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.

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”.