Joystar, the large California-based host agency, failed on Sept. 30 to pay commissions owed to some of its independent contractors and, in the same week, laid off five employees, representing at least 14% of its staff.
The developments raised doubts about Joystar's prospects and sent many of its contractors scrambling to find alternative hosting services.
The contractors already were losing out on pay for bookings placed through Joystar for Royal Caribbean cruises and InterContinental Hotels Group (IHG) rooms because of disputes between the suppliers and the host.
Meanwhile, unbeknownst to the contractors, Joystar has let its Florida and California travel-seller registrations expire, raising the prospect that other suppliers will cease doing business with the company. For one thing, all agencies that belong to the Cruise Lines International Association (CLIA) are required to abide by local regulatory requirements to retain their memberships.
Joystar is a subsidiary of Travelstar, the publicly traded corporation headed by CEO Bill Alverson. The company, which now trades in over-the-counter securities, is no longer required to file financial statements with the Securities and Exchange Commission.
In its last quarterly report, covering the first quarter of 2008, Travelstar claimed $20.8 million in gross sales for the quarter and a net loss of $494,000 on revenue of $1.9 million. According to a release accompanying the company's financials last spring, cruises accounted for 70% of revenue.
In the last year, Joystar's stock value has ranged from 1 cent to 53 cents. Most recently, the value has been in the single digits, hitting 1 cent on Sept. 23.
Joystar is an ARC-approved agency and a Vacation.com member in good standing.
When asked about recent developments, Alverson acknowledged a problem with payments to contractors, but he characterized it as a problem with Bank of America's direct-deposit system, which he said "freezes up and locks us out of the system, and this has happened on numerous occasions." Alverson asserted that the contractors would be paid, and he said the company would change banks. He said the goal is to be "100% caught up in seven to 10 days."
As for layoffs, Alverson said some were "part-time employees" located off site and some worked in the company's Aliso Viejo office in California. He said the company employs 22 support staff for selling agents.
A couple of former staffers told Travel Weekly that they had recently learned that their federal income taxes, though withheld from paychecks, had not been forwarded to the government. Alverson responded, "That is not true as far as I know."
Joystar's problems with Royal Caribbean were well publicized last fall when the cruise company said it would cease doing business with a number of companies that it characterized as "card mills." Though the cruise line did not name the companies it was severing, Joystar said it was among them. In the months since, Joystar has not been able to mend its relationship with the cruise line.
Independent contractors said they were placing Royal Caribbean bookings with GTM (Gould Travel Marketing), a host agency in Ponte Vedra Beach, Fla., founded by Don Gould, its chairman and CEO. Gould said GTM has been handling such bookings for fewer than 200 Joystar affiliates, but only after they sign separate contracts with GTM and with the knowledge of both Joystar and Royal Caribbean.
As for IHG, the hotel company confirmed it was not paying commissions to Joystar on any of its brands, was investigating a dispute and declined to comment.
Alverson said the dispute arose earlier this year after an IHG employee who was also a Joystar agent was found to have raided the IHG booking system, peeled off a number of direct bookings, then claimed them as commissionable sales for Joystar. He said Joystar had paid the contractor $30,000 in commissions by the time IHG discovered the problem.
Alverson said IHG asked Joystar to return the money. "We said, 'We've paid the agent. Your employee defrauded you. We can't fix that.' "
Meanwhile, contractors are making plans to work with other hosts. Though GTM is not actively soliciting Joystar agents, President and Chief Operating Officer John Hart said that the company had signed on more than a dozen this week. Other hosts said they were seeing a bump in conversions from Joystar.
Numerous contractors talked to Travel Weekly on condition of anonymity, out of concern that going public would further jeopardize commissions owed them now or in the future. Some reported previous instances when they did not get paid on time, but said most commissions were eventually paid.
In at least one case, an agent switched hosts in midsummer after previous problems with commissions, but has not yet told Joystar. The reason for secrecy is the same: the hope of saving future commissions.
If a trip has been paid for, agents cannot move that business to another host. If a trip is not fully paid, which means no commissions have been distributed, the standard supplier practice is to allow the switch if the agency of record gives written permission and the new host accepts the business, also in writing, GTM's Hart said.
Ken Gagliano, president of another host agency, Travel Planners International of Winter Park, Fla., said there were some suppliers that also would permit agents to move their business to a different host if the traveler made the request in writing.
Several Joystar agents would like to move business that is not fully paid but said they were uncertain if they could obtain Joystar's written approval. For one thing, they said they were having problems reaching anyone at Joystar by phone or email.
A few agents also were concerned that their clients might have problems with their trips, such as difficulty in getting documents for some cruises. On that point, however, Gould was reassuring, saying that "the customer probably won't suffer as long as the trip was paid for."
Alverson said that when agents have left Joystar in the past, "they were paid their commissions due, and Joystar supported them in their decisions."
As for state regulations, Alverson blamed Joystar's Florida problem on a bonding provider but said the California bond is current. Nevertheless, the attorney general's office told Travel Weekly that the registration itself expired on Aug. 31.
In Florida, independent contractors must be registered. To obtain a travel identifier number, they must identify a registered host and submit a copy of their contract. A Florida spokeswoman said the contractors would not be held liable for a host's lapsed registration.
Similarly, in California, a spokeswoman for the attorney general's office said the contractors were not at risk anytime soon. She said the attorney general would ask Joystar to explain the lapse.
As for CLIA's requirements, Bob Sharak, CLIA's executive director, said Joystar's membership was "technically" in jeopardy. However, he said he would first inquire with Joystar as to the reasons for the expired registrations.