Revenues

HBS funds its operations with cash from three primary sources: MBA tuition and fees, earned income from Harvard Business Publishing (HBP) and Executive Education, and philanthropic revenues (including current use gifts and distribution from the endowment).

These latter two categories are sensitive to trends in the economy and the capital markets—trends which remained favorable overall for a seventh consecutive year in fiscal 2017. As a result, the School’s total revenues increased by $39 million, or 5.1 percent, to $800 million, from $761 million a year earlier. The largest drivers were Executive Education and the annual endowment distribution.

MBA Tuition & Fees

Student tuition and fee revenue from the MBA Program grew to $133 million, from $127 million in fiscal 2016. First-year MBA tuition in fiscal 2017 was $63,675, compared with $61,225 last year. The School’s combined tuition and fees for fiscal 2017 were near the midpoint among the seven peer schools tracked by HBS.

Tuition and fee revenues do not fully recover MBA Program operating expenses at HBS, much less the School’s long-term investments in academic innovation. The shortfall is offset primarily with income from gifts given by alumni and friends of the School whose generosity enriches the HBS educational experience for future generations of students.

Harvard Business Publishing

Reflecting competitive pressures in the global publishing market, HBP’s fiscal 2017 top-line growth was slightly below the School’s forecast and the slowest since fiscal 2010. While continuing to make strategic investments in future business growth, HBP shaved millions of dollars off its budgeted cost of goods sold and, as a result, delivered a healthy contribution margin for the year.

Total revenue at HBP grew by $4 million, or nearly 2 percent, to $221 million, from $217 million in fiscal 2016, driven by 11 percent growth in Higher Education group sales. Higher Education continued to gain share globally as the leading provider of course materials for participant-centered learning in business education, resulting in stronger market demand for HBS cases.

HBR group sales remained flat for the third consecutive year in fiscal 2017. The subscription model for Harvard Business Review changed from 10 to six issues annually, resulting in a slight decrease in circulation revenue. This decline was offset, however, by growth in revenue from reprints and advertising. Harvard Business Review subscription renewal rates and online readership were up substantially from the prior year.

Corporate Learning group sales were down 1 percent in fiscal 2017. Rising to marketplace challenges, the group introduced a new version of its flagship product, Harvard ManageMentor®, doubled the planned number of joint custom program proposals in collaboration with Executive Education, and completed numerous product enhancements designed to meet evolving client needs.

Sales in global markets are important to HBP’s business model. With an eye toward accelerating its worldwide growth, the School’s publishing unit executed an integrated international strategy across its three market groups in fiscal 2017. International sales grew 3 percent year over year in fiscal 2017, comprising 33 percent of HBP’s total annual revenues.

Executive Education

The Executive Education group delivered strong financial results in fiscal 2017. The group continued to leverage the new facilities constructed by the School over the past five years to enhance the executive program experience. Total enrollment increased nearly 5 percent from fiscal 2016 to approximately 11,400.

Executive Education tuition revenue increased by $15 million, or more than 8 percent, to $191 million—three times the School’s forecasted growth rate—driven by higher enrollment and tuition increases. Reflecting aggressive cost controls, the group’s operating expenses came in $2 million lower than planned, resulting in a strong margin contribution for the year.

Custom program participation was the largest Executive Education revenue driver in fiscal 2017. In addition to introducing several new one- and two-day custom offerings, the group played a key role in launching the School’s Client Solutions Council, a strategic effort to create high- impact engagements that integrate Executive Education residential learning modules with HBP courses and HBX modules for single corporate clients.

Tuition from global programs represented a growing percentage of the overall Executive Education revenue mix in fiscal 2017. The group offered the first Senior Executive Leadership Program in India, a new program granting alumni status upon completion, while embarking on a strategy focused on longer, modular programs. Additionally, Executive Education launched the Senior Executive Program—Africa, with participants across 19 countries and a wide range of industries.

Gifts & Endowment

Although income from HBP and Executive Education makes HBS less reliant on its endowment than other schools at Harvard, philanthropic revenues, including distribution from the endowment and current use gifts, provide financial stability and flexibility that are crucial to the School’s ability to execute on its mission.

In fiscal 2017, total revenue from three philanthropic sources—endowment distribution as well as unrestricted and restricted current use gifts—increased nearly 5 percent to $220 million, from $210 million in fiscal 2016. This revenue amounted to 28 percent of the School’s total operating revenues for both years. In contrast, for the University as a whole, philanthropic revenue for fiscal 2017 was 45 percent of total operating revenues.

The largest of the School’s philanthropic revenue sources is the annual endowment distribution. The endowment distribution for fiscal 2017 increased nearly 6 percent from the prior year to $146 million, amounting to 18 percent of the School’s total revenue.

The HBS endowment currently consists of more than 1,000 discrete funds established over the years by individual donors, corporations, and reunion classes. The School budgets the use of endowment distributions to support operations in accordance with the donors’ intentions and the terms of each gift.

