Stephen Shutt
871 N Woodstock St
Philadelphia, PA 19130
stephenshutt@yahoo.com
Fellow Delegates,
In my last letter I introduced myself as a Philadelphia public school teacher since 1970, a member of the Scholastic Committee and co chair of the Scholastic Council of the USCF. I also expressed my views on a number of issues. In this letter I wish to take the opportunity to expand these viewpoints.
The three basic functions of the USCF are calculation of ratings, publication of the magazine, and the provision of various services. Our membership is diverse and depends upon a high level of quality in all three areas. Our OTB players range from professionals to the weekend recreational club player. Member commitment ranges from life members to scholastic players who will never compete after graduating from their elementary school program. We have correspondence players, on-line competitors, and those looking to us to provide a source for books or equipment. There is no one service that appeals to all members.
When a service we provide is diminished in quality some percentage of our membership becomes disenchanted. To maintain membership numbers we need to provide the highest quality service in all areas. High quality service can be expensive, however, and our organization has been in financial difficulty. We have been cutting back on service to reduce costs and improve the profit margin. But a reduction in service leads to a loss of members and a reduction in revenue, which is answered by further cuts in service to stay out of the red. This downward spiraling Catch 22 dilemma can be dangerous to our organization’s survival. It is not easy to predict which services and benefits when added or cut will produce the greatest shift in membership numbers or revenue. This elasticity of demand for each service must be compared with its cost.
There are three areas I mentioned in my last letter that if not corrected will lead to revenue losses exceeding the savings in costs. The first, TLA’s add only a minimum cost, if collected and processed efficiently, but should generate additional tournament participation and revenue. The second, overhauling our software and computer system would be very expensive, but the alternative could be a catastrophic if the threats made at our scholastic meetings materialize. I have received more complaints concerning delays in processing ratings than any other issue. The New York Chess in the Schools Program plans to use an in-house rating system as a cheaper and quicker alternative to USCF ratings.
The third area, books and equipment can generate revenue without the high cost of a large stockpile of inventory. As I said in my first letter, we do not have to stock every item in our bookstore, but our catalog should include every good chess product. We do not want to lose sales to other vendors. Drop shipments can be arranged for slower moving products. These would be shipped directly from the manufacturer rather than stored as inventory. Years ago I heard of a study that claimed players rated 1200 to 1900 were proportionally the largest purchasers of chess books. I have rarely been to a large scholastic event without some parent or student asking for suggestions at the bookstore. I think the USCF could use its professional coaches to create a list of recommended titles appropriate for different age and skill levels. I have heard the USCF is considering publishing books. Some of the best instructional books are out of print. By rewriting them in algebraic notation we could produce a marketable product. With the use of computer databases, specialized opening books become outdated and have a short shelf life. We could print grandmaster analysis about the latest opening novelty in the form of bulletins that could be mailed in loose-leaf form or downloaded for a subscriber price.
The growth in scholastics can be attributable in large measure to the national championship competition and the team concept it embodies. School groups comprise the bulk of that growth. The US Amateur Team East has also experienced rapid growth. Team chess is popular and I have suggested we introduce it at the college level. If successful this could be another low cost revenue generator.
I have always advocated on-line play. My students love it. They discovered it when Kasparov Chess introduced Inter-scholastic team competition last year. I had a waiting list of students who wanted to play. With the elimination of team competition on Kasparov Chess, I introduced my players to US Chess Live this past school year. My players rated over 1200 prefer to compete in the larger and stronger pool of players on the ICC. The strongest of these joined; the rest play as guests. My lower rated players are split between Kasparov Chess and US Chess Live. They will not pay to play on-line.
I supported the inclusion of on-line competition as a membership benefit. My belief that scholastic players would enjoy it has been confirmed by about 50 of my own students. Adult membership is still in decline, however. I realize it is difficult to gauge the impact of a policy change immediately. Members do not mail in their membership cards accompanied by a letter of resignation. They simply do not renew when their current expiration date arrives. It takes a year to determine the full impact of a decision.
Despite heavy and expensive advertising in Chess Life since August, our adult membership has dropped alarmingly in the last three months for which financial information is available. We lost 133 members in March, 290 in April, and 163 in May.
