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ICANN finished year $24 million ahead but loses $29 million on the markets

Kevin Murphy, September 15, 2022, Domain Policy

ICANN came out of fiscal 2022 $24 million ahead of its budget due to lower travel expenses and greater domain sales than expected, but blew $29 million on poor investments, according to financial results published today.

The Org ended June having received $150 million, mostly from registries and registrars, which was $5 million more than it had budgeted for.

Fixed, variable and transaction-based fees accounted for most of the difference. Registrars sold more domains than ICANN predicted, and fewer registries and registrars cancelled their contracts.

Verisign of course was the biggest contributor, accounting for over a third of revenue — $49 million for .com/.net fees alone. On the registrar side, GoDaddy contributed over $11.2 million.

GoDaddy’s contribution is actually a little higher than all the 131 participating ccTLDs’ voluntary donations combined, which came in at $11 million.

Expenses were $125 million, against a budget of $143 million. That was mostly due to the fact that two of its three meetings were held entirely online, so ICANN didn’t have to pay its staff and volunteers’ travel expenses.

It spent $3 million on meetings in the year, against a $10 million budget.

When the budget was passed in May 2021, ICANN had expected all three meetings to take place in person, with international travel “unrestricted” despite the pandemic.

Expenses were also affected by a lower-than-expected headcount. Average headcount was down by three on FY21 at 389, compared to the 405 predicted by the budget.

Despite the over-performance at the operating level, ICANN’s balance sheet actually declined compared to a year earlier.

It had funds under management of $505.5 million compared to $520 million, having lost $29 million due to “investment declines in the Reserve Fund due to volatility in the financial markets”. Its portfolio is still $9 million ahead compared to five years ago, however.

Belgium slashes its ICANN funding in “mission creep” protest

Kevin Murphy, August 12, 2022, Domain Policy

DNS Belgium has cut its contribution to ICANN’s budget by two thirds, in protest at ICANN’s “mission creep” and its handling of GDPR.

The Belgian ccTLD registry informed ICANN CFO Xavier Calvez that it will only pay $25,000 this fiscal year, compared to the $75,000 it usually pays.

Registry general manager Philip Du Bois wrote (pdf) that “during recent years there has been a shift in focus which is not in the benefit of ccTLD’s”.

ICANN has become a large corporate structure with a tendency to suffer from “mission creep”… At the same time ICANN seems to fail in dealing in an appropriate way with important issues such as GDPR/privacy. It goes beyond our comprehension that ICANN and its officers don’t feel any reluctancy to “advise” European institutions and national governmental bodies to embrace “standards developed by the multi-stakeholder structures on international level” while at the same time it is obvious that ICANN itself has not yet mastered the implementation of important European legislation.

Based in the heart of the EU, DNS Belgium was a strong proponent of Whois privacy many years before the GDPR came into effect in 2018.

Calvez, in his reply (pdf), acknowledges that ccTLD contributions are voluntary, but seems to insinuate (call me a cynic) that the criticisms are hollow and that the registry might simply be trying to reduce its costs during an economic downturn:

We do appreciate any amount of contribution, and also that the ability for any ccTLD to contribute varies over time, including based on economic circumstances. We do understand that the reduction of DNS Belgium’s contribution from US$75,000 to US$25,000 represents a significant and meaningful reduction of costs for DNS Belgium.

DNS Belgium seems to be doing okay, based on its latest annual financial report. It’s not a huge company, but registrations and revenue have been growing at a slow and steady rate for the last several years.

All ccTLD contributions to ICANN are voluntary, but there are suggested donations based on how many domains a registry has under management, ranging from the $225,000 paid by the likes of the UK registry to the $500 paid by the likes of Pitcairn.

DNS Belgium, which manages about 1.7 million names, falls into the third-highest band, with a $75,000 suggested contribution.

ICANN is budgeting for funding of $152 million in its current FY23.

Fewer domain companies closing down than expected

Registries and registrars are not shutting up shop as fast as ICANN expected, according to CEO Göran Marby.

According to his latest report (pdf) to his board, the number of accredited registrars and contracted registries is substantially ahead of what had been predicted in the current budget, meaning over a million bucks more than expected in ICANN’s coffers.

There were 1,172 gTLD registries at the end of February, according to the report. That’s 25 more than ICANN had expected.

Typically, the only registries that willingly give up their contracts are dot-brands that have never used their TLD and decide to bow out, but we haven’t seen one of those since last September, the longest break in terminations in years.

Marby also reported that there were 2,510 accredited registrars on February 28, a whopping 168 more than the budget planned for.

