Reports | January 30, 2014 12:49

Leaked Agreement Between Ilyumzhinov & Paulson Suggests Conflict of Interest

Chess.com has obtained a document that suggests that Agon, Andrew Paulson's company that holds the rights to organize chess events in the World Championship cycle, is secretly run by Kirsan Ilyumzhinov himself. According to the contract, which is signed by both the FIDE President and Mr Paulson, it is Mr Ilyumzhinov who owns 51% of the shares. Both Mr Ilyumzhinov and Mr Paulson deny that the contract is in effect, but according to Malcolm Pein, Mr Paulson “has said on at least two occasions that Kirsan is the majority shareholder.”

Note: Chess.com can neither confirm nor deny that the “logistics” and “operating procedures” listed in the contract below have been in practice for the last couple years. However, it has been confirmed by Andrew Paulson, among other sources, that the documents are valid (meaning they exist). Whereas one source (Mr Pein) told Chess.com that Mr Paulson stated the opposite in at least two conversations, it should be noted that the contract is currently being claimed (by Mr. Paulson among other FIDE representatives) as an “early draft” of the possible agreement between FIDE and Agon - and not something that has been in place.

Agon
About two years ago Andrew Paulson (55), a successful American entrepreneur working in Russia, entered the chess scene. His company Agon obtained the rights to organize, for the next 11 years, all events in the World Championship cycle: Grand Prixs, World Cups, Candidates Tournaments and World Championship matches. It seemed that, even though he had zero experience in chess, he was willing to invest a lot of money in the royal game.

In March 2012 ambitious plans were revealed. A 4-year schedule for two World Championship cycles was announced, with Grand Prix events planned for 2013 to be held in Lisbon, Madrid, Berlin and Paris. “In the future we will be progressing continent by continent, bringing great competitions to the world’s capitals in a regular and predictable schedule,” said Mr Paulson back then.

The first tournament organized by Agon was the first Grand Prix in the 2012-2013 cycle, held in London in September 2012. Mr Paulson was not involved in the next two Grand Prixs, but he did organize the London Candidates’ Tournament in March 2013. After that, the chess world didn't hear much from Agon. The company had no presence at subsequent Grand Prixs, the Tromsø World Cup nor the Chennai World Championship match.

All this seemed to be a money issue. Mr Paulson has stated that he used personal money for the London Grand Prix, while the London Candidates’ were paid by The State Oil Company of Azerbaijan (SOCAR). Around that time it became clear that Agon had not paid FIDE the agreed deposit fee of $500,000 which was due for April 2012. Agon still hasn't paid this fee as of today.

Leaked contract
Chess.com obtained scans of a contract, stipulated in Russian, concerning Agon. The undated contract, which mentions a “model for cooperation” between Kirsan Ilyumzhinov and Andrew Paulson and which was written on paper with Agon's letterhead, was created in January 2012. And, it has the signatures of both Mr Ilyumzhinov and Mr Paulson.

(Click for bigger view)

The contract (translated into English in this Word doc) mentions Agon's responsibilities:

  • sell FIDE's sponsor packages;
  • perform marketing activities for FIDE enterprises concerning the world championship;
  • organize the running of the world championship cycle events, including the payment of the prize fund and all expenses, in accordance with the contract with FIDE.

It is stated that profits from these activities would be at the disposal of Agon and for distribution to its shareholders by way of dividends. The manager of the company would be Andrew Paulson, who would own 49% of the voting shares, while Kirsan Ilyumzhinov would have control of the board of shareholders and would own 51% of the voting shares. Mr Ilyumzhinov would provide the company with its start-up capital in return for a share of the profits.

Beneficiaries
The contract mentions more beneficiaries. It states that Global Chess, run by FIDE's Chief Executive Officer Geoffrey Borg, will be the contractor for running Agon's events. Global Chess would receive about $15,000 for each event, from Agon's budget, in accordance with the contract with FIDE. FIDE Deputy President Georgios Makropoulos would be a consultant to Agon, receiving EUR 75,000 in the first year, and EUR 150,000 in each subsequent year of the FIDE contract. Mr Ilyumzhinov's assistant Berik Balgabaev would be consultant to Agon, receiving EUR 36,000 in the first year, and EUR 60,000 in each subsequent year of the FIDE contract. Andrew Paulson himself would be paid EUR 240,000 per year. All of these payments would be increased by 5% in each year after the second.

