Great Plains Generosity

A little-known billionaire gives $400-million to S.D. hospital

When the head of a South Dakota hospital system paid him a visit in late 2005, T. Denny Sanford had no idea he was about to be asked to make one of the largest gifts ever to a medical institution.

Kelby K. Krabbenhoft had told Mr. Sanford he wanted to offer an update on construction plans for the

Sioux Valley Hospitals and Health System’s children’s hospital, which Mr. Sanford had helped make possible with a $16-million gift. Mr. Sanford made his fortune through a credit-card company headquartered in Sioux Falls, S.D., where the health-care system is also based.

Sitting in Mr. Sanford’s mountainside home in Vail, Colo., Mr. Krabbenhoft told the little-known billionaire: “Now I want to talk to you about something else.”

He laid out plans for how his regional health-care system could make a national mark on the evolution of medicine, particularly in pediatrics. He compared his vision to the Manhattan Project, and talked about how Sioux Falls’s geographic isolation might aid the heath-care system’s efforts to make a world-changing medical discovery in the same way that the remoteness of Los Alamos, N.M., enabled the scientists who created the first atomic bomb to move forward quickly.

“How much is this going to cost?” Mr. Sanford asked.

“$400-million.”

Mr. Krabbenhoft recalls Mr. Sanford clutching his hands to this throat — as if he were being choked. A long pause followed. The two then dug into the details of how the money would be spent. Five minutes later, Mr. Sanford said: “Let’s get it done.”

An Entrepreneur’s Touch

The $400-million gift to Sioux Valley — which was announced this month and will be paid out in less than eight years — touches on several aspects of Mr. Sanford’s philanthropy. He likes entrepreneurial ideas, wants to see tangible results from his gifts during his own lifetime, and focuses most of his money on causes that help children.

In a two-hour interview at his gated, hilltop home here last month, Mr. Sanford talked about the $400-million gift as just a step in his process of giving away his fortune, which he confirms is worth roughly $2.5-billion. Forbes magazine first used that number in September, when it ranked Mr. Sanford at No. 117 on its annual list of the richest Americans. “I’m sure there will be other big gifts,” he says.

Rejected Pledge

Mr. Sanford was virtually unknown in the philanthropic world until 2003, when officials at the University of Minnesota-Twin Cities rejected his $35-million pledge to help build a new football stadium, saying publicly that Mr. Sanford was trying to exert too much control. While some philanthropy experts believe Mr. Sanford puts too many conditions on his gifts, he prefers to see any terms he includes as ensuring that his “investment” is handled wisely. With Minnesota, he maintained that the university could have built the stadium for half as much as it planned to spend.

The Minnesota experience led Mr. Sanford to focus most of his philanthropy on South Dakota, and his gifts have been increasing exponentially since 2004. That year, his biggest gift was $16-million for the children’s hospital. Last year, he pledged $70-million for improvements to a state-owned mine in western South Dakota that could become an underground federal research laboratory. Sioux Valley, whose core hospital has a 100-year history, found Mr. Sanford’s latest gift of $400-million so “transformative” that it planned to change its name to Sanford Health at the same time it announced the donation.

At 71 and twice divorced, Mr. Sanford is known to friends as “wolt” (“world’s oldest living teenager”) for his feisty competitiveness on the golf course and his love of a good time. He has a private plane and four homes, in Arizona (two), Vail, and Sioux Falls. He no longer spends much time in Sioux Falls, particularly this time of year. “I have some curious allergies,” he deadpans, with an impish grin. “I’m allergic to shoveling, wet feet, and cold noses.”

Mr. Sanford says he is getting a thrill out of figuring out what he can accomplish through his philanthropy.

“He has surprised himself that he made this much money, and I think he’s just having a lot of fun with it,” says Linda Mickelson Graham, a Sioux Falls resident and one of Mr. Sanford’s longtime friends. Ms. Mickelson Graham, the widow of a former governor of South Dakota, has served on the boards of two charities to which Mr. Sanford has made major gifts, including the health system.

