Exclusive golf course books $1 million surplus, aided by federal COVID-19 relief

CBC News has obtained the club’s audited financial statements, and a recording of its annual general meeting, in which its board told members about the club’s “very strong financial position” due to the Canada emergency wage subsidy (CEWS) windfall. 

“We ended up with a rather substantial subsidy,” Doug McLarty, the club treasurer, told participants in the Dec. 5 online video meeting. “It was over a million dollars. And that ended up on the bottom line.” 

Royal Ottawa, which is located across the river in Gatineau, Que., a 12-minute drive from Parliament Hill, was founded in 1891 and has long been a playground for the capital’s elite. The club offers what it calls “privileged” status to cabinet ministers, the leader of the Official Opposition, accredited high commissioners and ambassadors to Canada and their respective spouses, and several NHL players have been members. 

But faced with lockdown restrictions that kept its facilities shut from mid-March through mid-May, the club sought and received $1.019 million in federal wage support over the spring and summer, and as a result, ended its fiscal year with an $825,000 surplus in its operating fund — 19 times more than the $43,883 operating gain the club reported for 2019.

A healthy return on investments belonging to the club’s capital fund, along with some cost-savings, generated another $213,785, bringing the non-profit organization’s total 2020 surplus to $1.038 million.

Members were told that the Royal Ottawa board decided to keep the entire amount in order to “provide a cushion against unanticipated future expenses.”

‘Parking’ the subsidy, and paving the lot

“Some of you said, ‘Well, you know, why don’t we just lower fees next year?’ Some of you suggested, ‘Why don’t we transfer some of it to the capital account?’ Some people said, ‘Why don’t we accelerate some expenditures?’ All of which were legitimate ideas, good ideas,” said McLarty, a chartered professional accountant and certified financial planner, during his AGM presentation. “We debated all pros and cons of each one of those. But as I suggested earlier, we were trying to be conservative. At that point, we felt that we didn’t know what the next year was going to bring to us, and so we decided just to park it.” 

McLarty and other club representatives declined the CBC’s requests for an interview about their record surplus and how they plan to use it. But a letter issued in response to a list of detailed questions maintains that the club is under no obligation to refund the money to the federal government. 

“[The] premise that a surplus at the end of the fiscal year should be returned is not only wrong but is not at all consistent with the CEWS criteria. In fact, the Royal Ottawa’s surplus is used to absorb the very steep decline in revenues for the succeeding six months and beyond,” wrote club president Karen Rothfels and general manager Joyel Singfield. 

“We were provided professional advice from our auditors that we meet the criteria for the CEWS wage subsidy, and our eligibility is based on those criteria. Without the subsidy we could not have sustained our employment levels throughout this very challenging year.”

According to the financial statements, and AGM presentations by other board members, some wearing the club’s distinctive green jackets, Royal Ottawa enjoyed a banner year despite restrictions on indoor dining that reduced food and beverage revenue, and below average sales in its pro shop.

WATCH | Club treasurer on the bottom-line impact of CEWS: 

Club treasurer Doug McLarty explains the impact of CEWS funding on Royal Ottawa’s bottom line. 0:51

With COVID-19 keeping people close to home and driving demand for safe, distanced outdoor activities, facility use “boomed” at Royal Ottawa, the club’s financial report says, with play on its 18-hole main course up 40 per cent, and play on the par-35, nine-hole course up 90 per cent from 2019. Demand for memberships was strong, with 77 new players joining the club this past season. And interest remains so robust that the club plans to institute a membership cap for the coming season, while raising its initiation fee from $30,000 to $35,000. 

The statements also show the club spent more than $3.4 million on capital projects in fiscal years 2019 and 2020, including a newly opened driving range equipped with a radar system that tracks the launch angle, speed and flight path of each ball that is struck. The documents also indicate the club has used a portion of the surplus to pay down its line of credit in advance of more planned capital improvements in 2021, including repaving the parking lot and refurbishing the clubhouse entrance.

