Funding English Chess

Page published 16 March 2011

Players' views sought

The paper below was prepared by Andrew Farthing, ECF Chief Executive, to stimulate discussion among chess players on how the game should be financed now that all £60,000 of Government support has been withdrawn. If you have views, please contact Andrew Farthing, your County Secretary, or county ECF delegates so that your preferences are known. Use the MCCU Counties menu button on the left to find links to county websites that will provide contact details for these officers.

Reformatted by webmaster from Andrew Farthing's MS Word file for online presentation 13 March 2011. Any errors are the webmaster's.

The Funding of the English Chess Federation

Introduction

The purpose of this paper is to present proposals for the future funding of the English Chess Federation.  In accordance with the wishes of Council, two specific options are presented: a national membership scheme and a simplified version of the current combined Game Fee/Membership arrangements.

In order to place these proposals in context, it is important to understand the financial contribution made by English chess players and the use to which the ECF puts the monies raised.  Both of these aspects will be summarised in this paper before outlining the funding proposals themselves.

Other information which may be relevant to a full consideration of the proposals has been included in a number of Appendices.

What do chess players pay now?

In principle, every graded player in England helps to fund the ECF.  The means of doing this vary from player to player, depending upon location (i.e. whether the individual lives in a part of the country which operates a universal membership scheme), and, if outside membership scheme areas, upon whether the player is an ECF member or not and the amount of chess played.

A glance at the Game Fee rates and Membership subscriptions over the last several years reveals that the contribution of players and member organisations to the funding of the ECF has risen faster than inflation. Why should this be so?

• The grant from the DCMS [Department for Culture Media and Sport - the Government grant - Webmaster] remained unchanged at £60,000 for many years.  Even in a relatively low inflation environment, the value of the grant fell substantially (30-40% in real terms over a decade).  Player contributions had to rise accordingly to meet the gap caused by inflationary cost increases.
• The fact that the DCMS grant was not subject to VAT, whereas as Game Fee and Membership subscriptions are, meant that the impact of the previous point was exacerbated, i.e. a real-terms fall in Government funding required an increase in player contributions of the same amount plus VAT (15-20%) just to stand still.

If it seems surprising that individual adult Direct Members should pay two-thirds as much Game Fee as non-Members, it should be borne in mind that the former are on average more than twice as active as non-members (see Appendix B for details) and that games played by individual Direct Members outside congresses remain liable for Game Fee.

As the table shows, an English chess player pays, on average, just over £11 to the ECF (for a comparison with other countries, see Appendix D).  This includes a small difference between Membership Scheme areas (weighted average £10.22) and the rest of the country (£11.19).  These figures are an average per player, of course.  The following should be borne in mind:

• In MOs and the Northern Membership Scheme, the decision has been taken to spread the cost evenly across all players, regardless of activity;
• Elsewhere, ECF members pay considerably more (3 to 8 times more) than non-members, but they are on average more active players and receive various other membership benefits.

It should be emphasised that the figures for “Game Fee Paid” are to some extent theoretical.  In practice, Members and non-Members alike typically cover the cost of Game Fee for league and club competitions through their club subscriptions, which in turn include league fees, from which the local organisation pays Game Fee to the ECF.  To a large extent, therefore, individual players pay a flat rate for these competitions, regardless of the number of games played.

Finally, it should be noted that, if the ECF were to be able to collect the 5% (possibly more) of Game Fee believed currently to be uncollected, the comparison would be between an average payment of £10.22 in Membership Scheme areas and £11.53 elsewhere.  This is only partially hypothetical, as the ECF is undertaking work to identify and collect underpaid Game Fee.  The more success it has, the more the imbalance between different parts of the country will emerge.  On the other hand, players in Membership Scheme areas actually pay a weighted average of £11.35 (i.e. very close to the figure in the rest of the country), but up to 10% of it is retained by the MO.

What are chess players paying for?

