Bear with me as I clarify an important financial point regarding my commentary on University of Arizona Global Campus’s likely finances. In a post from early August piecing together financial assumptions on the deal, I added the following comment:
Think of it this way – there are a lot of assumptions of operating income being generated to pay the $25 million guarantees, and the 19.5% revenue share, and the final residual income. Zovio (previously named Bridgepoint Education) has not been able to generate even the $25 million in operating income since at least 2013.
Last week The Chronicle of Higher Education published an opinion essay I wrote, arguing against the recent Instant Global Campus movement, where I included a similar statement. Unfortunately I missed a change in the editing process that assigned this description directly to Ashford itself.
Either way, it is doubtful that these global-campus deals will pay off in the way they are being touted in press releases. Arizona has said that they expect to bring in $25 million annually from the deal, but Ashford hasn’t been that profitable since 2013, when there was significantly less competition in the online space.
In a subsequent Twitter and email conversation with Ariel Sokol, who has done financial modeling of the deal for The Century Foundation, he described a problem with this description.
As we discussed, I was a bit concerned about your blog posting where you wrote that Ashford was losing money since 2013. You are not incorrect to say that on a reported basis ZOVIO demonstrated net losses. That being said, one needs to remove one-time charges and events to take out the noise of a business that saw multiyear declining enrollment and revenue. Zovio remained a profitable business through 2018, and potentially could have been profitable in 2019 had it not acquired two low revenue businesses that were losing money at the time. There may be reasons not to like the UAGC / Zovio deal, but one probably should not suggest that Ashford is losing money. Based on the accreditor report from 2019, it appears that through 2018 Ashford was quite profitable. More transparency is needed to understand the state of Ashford in 2019 and 2020, as well as the relationship between Ashford and Zovio in the form of shared services. As I’ve written elsewhere, understanding the Zovio / UAGC deal requires a great deal of document disclosure including pro forma statements showing what 2021 might look like.
In that the 2019 accreditor’s report, Ashford University did point to operating income for that school that would, if accurate and if it continues with the nonprofit conversion, likely pay the $25 million guaranteed income for the University of Arizona. $63 million, $69 million, and $59 million for the years 2016 through 2018.
Zovio, the parent company, does not break out the financials for any of its operating segments, of which Ashford University is by far the largest one. In fact, this point was raised in that same accreditor’s report.
As part of its cost structure, Ashford University utilizes key services from parent Zovio. In 2018, these shared services represented $194.0 million, or roughly half of Ashford’s direct costs. The other half of remaining direct costs Ashford handles internally, through its own employees or outsourced to other third-party providers. As part of its plan to become a non- profit (and therefore a stand-alone) entity, some of the shared services are expected to be brought under Ashford’s direct control. Some of this will likely be through the transition of certain Zovio employees, others through hiring of additional staff, and others through direct purchase of third-party services. A new shared services agreement, contingent on a structural change approval by WSCUC, is currently being negotiated between Ashford and Zovio; some services will likely continue to be provided by Zovio under this structure.
Separating services to be provided by Ashford and those by Zovio makes it difficult to evaluate the economic fairness of the shared services agreement.
The point I had made above regarding Zovio is accurate, in that the last year that the company had at least $25 million in operating income was 2013. But the statement in the Chronicle was incorrect by referencing Ashford’s operating income. While we have no way of verifying the information provided to the accreditors, it is certainly worth sharing that information and calling out that if the information is accurate, then UAGC does have a decent chance to provide $25 million of guaranteed income to the parent University of Arizona.
None of this changes my main point in the Chronicle essay, however.
The biggest problem with these deals, however, isn’t that they are likely to fail. It’s that there’s a chance they’ll succeed. What happens if Purdue University Global grows enrollment and makes enough operating income to fund the 12.5-percent revenue-sharing payments to Kaplan Higher Education and pay the guaranteed tens of millions of dollars to Purdue? What happens if the University of Arizona Global Campus generates $25 million per year in profit for the University of Arizona and 19.5 percent for Zovio — above and beyond the costs of operations?
In those cases, we would see prestigious nonprofit universities charging much more in tuition than they spend on operations. The Instant Global Campus would be a cash cow, transferring tuition dollars out of the online schools and into the bank accounts of nonprofit research universities.
It’s clear to see which students win and which ones lose in this arrangement. In the case of the University of Arizona, its main student body is 4-percent Black and 22-percent first generation, whereas its proposed Global Campus is 32-percent Black and 48-percent first generation. The numbers for Purdue and its global campus are similar. Is transferring hard-earned tuition dollars from underserved online students to subsidize richer, younger, whiter university students’ education really the mission of a land-grant university, especially in this day and age?
In the end, the main thing colleges will gain with a successful global campus is bragging rights. Thanks to clever negotiating, they will now be mentioned in the same breath as Arizona State University and Southern New Hampshire University, institutions that spent a decade or more building up their online capabilities. They can take boastful pride in adding tens of thousands of new students. It makes little difference that these students are being exploited to support the far-more-traditional and privileged student population of the parent university.
Mea culpa for not finding and sharing the accreditor’s report in my earlier analysis and for missing the Chronicle edit. And thanks to Ariel for the correction.