Audits
The audited accounts for Agon, which is based on the Island of Jersey, are reported only to two external individuals. In the official agreement between Agon and FIDE as published on the FIDE website (in PDF here) it is written that an “Interface” is established to resolve issues. The Interface consists of four members of which two are “Agon members” and two are “FIDE members” - Mr Nigel Freeman and Mr Georgios Makropoulos. There seems to be no external auditing taking place, and the delegates of the 180 federations do not seem to have direct accces to or insight in the funds received by Agon.

Mr Paulson wrote in an email: “The fact that the audits of Agon, a private company, are shown to (only) Makropoulos and Freeman at all is unusual. Companies don't usually show their accounts to anyone other than shareholders and the taxman. However, in this case, under the Agreement, FIDE needs to be able to verify the revenue (because payments to FIDE are based on it) while Agon needs to maintain a reasonable level of confidentiality vis-a-vis its other counter-parties; we solved this issue by allowing representatives of FIDE, bound by confidentiality, to audit our accounts. The contract is publicly available, was approved by the Presidential Board and ratified by the General Assembly of FIDE. This is a non-issue.”

“Draft, never used”
Both Mr Paulson and Mr Ilyumzhinov denied to Chess.com that the contract is in effect. According to Mr Paulson it was cancelled “immediately, the next day or so.” In an email he wrote: “There were several models that we explored over many iterations while establishing the shareholder structure of Agon after the FIDE/Agon contract had been negotiated. I am the sole owner of AGON and the sole shareholder.”

In a later email he added: “To the extent that the Memorandum was a draft, some of the terms were indeed carried forward in some form and some were abandoned. For example, in the end, Agon did engage Global Chess as a general contractor for event management, but for $7,500/month instead of $15,000/event. This restructuring was deemed logical, as there were 6 events in the 2013 schedule. Mr. Makropoulos, on the other hand, rejected out of hand the idea of consultants related in any way to FIDE receiving retainers. And, indeed, under a separate agreement my salary from AGON was agreed to be EUR 240k/year, but I never took it.”

Like Mr Paulson, FIDE Deputy President Georgios Makropoulos refrained from speaking on the phone. Instead, he replied to Chess.com by copying an email he also sent to other media. On behalf of FIDE and its President Kirsan Ilyumzhinov, Mr Makropoulos wrote: “Before anything else, let me strongly clarify that I was never a consultant of Agon and I have never received even 1 cent from Agon. (...) “It was never in effect because it was just one of the many proposals of Andrew which were rejected. (...) It was understood by all sides that neither FIDE nor Kirsan could be involved as shareholders of Agon and that no FIDE official could be hired by Agon as there is an obvious conflict of interest.”

Malcolm Pein
Although Mr Ilyumzhinov and Mr Paulson both state that their agreemt was “just an early draft”, it was signed by both parties, as 
can be seen in the image of the scanned document. On top of that, Malcolm Pein, tournament director of the London Chess Classic and Chief Executive of Chess in Schools and Communities, told Chess.com: “Andrew told me on at least on two occasions that Kirsan is the majority shareholder.” The last time was “shortly before the ECF elections”, said Mr Pein. This was in October 2013.

Implications
If indeed the document obtained by Chess.com proves to be accurate and does represent the true relations between FIDE and Agon and what have been the operating procedures, this would suggest a serious conflict of interest. And since it was signed by both Mr Ilyumzhinov and Mr Paulson, at least at a certain point the two intended to go and work with an agreement that involves making money from World Championship cycle events via an off-shore company in Jersey. Agon would receive large sums of money from Grand Prixs, World Cups, Candidates Tournaments and World Championship matches, and its beneficiaries would all be connected to FIDE itself. As the majority share holder, Mr Ilyumzhunov would be using the crown jewels of chess to his own benefit.

