Eating Clubs at Princeton Report Recurring Losses, Cannon Club Not Filing Forms Properly

This is the second in a series on Princeton University and the eating clubs. Follow this link to read the first article.

 

Introduction

The common room of the four-story stone mansion has a high ceiling with a 25-light chandelier. A balcony overlooks dark brown leather couches, surrounded by matching walnut-hued paneling. The cranberry-colored carpet complements crimson drapes adorning three tall windows that overlook  a green lawn. Above the large brick fireplace is a stone frieze depicting a tiger and crossed cannons, and above that a moose head is flanked by twin buck heads.

This is just one room in Cannon Club, one of the eleven eating clubs of Princeton University. Yet while this picture is one of opulence, Cannon and other clubs’ financial records indicate that some of them are having trouble keeping up with their nonprofit tax returns, even to the point of being financially unstable.

The eating clubs of Princeton University, while nonprofit institutions, have managed to accumulate massive wealth while maintaining tax-exempt status with the IRS. This investigation, focusing primarily on two clubs at the University, found several inaccuracies and inconsistencies that may jeopardize the clubs’ status with the University. These clubs, Cannon and Quadrangle (or “Quad”), have posted losses for many years over the past decade, and seem to be on unstable financial footing, which does not bode well for their future.

Among the findings on the two clubs are that Cannon Club, in 2011 and 2012, only recorded two trustees on its IRS 990 nonprofit tax forms. New Jersey Statute 15A: 6-2, however, requires nonprofit corporations to have “not less than three” trustees. Cannon has also posted losses of hundreds of thousands of dollars for the last four fiscal years on record, from 2010 to 2013.

In addition, Quadrangle Club has posted deficits for six out of the last seven years for which financial records are available: 2006-2012, with the exception of 2013. It lost about a third of its net assets held at the start of 2006. As the club with the lowest membership numbers and the lowest dues of any club, Quad has also taken out loans from two of its principal officers, which are valued at a quarter of a million dollars, all the while allocating thousands of dollars for “pension expenses.” While annual deficits do not spell an end to these clubs, they raise questions about certain clubs’ future viability when combined with additional findings.

The importance of this investigation is evident to Princeton students, particularly students in the clubs in question. However, for the whole student body, this investigation seeks to understand whether the clubs can be trusted with the millions that they collectively hold, and particularly whether the elite Princeton students and alumni who run the clubs can do their jobs well. The significance of this cannot be understated, since according to the Princeton Alumni Weekly, 35% of Princeton students in the Class of 2011 went on to work in finance and management consulting, along with many other high-status careers.

The Eating Clubs and This Investigation

Just what are the eating clubs, after all? Eating clubs began at Princeton in the nineteenth century as a consequence of the University’s inability to provide adequate dining facilities for its growing student population. After the University banned Greek-letter fraternities in 1855, eating clubs had an open field to become the dominant social influence among undergraduates. Although no longer the exclusive hub of Princeton’s non-academic life, due to the fact that the University offers the student body a wider variety of dining and social alternatives than it has in years past, the eating clubs of Princeton are still a major feature of the social atmosphere at Princeton. Each of the clubs has its own mansion of a clubhouse, all of which serve as the dining halls for anywhere from a hundred to over two hundred upperclassmen per club.

Last year, the Princeton Tory published the first article in this series, researching the relationship between the eating clubs and the University. That investigation found that while the eating clubs are independent of the University, the school can wield power over certain clubs, particularly sign-in clubs that have less money, in the form of land ownership and through providing numerous services such as University wi-fi and website domains.

Since publication of the first article, this most recent investigation relied on public documents from the clubs and interviews with club leadership to find more research-worthy material on Cannon and Quad. Though tax-exempt, all of the 501(c)(7) nonprofit eating clubs still must file financial statements called 990 forms with the IRS each year. These 990 forms include information on the organization’s revenue and expenses from the previous fiscal year, in addition to a list of the organization’s directors and net financial assets.

Cannon Club

The first part of this investigation found that Cannon Club has taken out a mortgage to help finance the multi-million dollar building renovations made since 2010, and has posted deficits of hundreds of thousands of dollars every year since 2010. In addition, for fiscal years 2011 and 2012, Cannon Club only recorded two trustees on its IRS 990 nonprofit tax forms. New Jersey Statute 15A: 6-2, however, stipulates that nonprofit corporations should have “not less than three” trustees. Finally, Cannon has been and is currently affiliated with the Prospect Foundation, a nonprofit that the Daily Princetonian described in a May 2015 investigation as funneling “millions of dollars in tax-deductible contributions” over the years “for social, non-educational purposes at the eating clubs,” against IRS regulations.

Cannon Club alumni officers and the current undergraduate president all deferred comment to Bob Casey, the chairman of the graduate board. Though Cannon in its current reincarnation is just a few years old, Casey has known the club in its previous iterations for over fifty years, including in leadership roles; he was the undergraduate president of the club as a junior at Princeton.

