ICANN mulls $68 million raid on auction war chest

ICANN wants to put away another $68 million for a rainy day and it’s considering raiding its new gTLD auction war chest in order to do so.
It’s also thinking about dipping into the pool of cash still left over from new gTLD application fees in order to bolster is “reserve fund” from its current level of $70 million to its target of $138 million.
But, as a relief to registrants, it appears to have ruled out steep fee increases, which had been floated as an option.
The reserve fund is basically a safety net that ICANN could use to keep the lights on in the event that revenue should suddenly plummet dramatically and unexpectedly.
If, for example, Verisign returned to its old antagonistic ways and refused to pay its .com fees for some reason, ICANN would lose about a third of its annual revenue but would be able to tap its reserve until the legal fisticuffs were resolved.
ICANN said in a discussion document (pdf) this week that it took $36 million from the reserve since 2014 in order to complete the IANA transition. Over the same period, its annual budget has swelled from about $85 million to $138 million and contributions back into the reserve have been minimal.
That’s left it with a meager $70 million squirreled away, $68 million shy of its longstanding target level of one year’s budget.
ICANN is now saying that it wants to replenish the fund in less than five years.
About $15 million of its target would come from cost-cutting its operations budget over the period.
It also wants to take at least $36 million from the new gTLD auction proceeds fund, which currently stands at $104 million (with another $132 million incoming should Verisign successfully obtain .web over the objections of rival bidders).
The remaining $17 million could come from “leftover” new gTLD application fees — that fund is currently about $80 million — or from more cost-cutting or more auction proceeds, or from a combination of the three.
A fourth option — increasing the per-transaction fees registrants are charged via their registries and registrars — appears to have been ruled out.
My back-of-the-envelope maths suggests that an annual per-transaction increase of about $0.07 would have been needed to raise $68 million over five years.
The proposal is open for public comment until April 25.

How ICANN could spend its $240 million war chest

Schools, pHD students and standards groups could be among the beneficiaries of ICANN’s nearly quarter-billion-dollar new gTLD auction war chest.
But new gTLD registries hoping for to dip into the fund for marketing support are probably shit out of luck.
Those are among the preliminary conclusions of a volunteer working group that has been looking at how ICANN should spend its new gTLD program windfall.
Over 17 new gTLD auctions carried out by ICANN under its “last resort” contention resolution system, the total amount raised to date is $240,590,128.
This number could increase substantially, should still-contested strings such as .music and .gay go to last-resort auction rather than being settled privately.
Prices ranged from $1 for .webs to $135 million for .web.
ICANN has always said that the money would be held separate to its regular funding and eventually given to special projects and worthy causes.
Now, the Cross-Community Working Group on New gTLD Auction Proceeds has published its current, close-to-final preliminary thinking about which such causes should be eligible for the money, and which should not.
In a letter to ICANN (pdf), the CCWG lists 18 (currently hypothetical, yet oddly specific) example proposals for the use of auction funds, 17 of which it considers “consistent” with ICANN’s mission.
A 19th example, which would see money used to promote TLD diversity and “smells too much like marketing” according to some CCWG members, is still open for debate.
While the list of projects that could be approved for funding under the proposed regime is too long to republish here, it would for example include giving scholarships to pHD students researching internet infrastructure, funding internet security education in developing-world primary schools and internet-related disaster-recovery efforts in risk-prone regions.
The only area the CCWG appears to be reluctant to endorse funding is the case of commercial enterprises run by women and under-represented communities.
The full list can be downloaded here (pdf).
The CCWG hopes to publish its initial report for public comment not too long after ICANN 61 in March. Comment would then need to be incorporated into a final report and then ICANN would have to approve its recommendations and implement a process for actually distributing the funds.
Don’t expect any money to change hands in 2018, in other words.