Having established that, on average, each English chess player pays just over £11 to fund the ECF, the obvious next question is: What does s/he get for the money?

The answer to this will split into two categories: value received directly by the individual and value derived by English chess as a whole (or targeted parts thereof).  At times, the distinction between the two categories may be blurred, and it will be influenced by the priorities and activities of the individual.

What does the ECF deliver?

NOTE: No apology is made for the length of the following.  It is at the heart of the debate over the ECF’s future funding.  In the end, if the considered judgement of English chess players, as expressed through Council, is that the following is neither worthwhile nor good value, this will be a critical factor in the funding decisions made.

The above list is not intended to be comprehensive, but it covers the major items. No attempt has been made to attribute a percentage of the ECF’s income to the individual activities.  To do so would risk being misleading for the following reason.

The ECF is an organisation comprising almost exclusively volunteers – more than 50 in all – along with three paid staff in its office in Battle, Sussex and a small handful of officials, such as the Grading Administrator, who receive an honorarium for the extensive work done on behalf of the ECF.  A few of the services described above may be attributed directly to the office staff.  More often, the office provides the permanent base of administrative support which makes possible the work of many of the ECF’s unpaid directors and officials.  A ratio of 3 paid staff to more than 50 volunteers is very low in comparison with many not-for-profit organisations.

FUNDING PROPOSALS

OPTION 1: MEMBERSHIP SCHEME

Summary of Option 1

1. All players wishing to play in graded competitions would be required to become members of the ECF.  This is essentially the situation in areas currently covered by Membership Organisations (MOs) and the Northern Membership Scheme (NMS).
2. The cost of membership would be £18.00 for adults and £12.00 for juniors.
3. Membership would run from 1 October to 30 September. 
4. It is recognised that there are specific issues to resolve with respect to certain categories of player: new/ungraded; relatively inactive/ungraded; non-English; congress-only players.  To address these, the following arrangements are proposed:
• New players (i.e. ungraded) starting after 1 October would be allowed to play in graded League and Club competitions without having to become members (although they would be welcome to do so).  Membership would be mandatory from the first full year. 
• Players who are ungraded due to low activity will not be required to become members, although they will be welcome to do so.  “Low activity” is defined as 3 graded games or fewer in a season.  This applies only to players who are ungraded.  (Graded players must by definition have been more active than the de minimis threshold over the previous three years.) 
• Anyone playing in a Congress or other non-League/non-Club event must be an ECF member OR pay a “Pay to Play” fee for each event entered.  This fee will be set at £6, of which £1 will be retained by the event organiser.
• Non-English players will have the choice of joining the ECF or paying the “Pay to Play” fee for each event entered.
5. All players will have the additional option of supporting the development of English chess by choosing to become a Patron of the ECF instead of a Basic Member.  As well as membership of the Federation, this would entitle the individual to a copy of the ECF Yearbook and the ECF Diary.  The cost of this option would be £50. 

Basis of calculation

• As at February 2011, there were 11,883 graded players. It cannot be assumed that all of these players would agree to become members. The working assumption is that 85% would join, at least initially. On this basis, the predicted membership figure would be 10,100. NB. If 100% of graded players were to join, the cost of membership could be reduced to about £15.50 for adults and £10.00 for juniors without affecting the ECF’s income.
• Using the experience of the existing MOs and NMS, it is assumed that 1 in 7 members would be Juniors and that juniors pay two thirds of the adult rate.
• Total ECF Funding Requirement = £155,000. This takes into account VAT at 20% and assumes that a minimum cost saving of £5,000 is achievable from the abolition of Game Fee and its associated administrative costs.
• It is assumed that the membership subscription would be on the same basis as for MOs, i.e. if paid promptly, the MO is entitled to retain 10% of the total. On this basis, the ECF would receive £16.20 and £10.80 of the Adult and Junior subscriptions respectively. Taking into account VAT @ 20%, the figures reduce to £13.50 and £9.00 respectively.