This was no doubt helped by drop-catchers such as Singaporean registrar Gname, which has created dozens of new shell accreditations in recent months.

Marby reported that this all mean $1.3 million extra revenue, accounting for fixed fees in both segments and registrar application fees.

Overall, ICANN was $16.5 million ahead of budget at the end of February, due to the extra income from fixed fees, a bigger contribution from .com, and lower-than-expected expenses of $12.3 million.

ICANN budget: staff bloat making a comeback

Kevin Murphy, December 8, 2021, Domain Policy

ICANN plans to ramp up its headcount starting next year to support the development of the new gTLD program.

Newly published budgeting documents show that average headcount is expected to rise to 406 for the year ending June 30, 2022, from 395 at the end of this June, with an even steeper increase to 448 a year later.

That’s after several years in which staffing levels have been fairly stable, even sometimes declining a little.

The main culprit is the Operational Design Phase for the next new gTLD round(s), which is expected to kick off soon.

ICANN expects to hire or assign nine people to manage the ODP before the end of June 2022, ramping that up to an average of 22 over the following year. The amount of non-ODP operational staff is expected to rise by 28 over the same period.

ICANN currently advertises 31 open positions on its web site, having added eight listings just this week.

This chart shows the expected growth:

ICANN headcount chart

At the time of the last new gTLD application round, in 2012, ICANN had 152 staffers, nine of whom were assigned to new gTLD project — and that was after the programs rules had already been developed, implemented and the application window opened and closed.

ICANN budget: no more new gTLDs before 2028

Kevin Murphy, December 8, 2021, Domain Policy

ICANN is not accounting for any revenue from a future round of new gTLDs in its just-published budget, which plots out the Org’s finances all the way through 2028.

The budget, which I gave a high-level summary of here, even predicts that dozens of 2012-round new gTLDs will disappear over the next six years.

The Org is predicting that there will be 1,091 gTLDs on the internet by the end of its fiscal 2027 (that is, June 30, 2028) down by 58 or 5% from July 2022.

Given that it’s only expecting to lose four gTLDs in FY23, this projection implies a speeding up of the rate at which gTLDs start cancelling their contracts or going out of business in the later part of the five-year budget.

The forecast comes with a big asterisk, however. A footnote reads:

These scenarios do not assume any further TLD delegations arising from the resumption of the New gTLD Program. While there is ongoing work and an intent to launch a subsequent round, the timing of its release remains unclear and potential impact(s) on funding indeterminate. Given this, ICANN org has deemed it prudent not to assume any prospective impacts from a subsequent round across the described scenarios.

In other words, ICANN is not yet ready to commit to a runway for the next application round, subsequent delegations and eventual revenue.

As I reported Monday, the next round is unlikely to be approved until the fourth quarter of next year at the earliest, and my view is that 2024 is the soonest the next application window could open.

I don’t think we can read too much into the fact that ICANN isn’t budgeting for any next-round impact on funding until after 2027.

If you’re pessimistic, you could infer that ICANN believes it’s at least a possibility that the next round could take that long, or not be approved at all, but the safer bet is probably that it merely lacks visibility and is acting in its usual risk-averse manner.

ICANN budget: mild optimism amid maturing industry

Kevin Murphy, December 8, 2021, Domain Policy

ICANN thinks the domain industry, including the new gTLD industry, is maturing and will continue to grow, in its just-published draft budget for fiscal 2023.

The Org is predicting growing transactions across the board, as well as an increase in the number of accredited registrars and a slowing decline in the number of contracted gTLDs.

ICANN is expecting funding of $152 million for FY23, which includes the $4 million bung it negotiated with Verisign as part of the deal to allow the company to raise .com prices.

That’s up from the $149.1 million is expects to receive in the current fiscal year.

As usual, the bulk of the funding comes from gTLD transaction fees — the taxes registrants pay through their registrars and registries whenever they register, renew or transfer a domain name.

Legacy gTLD transaction fees are expected to amount to $93.1 million, up 3% on a forecast of $90.1 million in the current year, while new gTLD transaction fees are expected to rise modestly from $9.5 million to $9.9 million, a 4% increase.

Transactions in legacy gTLDs are expected to be 201.2 million, versus 193.6 million in the current year.

New, post-2012 gTLDs are expected to process 25.8 million transactions, up from 24.8 million, of which 21.1 million will be billable, up from 20.3 million. New gTLDs only pay transaction fees after 50,000 domains under management.

ICANN is expecting to lose four registries in FY23 — this almost always means dot-brands that cancel their contracts — with the total declining from a June 2022 total of 1,149 to 1,145 a year later. This will have a modest impact on fixed registry fees.