GoDaddy renewal revamp “unrelated” to domainer auction outrage

GoDaddy has made some big changes to how it handles expired domain names, but denied the changes are related to domainer outrage today about “fake” auctions.
The market-leading registrar today said that it has reduced the period post-expiration during which registrants can recover their names from 42 days to 30. After day 30, registrants will no longer be able to renew or transfer affected names.
GoDaddy is also going to start cutting off customers’ MX records five days after expiry. This way, if they’re only using their domain for email, they will notice the interruption. Previously, the company did not cut off MX records.
The changes were first reported at DomainInvesting.com and subsequently confirmed by a GoDaddy spokesperson.
One impact of this will be to reduce confusion when GoDaddy puts expired domains up for auction when it’s still possible for the original registrant reclaim them, which has been the cause of complaints from prominent domain investors this week.
As DomaingGang reported yesterday, self-proclaimed “Domain King” Rick Schwartz bought the domain GoDaddyBlows.com in order to register his disgust with the practice.
Konstantinos Zournas of OnlineDomain followed up with a critique of his own today.
But the GoDaddy spokesperson denied the changes are being made in response to this week’s flak.
“This is unrelated to any events in the aftermarket,” he said. “We’ve been working on this policy for more than a year.”
He said the changes are a case of GoDaddy “optimizing our systems and processes”. The company ran an audit of when customers were renewing and found that fewer than 1% of names were renewed between days 30 and 42 following expiration, he said.
GoDaddy renews about 2.5 million domains per month in just the gTLDs it carries, according to my records, so a full 1% would equal roughly 25,000 names per month or 300,000 per year. But the company spokesperson said the actual number “quite a bit less” than that.
How many of these renewals are genuinely forgetful registrants and how many are people attempting to exploit the auction system is not known.
The changes will come into effect December 4. The news broke today because GoDaddy has started notifying its high-volume customers.

CentralNic and .CLUB reveal premium sales

CentralNic and .CLUB Domains have both revealed sales of premium domain names over the last several days.
CentralNic said yesterday that it has sold “a number” of premiums for $3.4 million.
The names are believed to be from its own portfolio, rather than registry-reserved names in any of the TLDs it manages. The company did not disclose which names, in which TLDs, it had sold.
The sale smooths out potential lumpiness in CentralNic’s revenue, and the company noted that the sales means that recurring revenue from its registrar and registry business will become an increasing proportion of its revenue as its premium portfolio diminishes.
Last week, .CLUB announced that it sold $380,793 of premium .club domains in the third quarter. That was spread over 452 domains.
The big-ticket domains were porn.club and basketball.club, sold by the registry for $85,000 together.
The Q3 headline number was a sharp decline from the Q2 spike of $2.7 million, which was boosted by auctions in China.
The company published a lot more data on its sales on its blog, here.

This is who won the .inc, .llc and .llp gTLD auctions

The winners of the auctions to run the gTLD registries for company identifiers .inc, .llc and .llp have emerged due to ICANN application withdrawals.
All three contested gTLDs had been held up for years by appeals to ICANN by Dot Registry — an applicant with the support of US states attorneys general — but went to private auction in September after the company gave up its protests for reasons its CEO doesn’t so far want to talk about.
The only auction won by Dot Registry was .llp. That stands for Limited Liability Partnership, a legal construct most often used by law firms in the US and probably the least frequently used company identifier of the three.
Google was the applicant with the most cash in all three auctions, but it declined to win any of them.
.inc seems to have been won by a Hong Kong company called GTLD Limited, run by DotAsia CEO Edmon Chong. DotAsia runs .asia, the gTLD granted by ICANN in the 2003 application round.
My understanding is that the winning bid for .inc was over $15 million.
If that’s correct, my guess is that the quickest, easiest way to make that kind of money back would be to build a business model around defensive registrations at high prices, along the lines of .sucks or .feedback.
My feedback would be that that business model would suck, so I hope I’m wrong.
There were 11 original applicants for .inc, but two companies withdrew their applications years ago.
Dot Registry, Uniregisty, Afilias, GMO, MMX, Nu Dot Co, Google and Donuts stuck around for the auction but have all now withdrawn their applications, meaning they all likely shared in the lovely big prize fund.
MMX gained $2.4 million by losing the .inc and .llc auctions, according to a recent disclosure.
.llc, a US company nomenclature with more potential customers of lower net worth, went to Afilias.
Dot Registry, MMX, Donuts, LLC Registry, Top Level Design, myLLC and Google were also in the .llc auction and have since withdrawn their applications.

