Orange Liquid Creates A Green Fortune

Hello! This is Deep Pockets #30.

In 1965, an assistant coach for the University of Florida football team was troubled by an unusual observation:

Why didn’t his players need to urinate after practice?

The coach watched his players chug gallons of water during practice and then walk off the field without even the slightest urgency to take a whiz.

And that’s IF they walked off the field.

Even after chugging buckets of water, some players were still passing out on the field from heat exhaustion, especially on oppressive 90+ degree Gainesville afternoons.

It made no sense. They seemed to drink more than enough water???

This assistant coach was so bothered by the observations that he brought them to a doctor at the medical school.

The doctor found the answer. He then went on to invent what became one of the most famous beverages in the world, saved millions of lives, and earned a fortune along the way… even after getting into a bitter legal battle with his employer (the University of Florida).

Deep Dive: Orange Liquid Creates Green Liquid Fortune

Dr. Robert Cade was born in San Antonio, Texas, in 1927. In high school, he was a track star, with a sub-four-minute mile. He served three years in the Navy, then enrolled at the University of Texas, where he earned a four-year undergraduate degree in two years.

In 1954, he graduated from the University of Texas Southwestern Medical School.

In 1961, he joined the faculty of the University of Florida as an assistant professor of internal medicine with a focus on nephrology. AKA the renal system. AKA the kidneys. AKA the two fist-sized organs in the back of your abdomen that remove bad stuff from your body and expel it as urine.

In 1965, assistant football coach Dewayne Douglas walked into Dr. Cade’s office to explain his troubling pee-pee and pass-out observations.

On the pee question, Dr. Cade knew exactly what was going on. The football players were losing the water through perspiration instead of urination. That was obvious.

But if the players were drinking gallons of water, why were they still passing out from dehydration?

In a fateful twist, just a few months before coach Douglas walked into his office, Dr. Cade had read a cutting-edge research report titled:

“Interrelation between Jejunal Absorption of Sodium, Glucose and Water in Man”

While that title may not sound exciting, this report contained a revelation that would go on to save tens of millions of lives, change the sports world, and launch a $200 billion beverage category.

In really brief and simple terms, the report found that the human body absorbs water from the gut to the bloodstream (where it prevents dehydration) much faster when there is sugar and salt in the gut at the same time.

Here’s a more scientific full answer if you’re interested:

Chugging water on its own really fast doesn’t actually hydrate the body as fast as you might think. However, the research paper explained that when glucose and sugar were present in the gut as well, something magical happened. The salt would be magnetically attracted to the sugar, and when glucose and sodium combine, it creates a vacuum (technically an “osmotic gradient") that pulls water through the gut significantly faster than it would otherwise without the sugar and salt combo.

To use an analogy:

Pretend your gut is a nightclub and your bloodstream is the VIP room. When water enters an empty nightclub, it has no reason to go straight to the VIP room. The water wanders around the nightclub aimlessly for a while. It flirts with the bartender. It makes a song request to the DJ. It orders a drink. It spills the drink. Then it goes to the bathroom to clean its shirt… Sure, some water makes its way to the VIP room, but it’s slow and random. There’s no driving force compelling the water to head straight to the VIP room.

On the other hand, when water enters the nightclub and sees a bunch of annoying salt and sugar couples walking around hand-in-hand, it is physically compelled to head straight to the VIP room as fast as possible.

“Tasted Like Toilet Bowl Cleaner”

With this revolutionary finding, Dr. Cade teamed up with his fellow professors, Dr. Dana Shire, James Free, and Alejandro M. de Quesada, to conduct a series of trial-and-error experiments on the football team. They started with the freshman squad, having them drink various concoctions of glucose+sodium drinks.

The first concoction was not tasty. As Dr. Dana Shires would later admit, the first version “tasted like toilet bowl cleaner.”

Dr. Cade’s wife, Mary, suggested adding lemon juice to improve the taste. The final product contained:

• Water

• Sodium

• Sugar

• Potassium

• Phosphate

• Lemon juice

Players and coaches began referring to their new hydration drink as “Cade’s Cola.” That naturally evolved into “Cade’s Ade.”

The name had one more evolution…

As you probably know, Florida has lots of alligators. And as you probably know, the University of Florida’s athletic teams are called the “Florida Gators.”

At some point in those early days, a brilliant (but tragically forgotten) player suggested a new name:

.

.

.

.

.

Gator Ade

Which, of course, was quickly shortened to Gatorade. Dr. Cade patented the name and the formula.

Put to the Test

Gatorade was put to the test for the first time in a game against the LSU Tigers in the 1965 season. It was a particularly scorching day, with temperatures in Gainesville peaking at 102 degrees.

During the second half, the LSU players began to shut down and fade, but the Gators were still running strong. That was the edge that made the difference.

From this point on, Head Coach Ray Graves was convinced Gatorade was their new magic secret weapon, so he asked Dr. Cade to produce mass quantities of the drink for every game.

Two years later, the team even claimed that Gatorade was responsible for their first Orange Bowl win against the Georgia Tech Yellow Jackets in 1967. When asked what contributed to his team's loss, Yellow Jackets Coach Bobby Dodd admitted:

"We didn't have Gatorade. That made the difference."

$10,000 Offer Rejected

Not long after that Orange Bowl victory, Dr. Cade approached his bosses at the University of Florida and offered to sell them 100% of Gatorade for $10,000. That’s the same as selling something for around $100,000 today.

The University declined.

After being rejected by the school, Dr. Cade approached a canned food packaging company called Stokely-Van Camp. This time, he offered to sell 100% of Gatorade for $1 million. That’s the same as selling something for around $10 million in today’s dollars.

