Often taken for granted, auxiliary activities are gaining recognition as welcome sources of revenue. "Their revenue can range from seven to 10 percent of a campus budget, and in total dollars is on the increase," says Robert Hassmiller, CEO of NACAS (formerly the National Association of College Auxiliary Services). NACAS tallied auxiliary revenue in 2005, and reported $40 billion was provided nationwide to campus coffers by their auxiliary enterprises.
That constituted almost eight percent of total revenue. The figure is likely to have grown substantially since then.
Hassmiller explains the conundrum auxiliary directors face. "As businessmen, they have to work under one rubric—a set P & L and contractual obligations set forth by bond obligations. At the same time they have to be entrepreneurs in a challenging economy." What auxiliaries have considerable potential? What are savvy business managers doing?
Balancing revenue with student expectations
Dining Services
Dining is an essential component of student satisfaction. ARAMARK Higher Education took suggestions from students at the University of Florida, which led to a transformation of retail dining at the university's Racquet Club Dining Center. Previously a food court with a deli, salad bar and burgers, ARAMARK introduced 's Southwestern Grill and Chili's Too. In the first full year, UF increased Racquet Club revenue by 50 percent and the number of transactions by more than 120,000.
Meanwhile, NACAS reports that thrifty students nationwide are now taking nearly all their meals on campus. Their demands for healthy and locally sourced food and restaurant-style menu selections will increase. Making money in the dining hall will be a challenge.
Student Housing
Developing and managing student housing is not exactly like the hotel business. But there's more margin to be had.
Alton Irwin is executive vice president of marketing for Capstone Development, which has developed housing on 57 campuses. He points out that dorm living in a modern residence hall often provides a student with more value than living at home or in offcampus housing. Abundant cable TV stations and broadband internet are just two examples. An elastic value equation that involves quality and affordability can result in a sliding scale of amenities and room rents, not unlike Marriott charging more for a room at the Ritz Carlton and less for a Fairfield.
Freshmen—and families sending their progeny away for the first time—are less price sensitive than upperclassmen. Interestingly, students on financial aid tend to spend more on housing than others.
Irwin encourages college administrators to focus on rent levels, not cost levels. He also suggests they view the entire housing mix strategically, rather than approaching just one project or building at a time. Older buildings can be made more appealing, even if they are not as spectacular as brand new ones. Older buildings often have larger rooms and may be located closer to the campus core, and some students will pay a premium for that.
He suggests reducing the density (fewer people per room or suite), and freshening with new paint and furniture. One Capstone project divided an unappealing common bathroom with lines of shower stalls and lines of commodes into a series of smaller rooms.
The business model seems pretty simple on the surface. Students pay rent. Colleges collect rent. Actually, the finances can be a tricky mess, involving a series of non-profit foundations, land swaps, ground rents, bondholders, tax treatments, depreciation schedules, and sometimes third party real estate trusts and management companies. The devil and resulting revenue to the school are in mastery of those details.
Meanwhile, quality student housing that provides a sense of community and offers good value is a win-win.
Conference CentersConference centers on campus are often selfsupporting venues for official university meetings and social events. They are a lure for alumni retuning to town. They provide campus exposure to guests attending executive or continuing education or social events. They can be real revenue producers.
Bookstore No MoreBooks are no longer books. And the "book" store is the "campus" store, where one article of clothing is sold for every six books.
The $10 billion campus book store business is, however, under pressure from online book vendors like Amazon, local competitors that collect and sell used books and from digital courseware. Meanwhile, a consumer government backlash is underway due to the cost of textbooks. Meanwhile, neither the college nor the store are getting rich. According to the National Association of College Stores, just six cents of every textbook dollar goes to store profit. Revenue slipping away to other retailers is costing the college money.
Elio DiStaola is director of campus relations for Follett Higher Education Group. Follett operates 700 stores, and DiStaola says the product and service mix has changed in recent years. His organization tries to lower the cost to students with rental and used book services. Their rent-a-text pilot in seven locations saved students nearly $2 million in just one term. "Early research with our rental customers showed that the chief purchase criteria is in fact price," DiStaola says. He believes textbook rental changes existing perceptions of the campus store among twothirds of students.
Some 98 percent of student customers indicated they will rent their textbooks from the campus bookstore again. About half of them spent some of the money saved during the same visit at the bookstore, mainly on school supplies, more textbooks, and other course materials.
Follett's CaféScribe is an e-book marketplace and social networking site that enables students to form virtual study groups, share notes and insights, and navigate content in new and useful ways.
While many schools self-operate their stores, there can be advantages to professional third party management. Scale enables wider distribution of used texts not possible for a single outlet. In addition to a contractual percentage of gross sales, a third-party can introduce buyback programs that guarantee no loss on inventory. Store employee training, the newest technology, merchandising expertise and management tools are often part of the package.