Millions spent as three more new gTLDs auctioned

Two or three new gTLDs have been sold in a private auction that may well have seen over $20 million spent.
The not-yet-delegated strings .inc, .llc and (I think) .llp hit the block at some point this month.
They are the first new gTLDs to be auctioned since Verisign paid $135 million for .web a little over a year ago.
At this point, nobody wants to talk about which applicant(s) won which of the newly sold strings, but it seems that the proceeds ran into many millions.
MMX, which applied for .inc and .llc, said this morning that it has benefited from a $2.4 million windfall by losing both auctions.
The auctions evidently took place in September, but CEO Toby Hall declined to comment any further, citing non-disclosure agreements.
There were nine remaining applicants for .inc and eight for .llc.
I don’t think it’s possible to work out which sold for how much using just MMX’s disclosure.
But private auctions typically see the winning bid divided equally between the losers.
I believe .llp was probably sold off by auction at the same time.
The reason for this is that .llc, .inc and .llp were contention sets all being held up by one applicant’s dispute with ICANN.
Dot Registry LLC had applied for all three as “community” gTLDs, which meant it had to go through the Community Evaluation Process.
While it failed the CPE on all three counts, the company subsequently filed an Independent Review Process complaint against ICANN, which it won last August.
You may recall that this was the IRP that found disturbing levels of ICANN meddling in the drafting of the CPE panel’s findings.
Ever since then, ICANN has been conducting an internal review, assisted by outside experts, into how the CPE process worked (or didn’t).
Lawyers for Dot Registry and other affected applications (for .music and .gay) have been haranguing ICANN all year to get a move on and resolve the issue.
And yet, just as the end appeared to be in sight, Dot Registry seems to have decided to give up (or, possibly, cash out) and allow the strings to go to auction.
CEO Shaul Jolles declined to comment on the auctions today.
All I can currently tell you is that at least two of the Dot Registry holdout strings have been sold and that MMX did not win either of them.
The applicants for .inc were: Uniregistry, Dot Registry, Afilias, GMO, GTLD Limited, MMX, Nu Dot Co (now a known Verisign front), Donuts and Google.
The applicants for .llc were: MMX, Dot Registry, Nu Dot Co, Donuts, Afilias, Top Level Design, myLLC and Google.

DropCatch spends millions to buy FIVE HUNDRED more registrars

Domain drop-catching service DropCatch.com has added five hundred new registrar accreditations to its stable over the last few days.
The additions give the company a total accreditation count of at least 1,252, according to DI data.
That means about 43% of all ICANN-accredited registrars are now controlled by just one company.
DropCatch is owned by TurnCommerce, which is also parent of registrar NameBright and premium sales site HugeDomains.
Because gTLD registries rate-limit attempts to register names, drop-catchers such as DropCatch find a good way to increase their chances of registering expiring names is to own as many registrars as possible.
DropCatch is in an arms race here with Web.com, owner of SnapNames and half-owner of NameJet, which has about 500 registrars.
The new accreditations would have cost DropCatch $1.75 million in ICANN application fees alone. They will add $2 million a year to its running costs in terms of extra fixed fees.
That’s not counting the cost of creating 500 brand new LLC companies — named in the new batch DropCatch.com [number] LLC where the number ranges from 1046 to 1545 — each of which is there purely for the purpose of owning the accreditation.
In total, the company is now paying ICANN fixed annual fees in excess of $5 million, not counting its variable fees and per-transaction fees.
Because the ICANN variable fee is split evenly between all registrars (with some exceptions I don’t think apply to DropCatch), I believe the addition of 500 new registrars means all the other registrars will be paying less in variable fees.
There’s clearly money to be made in expiring names.

ICANN has $400m in the bank

ICANN ended its fiscal 2016 with just shy of $400 million on its balance sheet, according to its just-released financial report.
As of June 30, the organization had assets of $399.6 million, up from $376.5 million a year earlier, the statement (pdf) says.
Its revenue for the year was actually down, at $194.6 million in 2016 compared to $216.8 million in 2015.
That dip was almost entirely due to less money coming in via “last-resort” new gTLD auctions.
The growth of the gTLD business led to $74.5 million coming from registries, up from $59 million in 2015.
Registrar revenue grew from $39.3 million to $48.3 million.
Money from ccTLD registries, whose contributions are entirely voluntary, was down to $1.1 million from $2.1 million.
Expenses were up across the board, from $143 million to $131 million, largely due to $5 million increases in personnel and professional services costs.
The results do not take into account the $135 million Verisign paid for .web, which happened after the end of the fiscal year.
Auction proceeds are earmarked for some yet-unspecified community purpose and sit outside its general working capital pool. Regardless, they’re factored into these audited financial reports.
ICANN has to date taken in almost a quarter of a billion dollars from auctions. Its board recently decided to diversify how the money is invested, so the pot could well grow.

