UNITED STATES CHESS FEDERATION AT THE CROSSROADS

 

1993-94 Annual Report Excerpts

 

From the President's Report:

 

We have experienced a record year in increased book and equipment sales. Membership growth has continued uphill, to more than 74,000. Ordinarily these factors would indicate a period of financial growth, but, unfortunately, this has not been the case. A portion of our life membership assets invested in a stock fund has taken a series of losses, due to market swings. An accounting method used in balancing previous budgets has been determined inappropriate by the Finance Committee. At a critical point in the growth of our Federation, we are faced with a choice of cutting back or seeking additional revenue to balance next year's budget.

 

From the Executive Director's Report:

 

The Policy Board and I are recommending that membership dues be increased January 1, 1995. Moreover, we have enjoyed dramatic growth among youngsters. That's marvelous. After all, our future is with the young. But the fees to such scholastic members have been kept to a minimum because we see these memberships as a sound investment. The immediate financial implication is that this great influx of members increases staff work and expenses without commensurate income. Our goal is to break the 100,000 mark well before the year 2000. With your continued help, we'll reach our objective.

 

 

Some would argue the USCF has been adrift since 1978 and now is on the verge of hitting an iceberg. Record memberships, record sales, record losses, irregular accounting… how can this be? Unfortunately all the elements for an impending disaster are in place due to various decisions or lack thereof made primarily since 1989. Is our only hope for survival raising dues or will it just make things worse? It may not be that simple as some argue we are actually suffering from a crisis of leadership engendered from a broken governance system. How could this have happened?

 

In theory the purpose of the USCF (Federation) is educational and instructional, to broaden and develop chess as art and recreation, as a significant element of culture in America. The Federation shall cooperate with schools, colleges, hospitals, military bases, community centers, recreation departments, and other groups and institutions, in teaching chess, conducting tournaments, and other activities. The Federation shall disseminate information through its publications and representatives, and the Federation shall select the official USA representatives in all international chess affairs. The Federation shall encourage and support chess programs for handicapped individuals and the participation of handicapped in chess activity, including, where feasible, the expansion of opportunities for meaningful participation by handicapped individuals in all chess competition.

 

However, rather than operating exclusively for educational, recreational, and social welfare purposes there was a shift towards supporting local chess tournaments. It is important to note that tournament organizers and tournament directors can make money by holding chess tournaments. Chess vendors can make money by selling goods and services at chess tournaments and to tournament participants. USCF sanctioning and ratings makes organized tournaments more attractive to tournament goers. USCF prize fund guarantees or subsidies increases the chance that tournament organizers will make money or at least not lose money. Having USCF rated tournaments in more places increases tournament activity thus increasing opportunities for tournament organizers to make money in those areas.

 

Since USCF memberships are required for USCF tournaments and ratings, more USCF members increase the market of potential tournament goers. Tournament organizers are encouraged to sell USCF memberships for a commission. Taking the concept further we have the State Affiliate Support Program (SASP) which gives national membership dues to local chapters represented by State Affiliates who get $1 for each regular USCF members in their state and $0.50 for each Junior member in their state to help support rated chess activity. Even with very little ROI for the $1 for each member some advocate providing local entities more money per member. If $1 produces nothing then $10 should produce more, right? Extending the role of chess in American society needs to be more than getting a stipend; honorarium, or commission; winning a bid; taking a trip to hob knob with officials; publishing your book, article, or picture; selling concessions or services; getting an award; receiving a job; a bonus; guaranteeing a prize fund; winning a cash prize; free memberships or publicity; or giveaways to local chapters.

 

The Policy Board, assisted by committees, with the guidance of a Board of Delegates is responsible for the management of the USCF. Governance activities now occur with a small group of insiders that are easy to reach and influence. These insiders primarily consist of the local tournament organizer group or related service providers. They serve on the Board of Delegates and various USCF committees. The national Policy Board officers are also usually chosen from this group. There has been relatively the same set of insiders for many years not only in the USCF governance but also in the governance of USCF related institutions. These insiders may be good at running chess tournaments, a State Affiliate, or selling books and equipment but have been a disaster at running a national not for profit business.

 

For all intents and practice, the purpose of the USCF has become similar to the Continental Chess Association (CCA) which was founded in 1964 to hold chess tournaments. The only difference is that while the CCA makes money, the USCF loses money helping others make or not lose money.

