Revenues

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

Earned income and philanthropy are sensitive to trends in the economy and the capital markets, which continued to perform well in fiscal 2019. The School’s total revenues increased by $69 million, or 8 percent, to $925 million, from $856 million a year earlier.

This increase was primarily driven by growth at Executive Education, Publishing, and Online. All three groups delivered solid operating margin leverage on sales growth in fiscal 2019, and Online generated an operating surplus for the first time. Despite increases in compensation and other variable costs as revenues increased, as well as ongoing growth-focused investments, each group contributed more earned income to the School’s fiscal 2019 operations than initially anticipated.

MBA Tuition & Fees

Student tuition and fee revenue from the MBA program increased to $140 million, from $138 million in fiscal 2018. First-year MBA tuition in fiscal 2019 was $73,440, compared with $72,000 last year. The School’s combined tuition and fees for fiscal 2019 were near the midpoint among the seven peer schools tracked by HBS, and amounted to 15 percent of the School’s total revenues, compared with 16 percent a year earlier.

Executive Education

Executive Education tuition revenue increased by $15 million, or 7 percent, from fiscal 2018, to $222 million, exceeding the School’s forecast by 9 percent. As in the prior year, this growth was made possible by new and newly renovated buildings on campus, including Tata Hall, Esteves Hall, and the Chao Center. Leveraging the additional space in these facilities, HBS continued to expand its Executive Education program portfolio and increase the number of program participants in fiscal 2019, and total enrollment grew more than 4 percent to approximately 12,600.

In addition to increased participation in the School’s comprehensive leadership programs, this enrollment growth reflected an increase in the number of focused programs, including the launch of three new focused programs during the year. Participation in custom programs was flat with fiscal 2018, as the group continued to diversify its custom portfolio across industries and geographies as well as by program type and size.

Global Executive Education program participation declined from fiscal 2018, while tuition revenue remained essentially flat. The group continued to expand its portfolio of longer, modular programs that include time spent both abroad and on the HBS campus by launching a new Senior Executive Leadership Program–China with solid enrollments. Executive Education delivered the second and third iterations of SELP–Middle East and SELP–India, generating continued regional interest.

Total Executive Education tuition revenue amounted to 24 percent of the School’s total revenues in fiscal 2019, flat with the prior year.

Harvard Business Publishing

All three of Publishing’s market-facing groups delivered stronger than anticipated revenues in fiscal 2019. Total revenue grew by $22 million, or 9 percent, to $262 million, from $240 million a year earlier, exceeding the School’s cautious forecast for zero growth. International sales rose 14 percent, comprising 36 percent of Publishing’s total annual revenues.

Harvard Business Review (HBR) group sales increased 7 percent from the prior year. The subscription model for HBR continued to gain market traction in fiscal 2019; paid circulation grew 6 percent to 340,000—the highest since Harvard Business Review began publication almost a century ago—driven by refined social media/digital campaigns and new subscription offers and options.

Corporate Learning continued to leverage its position as a provider of technology-enabled leadership development solutions for global corporations, and sales for fiscal 2019 were up 10 percent from a year earlier. The group updated more than 120 clients to its newly released Spark platform; benefited from improved renewal rates for its flagship product, Harvard ManageMentor; and delivered blended learning programs to a record 23,000 participants.

Higher Education sales of course materials grew 5 percent from fiscal 2018. The website launched by the group late in fiscal 2018 generated substantial growth in online course sales. In addition, the group experimented with new product/editorial formats, including podcasts, the HBR Visual Library, and website content focused on teaching, while also launching a simulation platform in partnership with external providers.

As in the prior year, total Publishing revenue amounted to 28 percent of the School’s total revenues in fiscal 2019.

HBS Online

After posting deficits since its inception five years ago, in fiscal 2019 the Online group became a contributor to the School’s internally generated cash from operations. Total revenue more than doubled to $43 million, from $19 million a year earlier, resulting in an operating surplus of nearly $5 million. This compares with a $5 million operating deficit in fiscal 2018, and deficits exceeding $10 million for each of the four prior years.

Online continued to add courses in fiscal 2019, launching Global Business and Leadership Principles, and reached a total of more than 16,000 asynchronous participants across the portfolio during the year. Additionally, the group added a second cohort to its Harvard Business Analytics Program in conjunction with the Harvard John A. Paulson School of Engineering and Applied Sciences.

Online also launched Leading Change, the first course in the Certificate in School Management and Leadership Program offered with the Harvard Graduate School of Education. Moreover, HBX Live, the virtual classroom, hosted 192 synchronous sessions—a 90 percent increase from fiscal 2018—and generated 400 percent growth in revenue for the year.

Total Online revenue amounted to 5 percent of the School’s total revenues in fiscal 2019, compared with 2 percent for the prior year.

Gifts & Endowment

Philanthropic revenue has long been vital to sustaining the School’s annual operations. In fiscal 2019, total revenue from the School’s three philanthropic sources—distribution from the endowment, unrestricted current-use gifts, and restricted current-use gifts—was $230 million, compared with $229 million in fiscal 2018. This revenue amounted to nearly 25 percent of the School’s total revenues, compared with 27 percent a year earlier. In contrast, for the University as a whole, philanthropic revenue for fiscal 2019 amounted to 43 percent of total operating revenues.

The School’s annual endowment distribution for fiscal 2019 increased 8 percent from the prior year to $162 million, amounting to 17.5 percent of 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.

Harvard is obligated to preserve the purchasing power of the endowment by spending only a small fraction of its value each year. Spending more than that over time, for whatever reason, would privilege the present over the future in a manner inconsistent with an endowment’s fundamental purpose of maintaining intergenerational equity.

