Sam, here are a few thoughts on Tim Hanke's plan. I will post this
independently to a newsgroup where TH reads, since as both courtesy and as
public policy, this seems indicated. My note numbers follow Tim Hanke's
below.

(1) Taken as a set I don't think the plan is particularly harmonious. The
particular flaw is in the transfer of ChessLife to the web as a free e-zine,
//coupled// with the divestment of B&E.

The increase in traffic at the site, plus the relatively inexpensive means
of e-commerce would probably make B&E viable once more.

My estimate of necessary traffic to conduct successful trading is about
75,000 hits per month.

Tim Hanke is correct, IMO, in his assessment of catalog based B&E prospects
to such a niche market.

USCF trading activity seems to struggle with inventory forecasts, direct
shipping, rather than drop-shipping, and payment schedule problems. This is
certainly due to a lack of insulation and financial identity of the trading
unit.

(2) Seems inconsequential

(3) And here's the rub! There is hardly anything that ChessLife reports that
other's don't, or ChessLife does better. What is the point of a magazine or
e-magazine at all? e-ChessLife could be better however, but there still
needs to be a reason for any communication of this nature. One reason would
be to sell B&E!

A good point is the redustion of 11 CL staff. However, to reproduce e-CL
will take more than an editor and web-dude. Probably a minimum of 4 people.

(4) Free TLA's neverthless have a cost. The question is whether memberships
are sustained or grown by TLA sign-ups? If so then a free TLA service may be
justified. If there is no evidence for this then USCF is in no position to
offer free services to anyone.

(5 & 6) Advertising on e-CL. Talk of traffic exploding [unless I am naive,
how many hits does the USCF site currently attain per month?] based on the
content level of CL - yikes probably the worst chess magazine in the
states - seems naive.

There is no evidence to contradict the much plainer idea that sponsors will
go even further away from USCF who no longer sells products, and support the
web-sites who do!

(7) I don't know that the declining adult membership should still support
youth memberships - but at a reduced rate. If the real cost is $20, charge
$20. Not $25 or $15.

(8) Ratings at cost item: I note that USCF cannot afford several national
events, championships, olympiads, and so on. Supercharging ratings 10% will
solve the problem.

Overall the entire scheme seems to be a necessary but imperfect rethink of
fundamental aspects of the American chess scene with which USCF has been
drifting out of touch, and consequently out of money, and may even go out of
existence.

I write my notes not to criticize Tim Hanke; after all, I think we all know
that if nothing changes USCF will not survive much longer. How then to take
the best of it and rework it for the future?

Cordially, Phil Innes

TIM HANKE'S COMPREHENSIVE PLAN FOR THE USCF

The plan below is based on a thorough examination of the real
numbers. You may not like my plan for *non-financial reasons*, but
*financially speaking*, my plan will work.

Let us contrast my business model for the USCF with the current
business model, which is not working. Some people claim it *should*
work, or it *can* work, but I'm just going by what I see: it *isn't*
working.

1. Get Rid of the Books & Equipment Business

The books & equipment business (B&E) is a big distraction from our
core mission. Maintaining the B&E business swells our budget and our
staff to gross extremes.

We have to spend a lot of money on things purely related to the B&E
business:

(a) inventory;
(b) additional staff;
(c) additional square footage requirements for the additional staff
and the warehouse (to hold inventory and ship & receive stock);
(c) designing, laying out, and printing catalogs;
(d) mailing catalogs;
(e) filling up our membership publication with house ads so we can
sell our own merchandise; etc.

Operating a B&E business creates pervasive problems with personnel
expense. It's not just a matter of hiring sales staff, although that
of course leads to significant expenses in salary, fringes,
hardware, software, and building square footage.

Consider: Our Publications Department staff spends a lot of time
working on catalog production. Our Accounting Department staff
spends a lot of time processing transactions related to B&E and
dealing with vendors (usually angry vendors as far as I can tell).
Our Executive Director spends a lot of time dealing with vendors and
trying to establish or maintain commercial relationships.

What's the bottom line after we go to all this effort and expense?
According to our internal calculations, we are so inefficient that
we have to sell something like $2.8 million in merchandise just to
break even on B&E. (Mike Nolan of our Finance Committee has the
exact numbers.)

And this $2.8 million figure, it seems to me, does not fully take
into account the aggravation and distraction from our core mission.

Nor does it take into account the risk that we will go out of
business if the B&E business is managed badly.

In fact our B&E business *has* been managed badly, and we *are* at
risk of going out of business, so it's clear the risk is very real
and worth considering.

I'm not going to address the arguments of the many people who claim
we can make lots of money in B&E. In theory they are right, but I'm
talking about facts and not theories.

Unless I have miscalculated the numbers, I think we could probably
afford to walk away from B&E today, if we liquidated our building
and used the proceeds to pay off our staggeringly high accounts
payable--most of which seems to be overdue payments to vendors for
our B&E business. Then we could either rent back from the new owners
or move elsewhere, and resolve to live within our means with greatly
reduced staff and greatly reduced expenses.

Practically speaking, we could simply sell off our existing
inventory for the rest of 2003, at the same time gradually letting
go sales staff and other staff related to the demands of the B&E
business. Then at some point we could sell off all our remaining
stock in one or two deals with other chess B&E vendors.

However, we would continue to sell boards, sets, tournament
equipment, and the USCF rulebook.