The document obtained by Chess.com seems to answer several questions raised in the past. To start, it seems clear now why FIDE still hasn't terminated its contract with Agon yet, despite not receiving the half a million deposit fee. At the second-quarter Presidential Board meeting, held in Baku, Azerbaijan on 4-7 May 2013, the question was asked that to do with this Agon debt. There and then, it was Mr. Makropoulos who proposed to authorize the FIDE President “to take the personal decision as to whether to terminate the contract with Agon.” The proposal was accepted.

The document also seems to explain a statement by Andrew Paulson from an interview with ChessVibes in March 2013. Back then Mr Paulson said that FIDE's Chief Executive Officer Geoffrey Borg “[had] been an employee of Agon since January 2012.” Soon after the publication of the interview Mr Paulson, on behalf of Mr Borg, requested to correct “employee” to "advisor”. As it turns out, Mr Borg has been working for Agon as a “contractor for event management”.

On Wesnesday night Chess.com asked Mr Makropoulos about the signatures on the agreement; Mr Paulson was sent a copy of the email. At the time of publishing this article, neither one has responded to this question.
Peter Doggers's picture
Author: Peter Doggers

Founder and editor-in-chief of ChessVibes.com, Peter is responsible for most of the chess news and tournament reports. Often visiting top events, he also provides photos and videos for the site. He's a 1.e4 player himself, likes Thai food and the Stones.

Chess.com

Comments

Anonymous's picture

Lol, Kirsan gave the rights to arrange the World Championship cycle to himself, that's the way to do it, money for nothing and chess for free!

ONLYTOPCHESS's picture

Carlsen for FIDE presidency !

Alcoholics anonymous's picture

This is news?

wee rogue's picture

Pathetically corrupt.
If it (in this case: a rich entrepreneur coming from nowhere to personally invest in helping chess reach a more global audience) seems too good to be true then it probably is.

Anonymous's picture

This Agon thing was always inexplicable and thus unbelievable save for some side deal with the FIDE leadership. Further proof was when FIDE doesn't on occasion honor the contract, with no peep from Paulson. I don't doubt that there is more to this mess than what this signed version of the document shows, but there is a mess to be sure. FIDE is rotten to the core. If Kasparov's only way to win is by the now de facto rules of the game, Godspeed to him. Time for a housecleaning at the top.

RdC's picture

The shareholders of Agon are a matter of public record with the Jersey authorities. They aren't available for free, but a contributor to the ecforum obtained them and validated that the share capital, all two pounds or dollars of it, is wholly owned by Andrew Paulson. The document now leaked comes from an earlier stage of negotiations. That it existed at all doesn't speak highly of either party's understanding of the term "conflict of interest"

Link to ecforum posting
http://www.ecforum.org.uk/viewtopic.php?f=31&t=5936&start=315#p131046

Calvin Amari's picture

"Early drafts" of agreement so state and are not signed.

Frits Fritschy's picture

Is there a translation of this document forthcoming? It is essential to know exactly what Ilyumzhinov was signing for and on whose behalf he was signing - himself or FIDE.

JMDP's picture

Now the question is to what extent Mr. Paulson served as Mr Ilyumzhinov's figurehead.

The next FIDE president will be either corrupt or choleric. Or both, who knows.

harvey's picture

Mr Ilyumzhinov is Mr. Corruption himself.
FIDE needs CHANGE !

JMDP's picture

Well, we also shouldn't jump from the frying pan into the fire. As an old Greek put it: Quidquid agis, prudenter ages et respice finem.

Which means in the case of the FIDE presideny: We need a third independent party, not named Kasparov or Ilyumzhinov, elegible, not corrupt, not choleric, diplomatic, with ties to all camps, and not least: fair, smart and wise. Any suggestions?

mars's picture

Why not Nigel Short.
He can even play the guitar when tension is high!

Anonymous's picture

... or maybe we would want an adult instead

ejh's picture

Heh

Rodzjer's picture

.... god?

Andy's picture

Borislav Ivanov is the ideal president of FIDE!