 

The ultimate fix to all this is tied to better accountability to the membership and new leadership without conflicts of interest also experienced with successful not for profit business practices. Short of eliminating the Board of Delegates, direct membership election of officers is but one of many small steps in the right direction. It is useful to note that, one-member, one-vote was defused again in 1991, and the Delegates approved the concept of strategic planning but left the details rather vague thus no planning occurred. Nigel Eddis’ detailed proposals were published in the Annual Report of the USCF in 1993. That year direct membership election of the Policy Board was pretty much defused by the taking of several straw polls on direct election of the USCF Policy Board (supported by perhaps 1/4 of the Delegates present), and direct election of Delegates and Voting Members by USCF members in each state (supported by perhaps 1/2 of the Delegates present.)  The Delegates defeated a motion to mandate a survey of the membership on the issue of USCF governance. 

 

We need to act quickly if we are to prevent the USCF from impending disaster. We need to miss the iceberg and keep the ship afloat. It, however, most likely will take almost as long to get the Federation back on course as it took to get off course. Thus the sooner we start the journey, the better.

 

*****[update]

 

HITTING THE ICEBERG

 

To: USCF President Donald Schultz, Treasurer Tom Dorsch, and Finance

Committee Chair Jim Pechac

From: Leroy W. Dubeck and E. Steven Doyle

Date: October 31, 1996

Re: USCF Financial Crisis

 

We are responding to the e-mail request of Jim Pechac for comments on

the USCF’s first quarter financial report.

 

The September 30 MDR indicated a $227,510 loss over the first 3 months

of the 1996-97 fiscal year. For the comparable period in 1995-1996 the

loss was $81,656. This means that the USCF’s finances are worst than the

prior budget year by $227,510 - $81,656 = $145,854 or a deficit of

$48,618 per month. We should note that the three month loss did not

include the costs of the US Championship, the US Women’s Championship

and the Olympiad. One of us (Doyle) estimates that the net costs for

these will total about $120,000.

 

We do not have the information needed to make an accurate estimate of

what the 1996-97 deficit might be. There are a number of factors to

consider. Last year we had essentially a break-even budget. However, the

revenues for the last year included a transfer of $102,004 from the Life

Member Assets fund to operations. In addition, realized gains on LMA

investments were $54,446 last year but will be 0 this year due to

structural changes in the manner of LMA investment, as noted by Mr.

Filippone in his covering letter to the September MDR. In addition

membership is down (Filippone stated $56,000 below projections for this

year). Adding these together, and including book and equipment sales at

the current 5% rather than the projected 7% which would decrease net

revenues below budgeted by about $30,000, would total $230,000. But the

book and equipment sales for the all important second quarter could be

lower. What if the they are flat in comparison with last year? This

would lead to a $100,00 + net additional shortfall in revenues for

1996-97. Finally, there is the cost of the severance package for Al

Lawrence that is being expensed this year.

 

These and other factors have led us to estimate somewhat different

deficits. Mr. Doyle projects about $275,000 while Dr. Dubeck projects

$400,000 - $500,000. The variance in these projections is not surprising

because we do not have the kind of data about first quarter

disbursements as suggested by Jim Pechac’s memo (attached), as well as

the uncertainty in projecting book and equipment sales.

 

We have several suggestions:

 

1. Any deficit in the range of $275,000 - $500,000 is UNACCEPTABLE. It

would represent the largest single year deficit in the history of the

USCF.

 

2. The Policy Board and office staff must address this growing fiscal

crisis immediately. A plan to deal with it must be adopted by the Policy

Board at its November meeting.

 

3. We endorse some of the suggestions of Jim Pechac for dealing with

crisis and include a copy of his e-mail memo discussing the fiscal

situation.

 

4. A series of expense cuts needs to be made (Mr. Doyle has posted a

number of suggestions on the Internet at rec.games.chess.politics) and a

number of revenue enhancements should be considered.

 

Finally, we are sending this memo by fax to each of you because we feel

that it is urgent to address this issue immediately. Please feel free to

share it with Policy Board Members, Finance Committee members, or anyone

else that you feel should see this memo. We are both available to assist

you in any way we can to solve this problem.