Millions of investors lost money when WorldCom Inc. slid into bankruptcy in July. Now, some university alumni associations are feeling the pinch, too.
In recent years, dozens of alumni groups have received millions of dollars in royalties from an unusual program: discounted long-distance and Internet service for businesses run by alumni.
Alumni associations from the University of Missouri to the Georgia Institute of Technology provided lists of potential customers to WorldCom, which signed up clients, then passed on royalties to the associations of as much as 6 percent of the charges paid.
But with WorldCom reeling from accounting fraud and a July 21 bankruptcy filing, the program has been curtailed. The company didn't renew several associations' five-year contracts after they expired this year. And spokesman Jamison Gosselin says WorldCom, while continuing to honor contracts that are still in place, is "evaluating all programs that we don't feel are contributing to the growth of our core business."
Some associations have been caught short because they were counting on funds for this academic year that now won't come in. Others claim they are still owed money from the months before WorldCom filed for bankruptcy.
"Evidently greed took hold and this is the end result," says Wayne McDaniel, executive director of the University of Florida Alumni Association in Gainesville.
Gosselin says that under bankruptcy rules, the company has been unable to pay some money it owed from before the filing. Though WorldCom signed up some residential accounts, the bulk of the alumni association programs offered commercial service to alumni who either ran businesses or had decisionmaking authority over their company's telecommunications provider.
Raising funds through so-called affinity marketing programs is big business for alumni groups. The most popular is affinity credit cards, which pay the associations a percentage of the spending of former students.
At some schools, WorldCom's affinity program came to rival the amount brought in by credit cards. At its peak in 1999, some 50 universities took part. WorldCom says it continues to serve 15 schools that are still under contract.
The University of Missouri's alumni association, which had one of the largest WorldCom programs, budgeted $250,000 from the program for the fiscal year beginning July 1. And that was a conservative allocation. In the previous fiscal year the program brought in $550,000, says Todd Coleman, the association's executive director.
The funds raised were equivalent to as much as 30 percent of the association's annual budget, Coleman says. But none of that money will show up this fiscal year because WorldCom hasn't renewed the association's contract.
Royalties in the past have been used to support faculty research, scholarships, lecture series and student government events. Now those contributions will have to be curtailed, Coleman says, at what already is a difficult time for the state-funded university.
At Florida State University, WorldCom still owes the alumni association "tens of thousands of dollars" in royalties accrued before the association's contract expired at the end of June, association president James H. Melton says.
The association participated in the program for about 10 years, and had pulled in as much as $400,000 a year from it. It used the funds to offer services such as conferences and special events at the association's clubs around the world. "We're having to scramble somewhat to replace those funds," Melton says.
The University of Florida Alumni Association was getting as much as $160,000 a year in royalties from an affinity long-distance service program WorldCom had designed mostly for businesses. Revenues dropped sharply to about $25,000 in 2000 after WorldCom substantially decreased its marketing support. WorldCom cut back the sales effort largely because the association, which licenses use of its name, declined to provide support such as member mailing lists of prospective customers.
AT&T and Sprint, two of WorldCom's main rivals in long-distance service, don't have affinity programs, but a Sprint spokeswoman says the company is "exploring opportunities in that market."
_ Times staff writer Mark Albright contributed to this report.