RdC's picture

An English translation was published by Kevin Spragett
http://kevinspraggettonchess.wordpress.com/2014/01/28/fide-agon-memorandum/
(Warning - other material on the blog may be considered x-rated)

There's a rebuttal by Andrew Paulson at
http://kevinspraggettonchess.wordpress.com/2014/01/29/chessgate-2/

Frits Fritschy's picture

Thanks for the links, work and chess club came in the way of reacting earlier.
When you read it, it is pretty clear that it's a draft, and not meant in any other way. Remains the question why Ilyumzhinov countersigned it. It gives the impression that Paulson and Ilyumzhinov did come to an understanding and sent it to the FIDE board, but that the rest of the board didn't like it. So then it isn't an agreement between Paulson and FIDE, but between Paulson and Ilyumzhinov about what to present to FIDE.
About the contents: as I understand it, Ilyumzhinov was willing to put some personal money in the scheme, but wanted to be compensated. The FIDE board or the FIDE lawyers did not agree with the way he was to be compensated, so there was no follow-up in this direction. Ilyumzhinov may have gotten things wrong, but was open to advice, so he self-corrected in time. This is not necessarily true, and any other darker scenario is also quite possible, but to me it's not an unreasonable story.
The only real conclusion you can get from this (and from the Kasparov-Leong story) is that there is a dirty war going on. There should be utmost care by parties publicizing about it.

RdC's picture

Agreed that it may have been a private deal vetoed by the rest of FIDE. The thing is though, that Andrew Paulson stood for election as the President of the English Chess Federation. One of the critical questions being what connections he had with Kirsann. The answer or impression given was that he was independent. That has to be in some doubt. There's a war between Paulson and Nigel Short which may result in an attempt to dismiss Nigel as FIDE Delegate. The voting membership though is anti-Kirsan almost as a question of principle and backed up by disenfranchised players who also have a low opinion of FIDE management. For Kasparov fans, that includes Leong who outside of Kirsan is the person you would most want to see excluded from FIDE decision making.

Anonymous's picture

Chessplayers are tired of FIDE for years, amateurs and professionals alike, but it is up to thefederations (the relevant ones, not the ones without members who feed the tyranny) to make the necessary amends.

Anonymous's picture

Reminds me of the pathetic reporter from the New York Times in the Leong article discussion whining over and over again that it is impossible for him to get documentary dirt on Ilyumzhinov. As if on cue, chess.com scoops the NYT so soon after that selfserving drivel. That's rich! I love it!

Frayn's picture

Respect! - chess.com

benoni's picture

Just went back to read that and it is pretty remarkable. The high and mighty NYT guy shows up slumming on chessvibes to insist something like this cannot be accomplished and then chessvibes/chess.com does it. Kudos.

Anonymous's picture

Expect claims about sour grapes from that guy. Seems like he allowed himself to be a tool

ejh's picture

Well, possibly that's because McClain got sent one set of stuff and not the other set.

Anonymous's picture

Hardly an excuse
Either you've got (or can delvelop) the sources, or you don't

Angus FHmm... While providing some counter arguments, this s's picture

Hmm... While providing some counter arguments, this story rather suggests that the leaked Paulson - Ilyumzhinov agreement is in effect. However, the FIDE-Agon agreement (see story above for link to the PDF) is published on the FIDE website and came later. As RdC points out in an earlier comment, there is a statement (on the English Chess Forum) to the effect that a company search on Agon shows that Paulson owns all issued shares (all two of them).

Malcolm Pein is described as "tournament director of the London Chess Classic and Chief Executive of Chess in Schools and Communities". According to his editorial in the December 2013 issue of Chess Magazine, he is also on the board of Kasparov Chess Foundation Africa.

Who is the source for the leaked document?

RdC's picture

The rebuttal by Andrew Paulson on the Spragget blog claims or speculates that the document was made available to the Kasparov campaign by Robert Fontaine, who was working for Agon later in 2012.
http://www.chessdom.com/gm-robert-fontaine-joins-agon-as-chief-of-staff-...

Anonymous's picture

Pretty clear that Malcolm has no bias agianst Paulson, though. He has published nice things about him and they always seems to be on very good terms. And did Malcolm support Paulson for head of the UK chess association? I sort of thought so. If Malcolm maintains that Paulson repeatedly said that Ilyumzhinov is behind Agon, then I am sure that Paulson said it.

