The travesty is that ISOC has given up a sure-fire stream of $55+ million/year in tax-free income, along with the ability to easily grow that to over $100m/year with price increases - all for just over $1.1 billion.
As any r/personalfinance reader can tell you a rule of thumb for endowments is to spend a maximum of 4% of your assets each year. This means $44m from the $1.1bn, which means ISOC is immediately worse off than they were forecasting for this year (~$55m). Alternatively use the Yale method, which in today's low-return market will yield similar or worse results.
Moreover it's clear that ISOC are not behaving as the sharpest of investors, so we can imagine that the endowment might be be poorly managed or over-spent.
The bigger issue is that org was given to PIR to manage in the public interest. It was not supposed to even be a moneymaker for ISOC, they were just supposed to be the stewards of .org in the public interest. The fact that it’s worth even $1 billion shows that they’re operating it in the interest of the ISOC and not the public interest. ICANN should simply create a new entity that will charge break-even fees for registrations and stop trying to tax .org registrants with mandatory charitable donations to a dubious charity.
It's worth noting that the former ICANN CEO, Fadi Chehadé is highly involved in this sale. This timeline also seems to suggest that current members of ICANN are also biased towards the sale of the .org domain, ICANN may not be interested in the views of the people who currently have .org domains.
ICANN receives 3,300 comments uniformly opposed to the change and 6 in favor of removing price caps, and sides with the 0.2% minority.
May 2019:
PIR responded to the comments with an open letter that said,
“We are a mission-based non-profit, and would never betray the trust that you have put into .ORG and us.”
On 7 May, Chehadé registered the domain for EthosCapital.com.
On 13 May, ICANN decided to lift the price caps anyway.
On 14 May, Ethos Capital was incorporated as a new investment firm founded by Brooks. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé and was also a classmate of Chehadé."
Break-even pricing was my first thought, too. But I think the .org registry has to be priced at least modestly higher than business-y domains (e.g., .com), because otherwise you'll find people using it for all sorts of for-profit stuff, reducing its signalling value.
But there's no reason that money can't go right back into basic infrastructure. For example, after the Heartbleed bug we learned that OpenSSL was receiving about $2k/year in donations. Surely there are obvious core open-source projects that could use reliable funding: https://arstechnica.com/information-technology/2014/04/tech-...
Operating .org in the public interest in the past doesn't mean that it has zero value today. "The fact that it’s worth even $1 billion shows" not so much that "[ISOC is] operating it in the interest of the ISOC" but that PIR may not be interested in operating .org in the public interest.
I appreciate your excellent write up. When I read the allegations in the original article I kinda wanted more detail. You break it down very well with great attention to detail.
I'd like to place this here for those who only read comments:
.org registry rights belong to a non-profit - the rights were sold to a private equity group - somewhere between 50% and 90% below market rate. It was based on self dealing of the people given stewardship of the non-profit that manages .org
Basically, this is privatization Russian style. Not good. Even if you like privatization, no-bid stuff is just wrong.
I don’t know if it’s fair to say they could have easily doubled but your point about not acting like investors is fair. In contrast, AAA, USAA, and AARP have chosen to leverage their assets to enter new lines of business while Isoc simply sold their’s off. I am not familiar with what governance issues might be in play here but the simpleton like me would ask, what alternatives did ISOC evaluate before taking a buyout offer from a insider-linked entity that ironically calls itself “ethos”...
4% works out for retirement, with the expectation that you will eventually die and no longer need the income. The assumption there is that if the market underperforms for the next 35 years in a row, you run out of money just after you die.
An immortal, such as a corporation, has to use a safer number, such as 3%, or 2.5% for operations and 0.5% in fees for the fiduciary management. So the permanent endowment needs to be 40x annual operating costs, and the fiduciary needs to grow it by 3% better than (price) inflation per year. That's relatively easy to do when most of the principal won't be touched within the next 30 years: buy all the publicly-traded stocks that have historically paid regular dividends, and reinvest whatever isn't paid out. On a long enough time scale, that's probably 7% better than inflation.
So the fiduciary could possibly be replaced by a robot that only needs 0.05% annually for maintenance, and then you'd only need to endow 34x annual operating costs to run forever.