Comments

Under this option, all active English players pay at the same rate, and the current geographical variations will end.  As with any flat rate, those who make most use of the ECF’s services, e.g. by playing more, will receive the best value.

The rate proposed is not out of line with other major federations (see Appendix C).

The most common objections to universal membership, i.e. that it acts as a deterrent to those just starting out in chess and that it penalises those who play very infrequently, are intended to be met by the concessions set out in point (4) above.

In addition to meeting the ECF’s funding requirement, this option offers the prospect of income to local organisations (i.e. the 10% discount for prompt payment).

The critical assumption is that a minimum of 85% of current graded players will become members under such a scheme.  This would be highly dependent upon how well the scheme was communicated, the reaction of players and the cooperation of local organisations. If this is an overestimate, the ECF will have a funding shortfall. If it proves to be pessimistic, the ECF will have surplus funds which could be reflected in a lower membership subscription or investment in additional activities, depending on the will of Council. By way of illustration, a 75% take-up would require an adult membership subscription of £20, and if take-up were as low as 60%, the adult subscription would rise to £25.

This option would require the cooperation of chess organisations across England and would inevitably take time to implement. It is therefore assumed that it would be implemented with effect from the 2012/13 season.

Practical implementation issues:

• Some enhancements would be necessary to the online grading database, most notably the addition of a “Free for congresses” or “Member” flag next to the names of members, in order to assist congress organisers.
• The ECF would explore whether there was a continuing need for each individual to sign the £1 guarantee upon becoming a member for the first time.
• Possibilities for greater automation and online membership would be investigated. 

OPTION 2: SIMPLIFIED GAME FEE + MEMBERSHIP

Summary of Option 2

Unsurprisingly, retaining both Game Fee and Membership is more complex than Option 1.  In order to give Council the opportunity to choose the arrangement best suited to its wishes, a number of variations have been developed:

1. In all cases, the cost of Basic membership would be £18.00 for adults and £12.00 for juniors, as in Option 1.
2. Game Fee rates to be one of the following:

Option GF1 is the simplest: just two rates in effect (60p for open Standard Play events; 30p for everything else).  Option GF2 retains some of the cost differentiation between event types but has more rates.  Option GF3 does not simplify the current structure at all. 

All three options generate about the same amount in total, although a small allowance has been made for a lower collection rate in the more complex options.

3. Other Direct Membership subscriptions to be one of the following:

The three options offer the chance to reduce the number of membership categories.  The practical impact, in terms of cost and administration, would be minimal.

Where the Family and Corporate VP categories are retained, the rate has been increased following analysis of activity and the relative benefit of Game Fee discounts compared with other Direct Membership rates.

Overall, the cost of Individual Direct Membership has been reduced under these options.  This reflects a policy of shifting the proportions of income earned to place greater emphasis on Game Fee.

Basis of calculation

• Total ECF Funding Requirement = £160,000. This takes into account VAT at 20% and assumes that no specific cost savings can be achieved, because there will still be a need to administer both Game Fee and Membership.
• Game Fee calculations based on model used in 2010/11 internal audit of Game Fee payable.
• Calculation of funds raised by Membership subscriptions based on number of Members as at February 2011.

Rationale

• The cost to Basic members is the same as in Option 1. In total, Option 2 generates more income for the ECF, but it costs more to administer (i.e. the cost saving of £5,000 committed under Option 1 is not available). The burden of covering these extra costs rests with those parts of the country opting for the more expensive system.
• Simplification of the Game Fee charging structure maximises the chances of near-full collection of the amounts due, on the basis that complexity has previously been one of the major barriers to collection.
• The net effect of the Game Fee and Direct Membership changes is to increase the share paid by non-Members.  This is intended to incentivise membership and to reduce the imbalance between what non-Members and Members pay (currently 4-9 times higher for Members).  This approach is consistent with the decision made not to restrict the planned enhancements to online grading information to Members only.