Anonymous's picture

Agree, go go go Kirsan!

JMDP's picture

Just in case, Mr. Ilyumzhinov, ......

Conflict of interest: "A term used to describe the situation in which a public official or fiduciary who, contrary to the obligation and absolute duty to act for the benefit of the public or a designated individual, exploits the relationship for personal benefit, typically pecuniary."
http://legal-dictionary.thefreedictionary.com/conflict+of+interest

Andy's picture

So...what is new?

Anonymous's picture

Isn't Paulsen the guy who was afraid people would show up in person to watch the GM's in London last year?

katar's picture

Isn't Paulson the alter ego of Lex Luthor?

John Arbon's picture

Corruption in chess? This story is clearly fabrication and cannot be true.

Anonymous's picture

To say corruption in chess is deceiving and misleading. This is not chess, its humans writing some contracts and then leaking them for trolling.

Greco's picture

NO say it aint so!!!

sxl's picture

Chess is a mess - as long as Kirsan is running chess.

Kamalakanta's picture

It is not just the current President of FIDE....FIDE has been corrupt from its very beginnings!

Bronstein details quite a few incidents regarding the 1948 Interzonal, and other Candidates events, where the rules were sometimes changes AFTER the events took place!

The Soviet Union used to control FIDE for a long, long time... perhaps the most honorable President they have had was Euwe.... Campomanes was also controlled by the Soviets, and this present President is also corrupt. No surprises here....

Anonymous's picture

Turkey is a problem.

KingMeta's picture

It would be interesting to know how much did Leong know about this Agon business for the past few years. He's now on the Kasparov team (at least for now). But can he really claim he did not know anything about this? If he did know, was he an accomplice to this deal in any way? GK having a prominent FIDE insider on his team, one who has proposed a number of genuinely idiotic rules and fees in the course of time, is a huge liability for his "change" message. However, it can be an asset in terms of insider knowledge and leaks.

Anonymous's picture

You seem to know a lot about chess. Which were the genuinely idiotic rules?

Angus FHmm... While providing some counter arguments, this s's picture

From the article above: "Malcolm Pein, tournament director of the London Chess Classic and Chief Executive of Chess in Schools and Communities, told Chess.com: “Andrew told me on at least on two occasions that Kirsan is the majority shareholder.” The last time was “shortly before the ECF elections”, said Mr Pein. This was in October 2013."

From Malcolm Pein's statement of 8 October 2013 on the ECF elections (see http://www.ecforum.org.uk/viewtopic.php?f=25&t=5939): "Nigel Short points to Andrew’s business relationship with Kirsan Ilyumzhinov. I’ve no proof of this".

Why the difference?

Anonymous's picture

I dont see what there is to reconcile here. Pein recalls that on at least two occasions Paulson said Ilyumzhinov was behind Agon but he doesn't have proof that this is in fact the case. Pein likewise never said that he believed Short's assertion to be fase or that he had proof that it was false.

Angus F's picture

But didn't Malcolm Pein neglect to report something significant which was relevant to his point about the Paulson-Ilyumzhinov relationship?

Anonymous's picture

... More the point, his full quote is: "My CAVEAT is this: Nigel Short points to Andrew’s business relationship with Kirsan Ilyumzhinov. I’ve no proof of this, BUT IT SEEMS LIKELY TO BE THE CASE. I’m passionately in favour of the ECF maintaining its anti-Kirsan stance for the reasons anyone with an ounce of common sense would understand.

Rubinstein's picture

Just pointing out - Grand Prix already means "Large prizes" ergo has no plural.Not Grand Prixs not Grands Prix or Grands Prixs or anything.

Bartleby's picture

I like the part best where it states exactly how much Makro and the others would be paid each year but does not oblige them to do anything for it. I guess the tax office would have a strong opinion about this one-sided agreement. The document may be an early draft and not in effect in exactly this version, but it explains some of the stranger details of the FIDE-AGON(-GlobalChess) saga.
Probably the more circumspect of the vice presients saw to it that in the version that is in effect the FIDE cash flows in their direction in a better disguised fashion.

king's picture

Even if this is a draft,it shows our president's idea about chess business and in my opinion it's too pathetic.

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