Mr. Sanford says he intends to “die broke,” leaving the vast majority of his wealth to charities. His two sons are already independently wealthy; Mr. Sanford has given each son 4 percent of his holding company, United National Corporation. While Mr. Sanford has his own foundation, the Sanford Foundation, and donor-advised funds at both the Sioux Falls Area Community Foundation and the Renaissance Charitable Foundation, in Indianapolis, he says he uses all of the accounts mainly as a “pass-through” for his gifts, and that he would prefer to give his money away before he dies rather than leave it in a foundation.

“I am already successful,” Mr. Sanford says. “Now I need to be significant, and make a difference in the world.”

‘No Safety Net’

Mr. Sanford grew up in a lower-middle-income family in St. Paul. His mother died when he was 4, and his father, who owned a wholesale-clothing business, died when he was 20.

As a teenager, T. Denny Sanford spent more than a month in a detention center, following an incident that involved drinking and fighting. The judge let him out early after he promised to go to the University of Minnesota to earn a college degree.

The early deaths of his parents “had a bearing on my success,” Mr. Sanford says. “I had an independence forced on me that a lot of people have not had the advantage of. You go with what you have available, and what I had available was me, and no safety net down below.”

Just two years after graduating from Minnesota in 1958 with a psychology degree, Mr. Sanford started his own company, a business to promote technical products to architects and engineers. That led to other businesses, including Contech, a specialty chemical company.

In 1982, while still in his mid-40s, he sold the company, pocketed more than $10-million, and retired to Florida to perfect his golf game and consider a run at the Professional Golfers’ Association’s senior tour.

That dream never materialized — “I got down to a 5 handicap, but you need to be a plus 5, not a minus 5,” he says — and retirement didn’t take, so Mr. Sanford returned to Minnesota to pursue a venture-capital career.

In 1986 a friend needed to sell United National Bank, in Sioux Falls, to raise money to cover a divorce settlement. Mr. Sanford agreed to buy it for $5-million.

The bank, now named First Premier Bank, has expanded to 15 branches in South Dakota. But “the real bonanza,” as Mr. Sanford puts it, has been Premier Bankcard, the credit-card arm, which accounts for 90 percent of the holding company’s profits.

The State Legislature’s decision to eliminate its usury laws in 1980 allowed banks in South Dakota to charge higher interest rates than in many other parts of the country, and that led Citibank to move a large operation to Sioux Falls. Mr. Sanford later hired away many Citibank employees to start Premier Bankcard, which is now the 11th-largest issuer of Visa and MasterCard credit cards in the country.

Mr. Sanford says he has always had the intention of donating generously, but he has lacked the liquidity to do so, given the highly regulated nature of his businesses. In the past few years, he has been able to pay out greater dividends from his companies, making large donations possible.

“It is payback time for me,” Mr. Sanford says of his gifts to charities in South Dakota. “The state has given me the opportunities, and it’s time for me to say thank you.”

South Dakota Impact

Mr. Sanford is certainly making a big difference in the state. South Dakota has only 775,000 people, and a 2006 general-fund budget of $1.1-billion — not even three times as large as the check Mr. Sanford has promised to write to Sanford Health. Both Mr. Sanford and Mr. Krabbenhoft believe Sanford Health can become to pediatric medicine what the Mayo Clinic is to geriatric medicine. That would give Sioux Falls, the state’s largest city, the same kind of name recognition and economic windfall experienced by Rochester, Minn., that state’s third-largest city and the home of Mayo. Mayo employs more than 29,000 people in Rochester and brings two million visitors per year to the community.