Smart CardsIn this issue of
Today's Campus, Florence Kizza reports on the rise in the use of smartcards (see page 22). Besides improving multiservice management efficiency and increasing customer satisfaction, smartcards make money. For example, sales at the Grand Rapids Community College campus Subway sandwich shop rose 15-20 percent after they started accepting payment via the Raider- Card. Commissions from drink and snack vending machines rose 29 percent and 24 percent, respectively.
Student Service FeesLike cigarette taxes, parking fees have become a sin tax on many campuses. Despite high parking fees, starving students seem to come up with the money. Nowadays, campuses can even rationalize fee hikes as "going green."
One might think that the proliferation of student fees might be perceived as a deal breaker. Yet students surprisingly advocate for and sell administration on fees that support services that they deem worthy. Fees are often enacted for services that would have to be provided anyway.
Getting Into the Energy Business
A substantial number of universities are in the power business. Some did so to meet their carbon mitigation goals, and now they are benefiting from a smart business decision. Some institutions sell excess power to a local utility. Fairfield University cannot, by local regulation, but power generation is a revenue generator in several other ways. "We were given a $2,300,000 grant from the utility company because of the congestion on the power grid in our location," says Bill Romatzick, manager of energy controls & plant systems at Fairfield. The school is compensated based on the amount of power that is taken off the grid during peak times. The school also sells clean energy credits on the commodities market.
Renewable Energy Credits (RECs), also called green tags or Tradable Renewable Certificates, are issued by a government agency to a power company which utilizes environmentally friendly methods to generate electricity. The RECs can in turn be traded and sold on the open market, as an incentive to "green" power generation. In some U.S. locations utilities are required to include renewable energy in their mix, and supply is constrained, driving REC prices very high. In other areas renewable energy resources are abundant, making the energy less expensive to produce. Load shedding can generate income in many areas.
Cornell University owns hundreds of properties all over the world as well as its Ithaca, NY campus. The land over certain natural-gas-rich areas is currently the subject of a heated debate, as Cornell is deciding whether it should allow drilling.
Athletics: Won-Lost Record Not So Good
Athletics has been, well, a win-lose proposition.
Just how much is difficult to determine. Much of the expense and the revenue data from athletics is distorted by the involvement of booster clubs.
According to the Wall Street Journal, in the athletic departments of 119 Division I schools, 15 of the 17 men's sports lost money. The most costly were baseball and track and field. Even fencing had a median loss of $114,000. Only basketball and football were profitable, with a combined annual profit of about $2.5 million. But for all sports, the typical athletic program lost almost $4 million. And that's men's sports only!
New marketing ideas have produced better revenues for a few college athletic programs. One example is the "Chick-fil-A Kickoff Game." It's a regular season matchup of University of Alabama and Virginia Tech. The University of Georgia recently signed an eight-year, $92.8 million contract with International Sports Properties, a marketing company that will own the rights to Georgia's stadium signage, internet properties, radio network and coaches' shows.
Auxiliaries as the New Financiers
University auxiliary divisions are becoming more sophisticated operations. North Carolina State University bundled student centers, bookstores, copy services, campus cards, trademarks, licensing, dining, vending, concessions, convenience stores, catering and retail operations under the moniker Campus Enterprises and appointed a vice-chancellor level director.
Sacramento State's University Enterprises, Inc. (UEI) has a similar service group with some novel initiatives. UEI owns an electronic outdoor board on Highway 50 which has produced $225,000 in advertising revenue in two years. UEI also acquired the former CalSTRS building in 2007 for $3.53 million. Newly named Folsom Hall, it has 188,000 square feet of classroom and lab space for the school's nursing students. UEI has also managed $300 million in research grants since 2003. The 501(c)(3) entity was created to separate certain revenue streams from state funding.
Florida Atlantic University has a $123 million Public-Private Partnership (PPP) with British Balfour Beatty Capital Group for the development and management of "Innovation Village," a recreation, residential and retail initiative for grad students. The PPP offers an alternative solution for higher education institutions which are looking to bridge the gap between necessary capital plans—for academic facilities, classrooms and labs, athletic spaces, wellness centers and improved student housing—and the traditional financial resources needed to execute such plans.
Looming Threat
CFOs are squeezing more revenue from every available source. Yet the revenue increases would pale in comparison to a possible loss of the tax exempt status historically afforded to educational institutions.
"We're having to look at the public services nonprofits use and how we can adequately cover our costs," says Matt Greller, executive director of the Indiana Association of Cities and Towns. "We can't give services away for free any longer."
State and local governments have tried rolling back various nonprofit tax exemptions in the past, with limited success. Churches appear the safest. Colleges may not be so favored. Some localities have negotiated PILOTS, or payments in lieu of taxes, from some nonprofit groups. Harvard, for example, paid the City of Cambridge $2.2 million in 2008, as well as $5.2 million for water and sewer service.
Cash-strapped governments may not view college campuses as similarly afflicted.