Saturday, January 13, 2007

The Profit Bowl

This past week featured the eight-year-old granddaddy of all college football games, the Bowl Championship Series game, with two juggernauts playing, the University of Florida and The Ohio State University. But the real juggernaut in higher education is the name of the stadium where the game was played: University of Phoenix stadium. Now, this is a rather odd name for a football stadium because the University of Phoenix doesn’t have a football team and isn’t a real university. The University of Phoenix is a for-profit, primarily online education corporation that represents one of the biggest threats to higher education in America. So how did its name appear on the stadium. Money: The University of Phoenix paid $154 million for naming rights to the stadium for the next 20 years.

Now, that may seem like a lot of money because it’s bigger than the annual operating budgets of many colleges in the country. However, the University of Phoenix (and its parent owner, the Apollo Group) makes hundreds of millions of dollars in profits every year on more than $2 billion a year in sales (or what used to be called tuition).

So, should you buy University of Phoenix stock? Investing in the selling out of higher education in America is usually a good bet, but there may be a few reasons to be cautious.

Last month, the University of Phoenix announced that it will delay its annual financial report after their Chief Financial Officer and their Chief Accounting Officer both resigned amid allegations that they concealed the company’s failure to disclose stock options to its executives. And last fall it was revealed that the University of Phoenix will face a trial potentially costing it $3 billion because of allegations that it violated federal law in its enrollment practices.

Fortunately, the University of Phoenix isn’t letting any of this financial mismanagement stand in the way of an educational empire. Last week, the company bought Insight Schools, a company that offers online high-school education. The vision of the University of Phoenix is to dominate both the K-12 and higher education markets, creating a glorious future where a child can go from kindergarten to a Ph.D. getting their education online from a single corporation. It’s a small corporate world after all.

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