USCF MISSES ITS OPPORTUNITY
The new USCF Executive Board has found the federation's financial problems to be even greater than previously believed. The previous Board placed a high priority on showing a profit for the fiscal year ending May 31, and managed to put a rather misleading $14,000 surplus on the books, while neglecting the longterm needs of the federation. But in the final three months of the Redman Board (the first quarter of the new fiscal year, June through August), USCF lost about $150,000.
Book and equipment sales under the previous Board's "reducing inventory to basic items" policy were especially dismal, vindicating the opposition to this move led by then VP John McCrary at the January EB meeting. The theory supported by the Redman Board's majority, that downsizing books & equipment would be advantageous if USCF's remaining inventory was marketed aggressively, has proven to be a bust. Apparently many customers, dissatisfied with USCF's reduced selection, have taken all their business elewhere.
The first quarter result of 2001-2 was about $100,000 worse than the identical period in 2000-1. Of that $100,000 negative difference, nearly half resulted from the decline in sales under the new "basic items" policy, while about a quarter of the difference was due to the switch from ICC to Games Parlor's US ChessLive. The new Board recently approved a reduction in US ChessLive spending; USCF will no longer pay for prizes or lectures for online events, and will drastically reduce free advertising in Chess Life for USCL.
The McCrary Board thus has taken office with the fiscal year in a deep financial hole, and the urgent need to somehow stop this bleeding. In past years, the Christmas sales season often turned things around, but this is no longer much of a revenue source. The new Board favors rebuilding the sales program if possible, but took over too late to salvage the holiday period, and USCF lacks the cash or the credit for major inventory purchases. If a bank loan can be secured, federation sales may return by spring, but the business is seasonal, and waiting until the end of 2002 for the strongest sales period will be difficult. USCF may be forced to outsource its sales operation, which should provide some revenue, but probably less than in the past.
The federation's picture might have been far brighter. During the final few weeks of the previous Executive Board, GM Yasser Seirawan decided to discontinue his Inside Chess sales operation. He needed to vacate his building and quickly dispose of a very substantial inventory of chess books, equipment and software. Seirawan estimated that this material could be resold for a profit of $300,000 to $500,000.
Aware of USCF's financial problems and desiring to help, Seirawan contacted the federation to give them first crack at his fire sale- he would ship everything on consignment, no advance payment required. Whatever USCF could sell, they would pay for, at a price well below wholesale! Unsold merchandise would have to be returned or paid for only after two years. The federation's only risk was the obligation to pay all shipping costs, a matter of just perhaps $4000 or so.
With virtually no potential downside, USCF could have saved its holiday sales season, and restored life to its sales program for the future. But incredibly, Executive Director George De Feis rejected the offer! Despite the potential for a huge profit to USCF, the Executive Board was not consulted- however, we do not know whether or not De Feis asked President Tim Redman for his opinion.
Seirawan then made the same proposal to Hanon Russell of Chess Cafe, who quickly accepted. Ironically, Russell is a leading bidder for a USCF outsourcing contract, should the federation decide to go in that direction. So USCF may yet be involved in the sale of some of the Seirawan merchandise, but under far less profitable terms.
This may have been the biggest blunder in the federation's history, even worse than the two year extension of the Games Parlor contract!