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).

HBP, Executive Education, and philanthropy are sensitive to trends in the economy and the capital markets, which continued to perform well in fiscal 2018. The School’s total revenues increased by $56 million, or 7 percent, to $856 million, from $800 million a year earlier, primarily driven by growth in HBP and Executive Education. Philanthropic and HBS Online revenue grew 4 percent and 58 percent, respectively, from fiscal 2017.

MBA Tuition & Fees

Student tuition and fee revenue from the MBA program grew to $138 million, from $133 million in fiscal 2017. First-year MBA tuition in fiscal 2018 was $72,000, compared with $63,765 last year. This 13 percent increase primarily reflected a reallocation of MBA program costs that were previously recovered through fees. The School’s combined tuition and fees for fiscal 2018 were near the midpoint among the seven peer schools tracked by HBS.

Harvard Business Publishing

All three of HBP’s market-facing groups delivered stronger-than-anticipated growth in fiscal 2018. Total revenue rose by $19 million, or nearly 9 percent, to $240 million, from $221 million a year earlier, exceeding the School’s forecast by $16 million. International sales were up nearly 15 percent, comprising 36 percent of HBP’s total annual revenues.

After three consecutive years of zero growth, Harvard Business Review (HBR) group sales were up nearly 6 percent from fiscal 2017, when the subscription model for HBR changed from 10 to 6 issues annually. The model continued to gain market traction in fiscal 2018. Paid circulation grew nearly 5 percent to 320,000—the highest since publication began more than a century ago—driven by increased renewals and subscriber engagement.

Corporate Learning sales for fiscal 2018 increased more than 15 percent from a year earlier. Extending its reach as a provider of technology-enabled leadership development solutions for global corporations, the group launched new versions of its flagship product, Harvard Manage­Mentor®, released innovative learning experiences for midlevel leaders, and substantially increased its global services business.

Higher Education sales were up 4 percent from fiscal 2017, driven by balanced performance across all product lines and channels. Leveraging its leadership position in participant-centered learning in business education, the group increased its market share among the world’s top 250 MBA programs, launched a redesigned For Educators website, introduced eight simulations, and experimented with new audio cases and experiential learning products.

Executive Education

Executive Education tuition revenue increased by $16 million, or more than 8 percent, from fiscal 2017, to $207 million, exceeding the School’s forecast by 10 percent. This growth was made possible by new and newly renovated facilities, including Tata Hall, Esteves Hall, and the Chao Center; together, they enabled HBS to increase total enrollment more than 6 percent to approximately 12,100 by offering an expanded range of higher-priced custom, focused, and global programs.

These included seven new focused programs in fiscal 2018. Additionally, the group continued to diversify its custom portfolio across industries and geographies, as well as program type and size, driving strong enrollment growth.

Global program tuition continued to grow as a percentage of total Executive Education revenue in fiscal 2018. This growth was largely driven by increased participation in longer modular programs that include time spent both in region and on the HBS campus. One such offering—the Senior Executive Leadership Program – Middle East—was the largest of the four global programs introduced by the group during the year.

Gifts & Endowment

Philanthropic revenue, including distribution from the endowment and current use gifts, has long been vital to sustaining the School's annual operations.

In fiscal 2018, total revenue from the School's three philanthropic sources—endowment distribution, unrestricted current use gifts, and restricted current use gifts—increased 4 percent to $229 million, from $220 million in fiscal 2017. This revenue amounted to nearly 27 percent of the School's total operating revenues, compared with 28 percent a year earlier. In contrast, for the University as a whole, philanthropic revenue for fiscal 2018 amounted to nearly 44 percent of total operating revenues.

The School's annual endowment distribution for fiscal 2018 increased nearly 3 percent from the prior year to $150 million, amounting to 17.5 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 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 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 2018 met that target at 5.2 percent, compared with 5.4 percent for the prior year.

Over the past 10 years, the rate has fluctuated from a low of 4.8 percent in fiscal 2008 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.

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 produce strong investment results to support the educational and research goals of the University.

HMC, as an organization, and the Harvard endowment portfolio are still in the early stages of a multiyear transition. The return on endowment assets for fiscal 2018, net of investment expenses and fees, was 10 percent—up from the 8.1 percent rate of return for the prior year, and the negative 2.0 percent return in fiscal 2016.

