Space X, Elon Musk, Jared Isaacman and St Jude: The Questions No One is Asking

Jared Isaacman, a 37-year old billionaire who made his fortune as a co-founder of a payment processing company called Shift4 Payments, announced he is spearheading a $200 million dollar fundraising campaign for St. Jude by leading a crew of 4 private citizens in a SpaceX rocket (of Elon Musk fame) that will fly into orbit around the earth. Mr. Isaacman is personally donating $100 million to St Jude with the conviction we should conquer childhood cancer.

I don’t know anyone who doesn’t want to conquer childhood cancer. There is little else that will push adults into action than seeing a child suffer from a serious illness.  But, Mr. Isaacman and everyone else may want to ask some serious questions about St. Jude, research, and how revenue is spent before embarking on fundraising for an organization that has increased its net assets from $2.5 billion in 2012 to $5.4 billion in 2019; primarily by saving a large portion of revenue annually (as opposed to spending more on research and helping sick kids and their families).

For anyone not familiar with St. Jude, the organization is actually two organizations:  St. Jude and ALSAC.  ALSAC is the fundraising non-profit whose purpose is to raise money for St. Jude. St. Jude is the actual non-profit research hospital.  Most non-profits report expenses in four broad categories (grants, program services, management and general, and fundraising) St. Jude decided years ago to separate the fundraising function (which can make fundraising costs appear low or non-existent if readers only look at the Form 990 of the hospital).

In the most general terms, fundraising dollars and revenue goes to ALSAC, who historically has given about 50% of revenue to the hospital (note:  the hospital has not historically spent all of what is given to them; they have retained 1-8% to add to savings).  The revenue from ALSAC has historically covered about 80% of the costs of the hospital (the remaining costs are covered by insurance reimbursements and other sources: grants from the government, cafeteria, etc).

So, the question becomes:  What does ALSAC do with the other 50% of revenue that they don’t give to the hospital?  They pay for fundraising costs (on average about 30% of what they collect) and keep about 20% which is added to savings (which means the two related organizations retain 21-28% of revenue annually to add to the general fund. That’s a high savings rate that has resulted in explosive growth in net assets.

Over the past 7 years, ALSAC reported the following information (in millions) on the IRS Forms 990 (2012-2019):

Year                                2012       2013       2014      2015       2016       2017       2018        2019

Revenue Raised            $870     $976     $1,120     $1,182     $1,260     $1,504    $1,652    $1,920

Revenue to Hospital     $442       $488      $530       $589       $807       $664       $757       $865

% to Hospital                   51%         50%       47%        50%         64%       44%        $46      45%

Fundraising Costs          $262       $278         $307        $342        $375     $413     $483     $535

% to Fundraising              30%         28%          27%         29%         30%      27%      29%     28%

Revenue Retained           $166        $210        $283        $251         $78      $427     $412    $520

% Revenue Retained          19%        22%        26%         21%         6%       28%      25%     26%

Net Fund Assets            $2,454    $2,769    $3,299    $3,452     $3,424   $4,082  $4,696   $5,366

To be fair to St. Jude and ALSAC, the hospital has claimed they need to keep at least a year’s worth of revenue in savings in case all fundraising dried up (highly unlikely with the marketing machine they have) but that only amounts to about a billion dollars annually.  And, then there are capital projects to keep growing the hospital and yet, net assets have grown significantly more than the hospital has.

At the end of 2019,  St Jude/ALSAC had $5.4 billion in net assets. But, what is more telling is that net assets have grown from $2.4 billion in 2012 to $5.4 billion in 2019:  an increase of $3 billion over 7 years. In order to do that, St. Jude/ALSAC did two things:  They saved an average of $300 annually and benefited from gains on investments; all of which leads to the following questions:

If Mr. Isaacman thinks $200 million will help pave the way for more research into curing childhood cancer, then why hasn’t St Jude used the hundreds of millions of dollars they haven’t spent annually towards research?  Specifically, why does St. Jude need to raise $200 million in this special fundraiser when they put an average of $300 million annually into the general fund, which had $5.4 billion in 2019?

So, why doesn’t St. Jude apply more funds to research and to helping sick children and their families?  If there weren’t sick children with cancer or research that needs to be done, then one could understand why St. Jude doesn’t spend hundreds of millions of dollars they raise every year and instead save it. But, that’s not the case.  They could easily allocate another $100 million to research and another $100 million to help very sick children and their families AND still grow the endowment.