Stokley-Van Camp was interested in a deal, but they were not convinced this drink would have the mass market appeal that Dr. Cade envisioned. So, Stokley-Van Camp made Dr. Cade what turned out to be the luckiest counteroffer in history. Their offer was:

• $25,000 ($240,000 in today’s money)

• A five-cent royalty on every gallon ever sold going forward

Dr. Cade accepted. He could not have known how lucky he was to be given that counteroffer.

Soon after the deal was signed, Stokley-Van Camp paid $25,000 for Gatorade to be the official drink of the NFL. Sales began to explode nationwide.

As sales exploded, some senior officials at the University of Florida realized they had made a huge mistake when they didn’t buy 100% of Gatorade for $10,000.

Furthermore, it dawned on the school that they probably should have owned Gatorade without any payment at all by default since Dr. Cade invented the product at U of F, using U of F resources.

So, the school sued.

According to Dr. Cade's biography:

"They told me Gatorade belonged to them, and all the royalties were theirs. I told them to go to hell. So they sued us."

The lawsuit was filed in 1971. In the lawsuit, the University (accurately) pointed out that Dr. Cade and his fellow researchers used school labs, equipment, and even the mascot name to create Gatorade.

Unfortunately for the school, there were two big problems with their case:

#1) Technically speaking, Dr. Cade and his co-inventors were using federally funded grants provided by the National Institute of Health (NIH) to run their lab and pay for their research.

#2) All researchers of the University of Florida were required to sign a waiver that granted the school 75% of all earnings generated during their employment. As it turned out, Dr. Cade never signed that waiver.

The Settlement

After a bitter three-year legal battle, the case was settled in 1972. Dr. Cade and his partners agreed to give the University of Florida a 20% stake in their Gatorade royalties going forward. The new arrangement was managed by the newly-formed  “Gatorade Trust.” 

According to a 1972 Miami Herald interview with Dr. Cade, he and his three fellow inventors each received a 10% stake. The remaining 40% apparently benefited 42 other individuals who contributed in some way.

In 1983, Gatorade was acquired by Quaker Oats for $220 million.

According to a 1993 filing made by Quaker Oats with the Securities and Exchange Commission, at that point, the Gatorade Trust’s royalty percentage ranged between 1.9% and 3.6%. The range variation depended on various sales milestones.

In 2001, PepsiCo bought Quaker Oats for $13 billion (Gatorade was Pepsi's primary acquisition target in the transaction). FYI, today, Gatorade generates around $7 billion per year in revenue for Pepsi.

Even after the Pepsi transaction, the Gatorade Trust’s royalty structure was not altered.

Gatorade Royalty Shower

In 2015, the University of Florida reported that up to that point, it had received $281 million in royalties from Gatorade.

And because we know the school received 20% of the Trust’s royalties, some simple math allows us to figure out how the trust received in total.

• 20% of X = $281 million

• X = $1.4 billion

So if Dr. Cade and his three fellow inventors each owned a 10% stake, that means they each were paid $140 million between 1972 and 2015 alone.

Let me repeat that:

Between 1972 and 2015, Dr. Robert Cade and his three co-inventors each received $140 million in Gatorade royalties.

The University of Florida has not released any updates about the Gatorade Trust since 2015. However, it has been widely reported that the school receives $20 million per year in Gatorade royalties. Assuming that’s accurate, in the years since 2015, one could estimate that the school has received an additional $200 million, bringing its total to $481 million.

• 20% of X = $481 million

• X = $2.4 billion

If these assumptions are roughly accurate, each doctor’s 10% stake has generated $240 million since 1972.

Dr. Robert Cade died on November 27, 2007, at the age of 80. Ironically, he died of kidney failure. He was survived by his wife, Mary, six children, twenty grandchildren, and eight great-grandchildren.

Though he was a multi-millionaire many times over, Dr. Cade lived his entire life in the same six-bedroom Gainesville house he bought in 1965.

He used a portion of his wealth to provide “scholarships for dozens of medical students to attend the university over the years, seed money for the Gators’ women’s volleyball team and endowments for several small colleges.”

According to a 2005 Orlando Sentinel profile, Dr. Cade did indulge in one unique passion: Rare vintage Studebaker automobiles. By the time Dr. Cade died in 2007, his collection contained more than 100 Studebakers.

Dr. Cade was also instrumental in creating a philanthropic branch of Gatorade, which today delivers thousands of free bottles to third-world countries every year to help fight dehydration. Over the decades, literally millions of lives have been saved by the advancement of simple rehydration techniques.

And btw, Dr. Cade didn't hold a grudge against the University of Florida for suing him. After the lawsuit was settled, he spent the next 25 years of his career at the school as a professor emeritus of nephrology (study of the kidney).

In 2018, the Cade Museum for Creativity and Invention was opened in Gainesville. The 26,000-square-foot museum has a mission to “transform communities by inspiring and equipping future inventors, entrepreneurs, and visionaries.”

Just seven months before his death, Dr. Cade was inducted into the Florida Athletics Hall of Fame. At the end of his induction ceremony, a group of professors dumped a cooler of Gatorade over Dr. Cade's head. No joke. That actually happened. He was 79 years old at the time.

If you want to learn more about the history and invention of Gatorade, sports reporter Darren Rovell published a great book in 2005 titled “First in Thirst: How Gatorade Turned the Science of Sweat into a Cultural Phenomenon.” You can buy it right here on Amazon.

FINAL WORD

On the next edition of “Deep Pockets,” we’re going to tell the story of how a broke single mom and a guy who was basically homeless built an empire off… bees. But, unfortunately, only one of them got rich off their buzzy empire.

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