Servicing Debt

Casey gave a synopsis of the restarting of Cannon Club, which began in 2001 when the University sold the original clubhouse back to Cannon. Casey said that after University takeover of the Club in the 1980s, it became much more of an academic building, with “lots of steel and glass.” Thus, when the club took back the facility, “from a structural and improvement standpoint, a lot of work had to be done.”

This work included building a kitchen and dining facilities “from scratch,” as well as doing extensive HVAC work. Casey said that the project was done over the course of about nine to twelve months, with a former club member serving as the general contractor.

It was because of the cost of these renovations, Casey said, that it was necessary for the club to take out a mortgage. Casey said that while the club “obviously would not have borrowed two and a half million dollars” in the form of a mortgage “if [it] had sufficient cash,” he was nevertheless “confident that this institution [would] prosper because of [its] ability to attract and draw strong members, and a good number, to service the debt.”

Casey went on to say that the net total assets for Cannon Club had gone from $3,133,365 in 2010 to $2,136,218 in 2013 because the club holds this mortgage liability.

“We are servicing $2 million or more that we are reducing over time,” Casey said. “If we got rid of the debt service, which we’re trying to do through fundraising, then we would be operating where we want.”

Casey was also hopeful about the future.

“I believe that this school year, in ’15 and ’16, we project a break-even year, and given our membership and given our expenditures and our budgets and our resources, we should be operating in a break-even manner,” Casey said.

Form Faux Pas

However, there were other aspects of Cannon’s financial records that raised questions. In 2004, the earliest year for which IRS 990 forms could be found, Cannon claimed over $2 million in assets from buildings and land alone. This made up about two-thirds of its recorded assets. The club also claimed a substantial amount in assets from investments, which came from groups such as Euro Pac Growth, Washington Mutual Investment Fund, and the recorded president himself, Warren Crane. The form included misspellings of the Lawrenceville community, and the following year described itself as a group for “dinning” and social activities. In 2008, the club listed its phone number (for the first time) as (609)-111-1111.

In addition, both in 2007 and 2008, the club lost hundreds of thousands of dollars in investments, where a high percentage of its profits had been coming from. Finally, no 990 form for fiscal year 2009 could be found. When asked about the whereabouts of the missing form, Casey replied that he did not know.

“I don’t have a file full of 990s,” he said. “Usually any kind of filing like that is done through our accountant, and he is the clearinghouse on that information.”

Blunders like misspellings, however, were outweighed in importance by the presence of only four or fewer members of Cannon’s board listed on the form each year.  This stood in contrast to the boards of other clubs, all of which have close to a dozen members or more. In 2011 and 2012, Cannon recorded only two board members on its IRS 990 form, though the New Jersey Statute 15A:6-2 regarding the number of trustees required for nonprofits stipulates that “the number of trustees of a corporation shall be not less than three.” This Statute, adopted by the New Jersey State Legislature and codified in 1983, was annotated by the Nonprofit Law Revision Committee, which declared that a “board of less than three is inappropriate for nonprofit corporations.” The club now retains three members on its board.

When asked whether there had only been two board members, or whether a third had been left off due to an oversight in filling out the form, Casey said that he would “check it out,” adding, “I have not looked at that in many years.”

The Prospect Foundation

Finally, Casey confirmed that Cannon has been affiliated with the Princeton Prospect Foundation, a nonprofit organization that, among other things, accepts tax-deductible donations on behalf of the eating clubs. (Donations made directly to the clubs are not tax-deductible.) In May 2015, the Daily Princetonian published Editor-In-Chief Marcelo Rochabrun’s investigation on eating club finances. The investigation, started in 2013, outlined the work of the Princeton Prospect Foundation and several other foundations, which the Princetonian claimed had “funneled millions of dollars in tax-deductible contributions over the past few years for social, non-educational purposes at the eating clubs.” The investigation noted that “Internal Revenue Service guidelines specifically bar these kinds of expenses.”

While the article in the Princetonian claimed that “Cannon Club has not received any foundation funds,” Casey said that in fact, “Cannon Club had an account with the Prospect Foundation,” and that “some donations were made to Prospect Foundation for the benefit of Cannon.”

Casey qualified this statement, saying, “We wouldn’t have had to borrow $2.5 million if we had that kind of money in the Prospect account…we have very little in an account at Prospect.” Yet he reaffirmed his belief that Cannon Club is currently one of the “card-carrying members and dues-paying members of Prospect.”

Casey concluded that despite the current financial state of the club, he was still very hopeful.

“From an operating standpoint, we’re right on our business plan,” Casey said. “We’re right where we hoped to be.”

Quadrangle Club

Another club that has been posting annual deficits for many years is Quadrangle Club. According to its publicly-available IRS 990 forms, Quad posted deficits from 2006 to 2012 before recording a small net gain in 2013, pointing to financial tensions within the club. Quad lost about a third of its net assets in from 2006 to 2012, going from claiming $1.4 million in net assets to just under $900,000.