But the Org is once again expecting to see an increase in the number of registrars paying fixed accreditation fees, up by 28 to 2,447 at the end of FY23.

Accompanying the budget, ICANN has published some industry trend analysis (pdf) outlining some of the assumptions behind the budget forecasts.

Basically, the document describes what regular readers already know — many domain companies benefited from pandemic-related lockdowns driving small businesses online, but overall industry volumes were driven down by low-cost new gTLDs experiencing huge junk drops.

For ICANN’s purposes, factors such as customer quality and pricing are irrelevant. A spammer registering 1,000 domains in bulk pays ICANN the same amount in fees as 1,000 small businesses building their first web sites.

The document reads:

Taken as a whole, DUMs failed to expand in the past twelve months ending in mid-2021. While this decline is at least partly attributable to lower promotional activity among some of the largest new gTLDs which could be reinitiated in the future, it nonetheless points to an industry that has shifted from a period of rapid expansion to one that is now witnessing steady maturation.

The draft ICANN budget covers the 12 months beginning July 1, 2023, and is now open for public comment before possible revisions and final approval.

ICANN domains revenue ahead of estimates again

Kevin Murphy, November 4, 2021, Domain Policy

ICANN made a few million dollars more than expected in the third calendar quarter, according to its latest financials.

Overall revenue for the three months ended September 30, ICANN’s first fiscal quarter, was $38 million, ahead of the budgeted $35 million and the $36 million in the year-ago quarter.

Expenses were $27 million against a $32 million budget, due again to the lack of travel because of the pandemic. ICANN meetings are costing around $500,000 a pop right now, mostly spent on interpreters and translation, a few million bucks less that it normally spends.

The Org was running at an excess (profit) of $10 million for the quarter, compared to a $3 million budget.

ICANN said (pdf) that registry and registrar transaction fees, a good indicator of sales in the domain name industry, came in at $15 million and $10 million respectively, both $1 million better than the budget.

Other registrar fees, which includes fixed accreditation fees, were also $1 million over budget, at $4 million, perhaps due to the fact that not as many registrars de-accredited as expected.

ICANN now has half a billion bucks in the bank after huge pandemic profits

Kevin Murphy, September 23, 2021, Domain Policy

ICANN, the non-profit organization with the limited technical mandate, now has over half a billion dollars in the bank, after the affects of the coronavirus pandemic boosted funding and slashed costs.

The Org ended June 2021 with cash and investments of $521 million, up $40 million over the preceding 12 months.

While some of this gain can be attributed to investment gains, the majority chunk comes from ICANN largely misjudging the length and impact of pandemic-related restrictions.

Expenses were $10 million lower than budget, because all three ICANN meetings during the year were held online, where they cost about half a million bucks a pop, about $3 million lower than in-person gatherings.

ICANN had budgeted for its 2021 meetings to take place face-to-face in venues around the world, but governmental travel restrictions made this impossible.

The Org saved well over half a million dollars in director expenses alone.

On the top half of the financial statement, the numbers also show a failure to predict how much the pandemic would be generally a boon, rather than a burden, to the domain name industry.

ICANN received $142 million in funding during the year, which was $12 million ahead of budget and $1 million more than it received in fiscal 2020.

Coronavirus has made ICANN $11 million richer than predicted so far this year

Kevin Murphy, February 16, 2021, Domain Policy

ICANN made a lot more money and spent a lot less money in the second half of 2020, compared to the predictions made in its current budget.

Funding for the six months from July 1 to December 31 (the first half of ICANN’s fiscal 2021) came in $6 million higher than expected, at $69 million, according to data released by ICANN tonight.

Over the same period, its outgoings came in at $55 million, which was $5 million less than its approved budget had anticipated, leading to a net gain of $11 million.

The reason for the variance appear to be mostly related to the unanticipated positive impacts of the coronavirus pandemic.

Last April, when the FY21 budget was being drafted, ICANN thought the economic impact of the disease would prove a serious blow to the industry that funds it.

But the opposite turned out to be true. ICANN failed to predict that the government-enforced lockdown of large parts of the high street in many countries would see a rush by small bricks-and-mortar businesses to the interwebs.

This boosted domain growth for many companies and led to an increase in ICANN transaction taxes fees, which are paid whenever a domain is registered, renewed or transferred.

ICANN’s revenue was up across all three main segments in H1 FY21, when compared to its budget expectations.

