It's a delicate dance as Kaler courts wealthy alum Sanford

When T. Denny Sanford visits the Masters this week at Augusta National Golf Club, University of Minnesota football coach Jerry Kill will be his special guest.

Late last year, when the retired banker celebrated his 77th birthday, university President Eric Kaler and his wife, Karen, joined Sanford's family and friends at a party in Sioux Falls, S.D. And when U of M Athletic Director Norwood Teague toured the University of Nebraska's state-of-the art athletic facilities, Sanford was at his side.

The handshakes and companionship are normal in the context of the U's courtship of a wealthy alum — particularly a 1958 alumnus who is a self-made billionaire and now a major donor to the Golden Gopher Athletic Fund.

Now those close ties between university officials and Sanford are raising questions about the U's impartiality in evaluating a potential takeover of the state's vaunted U of M medical complex by Sanford Health, a fast-growing hospital chain launched by Sanford's $400 million gift in 2007.

The issue is likely to surface Sunday at a public hearing called by Minnesota Attorney General Lori Swanson to examine merger talks between Sanford Health and Fairview Health Services, which controls the university medical center.

"Decisions about the future of the University of Minnesota hospital should be based on the best interests of the people and patients of Minnesota and nothing else," Swanson said. "Athletic financial dealings should have no place whatsoever in discussions about the fate of the world-class university hospital."

Tax-exempt Fairview, the Twin Cities' second-largest chain of hospitals and clinics, has controlled the U's hospital and clinics since 1997, but would relinquish that control to South Dakota-based Sanford if the U agrees to the merger. Merger negotiations were proceeding privately until Swanson disclosed them two weeks ago, saying the people of Minnesota have a right to discuss their interests in a merger before any deal is made.

Representatives from the U, Fairview and Sanford Health are expected to attend the State Capitol hearing.

In an interview last week, Kaler said he is keeping his conversations with T. Denny Sanford about athletic funding separate from any consideration of business proposals from Sanford Health.

"Clearly, there's two conversations going on," Kaler said. "I have absolutely no problem separating the two."

Kelby Krabbenhoft, CEO of Sanford Health, also argued that the two matters are distinct.

"The [university] presidents are predictably very aggressive about accessing Denny, but we stay out of that for obvious complicating reasons," Krabbenhoft said.

It may be difficult, however, to keep the two discussions separate.

E-mails obtained by the Star Tribune show that Kaler was also scheduled to initiate preliminary talks this past week in Sioux Falls with Krabbenhoft. Kaler canceled the meeting in part because of Swanson's sudden inquiry, but he intends to reschedule even though he has proposed the university's own takeover of Fairview — a move that would exclude Sanford.

In a March 25 e-mail to Kaler, Krabbenhoft didn't mince words about his own enthusiasm for U of M athletics and possible funding. The e-mail provided a "discussion agenda" for the scheduled April 1 meeting at Sanford headquarters, including an item called "Denny Sanford and the U of M." Another item of discussion was: "President Kaler-Sanford Health Trustee (post-Merger)."

Krabbenhoft offered to fly Kaler to and from Sioux Falls in a private plane for the meeting, and he summed up his e-mail with accolades for the U's decision to fire basketball coach Tubby Smith. In the email, Krabbenhoft called himself a "Gopher forever" and said he also intended to write to "Norwood" about the basketball situation.

The CEO closed the e-mail with this personal "hope": "that Sanford and Fairview come to a reality and I can get as deeply invested and supportive as I/we should be in the Athletic future of the University of Minnesota."

Krabbenhoft explained in an interview that his e-mail referred to possible gifts to U of M athletic programs from the nonprofit company's "community dividend" fund, which has been used to support other university athletic endeavors. He said it has always been separate from "Denny's giving."

Denny Sanford holds no management or board position at the health company that bears his name. But one high-ranking U of M official recently referred to him as a "dominant figure" at Sanford Health. He reportedly has given at least $600 million to the organization, which was previously called Sioux Valley Health. A bronze statue of Sanford greets visitors to the company's Sioux Falls headquarters.

But Krabbenhoft said the hospital chain's benefactor is a "pure donor" who insists on no involvement in running Sanford Health.

"We don't coordinate or consult him on his philanthropy," Krabbenhoft said.

Sanford, a St. Paul native who made a fortune in banking and subprime credit cards, maintains a strong allegiance to the University of Minnesota. He graduated from the school in 1958 with a degree in psychology, and often travels with the sports teams, something Kaler supports. "I'd like him to continue to reconnect with his alma mater," he said.

In 2003, Sanford pledged $35 million to build an on-campus Gopher football stadium, but the deal unraveled because he wanted full naming rights and other perks. Sanford later provided a key $6 million donation for the stadium — the project's largest personal gift — and an athletic Hall of Fame inside the stadium now bears his name.

Kaler, Teague and Jerry Kill are all relatively new to the Minnesota campus, but they have established a firm bond with Sanford that was on display at halftime of last year's football game against Purdue. In an on-field ceremony that included a videotaped salute from Kaler, Teague and Krabbenhoft, the U bestowed on Sanford its Outstanding Achievement Award.

"This is the highest honor the university confers on an alumnus," Kaler said. "Denny, you've done it all. Congratulations."

Kaler said last week that he has had several "very cordial engagements" with Sanford, but sees no conflict as he discusses a potential health systems merger.

"It's really impossible, I would say, for me to think that in a complex organization like this — with an important medical enterprise — that I could be allowed to make a deal that is not in the best interest of that, in order to get a gift for some other part of the university," Kaler said. "That's just not how it works."

Linda Cohen, chair of the University's Board of Regents, said she doesn't think Sanford's giving has colored the thinking of U officials on the hospital merger. "I think they're considering the merger in terms of what is going to be a really good opportunity for the university, and not in terms of the philanthropy of Denny Sanford," Cohen said.

But state Rep. Gene Pelowski Jr., who chairs the House Higher Education Finance Committee, said "it starts to become a bit uncomfortable" to consider the various cross-ties in the U's decision on the future of the state-subsidized medical center.

"Everything about this is about the money," said Pelowski, D-Winona.

In addition to Denny Sanford's involvement at the U, Fairview's board chairman and acting chief executive, Chuck Mooty, was chairman of the university's major fundraising arm from November 2011 to July 2012. In nearly two years as vice chair and chair of the University of Minnesota Foundation, Mooty helped raise $465 million in contributions and commitments. And when Mooty was CEO of International Dairy Queen in 2007, his company gave the U $2.5 million under a sponsorship program to support the new Gophers football stadium.

Mooty said he admires and adores the U and Fairview both, and feels privileged to be in a position to help both institutions.

"The delicate part of this endeavor, given the variety of options, is how do we make sure we are good stewards for what's right," Mooty said.

Staff writers Jackie Crosby and Jenna Ross contributed to this report. Tony Kennedy • 612-673-4213