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Ola Malm on the future and industrial organization of chess

Summary:
It was great to see your “Thursday assorted links” link regarding chess. It has been fascinating to follow the recent online boom to which the game has been subject and to think about what it may mean for the organization, and business, of chess over time. I speculate, of course, but – as to what the future holds – I believe at least one possible path for the sport runs as follows: 1. The three major chess-focused online platforms (chess.com, lichess, and chess24) reduces to one through a self-reinforcing cycle of greater revenue concentration, the attainment by one party of progressive technical superiority, and the increasing convergence of the chess-playing public on a single provider. 2. The market leader signs exclusivity agreements (governing non-FIDE play) with a significant portion

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It was great to see your “Thursday assorted links” link regarding chess. It has been fascinating to follow the recent online boom to which the game has been subject and to think about what it may mean for the organization, and business, of chess over time.

I speculate, of course, but – as to what the future holds – I believe at least one possible path for the sport runs as follows:

1. The three major chess-focused online platforms (chess.com, lichess, and chess24) reduces to one through a self-reinforcing cycle of greater revenue concentration, the attainment by one party of progressive technical superiority, and the increasing convergence of the chess-playing public on a single provider.

2. The market leader signs exclusivity agreements (governing non-FIDE play) with a significant portion of top players and becomes the de-facto organizer of most commercially significant tournaments. In contrast to (1), this could conceivably happen quite quickly, as it involves only a limited set of individuals.

3. The centralization of elite-level play on a single platform enables that platform’s Elo rating to emerge as the chess world’s most important manifestation of achievement, thus furthering the leading provider’s competitive position (and affording it, through subscription fees, the financial means of accelerating (1) and of maintaining (2)).

4. FIDE’s tight grip on the sport is somewhat loosened, and the organization reverts to being something more akin to what it used to be and was originally intended to be – a (gentler) gentlemen’s club (in the English, rather than the American-English, sense of the term) focused on advancing the sport of chess.

Step (2) is, to a certain extent, already underway in the form of Nakamura’s link with chess.com and Carlsen’s ownership interest in Play Magnus (which owns chess24 and hosts the Champions Chess Tour). Attempting to negotiate individual agreements with single players would very likely turn out no easier than herding cats (and a rather resourceful and independent sort of cat, at that); rather, I believe whichever party may seek to implement a form of player exclusivity would find it easier to, on a unilateral basis, simply issue rating-based cash compensation (in exchange for promises of exclusivity) to the top-10-ranked (or top-50-ranked – the precise number is of course unimportant) Grandmasters. To rate players, the provider could adopt the current FIDE ranking as its starting position, but thereafter “fork” it (much like an open-source piece of code is forked) and base future rankings (for payment purposes) exclusively on play on its own platform (to enable (3)).

Some would no doubt scoff at such a development as unwelcome commercialization. And, yet, I think it would constitute a step, if not indisputably forward, certainly not backward, for chess. International sports tend to be organized in one of two ways: through one-nation-one-vote Swiss associations (such as soccer’s FIFA); or through commercial corporations (such Formula1’s Liberty Media). Time has undeniably imbued governing bodies in the former category with a certain cachet, but it has also made many of them inefficient and corrupt, as their governance systems – designed for a pre-WWI European world of volunteerism and gentlemanly conduct – have failed to adapt to, and to ward off, an extent of contemporary cynicism. If the Guardian is to be believed, FIDE has not been entirely spared: https://www.theguardian.com/sport/2016/jun/03/chess-rights-multimillionaire-model-agency-owner-david-kaplanhttps://www.theguardian.com/sport/2016/jun/03/chess-fide-president-offshore-firms-rights-kirsan-ilyumzhinov. I think most sports, including chess, would be no worse managed – in the sense of attracting both a broad player base as well as a vibrant elite tier – were they to convalesce around corporate organizations rather than Swiss associations.

I am pleased to report that Ola was an earlier Emergent Ventures recipient.

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Tyler Cowen
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen and Tabarrok have also ventured into online education by starting Marginal Revolution University. He currently writes the "Economic Scene" column for the New York Times, and he also writes for such publications as The New Republic, the Wall Street Journal, Forbes, Newsweek, and the Wilson Quarterly.

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