The value of the University endowment grew to $39.2 billion in fiscal 2018—an increase of 5.7 percent from $37.1 billion a year earlier. For the second consecutive year, the total value of the Harvard endowment exceeded the $36.9 billion reported at year-end fiscal 2008, just prior to the start of the financial crisis and recession. These values reflect net investment returns and cash gifts to the endowment received each year, net of the University's annual distributions and decapitalizations. The HBS endowment has comprised approximately 9 percent to 10 percent of the University endowment's total value over the past 10 years.

The fiscal 2018 year-end market value of the HBS endowment, plus the School's current use funds, was $3.8 billion at June 30, 2018, compared with $3.5 billion a year earlier. This increase reflected the 10 percent net growth in market value and the subtraction of the School's annual distribution and decapitalizations, offset by the $101 million in endowment gifts received by HBS during the year. The School received $85 million in endowment gifts in fiscal 2017.

Through The Harvard Business School Campaign, the HBS community continued to demonstrate extraordinary involvement and generosity, giving $214 million in new gifts and pledges to the School in fiscal 2018, the Campaign's final year. This compares with $233 million in fiscal 2017.

HBS received gifts from nearly 12,613 donors in fiscal 2018, including MBA, Doctoral, and Executive Education alumni, as well as friends of the School. As in the prior year, approximately 26 percent of the School's MBA alumni gave to HBS in fiscal 2018. 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 $186 million, compared with $190 million in fiscal 2017.

Current use giving—both restricted and unrestricted—has become increasingly crucial in recent years as a source of funding for innovation across the School. Over the past five years, total giving in these categories has increased nearly 84 percent, from $43 million to $79 million, while fundraising expenses have increased at a slower rate. As a result, these gifts, which can be spent immediately, have had a significant impact on cash from operations and, therefore, the School's ability to capitalize on emerging strategic opportunities such as Field Immersion Experiences for Leadership Development (FIELD), the Harvard Innovation Labs ecosystem, and HBS Online. Going forward, sustaining the HBS community's remarkable commitment to current use giving will be instrumental in achieving the mission of the School.

Fiscal 2018 marked both the conclusion of the Campaign and the School's ninth consecutive year of growth in unrestricted current use giving. Revenue from these flexible gifts increased nearly 5 percent to $44 million, from $42 million in fiscal 2017. Restricted current use giving typically varies from year to year, in line with the School's changing fundraising priorities and strategic needs. Reflecting payments on pledges made by HBS alumni and friends in the early years of the Campaign, revenue from these restricted gifts increased more than 9 percent from fiscal 2017 to $35 million.

Cash giving to the endowment grew to $101 million, from $85 million in the prior year. Cash giving for construction projects decreased to $4 million, from $30 million. The results in both categories primarily reflect normal year-to-year variability in the timing of payments on pledges.

Harvard Endowment Returns

HBS Online

The HBS Online group made solid progress in fiscal 2018 on its multiyear path to joining Executive Education and HBP as a contributor to the School's earned revenue and income from operations. Revenue grew 58 percent to $19 million, from $12 million in fiscal 2017. Thanks to a continued focus on disciplined expense management, the group reduced its operating deficit to $5 million, from $11 million a year earlier.

This year's revenue growth was driven by continued portfolio enhancement and expansion. HBS Online unbundled its flagship CORe program, offering each course as a stand-alone option. Additionally, the group added three new course offerings—Entrepreneurship, Becoming a Better Manager, and Sustainable Business Strategy—and leveraged sales resources at HBP and Executive Education to help them reach a wider audience.

To deepen HBS's engagement with the Harvard John A. Paulson School of Engineering and Applied Sciences, HBS Online launched the Harvard Business Analytics Program. Additionally, the group beta tested Leading Change—the first course in the Certificate in School Management and Leadership Program with the Harvard Graduate School of Education.

Finally, the HBX Live Studio, HBS Online's virtual classroom, hosted 101 synchronous sessions in fiscal 2018—a 63 percent increase year over year.

Housing, Rents, Interest Income, & Other

Total revenue of the Housing, Rents, and Other category for fiscal 2018 decreased by $1 million from the prior year to $21 million. Reflecting gradually increasing interest rates, the School reported interest income of $2 million, compared with $1 million in fiscal 2017.

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