During the Fort Lauderdale International Boat Show this year, I had the pleasure of sitting down with Ken Denison (Denison Yacht Sales) and Jim Eden (Worth Avenue Yachts) – two stalwarts of the brokerage world, and the brains behind Broward Marine’s ‘golden era’ in the nineties.

During our separate conversations, both condemned – and said they have observed – a proliferation of surreptitious kickbacks on brokerage sales listings in recent years.

A ‘kickback’, in the context Denison and Eden refer to in this case, is an illicit payment – mostly in the form of a split commission, or a ‘commission on a commission’ – made by a broker to a captain in return for finding a willing buyer to complete a yacht sale.

“A captain is the most important person an owner has on his yacht – and what they’re essentially doing is reaching right around to pull a significant cheque out the owner’s pocket,” Denison explained.

Denison thinks owners would be “shocked” to hear the extent to which brokers – and also shipyards – engage in this with captains.

“The point is, I know my clients would say, ‘I pay this man [the captain] six figures-plus per year, I give him a car, he has all the vacations he wants, he’s on my health plan, he has security, he’s part of my family, and now he’s profiting on the sale of my yacht behind my back.”

"He’s part of my family, and now he’s profiting on the sale of my yacht behind my back.”

But is a broker not entitled to use their commission as they please? And if it’s going to help get the yacht sold, is it not in the best interest of the seller anyway?

Eden said he has done this around 50 times on sales, and is adamant that it’s not the concept that’s the problem, but it’s doing it without the owner’s knowledge. “I’ve never had an owner tell me I can’t do it, but you have to be up front with them and say, ‘Your captain is going to help me sell your boat, are you okay with me giving him a tip at the end?’. Denison also said that he is also happy to share his commission with a captain, but only with the owner's full knowledge and consent.

Eden added: “Ultimately, it is a big transparency issue, because it’s a violation of your fiduciary relationship with your employer and I’ve always felt that way about it. When I was running IYC, we wouldn’t allow any broker kickbacks, because it’s wrong.”

Another conflict of interest that Eden pointed out is that, in such instances, the captain has effectively helped to make the entire crew unemployed upon the sale of the yacht.

“I’ll tell you a story that will make your hair stand on end,” Denison continued. “About a year ago, an old friend of mine, who is nearly retired from brokerage, had a significant sized yacht for sale.

“A friend of his was a captain on another large boat which had a charter client on board. The client liked the captain and asked if he would help him find a boat. So, the captain called this broker and said I’ve got someone who will buy your boat – if you are prepared to split your sales commission with me, I’ll send him your way.

"Ultimately, it is a big transparency issue, because it’s a violation of your fiduciary relationship with your employer."

“So, the captain took off for a few days and walked this guy around a boat show, and he ended up buying the boat – and the sales commission was $1.8 million, so the captain made $900,000.”

The point Denison was making by telling this story is: where is the element of ‘goodwill’, like when the tables are turned and he endorses a captain? “I’ve recommended four captains who have spent over 10 years with their owners, but do I have the right to ask them for part of their salary?

“If I have a friend who goes to a restaurant after my recommendation and they spend $300, do I have the right to ask the restaurant for a share of that? The answer is no; you did it because you like someone and you want something good to happen. Have we gotten that low in life that everything has to have a payback?”

In some instances, captains have been known to take a kickback from a yard, or supplier/chandler, and pass it back to the owner to effectively work as a discount on the product or service.

This is considerably more salubrious and represents the employer’s best interests. And it goes back to Eden’s main concern, which is not that it’s happening more and more, but that it’s happening under the table and thus disrupting an employer/employee relationship.

Image credit: Justin Ratcliffe

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