It is hard to tell whether our adult members prefer to compete in the larger pool of players on the ICC or whether some of the difficulties that have accompanied registration and play on US Chess Live have had an impact. Changes in software code have not always been well documented. Perhaps the adults that are not already ICC Members are just not as interested in playing chess on-line.
Whatever the reason, the bottom line is the bottom line. US Chess Live has not stemmed the loss of adult members as it was intended. As I said in the beginning of this letter, high quality service can be expensive. With the difficult financial situation in which the federation finds itself, the gain in revenue (membership) produced by a service must be compared with its cost. I would still see this service as a scholastic benefit worth retaining; however, after reading the contract, which was recently published on-line I have changed my mind.
I was sorry that it took this long to disclose the details of the contract. Although secrecy may be necessary during contract negotiations, after a contract is signed the contents should be revealed. The cost of this service is very high. Games Parlor, the company providing the USCF with US Chess Live, will receive 25% of an increase in revenue made by the USCF in any future quarter compared with the reference period January 1996-December 2000. Both a dues increase for youth and scholastic memberships and the elimination of affiliate commissions took effect in the last year of this reference period. Unless our membership totals decrease from the number in the reference period we will have to give Games Parlor 25% of both the dues increase and the affiliate commission. This comparison of future revenues is done quarterly instead of annually. If our annual profits are down, but we have one strong quarter that exceeds those in the 1996-2000-reference period, we would still owe Games Parlor 25% of that quarter’s extra revenue. This could occur in any month in which special events such as the Supernationals were held. We would not get credit for a bad month, however. Lower than anticipated revenues in one month would not be used to offset higher revenues in another month.
Another clause in the contract states that Games Parlor will get a commission of eight dollars for any member who buys an Internet membership. It appears that this not only applies to new members but to existing ones who switch their membership from the full forty-dollar adult to the thirty-two dollar Internet membership. Games Parlor gets the eight dollars even if the member uses another on-line service.
Another clause gives Games Parlor exclusive rights as the provider of on-line service to the USCF. We cannot enter into a financial arrangement with any other on-line service. Other providers cannot even advertise in Chess Life without Games Parlor’s permission. This prevents us from developing an agreement with the ICC, which gave us $30,000 under our old agreement and deprives us of other potential advertising revenue. We would be unable to use US Chess Live as a scholastic benefit and develop a beneficial package with the ICC for our stronger adult players.
One of the most worrisome clauses states, "To the extent that any USCF member accesses the Common Services or the Extended Services, information regarding such USCF member shall also be Games Parlor’s intellectual property." Does this mean that the personal information from our data files about any USCF scholastic player who signs on to play US Chess Live will now belong to Games Parlor? I had been assured by the office that this was not happening. I believe that parental consent for children below a certain age is required before information about that child can be exchanged over the Internet. And I believe this permission can not be delivered over the Internet.
While we are raising the price of ads in Chess Life, we are donating valuable ad space to promote this service. We rescind a five-dollar commission to our own affiliates, but provide an eight dollar one to Games Parlor. We cannot afford staff time to recopy TLA’s and yet for months the process of rating tournaments practically grinds to a halt while we pay an employee to work almost exclusively on US Chess Live.
Two years ago we were considering the benefit of on-line play for our membership. As I was excited at the prospect, I can understand the enthusiasm with which Board members pursued the idea. We turned down a very good offer from Kasparov Chess which would have given us $50,000 a year in a non exclusive contract that cost us nothing in hopes of getting an even better offer. The optimism was understandable. Dot coms and other Internet companies were financially very profitable with large revenues from advertisers and plenty of eager investors. It seemed that this service would not cost anyone anything and provide plenty of income as well.
Today the picture has changed and financial support for Games Parlor must come from the USCF. Although I love the idea of providing on-line play for our membership, particularly scholastic members, at the present time I think this service is too extravagant. The burden of costs is just too big great. We are constantly being warned of bankruptcy if we are not fiscally conservative. I hope I am wrong and the situation turns around with membership dramatically increasing. We have two years under this contract for this to happen. If it does, I will be happy to admit I was wrong.
Thanks again for your time and patience.
Yours truly,
Stephen Shutt