Notes on FutureU Podast “Explained: What is an OPM?”

Today the FutureU podcast, hosted by Jeff Selingo and Michael Horn, released a new episode based on an interview with me – “Explained: What is an OPM?” I thoroughly enjoyed the conversation and their new explainer style, and I hope the episode can be used as a resource to capture the basics of the Online Program Management (OPM) market.

We discuss what an OPM is – the concept and typical set of services – as well as what OPM companies are not allowed to do, who the big OPM players are, how the market is changing, how institutional decision-making is changing, what the controversies are, how nonprofit conversions fit into the market, and what trends to watch.

The podcast episode page includes a full transcript as well. Give it a listen or read, and go to the podcast home page to sign up or find the episode on your favorite podcast player.

To see most of my coverage of the OPM market, use the opm-market tag.

There were two points made during the podcast that are worth explaining in more detail, or at least sharing the source materials [emphasis added in podcast quotes].

2011 Dear Colleague Letter

Jeff Selingo: What are the real trade off that we hear so often from academics, a lot of whom don’t like these deals?

Phil Hill: Well during the development of this market, if you will, historically is where is the line between the OPM provider and the school? And early on, you’ve got much more of an issue of are the OPM providers actually teaching the courses or just giving a canned course that the school really doesn’t have much of a role in doing the teaching. You don’t see those issues as much anymore. And I’d say the biggest controversy that you’ve seen more recently comes around the revenue sharing agreement. And I know we don’t want to go into too much detail but it’s not detailed regulation. It actually is driven by a 2011 Dear Colleague Letter from the Department of Education that essentially says, yes, revenue sharing is allowed in this case, if it’s bundled services. But that didn’t put the issue to bed, that’s still a big controversy. [snip]

Michael Horn: The only thing I would add to that, Jeff, I think all that is right is a lot of these concerns stemmed from the for-profit university balloon, if you will, toward the end of the first decade of the two thousands. And then the popping in the first few years afterward, because a lot of critics saw that they were just enrolling students, many of whom were not fit for those programs and the incentives were all in that enrollment. And so the concern I think with for-profits now, playing with this revenue share is similar for many critics of these OPM models. The only thing I would add is it’s not entirely clear why a fee for service model has any different incentives per se, on that particular concern. But I think a lot of the transparency questions about how are these students doing? Where do the marketing dollars go to? How much money is being spent on marketing? A lot of those things are other questions that people are trying to understand as they poke at some of these companies right now.

The 2011 Dear Colleague Letter was released March 17, 2011 with the subject “Implementation of Program Integrity Regulations”, with the second section on Incentive Compensation. The key section upon which much of the OPM market is based is the following paragraph.

However, as illustrated in the examples below, the Department does not consider payment based on the amount of tuition generated by an institution to violate the incentive compensation ban if that payment compensates an unaffiliated third party that provides a set of services that may include recruitment services. The independence of the third party (both as a corporate matter and as a decision maker) from the institution that provides the actual teaching and educational services is a significant safeguard against the abuses the Department has seen heretofore. When the institution determines the number of enrollments and hires an unaffiliated third party to provide bundled services that include recruitment, payment based on the amount of tuition generated does not incentivize the recruiting as it does when the recruiter is determining the enrollment numbers and there is essentially no limitation on enrollment.

Nonprofit Conversion – Purdue Global / Kaplan

Jeff Selingo: Yeah. Michael, that’s actually a perfect lead into the next thing I wanted to dive a little bit deeper on for an explanation. And that’s these formally for-profit universities that Phil mentioned that have sold their universities to nonprofit and public partners, and now are supporting those institutions and presumably others with a range of service, so Kaplan, Purdue Global, and Ashford University, and Arizona Global, Grand Canyon. Like Phil and Michael, can you slow this down a little bit for our listeners? And even for me to explain exactly what is happening in the market for that, and are there other players that this might happen with?

Phil Hill: Well, take the one that really defined this nonprofit conversion model was Purdue Global and that was Kaplan higher education they had roughly…

Jeff Selingo: Let’s just slow that down a little bit.

Phil Hill: Okay.

Jeff Selingo: That was an OPM, right?

Phil Hill: Kaplan Higher Education was a for-profit university part of the Kaplan parent company, if you will. They sold Kaplan University to Purdue for $1, but with an agreement that they had a 30 year contract to provide OPM services back to Purdue Global.

Jeff Selingo: Which would continue to give them the revenue they needed.

Phil Hill: Exactly, so now that created this new institution, Purdue Global, that is a nonprofit and owned by Purdue University and where Kaplan Higher Education, they are now a pure OPM provider in this case.

Michael Horn: And the only thing I would add to that is I think Phil’s done the best job, Jeff, of showing the benefits and drawbacks of these exchanges, if you will, of anyone starting to show how, when Kaplan sold that business, Phil, you have the numbers probably closer to mine, but it was around 30,000 slightly over students. And it fell in the first few years into the high 28 thousands, essentially because these conversions aren’t immediate, right? There’s new branding, there’s new potentially admission standards. There’s other people looking over the nonprofit university now along a range. But the biggest change is the marketing piece of this. In many cases to re-optimize, if you will, the student recruitment around this new name, value proposition, distinguish it from the parent and so forth.

I should have been more precise in this exchange. Kaplan University is the school sold to Purdue to create Purdue Global, Kaplan Higher Education (KHE) is the OPM provider (remained with the parent company), and KHE is part of Graham Holdings Company, which is a publicly-traded company. Graham Holdings filed a Form 8-K in 2017 with the following explanation. Note that “New University” became Purdue University Global, and “TOSA” is the Terms of Services Agreement.

The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, New University has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times New University’s revenue for the preceding 12-month period (the “Buy-out Fee”), which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA. At the end of the 30-year term, if New University does not renew the TOSA, New University would be obligated to make a final payment of six times the fees paid or payable during the preceding 12-month period, which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA.

The post Notes on FutureU Podast “Explained: What is an OPM?” appeared first on Phil Hill & Associates.notes-on-futureu-podast-explained-what-is-an-opm/