GAMES PARLOR GETS 25% OF
USCF DUES REVENUE INCREASE
On May 23, we posted an open letter from Hal Bogner, regarding the signing of the two year extension of the contract between Games Parlor and USCF on May 10. Bogner's letter included the following:
First and foremost, it seems shameful to me that the USCF is
making decisions without a proper analysis of its options, and without a full
understanding of the economic consequences of its actions. This is
compounded by acting in secrecy, and it appears that ED George DeFeis has taken some actions without proper oversight by the entirety of the membership of
the Executive Board, each of whom has a fiduciary responsibility to be informed
of the far-reaching actions which you, George, have described to Mark James.
For example, you have described to Mark James that the GP contract includes the following two astounding elements:
- Games Parlor is scheduled to get $8 of every USCF $32 Internet Membership sold.
- Games Parlor will get some percentage of increased USCF membership during the term of the contract.
We have now confirmed the following:
1) Games Parlor will indeed receive $8 from each USCF $32 Internet Membership sold, regardless of whether the member uses US ChessLive or not. If a $40 member who does not play chess online renews for the $32 internet rate to save $8, that's an $8 commission for Games Parlor. If a $40 member who prefers ICC to US ChessLive renews for $32, Games Parlor likewise collects $8.
2) If TOTAL USCF membership revenue for all membership classes increases over a projected amount, the projection based on the 1996-2000 trend, Games Parlor will receive a commission of 25% OF THE INCREASE! This means that if revenue increases due to a dues raise, a spectacular new sponsor such as the Seattle Group, an American playing for a World title, or any other reason unrelated to Games Parlor, that company obtains a windfall profit!
3) If total USCF membership revenue increases, Games Parlor will obtain both #1 and #2 above on internet dues, a total of $16 on the same member, who may not use US ChessLive! USCF affiliates no longer receive the $5 commission they obtained prior to 2001 for signing up adult members, but Games Parlor can get more than triple that amount for doing nothing! If Games Parlor gets the $16 commission on a member, USCF is left with just $16, less than the income on a youth member!
During the past five years, the adult membership trend has been down, but overall membership including youth, scholastic and other categories has increased. We looked over some membership revenue records, and since they are based on fiscal years and the Games Parlor contract uses calendar years, we could not determine whether the overall membership revenue trend in 1996-2000 is up or down. Revenue appears to have increased in 1996-1998, but since declined to approximately its 1996 level.
Apparently the overall trend is close to flat, so any increase in 2001 will generate commissions for Games Parlor. And an increase in 2001 is very likely, because effective January 2001, affiliate commissions were abolished and youth and scholastic dues raised. So once again, Games Parlor seems in a position to collect as a result of events they had nothing to do with.
Games Parlor had originally offered to set up a "USCF Branded Website" at no cost to the federation. Under the original contract, no fees or commissions were paid to Games Parlor, but USCF hired an office employee to provide content, paid GMs and IMs for online lectures and appearances, devoted much of the USCF in house programmer's time to Games Parlor, and ran a large number of free ads and promo pieces in Chess Life and elsewhere for US ChessLive. Other employees such as the Executive Director and CFO also spent some of their time on Games Parlor issues.
USCF Vice President John McCrary has stated that USCF's cost for Games Parlor was over $100,000 during the past year, and no other EB members have challenged this figure. VP of Finance Jim Pechac, a supporter of Games Parlor, later admitted that the cost may be as high as $150,000, while President Tim Redman, another Games Parlor backer, has estimated it at $100,000.
What has USCF received in return? Basically, the ability to say that free online play is a membership benefit. Redman, Pechac, Barry and Warren claim that even though there has been little or no change in the membership trend since the debut of US ChessLive on 8/1/00, we must be patient, and will eventually see results.
What is the value to USCF of providing its members with free online play? NONE, I believe, unless US ChessLive reaches the quality and popularity of ICC, which is highly unlikely. Games Parlor appears to be a struggling company financed by investors, the type of venture which seemed to make sense during the boom of the NASDAQ and the dotcoms, but is now seen as highly risky. USCF does not need US ChessLive, but Games Parlor may need the USCF contract extension to stay alive.
Last weekend, I attended meetings in New York and Boston which attracted a total of about 30 people, mostly USCF electors. At each meeting, I asked whether anyone there thought that US ChessLive was a valuable membership benefit. No one did. I asked whether anyone played regularly on US ChessLive. A few people said they have tried it on occasion, but nobody was a consistent user. Most attendees who play online said they use ICC, while a few mentioned other providers.
Even for those who won't pay $49 per year for ICC, which is only $4 per month, "free online play" has little value, because it is so easy to find. Virtually every online chess service offers free play in an attempt to gain market share, a situation which seems unlikely to change in the forseeable future. I did a search yesterday and found FICS, Yahoo, KasparovChess, OnlineChess.com, chess.net, It'sYourTurn.com, InstantChess.com, GameColony.com, Chess247, GameKnot, and Achess, all offering free online play! Even ICC has free online play for guests.
If Games Parlor paid for its own content, programmer, and advertising, and required no executive time, reducing USCF costs to zero, the original Games Parlor contract would still have been a bad deal for USCF. It precluded alliances with other online play providers, such as the USCF-ICC deal under which the federation made over $30,000 per year, and also benefited from ICC holding special tournaments requiring USCF membership.
In order to offer USCF members a free service which they can easily obtain elsewhere, our Executive Board majority, the same people who raised the cost of a six line Tournament Life announcement in two issues of Chess Life from $18 to $90, has wasted $100,000 to $150,000 during the past year. As if this wasn't bad enough, they have now locked in place a contract which, unless a possible legal challenge by the new Board is successful, promises to send far larger sums down a rathole for two more years!
WHY? Do Redman, Pechac, Barry and
Warren really, sincerely believe that the Games Parlor contract extension is in
the best interests of the federation? Or do we have a Board majority which
actually is representing the interests, not of USCF, but of Games Parlor?