For-Profit Firm On the Ropes

Tesseract can't even afford postage.

By Barbara Miner

A company that for years was the leader in for-profit education is in the midst of a corporate and educational meltdown.

Tesseract Group Inc., formerly known as Education Alternatives Inc. (EAI), is millions in debt, has laid off much of its staff, has fired and then re-hired its former CEO, has been kicked off the Nasdaq stock market, and is up for sale to anyone interested. And those are just some of its problems.

In the mid 1990s, EAI was the darling of the education privatization movement, and it won several high-profile contracts to run public schools in Baltimore and Hartford. It promised it could run the public schools for the same amount of money, improve achievement – and make a profit. It failed on all three counts.

After being kicked out of Baltimore and Hartford, CT, EAI changed its name to Tesseract and moved its headquarters to Arizona. Thereit took advantage of the state’s lax charter schools law and opened up 13 charter schools in the Phoenix area, along with private schools and private preschools.

Originally, the company focused on taking over public schools in low-income urban areas, arguing that the problems in inner-city schools rested in mismanagement, not lack of resources. In recent years, the company zeroed in on more lucrative markets.

These days, Tesseract “prides itself on rigorous courses described as ‘Harvard for children’ and attracts the sons and daughters of major sports stars from the Phoenix Suns and Arizona Diamondbacks,” according to the Arizona Republic.

But even catering to the rich has not solved the company’s woes. Parents at the company’s Ahwautukee campus in the Phoenix area said that despite $8,000-a-year tuition, money has been so tight that “the school couldn’t afford the postage to mail report cards home,” the Arizona Republic reported.

The company’s stock, which reached a peak of $48.75 several years ago, is now worth pennies.

Not to worry about Tesseract executives, however. As is true with other for-profit education companies, top executives insulated themselves from the company’s financial miseries. Tesseract founder John Golle, for example, made a net gain of roughly $1.75 million in two months alone in the fall of 1993, cashing in stock options while the stock was still relatively high. That was on top of Golle’s $181,170 in salary and bonus that year.

The company’s current plight is a far cry from 1993 when Michael Moe, an analyst with a brokerage company, touting EAI stock, extolled the virtues of for-profit education. “A lot of very smart business people have decided that EAI could be a big company in a hurry,” Moe told Rethinking Schools.

Perhaps those “very smart business people” weren’t so smart after all.