Universities are not Businesses ... But Wait, It’s Complicated

John Howard, 12 September 2025

Australian public universities are public organisations, not public enterprises. They are established under state or territory legislation, receive substantial public funding, and hold charitable status with Deductible Gift Recipient (DGR) privileges.

Their enabling legislation generally defines their purposes as delivering education, research, and community engagement, rather than financial returns. Their financial performance is reported publicly as a net operating result, defined by Australian Accounting Standards. This metric includes a range of accruals, such as depreciation, and other non-cash items, including unrealised investment income.

Depreciation and unrealised investment income can be very substantial and can convey a distorted view of actual operations. Publishing an “earnings before interest, taxation, depreciation, and amortisation” (EBITDA) figure alongside the net operating result could clarify whether an institution’s operations are generating sufficient income to sustain its activities. This is the metric that financial institutions, market analysts, and ratings agencies look for in the corporate sector.

Although not being businesses in a formal sense, universities are expected to be “business-like”, meaning that they should operate with sound governance and management practices. They must also be accountable to staff, students, governments, and the public for the use of public resources. That includes ensuring that financial reporting is transparent and meaningful.

Students as “Customers”?

Universities actively compete for student enrolments, advertising courses both nationally and globally. This competition is especially intense in the international education market, where fee-paying students are a critical revenue stream. University cash flow statements even use the term “income from students and other customers,” a phrasing that, unfortunately, implicitly frames education as a transaction: students pay fees and receive a qualification.

However, this market logic has its limits. Higher education is not a conventional commercial service. The student experience is shaped by pedagogy, mentoring, and participation in a scholarly community; activities that are difficult to reduce to a product sold at a price. On the research side, academics give papers at conferences to share and debate knowledge, not to sell it. Much of the intellectual life of a university is premised on open exchange, not commercial exchange or transactions.

Commercial Entities and Profit-Making Activities

Despite their public mission, most universities operate multiple related entities under the corporations law. These entities may manage international student recruitment and education, commercial training, consulting services, or property development projects. They are often expected to deliver a financial surplus that supports the parent institution.

Some universities also have substantial financial asset holdings and actively invest in equity and bond markets. Land holdings are increasingly leveraged through joint ventures and partnerships with property developers. These activities resemble those of a diversified corporate group more than those of a traditional academic institution. The ancient title of the “bursar” as the steward of university finances has evolved into a professionalised investment and property management function.

The Elusive Returns from Research Commercialisation

Although governments frequently encourage universities to commercialise research, the financial returns from licensing and spinouts are modest for most institutions. The occasional “blockbuster”, such as a pharmaceutical patent or technology licence generating millions, is usually the exception. Intellectual property protection is often used to safeguard research continuity rather than to generate direct income.

The income from commissioned research and consultancy is also relatively modest. This reality means that commercial revenues cannot replace public funding as the financial backbone of universities. Research remains a public good, reliant on public support and cross-subsidy from teaching. That cross-subsidy has grown with the increase in international student income.

The Case for Separating Charitable and Commercial Accounts

The breadth of university activities blurs the line between their charitable mission and commercial operations. For public confidence to be maintained, financial reporting should make these distinctions more transparent.

Separate disclosure of charitable activities (teaching, research, and public engagement) and commercial activities (property development, investment returns, and full fee-for-service teaching) would enable stakeholders to understand how each contributes to financial sustainability.

This is not a call for universities to retreat from commercial activity; prudent management of assets and diversification of revenue are essential for resilience. But clarity in reporting would avoid perceptions that public subsidies are being used to cross-subsidise ventures that are essentially private in character.

Policy Implications

The debate about whether universities are “businesses” is unhelpfully polarised. They are neither purely public agencies nor purely commercial entities. They are hybrid institutions with obligations to the public, to students, and to financial sustainability.

Policymakers and university leaders could consider reforms that:

• Require universities to disclose the results of charitable and commercial operations separately.

• Encourage greater transparency around surpluses from commercial activities.

• Support the development of financial metrics (such as EBITDA) that provide a clearer picture of periodic and of year-end financial position.

A more nuanced approach would allow the sector to acknowledge its commercial activities without compromising its public mission.

References

Marginson, S. (2016). Higher Education and the Common Good. Melbourne University Press.

Larkins, F. (2021). Australian Universities: Can They Reform? Melbourne University Publishing.

Department of Education (2024). Finance 2023: Financial Reports of Higher Education Providers. Australian Government.