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University of Arizona FAQ on Ashford University Agreement for UA Global Campus is Deeply Flawed

Author

Phil Hill
August 05, 2020

On Monday I wrote a post describing the University of Arizona’s agreement to acquire for-profit Ashford University to create a new University of Arizona Global Campus that sounds a lot like Purdue University Global. I was and continue to be deeply skeptical of the wisdom move on the part of Arizona.

From my perspective, Zovio is making a smart move with this deal, addressing real problems, but the University of Arizona seems to be distracted and solving the wrong problems. UA might be signing a free agent, but that new player won’t even play for the professional team despite wearing a similar uniform, when the actual team is playing in an elimination tournament and needs help. [snip]

What I mean by prestige is that it is clear that Arizona president Robbins was motivated and inspired by both Purdue University’s deal and with ASU’s online footprint. Call it a case of Mitch Daniels envy, or Mitch and Michael envy.

Predictably (and noted in my post), there is already strong pushback from UA faculty groups, as described at Inside Higher Ed.

In a three-hour Faculty Senate meeting late Monday, many professors echoed these concerns, expressing frustration and anger at what they characterized as a lack of transparency demonstrated by university leaders. Aside from discussing the Ashford acquisition, meeting attendees also scrutinized the safety of the university’s reopening plans and questioned whether looming faculty furloughs are necessary to offset a projected $250 million budget shortfall caused by COVID-19. 

Yesterday UA put out a FAQ document (embedded below) intended to address many of the concerns from faculty groups, and others in the UA community. But I fear the UA leadership has made the problem worse due to the deeply flawed arguments laid out in the FAQ.

Extending Reach

The best argument in the document addresses the question “Why is the University Establishing Global Campus?”

University of Arizona Global Campus will benefit the University of Arizona in several ways:

1)Extends the University of Arizona’s land-grant mission by offering online educational opportunities and access to a diverse groupof students.

2)Embraces the opportunity to serve more international students—regardless of geographic location—who will benefit from the enhanced learning environment and resources provided by University of Arizona Global Campus.

3)With approximately 35,000 initially enrolled students, Global Campus will engage a diverse student body from around the country that is currently:88% over the age of 2532% African American15% Hispanic70% women56% Pell Grant recipients25% associated with the military76% from the South, Midwest or Northeast

These statements are all accurate. But what this positioning doesn’t address is the fateful year 2020 and the pandemic. Are these really the problems for UA to address and invest in when they are facing an existential threat with their current student students, faculty, and staff? If UA was already investing in the improvement of online and hybrid education, and student support at a distance, without major furloughs and pay cuts, then this argument of extending reach might make more sense. But in combination, UA Global Campus investments to extend reach seems a poor decision.

4)Generates significant revenue for the University of Arizona and opportunities to substantially increase Arizona Online enrollment through transfer pathways.

Revenue is not the same thing as operating income or profit. Yes, Ashford University generates hundreds of millions of dollars of revenue, as will UA Global Campus (tomato, tomahto), but what evidence is there that the new organization will generate actual operating revenue that helps the university at large? Obviously the Purdue Global comparison is the most useful one – land grant university acquires for-profit schools with large but declining enrollments to create separately-run unit with very different student populations. How has that move gone for Purdue Global? In its first fiscal year, the school lost $43 million in operating income due to required investments of $132 million in marketing and student recruitment alone to attempt to stabilize and reverse enrollment trends.

5)Positions Arizona Online and Global Campus together as preferred leaders in online education worldwide.

See statement above about Mitch Daniels and Michael Crow envy. What exactly is a “preferred leader”, other than cocktail party invitation and media coverage fodder? UA has real issues to address.

There are some useful answers on the relationship of UA Global Campus to the existing UA Online group (you know, the group that is serving current UA students, faculty, and staff) and UA Global (the group trying to expand UA’s international student population within the main university). Short answer – they have different missions and “different faculty, programs and accreditation of the two universities”.

Why financially invest in a new university at such a challenging time for the University of Arizonaenterprise?

The establishment of Global Campus provides a compelling opportunity to reach a diverse group of approximately 35,000 students in furtherance of our land-grant mission. Moreover, University of Arizona Global Campus is investing only $1 to acquire Ashford University. In return, Global Campus is guaranteed a substantial 15-year income stream of $225 million, including an upfront payment of $37.5 million.

This is delusional. At best.

The completion of this deal would require a much bigger investment than $1, as seen from the Purdue Global example. Consider this chart from the blog post where I shared PG’s financials.

Read the original blog post to understand the accounting details, but the point is that Purdue Global lost tens of millions of dollars, with the need to invest $132 million in marketing and student recruitment in the first year alone, despite up front payments from Kaplan to Purdue. Purdue University claims that they have stabilized the enrollment declines and may break even, but we won’t see the real financials for FY20 until October.

What makes the University of Arizona think their situation will be different? At the very least, the belief that the only investment is $1 is incredibly naive. It takes real investment and effort to turnaround a faltering online school. Ashford University’s enrollment has been falling since 2011, and UA Global Campus would need to spend heavily to reverse this trend.

Global Campus will enter into an affiliation agreement with the University of Arizona, with upfront and ongoing payments to the University of Arizona that will have both immediate and long-term positive impacts on our university’s fiscal health. Notably, we anticipate using initial revenues once the transaction closes in December to help alleviate the financial burden that we are currently facing.

This statement assumes that the upfront payments from Zovio (parent company of Ashford) will immediately go into UA’s general fund. But as I am trying to show above, that money will be needed for the massive effort to turnaround UA Global Campus enrollment trends. Again, why does UA think their situation will be different than Purdue’s? If they have an answer to this question, they should address it publicly. And I truly hope that UA leadership did their homework on Purdue Global finances since they are public now (you’re welcome).

How much will Zovio make each year?

Zovio will receive 19.5% of the annual tuition revenue for the duration of the 15-year partnership in exchange for providingeducation technology services,only after priority payments to Global Campus totaling $225 million.

This is just plain wrong and deliberately misleading. Zovio will receive fees to cover their operating costs as the OPM (or educational services) provider for UA Global Campus. AND they will receive 19.5% of annual tuition revenue. How significant is this point? Look above at the Purdue chart and note that “marketing” and the two “KHE” lines got to Kaplan Higher Education (their OPM provider). Or you can look at KHE financials from parent company Graham Holdings earnings reports, which show KHE making $305 million in 2019, the vast majority of which comes from Purdue Global.

What does this mean for current University of Arizona students and employees?

There will be no disruption or impact to University of Arizona students, faculty and employees.The University of Arizona will provide opportunities for students enrolled at University of Arizona Global Campus to experience our Tucson campus and programs, but there will be no expectation or requirement that they do so.

Exactly. UA Global Campus does nothing for current UA students and employees.

Sorry for the ranting nature of this post, but this decision, process, and explanation from the University of Arizona leadership has major flaws at a time when efforts to improve online and hybrid education for current students should be paramount.

Update 8/5: Embedded FAQ document above for those who cannot access University of Arizona link.