Mr. Sanford’s $70-million pledge to South Dakota, primarily to improve the underground infrastructure of the Homestake Gold Mine, near Rapid City, could have a comparable economic impact on the western half of the state. The mine is one of two front-runners — the other is in Colorado — in a competition to be designated a national underground science laboratory by the National Science Foundation. Mr. Sanford’s pledge, which will be paid only if the Homestake mine does receive such a designation, is intended to give South Dakota a leg up against the competition.

Mike Rounds, the state’s governor, estimates that the annual economic impact of the national research lab could exceed the $270-million that Ellsworth Air Force Base contributes annually to Rapid City’s economy. “We’re talking about billions of dollars over periods of time,” Governor Rounds says.

At first blush, the Homestake pledge seems an odd choice, given that Mr. Sanford says that “well over 90 percent” of his giving will be focused on children. But only $50-million would go toward mine improvements. The other $20-million would be used to create an educational facility for children at the mouth of the mine.

“He truly wants to be able to make a difference in the lives of children,” says Governor Rounds, who helped broker the deal with Mr. Sanford.

Mr. Sanford’s first major gift was to the Children’s Home Society of South Dakota, which provides a home, schooling, and therapy for young children with emotional or behavioral problems. The charity, which has facilities in Rapid City and Sioux Falls, asked Mr. Sanford in 1999 for what would have been its largest gift ever — $1-million — as a matching gift to help kick off an endowment campaign.

“He said, I’m not going to give you $1-million for your endowment,” says Rick Weber, the charity’s development director. “I’m going to give you $2-million.” The campaign ultimately raised $10-million.

In December 2005, Mr. Sanford provided another matching gift, this time worth $14-million, as Children’s Home began planning another endowment campaign. He will contribute $3 for every $1 the charity raises. Mr. Sanford also gave $550,000 last year for an addition that will house the charity’s adoption and foster-care services, allows the charity to use his jet to fly in golf pros for an annual fund-raising tournament, and throws a party each year at his Scottsdale home to help raise money for Children’s Home Society.

“When you see these kids who have been separated from families because of abuse — either sexual or physical — and you see their recoveries and the success that the organization has with these kids, it’s absolutely unbelievable,” Mr. Sanford says.

Fund-Raising Concerns

Some fund raisers worry that Mr. Sanford’s generosity to South Dakota charities could have a crowding-out effect on other donors. Mr. Weber, of Children’s Home Society, says he has heard a few prospective donors argue that “Denny has already taken care of you” with his $14-million matching gift.

But Children’s Home remains in a precarious position even with Mr. Sanford’s gift. Nearly 90 percent of its budget comes from government sources, and more than half comes from Medicaid. The charity wants to build a $70-million endowment, which could produce enough income to cover 25 percent of its $14-million budget each year. Even counting Mr. Sanford’s gift, the charity is less than halfway there. “We’re trying to dispel the misperception that this gift is all we need,” Mr. Weber says.

Brian Mortenson, president of the Sioux Valley health system’s fund-raising arm, says he expects the $400-million gift from Mr. Sanford to focus greater attention on Sanford Health and lead to more opportunities to share the system’s story with donors. “Significant gifts beget significant gifts if the organization demonstrates excellent results with the gifts received,” Mr. Mortenson says.

Although most of Mr. Sanford’s donations have gone to South Dakota charities, he says he is open to unusual and entrepreneurial ideas from anywhere in the country, particularly if the project focuses on pediatrics or children.

“I’m not interested in doing something that isn’t a bit unusual,” Mr. Sanford says. “It’s the entrepreneurial Sanford coming out in me. Just to write a big check without a specific mission or project in mind — I have no interest in that.”

One of his more unusual donations was a gift of $425,000 in 2005 to help preserve Taliesin, Frank Lloyd Wright’s historic 1911 estate near Spring Green, Wis. Mr. Sanford calls himself “a devotee of Wright.” He has inscribed a quote from the famous architect — “a look over the rim of the world” — on the ceiling above the bar in his home here. For Wright, the quote described Taliesin West, a 600-acre complex near Scottsdale that served as his winter home. For Mr. Sanford, the quote also captures the vistas from his own home, including nearby Pinnacle Peak and the fairways of the Estancia Club, the gated community where he lives.

