David Koch Team Builder and Generous Guy

I am across this interesting article a while ago published in the Summer 2012 Philanthropy Magazine about David Koch. Koch started at MIT when he was 19 years old in 1958 and was team captain of the MIT basketball team leading the team to a 17-4 record his senior year. What is interesting is that his final game was played against the University of Chicago (home of Milton Friedman) which is known for free-markets. David was the second highest in scoring average and had 545 rebounds. Not bad for a future billionaire and philanthropist.

The article talks about how even before Koch Industries became large David was still philanthropic. In the mid-1980’s he joined the New York University-Presbyterian board. He became more interested in medical boards in the 1990’s when he was diagnosed with prostate cancer. Koch first went through radiation therapy, then had his prostate removed, then the cancer came back again and he had hormone therapy. That didn’t work so now Koch is using Zytiga for his cancer. In addition to this not too long ago Koch suffered from diverticulitis. To treat this Koch received intravenously antibiotics which if they were not available would have torn up his colon and might have killed him.  I am not sure if the media truly understand the battle David Koch has already fought. This has caused him to pore millions into cancer research ($25 million to M.D. Anderson where he is treated), $30 million for Memorial Sloan-Kettering, and $20 million for John Hopkins. He has also had 10 special surgeries at Hospital for Special Surgery in New York. Koch has donated since 1998 close to $400 million to medical research. His donations have even created jobs to help fight research. His gift to MIT to create a cancer institute has 650 researchers after his $100 million gift. Koch believes that in the next decade or so we will see breakthrough discoveries and treatments. As long as the FDA can limit their involvement everyone will be better off.

 Much of the money David Koch makes comes through his dividends. As I pointed out in this post in the 1980’s William Koch was getting what would be today equal to an $11 million dividend and that was when Koch Industries was much smaller than it is today. I have no way of knowing but if the company still does pay 7% dividend and you take a modest return (7%) on $110 billion in revenue and factor in 42% ownership from David Koch I would estimate maybe $200-$250 million in dividends per year (again back of the envelope calculation ). This is also in line with the analysis I did of the Koch net worth from 1984-2012 here. Koch does plow back 90% of their earnings into the company so 7% may be reasonable for a dividend. Also David Koch has around $25 billion in net worth in addition to his dividends which makes him pretty flush with cash. If taxes for dividends increase then he will give less. Dividends on taxes next year will jump from 39.6% up from 15% if Congress fails to act.

I think sometimes people forget that people respond to incentives. People forget that John Rockefeller with a little less than 5% of his net worth created the University of Chicago. M.D. Anderson was named after a successful cotton trader who gave his estate to charity. Capitalists are needed in building future charities.