Florida Virtual School's revenues falling short of expectations

Hailed as a money-making model, Florida Virtual School's effort to bring in millions in extra income is falling short and the venture may soon be in the red.

Charged by lawmakers to aggressively seek revenue, the nation's largest state-funded online K-12 school last year launched a deal with a private company to take over sales of its courses outside of Florida.

The agreement with textbook giant Pearson Education Inc. was supposed to generate about $800,000 in net income in the first year alone, increasing every year to $44 million by 2015.

Now, Florida Virtual said its for-profit arm expects to break even for 2011 and lose $46,190 by June 30 as school officials scramble to renegotiate the contract with Pearson.

Cecilia Lopez, the school's chief market development officer, told Florida Virtual's board of trustees last week that the deal became "confusing" after Pearson announced in September it had purchased Connections Education, a Florida Virtual competitor.

"Everyone was asking, 'What's happening? What's going on?' " Lopez said. "There was very little selling that was taking place because really, nobody knew how to position and how to take us to the next step."

After the meeting, the Tampa Bay Times asked Florida Virtual for complete figures showing profits or losses for the Pearson deal, but spokeswoman Tania Clow said Friday the 2011 numbers were still being finalized. They were expected to show that they would "break even," she wrote in an email.

Clow did not address why Lopez's figures showed a loss or why the school would expect to go from breaking even to losing money under a renegotiated contract.

The information presented to the board last week stands in stark contrast to the expectations outlined in the original agreement approved unanimously by the seven-member board in December 2010.

Under those terms, Florida Virtual and Pearson expected a steadily increasing net income over five years: $807,000 in 2011, $6.95 million in 2012, $16.3 million in 2013 and more than doubling that by 2015.

Florida Virtual's 45 percent share meant a projected $43.76 million in net income over a five-year span. Pearson's share is 55 percent.

Financial records and interviews indicate profitability may have been an issue even before Pearson bought Connections.

In July, Florida Virtual CEO Julie Young told the Times she expected Florida Virtual to net about $20 million in five years, half of what was written into the original contract.

School officials did not get into many details about how they hope the reshaped contract with Pearson will look and said they are still discussing the new profit share. Pearson, however, will still have some role in selling the school's products, Lopez said.

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During last week's public meeting, Young interrupted Lopez's presentation and, singling out a Times reporter, said: "The negotiations, hopefully, will be done in the next couple of weeks, but at this point in time we would like to keep this information within the room."

Pearson spokeswoman Kate Miller said the company is "working with FLVS to address the next phase of our relationship." Pearson bought Connections Education, the second-biggest for-profit player in online learning for $400 million last year. Though competitors on many levels, Connections and Florida Virtual do partner to offer full-time courses.

Florida law calls for Florida Virtual — an enterprise with a $166.3 million budget and close to 1,500 employees and 130,000 students — to "aggressively seek avenues to generate revenue to support its future endeavors" such as research and development.

While Florida students can take the online courses for free, Florida Virtual charges those elsewhere in the country and across the world to use its products. The long-term goal is to make the online school less dependent on taxpayer dollars, Young said.

"I look forward to the day I can come back ... and say, here, take some of this money back," Young told the board last week. "We are obviously not there yet."

The school's unusual ability to seek revenue through for-profit ventures sparked former Gov. Jeb Bush last year to recommend new Gov. Rick Scott consider selling the school: "It is government owned and paid for and makes significant money," Bush wrote in an email to Scott.

Alex Molnar, a professor at the University of Colorado Boulder School of Education who has studied private partnerships in public education, said that while policy makers frequently support the kind of public-private blending that Florida Virtual has pursued it often comes at a cost to the taxpayer, especially in transparency and finance.

"The whole thing stinks," said Molnar, who is associated with the National Education Policy Center.

State Rep. Will Weatherford, chair of the House Education Policy Council, called Florida Virtual "internationally renowned."

"I've got faith in the folks at the Florida Virtual School," said Weatherford, R-Wesley Chapel. "I support the decisions they make internally and who they decide to partner with. I don't think that can be micromanaged at the legislative level."

Times researcher Natalie Watson contributed to this report. Rebecca Catalanello can be reached at (727) 893-8707 or rcatalanello@sptimes.com.