You Take the Good, You Take the Bad: A Case Study in Higher Ed "Mega-Donor" Influence

University of michigan. photo:  Dieon Roger/shutterstock

Stephen Ross, the chairman and founder of Related Companies and owner of the NFL's Miami Dolphins, recently gave a $50 million gift to his alma mater, the University of Michigan (U-M), making him the single biggest donor in the school's history. His total pledged giving to the school stands at a whopping $378 million.

But to truly appreciate the full context of this gift, we must first travel back in time to 2003. 

Ross invested in a partnership named RERI that was donated to the U-M in 2003. RERI obtained its own appraisal for the donation in the amount of a cool $32,935,000, triggering a series of those dreaded "red flags" at the IRS, which subsequently dinged Ross and his partners for engaging in a "tax avoidance scheme lacking in economic substance... to the benefit of Mr. Ross and his associates at Related Companies."

Fast-forward to August. U.S. Tax Judge James S. Halpern sided with the IRS and disallowed the entire $33 million write-off. The gift's true value, according to Halpern, stood at a mere $3.4 million. The judge also imposed maximum civil penalties for a "gross valuation misstatement" that could now cost Ross and his partners millions more.

University of Florida professor Steven J. Willis summed up the consensus from the larger legal field accordingly: "I don’t understand why someone is not going to jail."

Meanwhile, Brian Galle, law professor at Georgetown University Law Center, called the transaction an instance "where major universities are seemingly willing to look the other way when a major donor is clearly playing a little fast and loose with the charitable tax deduction."

Is anyone truly surprised? Such is life in the higher education space, where "top of the pyramid" giving continues to surge, making fundraisers disproportionately reliant on a handful of outrageously affluent donors. As the Facts of Life theme song so astutely notes, "You take the good, you take the bad." What alternative is there, really?

And so it's against this legal and philanthropic backdrop that Ross made his most recent gift, which appears to be straightforward and devoid of any complex legal machinations. This was probably no coincidence.

The $50 million will go to the business school that already bears his name with an eye toward entrepreneurial activities that will sound familiar to students of higher ed philanthropy. Specifically, the money will fund career development programs for students, action-based learning experiences such as student-run investment funds and new business ventures, and resources for attracting and developing junior faculty, the school said.

"It gives me enormous joy to continue to give back to the University of Michigan, an institution that had such a profound impact on my life," Ross said in a news release. "I am extremely proud of the physical transformation we have achieved at the business school, creating modern, new facilities and places students and facility and future leaders can thrive.

Ross may not be singlehandedly backrolling a major American public institution, but it sure sounds like it.

In 2013, he gave U-M a $200 million gift, $100 million of which was earmarked for improving the university's Stephen M. Ross Athletic Campus. In announcing the gift, Ross walked into the hall of his namesake business school as the university marching band played "Hail to the Victors." U-M officials were eager to announce that "no tuition or tax dollars are being used to fund the project," which is slated to be completed in 2018.

Ross earned his Bachelor of Business Administration degree in accounting from the U-M Business School in 1962, a law degree from Wayne State University and a Master of Law degree in taxation from New York University (NYC). Not surprisingly, he gave the NYU School of Law $20 million in 2015.

His net worth currently stands at $7.6 billion, and I have to doubt that the other main recipient of his largesse—U-M's athletic department—has his number on speed dial. 

Four years after his $200 million gift for the Stephen M. Ross Athletic Campus, U-M's football program is ranked 17th in the nation at the time of this writing. It plays in the mighty Big Ten athletic conference, and its coach is the "colorful" Jim Harbaugh. 

Yet, according to Bill Shea in Crain's Detroit Business, U-M's athletic department is $240 million in the red. Its 2016-17 budget of $161 million includes a $15 million debt payment for eight projects, including $9.2 million for the 2011 Michigan Stadium renovation.

Not that officials are especially concerned. "If financial problems ever emerged," said Shea, "Michigan can always turn to its alumni for help."

"We as a campus have enjoyed very strong donor sponsorships in terms of gifts," said Kevin Hegarty, UM's executive vice president and chief financial officer. 

Given Stephen Ross' latest gift, it's hard to argue with Hegarty's assessment.