In some ways, Quad’s financial situation appears to be more dire than that of Cannon Club. For example, the Interclub Council, of which Council Quad is a member, listed on its website that Quad reported 113 total members – the lowest number of dues-paying members of any of the eleven clubs on Prospect Avenue. With so few members in comparison to others, Quad has had to resort to other methods of acquiring funds in recent years, such as donations through the Prospect Foundation and loans.

Quadrangle Club listed the Prospect Foundation as a “related tax-exempt organization” on its most recent IRS 990 form in 2013, and listed it as the top option on its website’s “Giving” page, with the note that “gifts are tax-deductible when made out to the “Princeton Prospect Fund – Quadrangle Account.” Quad’s undergraduate officers would not comment on the club’s relationship to Prospect Foundation. In an email exchange, outgoing Quadrangle Club president Mitch Shellman ’16 said he was unable to comment on the Prospect Foundation “due to information sharing protocols the Grad Board employees [sic].” Current president Katie Panskyy ’17 also declined to comment. However, former graduate board member Mary Eklund ’76 said that “every club is a member of the Princeton Prospect Foundation,” adding, “if I want to take a tax donation, I put Quad.” Eklund, who served as social chair for Quad as an undergraduate, said she was an active member of the Quadrangle graduate board from 1982-2000, though she was at least nominally on the board for even longer than that: an archive.org screenshot of Quadrangle’s website dated April 18, 2012 listed Eklund as a member of the graduate board and three committees. While perhaps similar to Cannon’s use of the Prospect Foundation in that the funds raised do not equal a significant amount, Quad’s use of the Foundation clearly indicates a desire to motivate donors to give, even if the means of the Prospect Foundation may be dubious, as previously mentioned.

Some of Quad’s other fundraising means shown on the 2013 form included loans, for which Quad reported owing $250,000. The form did not disclose the interest rate on these loans, but it did record the names of the “interested persons” who gave the money: Quadrangle Club graduate board chairman Dinesh Maneyapanda and trustee Peter Luongo. This reliance on alumni loans, rather than donations, to keep the club going does not bode well for its future. In addition, the club listed expenses of $4,800 for “pension expense” and $20,556 for cooperation with the University’s shared meal program for fiscal year 2013. The latter cost may be in part due to the fact that Quad’s website claims that the club “offers the most shared meal plans out of all of the eating clubs.” This number was reported by the Daily Princetonian in 2009 to be forty. Asked to elaborate on the pension expense and shared meal program costs, both Shellman ’16 and Panskyy ’17 declined to comment.

There are yet other sources of funding for clubs like Quad. One of the other clubs, Tower, has taken financial advantage of its hosting precepts for University courses. By doing so, Tower is legally able to avoid paying property taxes because its facility is used for these educational purposes. While Eklund said that this financial benefit of Tower’s, which she described as the “envy of the Street,” would be off the table for other clubs, including Quad, there are still benefits to hosting University events such as Alcohol Initiative-funded parties (which are dry), as well as foreign language tables. In addition to providing funding to the clubs for hosting the events themselves, as in the case of the Alcohol Initiative parties, Eklund said that such events “strengthen the image of the club in the eyes of the University community.”

Over the 2015 spring sign-in period, Quad took in 115 new members, even more than the previous total of 113 students who had already been members of the club. However, its challenges did not go away. Sophomores were confused at how much dues would be for the semester; the Inter-Club Council, of which all eleven clubs are members, had sent an infographic to students that Quad dues would be $800 for the semester. Quad had announced on its website that sophomore member dues would be $500 for the semester. The Daily Princetonian later clarified that the sophomore contract stated “that if a student commits to stay in the Club until their Junior years, they would pay $500. Not committing instead means a payment of $750.” Yet aside from any confusion caused for its sophomore sign-in class, Quad may have another, more significant, challenge to retain its new members and build on its success in the future.

Eklund said that her worry was that any sign-in clubs, whether Quadrangle or not, might close in the future, as Campus Club did in 2005. “Clubs are like…a forest,” Eklund said. “You have to have a certain number of trees to support the ecosystem.”

 

Conclusion

The question marks that riddle both of the clubs involved in this investigation point to a need for more research. The losses by these clubs is especially concerning if the eating clubs are to survive as a cohesive system. While extinction of this system may seem unlikely, these findings raise questions about the viability of other eating options on campus. For example, while popular, the co-ops of Princeton have long waitlists, and upperclassmen choosing to stay in four-year colleges are still a small minority.

In addition, the blunders evident in the IRS forms reveal a more immediate problem; namely, that the clubs need true accountability with the IRS, rather than a mere rubber stamp. Even when placed at a higher level, the bright and meritocratic “organization kids,” as New York Times columnist David Brooks describes Princetonians in power, are ultimately just as prone to make mistakes as anyone else.

James Haynes is a sophomore studying the art of journalism and writing. He can be reached at jh39@princeton.edu.

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