Mr. Sanford says all of his gifts will go to organizations in North America.

“I recognize the many ills that exist in the world,” he says. “But this country gave me the opportunity through the system that we have. Why should I invest in a country that is likely to become an adversary to the U.S. at some point in time because we don’t have control of the political system?”

Nor is he especially keen on universities, after his failed attempt to give money to the University of Minnesota. When Mr. Sanford wanted to help build a football stadium on the Twin Cities campus, the two parties couldn’t agree on what it should cost. Mr. Sanford thought it could be done for $125-million; university officials estimated the costs at about twice as much. As a result, the university wanted more than the $35-million Mr. Sanford was offering for naming rights.

Under the initial terms of the offer, Mr. Sanford pledged to pay his gift only after the stadium was constructed, and asked that “the stadium and field shall include prominent reference or the name Sanford prior to any other reference on all correspondence, signage, publications, notifications, etc., regardless of the cost of the field and stadium.”

“We concluded that Mr. Sanford was more interested in buying something than in giving a true gift,” Mark B. Rotenberg, the university’s general counsel, told reporters after the deal fell apart. The university finally nailed down financing for the stadium in 2006, after the Legislature agreed to pick up more than half of the $248-million tab.

Daniel Wolter, a university spokesman, calls Mr. Sanford “a dedicated alum and a good friend of the University of Minnesota.”

“Although our relationship with him in regards to the stadium didn’t work out, there’s no question his offer of support helped raise awareness of this important project and benefited our fund-raising effort,” Mr. Wolter says.

Mr. Sanford says he doesn’t believe he was asking for too much. Universities “just have a different system, and it doesn’t fit with the free-enterprise system,” he says. “They don’t understand the golden rule very well.” He smiles. “Those that have, rule.”

In 2004, Mr. Sanford did give $1-million to his college fraternity, Chi Psi, to renovate its deteriorating house, and he says he may support University of Minnesota athletics in the future.

In 2005, Mr. Sanford made two large gifts to the University of South Dakota. He gave $5-million to the university’s business school and — in an unusual step — asked the university to name the school after Miles Beacom, president of Premier Bankcard.

And he gave $20-million to the university’s medical school, now called the Sanford School of Medicine, but he made the gift through the Sioux Valley system and put its officials in charge of managing the funds. He says now he structured the gift that way because he doesn’t trust the governance procedures at universities.

Yet he laughs at the notion that he tries to exert too much control over the recipients of his donations. “Everything has some conditions to it,” he says. The deal with Sanford Health, he notes, requires four members of the management team to remain at the hospital “for the immediate future,” although no specific time frame was set.

His terms on gifts cut both ways. In his $14-million pledge to Children’s Home Society, he insisted that Dennis Daugaard, its executive director, stick around through the end of the endowment campaign. But his trust in management is such that he doesn’t insist on constant progress reports, a trend among so-called venture or highly engaged philanthropists. He expects his philanthropic involvement to be similar to his role at his companies — “pretty much minuscule” on a day-to-day basis.

Not counting leisure — especially time spent on fairways — Mr. Sanford estimates that he devotes about a third of his time to philanthropy and two-thirds to his businesses.

Mr. Sanford plans to eventually sell his holding company and carry through on his pledge to give away most of the proceeds. But in the event of an “early demise,” as he puts it, ownership of his business interests would go to the Sanford Foundation.

“My organization would continue for some period of time, but hopefully with a wind-down,” Mr. Sanford says.

He then lightens the talk about his own mortality by tweaking Mr. Mortenson, the hospital fund raiser, who is on hand for the interview.

“I expect to die broke,” Mr. Sanford says. “That is my goal. I’m working very hard at it … and Brian’s trying to help me.”