Donuts rolls the dice with $22.5 million .web lawsuit

Donuts is demanding ICANN pay up the $22.5 million it reckons it is owed from the auction of the .web gTLD, which sold late last month for $135 million.
The company yesterday amended its existing California lawsuit against ICANN to allege that Verisign tried to avoid regulatory scrutiny by secretly bankrolling successful bidder Nu Dot Co.
The updated complaint (pdf) reads:

VeriSign’s apparent acquisition of NDC’s application rights was an attempt to avoid allegations of anti-competitive conduct and antitrust violations in applying to operate the .WEB gTLD, which is widely viewed by industry analysts as the strongest competitor to the .COM and .NET gTLDs.

Donuts wants a minimum of $22.5 million, which is roughly what each of the six losing .web applicants would have received if the contention set had been resolved via private auction.
(I previously reported that number as $18.5 million, because I accidentally counted .webs applicant Vistaprint as losing .webs applicant, when in fact it won .webs, paying $1.)
The company’s claims are still based around the allegation that ICANN breached its duties by failing to root out Verisign as the puppet-master.
The complaint alleges breach of contract, negligence, unfair competition and other claims. It says:

ICANN allowed a third party to make an eleventh-hour end run around the application process to the detriment of Plaintiff, the other legitimate applicants for the .WEB gTLD and the Internet community at large.
…
ICANN intentionally failed to abide by its obligations to conduct a full and open investigation into NDC’s admission because it was in ICANN’s interest that the .WEB contention set be resolved by way of an ICANN auction.

The irony here is that Ruby Glen LLC, the Donuts company that applied for .web, is subject to an arrangement not dissimilar to NDC’s with Verisign.
Ruby Glen is owned by Covered TLD LLC, in turn a wholly-owned Donuts subsidiary.
It’s well-known that fellow portfolio registry Rightside has rights to acquire Covered TLD’s over 100 applied-for strings, but this is not disclosed in its .web application.
ICANN will no doubt make use of this fact when it files its answer to the complaint.
Verisign itself has not been added as a defendant, but much of the new text in the complaint focuses on its now-confirmed involvement with NDC. The suit reads:

Had VeriSign’s apparent acquisition of NDC’s application rights been fully disclosed to ICANN by NDC… the relationship would have also triggered heightened scrutiny of VeriSign’s Registry Agreements with ICANN for .COM and .NET, as well as its Cooperative Agreement with the Department of Commerce.

The fact that Verisign is allowed to collect over half a billion dollars cash every year as a result of its state-endorsed monopoly is a longstanding cause of embarrassment for the Department of Commerce.
It has taken an interest in regulating Verisign’s .com contract in the past — it’s the only reason Verisign has not been able to raise .com prices in the last few years.
But the US government is not a party to the .web contract (unlike .com, where it has a special relationship with Verisign) and is not involved in the new gTLD program’s management or policies.
The complaint also makes reference to a completely unrelated Independent Review Process declaration from last week, which slammed ICANN for its lack of accountability and transparency.
Donuts faces the additional problem that, like all new gTLD applicants, it signed a covenant not to sue ICANN when it applied for its new gTLDs.
A judge in the DotConnectAfrica v ICANN can has allowed that lawsuit to proceed, regardless, but it may prove a stumbling block for Donuts.
It all looks a bit flimsy to me, but I’ve learned not to second-guess American judges so we’ll just have to see how it plays out.

Uniregistry beats Donuts to .shopping, but .shop still in play

Uniregistry has emerged as the successful registry-to-be of .shopping from the convoluted .shop/.shopping new gTLD contention set.
Donuts, the only competing applicant for the string, withdrew its application late last week.
As we previously reported, the .shop/.shopping contention sets were joined at the hip due to a bizarre string similarity challenge, making the scheduled auction very complex.
But Donuts and Uniregistry seem to have come to a private arrangement about .shopping, outside of the ICANN auction process, making .shop a straightforward nine-way fight.
Donuts tells me the auction, in which it is participating, is still scheduled for January 27.