University of Arizona Doubles Down on Casino Capitalism

UAGC now appears destined to be fully integrated into UA, under one brand

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Buried in the financial news about the University of Arizona (UA) budget cuts (improving from a $177 million to a $55 million deficit) is what appears to be a plan to fully integrated the University of Arizona Global Campus into UA - not just in ownership but with one brand. The proposal will likely be to eliminate the UAGC brand, combine UAGC with UA Online (an internal service unit), and even report to the US Department of Education under one combined Office of Postsecondary Education Identifier (OPEID6).

What we are seeing is an extension of what Morgan described as Casino Capitalism.

In John Maynard Keynes General Theory of Employment, Interest, and Money (1936), he referred to rampant speculation in the markets as “casino capitalism.” Some speculation (making an investment with a significant chance of a big loss but some chance of a big gain) is fine, but when it becomes too widespread and ignores risks, it imperils the economy. [snip]

Higher education does not move fast, and spending money tends to happen at a particularly glacial pace. I think of casino capitalism happening in EdTech when universities try to act quickly and end up investing large amounts of money on risky ventures without engaging in appropriate levels of due diligence, and where the often substantial risks are discounted with cheery pronouncements.

We are in perilous times in education, but it does little good for institutions to make speculative, poorly-considered bets.

None of the original rationale for UA acquiring for-profit Ashford University and creating UAGC has come to pass, but now UA officials and the Arizona Board of Regents (ABOR) seem ready to take the final step. Just make UAGC nearly indistinguishable from UA under a “same degree, but online” scenario. The UAGC casino bets are falling apart due to a lack of due diligence, so UA and ABOR are deciding to double down.

E&Y and the Board

Last week came two interrelated events in the UAGC story - an auditor report and a board meeting. First, E&Y completed its independent review of the UAGC acquisition and prospects. The findings should surprise none of our long-time On EdTech subscribers, but the analysis is worth highlighting.

E&Y report courtesy of Arizona Luminaria through a public records request:

University-of-Arizona-Online-Assessment-Final-06-19-2024.pdf2.10 MB • PDF File

E&Y summarized the UAGC history and its original rationale.

UArizona leadership’s rationale for acquiring an established online institution was multi-faceted. Four of the primary drivers were:

* A scaled online presence nationally extends UArizona’s land grant mission of offering educational opportunity and access to diverse groups of students

* A scaled online presence capturing new and non-traditional students is crucial to mitigating the “enrollment cliff” facing post-secondary institutions, driven by birth rate declines in the Great Recession

* Online has been growing as a mode of delivery for higher education over the last two decades, a trajectory that the COVID-19 pandemic accelerated. UArizona needs a strong online offering to maintain its position within an increasingly competitive marketplace

* A scaled online presence has the potential to generate a positive surplus for UArizona

Left Unsaid

As we have covered in “What U Arizona Executives Are Not Addressing About the UAGC Merger”, UAGC has been steadily losing enrollments. But E&Y at least acknowledged this existential issue that we described.

UAGC: UAGC’s 12-month headcount has fallen steadily over the past several years at an annualized rate of (7%) over FY15-21 (pre-acquisition) and (14%) over FY21-23 (post-acquisition) (Figure 5). At the same time, several of its peers have grown enrollment over the last three IPEDS years: while the median annual growth rate across peers is 3%, peers such as Arizona State University Online, Southern New Hampshire University, and American InterContinental University (growing at 13%, 13%, and 16% per year respectively) have seen faster trajectories in 12-month headcount.

Arizona Online: UArizona’s online fall headcount has nearly tripled over the last five years: as of Fall 2023, UArizona colleges serve over 9k students through Arizona Online (Figure 6). UArizona’s online headcount has grown at an annual rate of 26% over the last three IPEDS years, almost double the peer median of 15%

UAGC enrollments dropping 7% pre-merger and 14% post-merger YoY
UA Online headcounts are rising

It is true that UAGC is financially breaking even, but that is with a rapidly declining enrollment and therefore revenue base.


UArizona acquired UAGC Corporation’s operations and assets for $1 and the assumption of substantially all of its liabilities (both current and future).

This is a real liability, especially based on the California lawsuit against Ashford / UAGC and the subsequent US Department of Education borrower defense claim on UAGC. That is a $21 million fine and up to $72 million in liabilities entirely on UA’s shoulders.

But E&Y does not ask any tough questions about the future impact of either the enrollment declines or the borrower defense liability. Instead and with no explanation, E&Y makes an assumption that enrollment declines magically end.

Assuming future, “steady-state” online operations are of similar scale to current state (i.e., ~33k online students on a fall headcount basis), integration could result in annual cost savings of $12-21m versus today, improving UArizona’s overall financial position and liberating funds for potential reinvestment into student success initiatives. “Steady-state” post-integration could potentially be achieved in ~2-3+ years.

But UAGC is losing roughly 7,000 - 11,000 fall enrollments per year lately while UA Online is gaining roughly 900, which in now way cancels out UAGC losses.

That, my friends, is quite an assumption on the level of the Underpants Gnomes.

Board Meeting

On Thursday, ABOR held a meeting that included a summary of the E&Y report findings, presented by interim CFO and ABOR member John Arnold. The setup of the briefing was provided by former ABOR chair Fred DuVal who was forced to step down from that role due to criticisms of faculty groups questioning UAGC decision-making.

Second is the . . . there has been an enormous amount of consternation and debate about whether UAGC is a cost or breaking even or positioned for growth, and the governor made the very helpful suggestion that we should get a third party audit of that so that we would get out of the debate of stakeholders debating what those numbers are. We have some of that data, and if we're allowed to address it, I think it would be enormously helpful to shine a light on what the independent third-party auditor that was asked specifically to address this these misunderstandings and debate around UAGC has reached some conclusions. And I think it would be very timely to understand what they, what they have said.

So the whole question is using E&Y to debunk all the haters that misunderstand the rosy UAGC situation. Gotcha.

The actual briefing by John Arnold begins at 3:00:37.

I won’t quote the presentation at length, as it mostly summarizes the E&Y report. John Arnold concludes by saying that they are processing the recommendations, but the going assumption from the briefing is that ABOR and UA executives are pushing forward E&Y’s recommendations.

What is telling, however, and what makes Morgan’s point about Casino Capitalism so spot on is the wrap up of Arnold’s briefing.

Arnold: And that is the end, so happy to take any very important and high quality questions.


Board moderator: Thank you John. Are there questions from the board?


Board moderator: Seeing none . . .

Arnold: Late afternoon, love it.

Board moderator: This is a discussion item that requires no action.

The board did not see fit to ask a single question.

Doubling Down with no Due Diligence

And that is how you double down on Casino Capitalism. Hire a consulting firm willing to ignore the implications of 14% year-over-year enrollment declines and $93 million in legal and regulatory liabilities. Present to a board willing to take all arguments at face value with no questioning.

It may be that Academic Unit X (E&Y’s nomenclature for the integrated and rebranded UAGC unit) is able to turn around enrollments. And perhaps the combination with UA Online and the new branding will help make that happen. But none of that was analyzed in the E&Y report, and none of that was discussed at the board.

It may be that ED will not pursue most of the borrower defense claim and that UA will avoid most of the $93 in liabilities. But none of that was analyzed in the E&Y report, and none of that was discussed at the board.

It may be that full integration under one OPEID and one brand will be a smart move, but how should we have confidence in that judgement without any serious due diligence on the future risks?

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