Comments

Whereas Option 1 was “one size fits all” (same rate for everyone, with a discount only for Juniors), Option 2 accepts that some imbalances are appropriate, namely:

• Where the costs of administration are higher, the payment by players should be higher;
• On average, more active players should pay more.

Option 2 is, to a small extent, the less cost-effective choice, because a greater proportion of the funds raised will be spent on administering the funding schemes.

The choice of approach will, therefore, be largely determined by Council’s view as to whether the above “imbalances” are inherently fairer than a “one size fits all” approach.

Due to its similarity to the current funding structure, it is proposed that this option, if selected, would be implemented in September 2011, i.e. in line with the standard timetable for changes in Game Fee and Membership subscription rates.

Appendix A – Financial Background

For many years, the ECF has enjoyed the benefit of a grant of £60,000 – about a fifth of its total income – from the Department for Culture, Media and Sport. In 2010, it was announced that the grant would be reduced to £45,000 in the current financial year (1 May 2010 – 30 April 2011) and to nil in subsequent years.

This latest reduction has accelerated a reduction in the ECF’s total income over the last four years:

Expenditure did not initially fall in line with income, largely due to successive deficits totalling about £22,000 at the British Championships in 2007 (Great Yarmouth) and 2008 (Liverpool).  Later, the cost savings implemented by the Board in 2010 were sufficient to more than match the decline in income to date, but the abrupt £45,000 reduction in the coming year cannot – all other things being equal – be negated by the steps already taken:

NB. During the years 2008-10, £19,361 was spent on the Chess for Schools project and £14,139 on the Certificate of Merit.  This expenditure was funded by an indefinite loan of £20,000 (interest at 6%) from the John Robinson Youth Chess Trust, an indefinite, interest-free loan of £20,000 (in effect, an injection of capital) from Chess Centre Ltd and sponsorship from LV=.

The effect of the lag between the changes in income and expenditure on the overall ECF surplus (deficit) is very evident:

As a consequence, the balance sheet reserves of the ECF – its cushion against unexpected future expenditure or deficits – have been significantly depleted.

NB. Substantial funds (£203k as at 30/4/2010) are invested in the Permanent Invested Fund, held within the balance sheet of the British Chess Federation (BCF), an unincorporated body, the Management Board of which is identical to that of the English Chess Federation.  The BCF also retains ownership of all shares in The Chess Centre Ltd, valued at £36k on 30/4/2010.

Appendix B – Player profile

How many games are played each year?

Taking the population of players on the ECF grading list as a whole, it is possible to analyse the annual activity level (standard and rapid play combined) as follows:

As may be seen, just under a third of graded players play 10 or fewer graded games per annum.  Half of all graded players play 15 or fewer graded games in a year.

How many games are played by ECF members?

As might be expected, those who choose to be ECF Direct Members are, on average, more active than the population of non-members:

            Average number of games played per annum per member category:

As may be seen, there is very little difference in the profiles of Full and Standard members.  Unsurprisingly, Junior members play more Rapid games.

The profiles of Non-Members (which includes Adults and Juniors) and Basic/Basic Junior members are similar.  Arguably, Basic/Basic Junior members are marginally more active, but it should be borne in mind that Membership Organisations do not succeed in acquiring 100% take-up of membership.

Appendix C – Membership costs in other Federations

Comparisons with other chess federations are notoriously difficult.  In each case, there may be a different mix of membership benefits, which obscures any like-for-like comparison.  In addition, in some countries, there may be Government funding – as there was in England – which enabled the relevant federation to keep membership costs down.  Finally, there is the issue of whether membership is a requirement or a choice.  Practices vary.

Nevertheless, it may be helpful to summarise a small sample of federations.  In the following table, foreign currency figures have been converted into a sterling equivalent.  For simplicity of presentation, the full range of rates is not shown; most federations offer various concessionary rates for juniors and some for older people.