time it found something different to fret over. At one meeting, a foundation board member, Ross McKnight, said “people never die as soon as anticipated.” The foundation’s president wrote in an e-mail that “it looks too good to be true” and hired outside consultants who warned that wealthier people—the program’s target audience—tended to outlive even the most optimistic predictions of actuaries. When another consulting group raised even more pointed questions, Bobby Stillwell, Pickens’s personal attorney, complained about their “rude and confrontational manner” and asked of the foundation’s president, “Why would he want to drag this down?”
To Pickens and Stillwell, the foundation was a permanent source of frustration. Not only did it control the university’s purse strings, it was reluctant to open them. Fortunately there was a way around the foundation.
As Oklahoma State’s notoriously hard-charging golf coach, Mike Holder had won eight national titles, mentored such future PGA Tour pros as Bob Tway and Scott Verplank, and raised every cent needed to build what many consider the best college golf course in the country. For years, Holder had made pilgrimages to Pickens’s 65,000-acre ranch in the Texas Panhandle, where the two hunted quail and talked about Oklahoma State’s future. Holder’s investments in Pickens’s various ventures had made him wealthy, and each saw in the other a determination to improve the school they loved. Holder was instrumental in getting his friend to donate $70 million to the school in 2002. But he wanted more.
In 2005, Holder asked for a commitment of hundreds of millions of dollars to upgrade Oklahoma State’s sports facilities. Pickens told him he’d agree to donate the money only if Holder applied for the school’s vacant athletic director position. Holder was soon hired. Not long after, Pickens cut a check for $165 million, the largest donation in the history of collegiate athletics, which was soon moved to his hedge fund, BP Capital, with a promise that he’d manage the money while waiving his normal fees.
While the foundation dragged its feet on Gift of a Lifetime, Holder created a nonprofit called Cowboy Athletics to house Pickens’s donation. Where the foundation insisted on taking votes and keeping minutes, the new entity, so named to reflect a narrower focus on just Oklahoma State sports, was nimble and flush with cash. Its board had only four members, including Holder, Pickens, and his attorney Stillwell, whom he referred to as his “point man.” In January 2007, Pickens called Stillwell. “Let’s get this done,” he told him.
Cowboy Athletics began rounding up prospects, sending out brochures with Gift of a Lifetime written in elegant script and cold-calling elderly donors. Eventually 50 people volunteered, each one visited at home by a doctor and a nurse with a portable EKG machine, where they received what Donna Cummins (class of ’61) called “one of the best physicals I’ve ever gotten.” As the insurer, Lincoln Financial got to approve who could sign up and selected 27 people—15 men and 12 women, including Cummins.
Photograph by James Schammerhorn/OStatePhoto
While Cowboy Athletics was out searching for participants, Pickens was pressuring Holder and Stillwell to finish the deal by Feb. 7, 2007. That’s when he was hoping to present the program to the Ronald Reagan Presidential Foundation & Library, where he was a trustee along with Rudy Giuliani, Steve Forbes, and Rupert Murdoch. (Meeting notes suggest the trustees in attendance were unimpressed.)
“To repeat the obvious,” wrote Stillwell in an e-mail a week before the meeting, “all our heads will roll if the OSU plan is not announced as ‘done’ by the Feb 6 or 7 date.”
“If this isn’t complete by Feb 7 you won’t find me in this country,” wrote back Holder in a response included in court filings. “I will be in a cave with Bin Laden.”
The original plan had been for Oklahoma State to take out a long-term loan to finance the premiums. Yet just two weeks before Pickens’s deadline, insurance brokers Lee and Turner learned Cowboy Athletics could not get the loan. In a phone call with Holder, they discovered that every cent of Cowboy Athletics’ investment in Pickens’s hedge fund, BP Capital, had already been pledged as collateral to Bank of America (BAC) in exchange for a $100 million line of credit to upgrade the football stadium.
Lee was irritated. For the past six months he’d been sending Cowboy Athletics’ balance sheets to prospective lenders. What once looked like $300 million of free and clear cash—BP Capital’s investments in oil and natural gas were bringing back huge returns—was now spoken for.
Turner e-mailed Stillwell, reiterating the risk of starting the program without the loan. Stillwell, presumably speaking for Pickens, disagreed. “Go ahead and release the funds,” he wrote. “The risk [of losing money] is low to nonexistent.”
So began a pattern. Every month, Lee and Turner would pepper Stillwell and Holder with e-mails and phone calls about the need to secure a loan. (Pickens wasn’t e-mailed because he didn’t and still doesn’t have an e-mail address.) And every month they’d receive some variation on the same response: “We’ll handle it.”
To pay the initial $16 million premium, Cowboy Athletics had taken a short-term loan from Stillwater National Bank (OKSB). It could have paid the bill from its investment gains in BP Capital, but the hedge fund was returning 30 percent a year (Cowboy Athletics’ initial $200 million stake would eventually peak at $407 million), and Holder wanted that money to keep working for them.
Meanwhile, in phone calls with Lee and Turner, Pickens began discussing ways to market Gift of a Lifetime—which he was now calling the Pickens Plan—to other nonprofits and universities. The Humane Society was interested. So was Brown. Yale said it wanted 50 alumni participants. Even the once-reluctant OSU Foundation had changed its mind. Now it not only wanted its own plan, it also wanted a Gift of a Lifetime program big enough to raise $1 billion. The conversation had just turned to Pickens’s fee—he wanted a 50 percent cut of the commission, to be split between him and Stillwell—when the stock market collapsed.
In four months, Cowboy Athletics lost $282 million. “Looks to me like you are going to have to take a little ‘pause’ in your construction,” wrote Stillwell to Holder on Sept. 3, 2008. “I don’t know about relying on [Pickens] for more money … it’s ugly around here.”
When Bank of America made a margin call on its line of credit, Cowboy Athletics was forced to liquidate its investment with BP Capital to pay off the stadium loan. With all of its Gift of a Lifetime alumni still above ground and another premium payment due, Cowboy Athletics was suddenly stuck with a $16 million bill it couldn’t pay. Pickens flew to Charlotte to persuade Lincoln Financial officials to let the university out of its deal, to no avail.
Photograph by Zach Gray
Pickens and Holder soon seized on a counter narrative: They’d been duped. Holder revealed that he had been in such a rush to meet Pickens’s deadline that he never read some of the insurance papers. Cowboy Athletics insisted this meant that the policies weren’t valid, so after having spent two years and $33 million under the impression that they were very real, it canceled them and asked for its money back. Cowboy Athletics and Pickens sued this past January in Oklahoma district court, alleging they had been defrauded by Lincoln and the brokers Lee and Turner. Lincoln filed its suit on the same day in federal court in Dallas.
Federal Judge Jorge Solis did not buy the argument that Lee and Turner had pulled a scam. In March he awarded summary judgment to Lincoln, Lee, Turner, and another insurance broker, while also ordering Cowboy Athletics and Pickens to reimburse their court costs. They’ve since appealed.
Oklahoma State’s athletic department may not be funded in perpetuity, but Boone Pickens Stadium is now fully renovated, thanks to its namesake. Pickens also made sure that his alma mater didn’t lose a penny in the deal; it was his guarantee that allowed the school to take out the loan to pay the premiums, and he’s now the one repaying Stillwater National Bank at a cost of $3 million per quarter. The football team finished 12-1 last season, its best showing ever. And the 28 men and women who half a decade ago were considered safe bets to die sooner rather than later? All are still with us, not the least being Pickens himself. As Roy Scott (class of ’56) put it, the problem may have been as simple as picking the wrong people: “We just live too long, I guess.”