The University executes on this obligation when determining each year’s endowment payout rate—that is, the percentage of the endowment’s fair market value withdrawn and distributed annually for operations and for one-time or time-limited strategic purposes. This rate applies to HBS and to all 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 of market value. The payout rate for fiscal 2019 met that target at 5.1 percent, compared with 5.2 percent for the prior year.

Over the past 10 years, the rate has fluctuated from a low of 4.6 percent in fiscal 2009 to a high of 6.1 percent in fiscal 2010. This variation exists because the dollar amount of the distribution for the next fiscal year is determined well in advance of the start of the fiscal year and prior to knowing the market value at the end of it. This practice is followed to allow the University’s schools and units adequate time for financial planning.

HARVARD ENDOWMENT RETURNS

FY 19	FY 18	FY 17	FY 16	FY 15	FY 14	FY 13	FY 12	FY 11	FY 10
6.5%	10.0	8.1	-2.0	5.8	15.4	11.3	-0.1	21.4	11.0

The utilization of a payout formula means that the annual payout rate is generally lower following years of relatively high investment returns, and higher following years of lower investment returns. Adjustments can be made in succeeding years, keeping in mind the long-term payout goals of balancing budgetary stability with the preservation of the endowment’s purchasing power. Each year the Harvard Corporation approves the final distribution amount.

Funds within the HBS endowment, along with those of the other Harvard schools, are managed by Harvard Management Company (HMC), a nonprofit, wholly owned subsidiary of the University. HMC has managed the Harvard endowment portfolio since 1974. Its mission is to help ensure the University has the financial resources to confidently maintain and expand its leadership in education and research for future generations.

HMC, as an organization, and the Harvard endowment portfolio, are about halfway through a five-year restructuring. HMC’s early organizational efforts involved rebuilding its internal structure and culture, constructing a generalist investment team, establishing new investment processes, and putting in place new performance incentives.

HMC’s investment portfolio is evolving in parallel. Repositioning of the portfolio’s liquid assets—public equities and hedge funds—is well underway. Given the nature of HMC’s illiquid investments—private equity, real estate, and natural resources—restructuring this portion of the portfolio will span multiple years.

The return on endowment assets for fiscal 2019, net of investment expenses and fees, was 6.5 percent, compared with 10 percent and 8.1 percent endowment returns, respectively, for the two prior fiscal years.

As in fiscal 2018, fiscal 2019 was a year in which asset allocation—or risk level—was a major factor in returns. Greater exposure to venture capital (a high-risk/high-reward asset class) would have resulted in a significantly higher return on the Harvard endowment. HMC’s portfolio exposure to venture capital is notably small in the context of leading endowments.

As a result of the Tax Cuts and Jobs Act of 2017, fiscal 2019 was the first year in which Harvard, along with other large US colleges and universities, was liable for a new tax upon its endowment investment returns. The net impact on Harvard for fiscal 2019 was approximately 1 percent of total University revenues.

The value of the University endowment grew to $40.9 billion in fiscal 2019—an increase of 4.3 percent from $39.2 billion a year earlier. This value reflects investment returns, net of expenses and fees, as well as cash gifts to the endowment received during the year, net of the University’s annual distributions and decapitalizations. The HBS endowment has comprised approximately 9 to 10 percent of the University endowment’s total value over the past 10 years.

The fiscal 2019 year-end market value of the HBS endowment was $4 billion on June 30, 2019, compared with $3.8 billion a year earlier. This increase reflected the 6.5 percent net growth in market value and the subtraction of the School’s annual distribution and decapitalizations, offset by the $76 million in endowment gifts received by HBS during the year, and the $100 million of internally generated cash transferred by the School to the endowment reserve.

HBS received gifts from more than 11,000 donors in fiscal 2019, including MBA, Doctoral, and Executive Education program alumni, as well as friends of the School. Approximately 24 percent of the School’s MBA alumni gave to HBS in fiscal 2019.

Total cash received from gifts in fiscal 2019, including new endowment gifts and gifts for capital construction projects, payments on prior years’ pledges, and restricted and unrestricted current-use giving, was $151 million, compared with $186 million in the prior year. Cash giving to the endowment decreased to $76 million, from $101 million in fiscal 2018. Cash giving for construction projects increased to $6 million, from $4 million.

Current-use giving—both restricted and unrestricted—provides crucial funding for innovation across the School. Because current-use gifts can be spent immediately, they have a significant impact on cash from operations and, therefore, the School’s ability to capitalize on emerging strategic opportunities. For example, current-use giving has enabled the School to roll out FIELD (Field Immersion Experiences for Leadership Development), support the faculty’s ambitious research agenda, develop the Harvard i-lab ecosystem, and launch Online.

Growing unrestricted current-use giving to a sustainable annual level of $40 million was one of the major goals of The Campaign for Harvard Business School, which concluded in fiscal 2018. In the post-Campaign year of fiscal 2019, revenue from these flexible current-use gifts decreased 9 percent from $44 million a year earlier, matching the long-term target level of $40 million. Going forward, sustaining unrestricted current-use giving will be instrumental in achieving the mission of the School.

Restricted current-use giving typically varies from year to year in line with the School’s changing fundraising priorities and strategic needs. Reflecting the conclusion of the Campaign, fiscal 2019 revenue from these restricted gifts decreased 20 percent from a year earlier to $28 million.

Housing, Rents, Interest Income, & Other

Total revenue from the Housing, Rents and Other category for fiscal 2019 increased by $2 million from the prior year to $23 million. The School reported interest income of $5 million, compared with $2 million in fiscal 2018, a reflection of gradually increasing interest rates. As in the prior year, total housing, rents, interest income, and other revenue amounted to 3 percent of the School’s total revenues in fiscal 2019.

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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 2019, the School’s results for fiscal years 2017 and 2018 are presented in accordance with GAAP within the Statement of Activity and Cash Flows.