2. Continue to Make Money in B&E--But by Proxy

At the recent U.S. Open, we brought no staff or stock to Los Angeles
for the onsite chess store. Instead, we made a deal with a local
chess B&E dealer (Jay Blem), in which he staffed and stocked the
store and paid us a percentage of gross sales. This is the business
model for what we should do at *every* USCF national event.

I also have other ideas for making money from chess B&E, as I will
explain below.

3. Move the Printed Magazine Online and Make It Free to the Public

This is a radical idea which many people will oppose. Remember: I'm
proposing here a business model that would work *financially*. For
the moment, I'm not concerned about the politics.

If we no longer printed Chess Life on paper, we could get rid of
almost all staff in the Publications Department. Recently we have
had 9-10 people in Publications; under this model we would need only
one person: the Editor. We would also need one Web designer to post
the chess content and make it pretty.

Overall we would save hundreds of thousands of dollars in salaries,
hundreds of thousands of dollars in printing, and our product--Chess
Life--would reach the entire English-speaking chess population of
the world.

Traffic to our website would soar.

4. Publish All TLAs Free On Our Website

Currently we list a small subset of USCF-rated events in the printed
Chess Life. We charge money for this service, which reduces the
demand for it; as a result, most USCF-rated events probably never
get mentioned by USCF.

I propose that we list *all* USCF-rated events *free* on our
website. If we did this, there would be at least two very positive
results:

(a) *All* USCF-rated events would get free publicity by being listed
on our website.
(b) Traffic to our website would soar higher as chessplayers
realized *all* USCF-rated chess events in the country were listed
there.

Probably we would have to continue paying for one staff person to
maintain TLA listings, same as now. But there would be no billing,
so our current TLA accounting & billing problems would no longer
exist.

5. Sell Advertising Space on Our Website to Major Organizers

As our website traffic rose, major organizers like Bill Goichberg
would probably want--and be willing to pay for--space ads on our
website. The value of such space would need to be determined by the
marketplace.

6. Sell Advertising Space on Our Website to Chess B&E Vendors

Major B&E vendors like Chess Cafe (Hanon Russell), House of Staunton
(Frank Camaratta), Chess & Bridge (Malcolm Pein), and others would
undoubtedly be interested in buying ad space on the USCF website.

Remember: Traffic to the USCF website is going to explode, when we
publish Chess Life online *free to the public*, and we publish all
TLAs online *free to the organizers*. As a result of these changes,
the USCF website is going to become by far the most popular chess
website in the U.S., and ad space on the USCF website is going to
become much more valuable (as these things go).

7. Drastically Cut USCF Dues and Drastically Simplify the USCF Dues
Structure

Eliminate the current complicated dues structure, and set two levels
of annual dues:

--$25 for Adults
--$15 for Kids Under 18 (or under 21--the age is negotiable)

What people would get for their dues is the right to play in USCF-
rated chess tournaments. Chess Life would be free online to the
English-speaking population of the world, so Chess Life would not be
an added benefit.

8. Provide USCF Ratings on a Break-Even Basis

Set USCF ratings fees so as to neither lose nor make money.

9. Here Are the Round Numbers for the New USCF Budget

Let me offer some income numbers. I think USCF could do better than
these numbers, and people can certainly argue over individual line
items, but overall I am comfortable with these numbers as a starting
point for discussion.

Income:

Dues
$375,000 (15,000 Adults @ $25)
$600,000 (40,000 Kids @ $15)
$975,000 total dues

B&E
$25,000 (net profit on direct sales of sets, boards, etc.)
$25,000 (USCF cut of national tournament concessions)
$12,000 (USCF ad income on website from B&E vendors)
$62,000 total B&E income (net of expenses)

Ratings
$0 net income/loss (break-even)

TLAs
$0 (event listings which would be free for all organizers)
$12,000 (space ads for major events: Goichberg, etc.)

National Events
(Note: National scholastic events are very profitable for USCF.)
$100,000 (net of expenses)

To keep things simple, I will stop here. Obviously we can break out
income and expense line items ad infinitum. The income items listed
above are *******ized in the sense that some are gross and some are
net, but I think the overall picture is fairly clear, to wit:

(a) Under this new business model, USCF is going to have well over $1
million in revenues.
(b) Expenses will be very drastically reduced, especially in the
personnel and printing line items.
(c) The absence of a significant in-house B&E business will further
greatly reduce our budget on *both* the income and expense sides.
(d) Year-to-year financial risks will also be greatly reduced, due to
decreased exposure to the vicissitudes of the B&E marketplace and
decreased exposure to the risks of poor management. The latter risk
is very great, as we can see from our current situation, which I
think can be accurately described as teetering on the edge of
bankruptcy.

Bear in mind there will be many opportunities to make money that are
not even touched upon above, e.g.:

(a) Selling naming rights to national events;
(b) Selling naming rights to online events (there is more promise
here than people may realize; our current restrictive contract with
Games Parlor is preventing us from moving ahead here);
(c) Sanctioning online events (ditto the remarks for the previous
item).

Also, many items could potentially be grown and become more
profitable over time, including: dues income; B&E concessions at
national events; space ads on the website for B&E; space ads on the
website for major tournaments; major event naming rights; online
naming rights and sanctioning; etc.

In my opinion, this new business model for USCF will work *right
now*, from the very start. In the future it will only work better,
as we get used to doing fewer things and doing them smarter. For
example, we can already glimpse the possibility of submitting games
for rating online; this is a current project of our MIS committee
and may become a reality in the next year.

Tim Hanke
USCF Vice President of Finance