Registry transaction fees were $2 million over budget at $27 million, and registrar transaction fees were also over by $2 million at $18 million. Registry and registrar fixed fees were also up by $1 million each, suggesting fewer companies terminated their contracts than expected.

“Funding higher than Budget driven by higher than planned transaction fees”, an ICANN slide deck (pdf) states.

On the expenses side, ICANN of course spent less cash on its meetings because it wasn’t subsidizing international flights and expensive hotels for 500-odd staff and community members.

“Lower Travel & Meetings due to travel restrictions from the COVID-19 pandemic”, the slide deck states.

Travel expenses, rounded, accounted for 0% or $0 of its H1 expenditure.

When the budget was passed in June last year, ICANN still thought it was possible that the October meeting would go ahead in-person in Hamburg, so it put aside $4.2 million to pay for it.

As it turned out, the Org ended up spending $100,000 on Zoom and other audiovisual services and another $400,000 on translation and interpretation services. And that was all.

The $2.2 million it expected to pay sending staff and community members to Hamburg came in at $0.

ICANN’s adopted budget for FY21 also anticipated the March 2021 meeting would go ahead in Cancun, Mexico, but that’s already been rescheduled for Zoom, which will save it a few million more bucks this year.

The Org hasn’t yet officially relocated its planned June 2021 in-person meeting from The Hague to Zoom, but I’m fairly confident it’s going to have to.

Its $12.2 million travel budget for FY21 is probably going to come in much closer to $2 million.

ICANN predicts rosy post-pandemic domain industry — time to start panicking?

Kevin Murphy, December 21, 2020, Domain Policy

Having totally misjudged the impact of the coronavirus pandemic on the domain name industry and its own budget, ICANN is now forecasting a rosy (post-pandemic?) fiscal 2022.

The Org has just published its proposed budget for the 12 months beginning July 1, 2021, predicting decent growth in transactions for new and legacy gTLDs, along with a modest increase in new registrars.

It’s also predicting that international travel will be back to normal, with three full in-person public meetings going ahead as usual.

ICANN is planning to receive $144.4 million in FY22, up slightly from the $140 million it expects to receive in the current financial year.

The FY22 number is boosted by a $4 million bung from Verisign, negotiated as part of the .com contract renewal, which lifted the price freeze.

It’s predicting a 3% increase in legacy gTLD registry transaction fees to $52.8 million and a 6% increase in legacy gTLD registry transaction fees to $5.1 million.

Registrar transaction fees for legacy gTLDs is expected to be up 4% to $33.4 million, with registrar fees for new gTLDs is predicted to rise 5% to $4.2 million.

Altogether, that’s $3 million extra in transaction fees — paid whenever a domain is registered, renewed or transferred — compared to its expected FY21 performance.

But that’s offset by a $600,000 predicted decline in fixed registry fees, due to an expected loss of 15 new gTLD registries (most likely dormant dot-brands) in the period. It expects to end the year with 1,141 fee-paying registries.

ICANN expects its pool of accredited registrars to bounce back a little, adding 28 in FY22 having lost an expected 121 in FY21. It expects to end FY22 with 2,356 registrars on its books.

The proposed budget also sheds light on how ICANN expects the remainder of coronavirus-afflicted FY21 playing out.

It currently expects its top line for the year to June 30, 2021 to be $140 million, compared to the $129.3 million it predicted in the FY21 budget approved in May this year.

But that budget had been slashed in April by 8% from its original draft, published a year ago. It had planned for $140.4 million, but reduced expectations by $11.1 million due to the coronavirus pandemic.

In April, before the extent of the lockdown bump experienced by many registries and registrars became clear, ICANN said:

ICANN org funding may be impacted because the economic crisis stemming from the pandemic has the potential to impact the funding from domain name registrations and contracted parties through the end of FY20 and into the first months of FY21.

Today, it’s saying the impact from coronavirus was “less than expected” and generally forecasting “stable” and more or less business as usual in FY22.

ICANN had budgeted for $85.5 million in transaction fees from all sources in the current year, but now it expects that to come in at $92.6 million, much closer to its December 2019 estimate of $94.7 million.

It had expected to see transaction fees from new gTLDs at both registry and registrar levels to be down by a third, at $8 million, but that number’s now expected to come in at $8.9 million. Likewise, the budget predicted a legacy gTLDs dip of 2.3% to $77.5 million, rather than the $86.2 million it now thinks is heading its way.

I should probably point out for future reference that the proposed budget for FY22 was published Friday, the day before the new strain of ultra-infectious coronavirus was discovered in the UK. Who knows what the impact of that might be.

The budget is open for public comment for two months here.