Some members question why club needed CEWS help

Some members apparently questioned why Royal Ottawa needed the CEWS help, especially as the season progressed and revenues stabilized, or even improved, in some categories such as annual fees and golfing charges. Royal Ottawa estimates that it would have run an operating deficit of $200,000 to $250,000 and says it would have been forced to cut staff, if not for the wage assistance.

“A question that came up from several members was, you know, did we have to apply for that subsidy? And the board felt that there was a fiduciary duty,” McLarty told the AGM. “I can tell you that pretty well every club in Ontario that we are aware of, and in Quebec, applied for that subsidy. And many of them are in a similar situation to what we have enjoyed this year — they have an operating surplus that they weren’t anticipating.”

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In its letter to CBC News, the Royal Ottawa Golf Club says it was forced to temporarily lay off 35 staff at the beginning of the lockdown, and delay the seasonal employment of 45 others. The federal wage subsidy and mid-May reopening allowed the club to bring all of those people back onto the payroll, and the club added additional workers throughout the season, with employment peaking at 160 staff.

The Sept. 30 fiscal year-end report only provides a “snapshot” of the Royal Ottawa’s operation at the peak of its revenue cycle, the club says. And the $825,000 CEWS surplus “has been steadily drawn down since then as a result of the end of the golf season and restrictive beverage and food regulations due to the pandemic.” The club points to recent red zone COVID-19 restrictions that forced it to cancel a members’ Thanksgiving dinner at the last minute, and have prevented all Christmas season gatherings. 

“We had 300 dinner reservations but we were forced to shut down the dinner with 24 hours’ notice, the food having already been purchased. We were able to off-set some of the costs with takeout meals, but the losses were substantial and had to be absorbed by drawing down on our surplus,” the club wrote.

Fiscal statements show the golf course booked a $556,000 loss on food and beverages in 2020, up from the $299,000 loss recorded in pandemic-free 2019.

Government says money was just for wages

However, Royal Ottawa’s surplus seems to highlight something the government didn’t anticipate — that wage subsidies might benefit employers as well as employees.

Appearing before the Commons finance committee earlier this month, Finance Minister Chrystia Freeland told MPs that CEWS support was intended only for workers’ wages, not for other costs, or dividends for shareholders.

“The wage subsidy can, by very clear and specific design, only be used for, to pay employees. That money cannot be used for any other purpose,” she said. “And I do want to emphasize, for the member opposite but also for any companies who are listening, that the wage subsidy must be used to pay workers. That is very, very clear and we expect companies to comply with that.”

In a statement to CBC News, Freeland’s spokesperson, Katherine Cuplinskas, said employers who misuse CEWS money may face a penalty equal to 25 per cent of the amount of assistance they applied for, and can also be required to pay back any money they received.

“The wage subsidy can only be used to subsidize employee remuneration that has already been paid for by the employer. It is designed to protect jobs and help rehire workers who have previously been laid off,” she wrote.

The minister’s office did not address a question about how many organizations have been asked to repay CEWS funds to date.

The news of Royal Ottawa’s CEWS-based surplus comes as hundreds of thousands of working Canadians now face the prospect of having to pay back their own pandemic support from the government. The Canada Revenue Agency has sent what it calls “education letters” to 441,000 self-employed recipients of the Canada emergency response benefit (CERB), warning them they might have to pay back any funds that they received in error due to confusion and government miscommunication over the eligibility criteria.

Richard Leblanc, a professor of governance, law and ethics at York University, who trains and advises corporate boards, said all organizations who are receiving government pandemic funds need to be sure they are using them for their intended purpose. 

“The spirit of CEWS is compensatory. It’s to keep you whole under pandemic conditions. It’s not intended to be a windfall, or for ulterior, or any other purpose other than employee wages,” Leblanc said. 

Otherwise, he said, the risks of ending up in the rough are significant.

“You will owe the money as an organization. You will also owe penalties and you will also owe interest on the money,” he said. “Not to mention the reputational hit.”