The University determines each year’s endowment payout rate—that is, the percentage of the endowment’s prior year-end market value withdrawn and distributed annually for operations and for one-time or time-limited strategic purposes. This rate applies to HBS and the other schools at Harvard.

Consistent with the long-term goal of preserving the value of the endowment in real terms (after inflation) and generating a predictable stream of available income, the University’s targeted annual payout range is 5.0 to 5.5 percent. The payout rate for fiscal 2017 met that target at 5.4 percent, compared with 5.1 percent for the prior year.

Funds within the HBS endowment, along with those of the other Harvard schools, are managed by Harvard Management Company (HMC), a subsidiary governed and wholly owned by the University. HMC’s mission in managing the University endowment is to help ensure that Harvard has the financial resources to confidently maintain and expand its preeminence in teaching, learning, and research for future generations. In managing the University’s financial assets, HMC seeks to maximize returns, subject to the risk tolerance established by the University, in consultation with HMC’s Board of Directors.

Fiscal 2017 was a more favorable year for endowment and pension investment returns than fiscal 2016, which was the worst since the 2008‑09 financial crisis. The Harvard endowment generated an ß8.1 percent investment return, net of all expenses and fees, compared with an investment return of –2 percent for the prior year.

The fiscal 2017 year-end market value of the HBS endowment was $3.5 billion at June 30, 2017, compared with $3.2 billion a year earlier. This increase reflected the 8.1 percent net growth in market value and the subtraction of the School’s annual distribution and decapitalizations, offset by the $85 million in endowment gifts received by HBS during the year. The School received $51 million in endowment gifts in fiscal 2016.

HBS raises its own funds, as do other Harvard schools. Through The Harvard Business School Campaign, the HBS community continued to demonstrate extraordinary involvement and generosity, giving $233 million in new gifts and pledges to the School during the year. This compares with $161 million in fiscal 2016.

HBS received gifts from nearly 12,800 donors in fiscal 2017, including MBA, Doctoral, and Executive Education program alumni, as well as friends of the School. As in the prior year, approximately 27 percent of the School’s MBA alumni gave to HBS in fiscal 2017. Total cash received from gifts, including new endowment gifts and gifts for capital construction projects, payments on prior years’ pledges, and restricted and unrestricted current use giving, was $190 million, compared with $141 million in fiscal 2016.

Current use giving—both restricted and unrestricted—has become increasingly critical in recent years as a source of funding for innovation across the School. Over the past five years, total giving in these categories has more than doubled from $35 million to $74 million. Fundraising expenses have increased at a slower rate.

As a result, this revenue growth has had a significant impact on cash from operations and, therefore, the School’s ability to capitalize on emerging strategic opportunities such as FIELD, the Harvard i-lab, and HBX. Going forward, sustaining the HBS community’s remarkable commitment to current use giving will be instrumental in achieving the mission of the School.

Looking specifically at 2017, unrestricted current use giving to HBS was up for the eighth consecutive year. Revenue from these flexible gifts increased 5 percent to $42 million, from $40 million in fiscal 2016. Restricted current use giving typically varies from year to year in line with the School’s changing strategic needs, but revenue from these gifts was flat year over year at $32 million in fiscal 2017.

Additionally, cash giving to the endowment grew to $85 million, from $51 million in the prior year, and cash giving for construction projects nearly doubled to $30 million from $16 million. The results in both categories primarily reflect normal year-to- year variability in the timing of payments on pledges.

Harvard Endowment Returns

HBX

Fiscal 2017 was a year of strategic progress at HBX, the School’s online learning group. While continuing to expand its course portfolio, HBX worked with HBP and Executive Education to share schoolwide sales resources beginning in fiscal 2018. HBX also began partnerships with other Harvard schools, including the Harvard Business Analytics Program in conjunction with the Harvard John A. Paulson School of Engineering and Applied Sciences, and the Principals Project with the Harvard Graduate School of Education.

HBX revenue increased to $12 million, from $10 million in fiscal 2016, coming in lower than planned. Growing enrollment in new individual courses such as Disruptive Strategy, Leading with Finance, and Negotiation Mastery was partially offset by slower-than-anticipated growth in CORe course participation. Recognizing the slowdown mid-year, the group acted decisively to trim strategic investments and growth in expenses. The resulting operating deficit was $11 million, compared with $12 million in fiscal 2016.

HBX is envisioned as an academic program that will develop over the long term, joining Executive Education and HBP in contributing to the School’s earned revenue and income from operations. HBX remains in startup mode, however, and is expected to require continuing investment for the next several years.

Housing, Rents, Interest Income, & Other

Revenue in this category for fiscal 2017 increased to $22 million, from $21 million a year earlier. Reflecting a slight bounce off the historically low interest rates that have prevailed over the past few years, the School reported interest income of $1 million, compared with zero in fiscal 2016.

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* In pursuit of greater comparability across the Harvard schools, the University has asked all the schools to report their net results in accordance with generally accepted accounting principles (GAAP) in the United States. In addition to results for fiscal 2017, the School’s results for fiscal years 2013, 2014, 2015, and 2016 are presented in accordance with GAAP within the Statement of Activity and Cash Flows.