Yes. Generally and for the purposes of this discussion, individuals and corporations can both buy investments in the public markets with similar risk/return profiles. Hence the spending ratio works out similar.
The 4% spending ratio theoretically varies with market performance but evens out over time. 7-8% typical returns for a total market index/etf, minus a couple % to account for inflation.
As always, non-profit services cost less than for-profit services for a reason. ISOC could have implemented any price hikes they wanted without the need to pay out a profit as will be necessary for the new owners.
This will be a net cost increase, likely a big one (since there are no actual controls), for .org owners.
Any investment firm wants to maximise returns for their investors. The incentive is to find the (monopoly) price that maximises income from sales numbers x dollars.
Wow, the level of corruption and self dealing here is remarkable. Chehadé was the CEO of ICANN until a couple of years ago.
> On May 7th, Chehadé registered the domain for EthosCapital.com.
> On May 13th, ICANN decided to lift the price caps anyway. The decision was made by ICANN staff, not its board, evading the obligation to publicly carry out due diligence and explain board decisions.
> On May 14th, Ethos Capital was incorporated as a new Boston-based “investment firm”, founded by Brooks — who stepped down from running the 60-person team at Abry to do so. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé. [0]
Then a couple of months later, surprise, .org gets sold to Ethos Capital... Almost as if this was the plan the whole time...
Here's hoping that somehow these crooks actually end up in jail...
I wonder what the level of awareness of this is in the nonprofit community itself. Something like the National Council of Nonprofits would seem to be in a good position to file a suit or at least raise awareness among its members who might be interested in forming a class.
While a major charity like the Salvation Army certainly doesn’t care if a single, sub-$100 annual expense doubles or even goes up by a factor of ten, thousands of small organizations across the country might care enough to band together and take action.
Former member of the worker coop that bid to run .org when ISOC won here.
Technically .org is not just for American style "non profits", I it was and should be any thing else that doesn't fit the other big 5 eg jwz.org.
That was the problem a lot of shady stuff goes on in the Charity world ("but its for charity") notorious for bullying often much worse than the behaviour of wall street or city bankers and traders.
I feel that a more sensible approach such as ours would have been better served - as coop members tend to be stroppy bastards and would have stood up for the common good - a lot of our ISP side in Manchester where members of alt 2600 .
And amazingly won't matter under the new owners who get to write their own rules. That's why everyone is upset. There was a vote that allowed .org to set whatever prices they wanted right before the sale.
Ah, thanks -- you're right, the second is prohibited; corrected. The first seems fine per 2.10(c) as long as the registrant agrees on first registration that renewals will be expensive.
"Sullivan suggested that their goal is to return roughly the same annual revenue as they have been getting from PIR — around $50M. Of course this time it would come without the possibility of expanding the underlying business year by year."
This hurts my head. Needless to say, the returns on this fund will be _far_ less assured than the returns on simply maintaining the .org business as it was (especially with Goldman managing the fund).
Impressively, even ISOC comes out a loser from this deal. Only Ethos wins, but then, that was surely the point.
Note that in the U.S., district attorneys are normally the prosecutors at the state court level. At the Federal level, most prosecutors are "U.S. attorneys" or "assistant U.S. attorneys".
The US has done a fantastic job of legalizing its bribes. It's not bribery! It's lobbying! It's not corruption, it just happens to be that the guy in charge of the agency for co-ordinating economic policy is also the head of Goldman Sachs. It's not corruption, because we made it legal and so it can't be corruption, because we've redefined corruption. It's great!
This is one of the reasons why people around the world are a little sceptical of American exceptionalism.
I can't believe ANY possible explanation (not even incompetency in this case) except direct or indirect bribery.
Really sad to see more and more of theses cases where Non-Profits sell out (e.g. OpenAI), I wonder whether this is a byproduct of people sozialized in the age of hyper-capitalism and consumerism...
I bought an org domain back in the 90s, and have been using it as my personal domain (i.e. also primary email address) ever since.
While, granted, I was perhaps a little silly to go org (it seemed like a good idea back then!), it's mildly terrifying that my personal footprint on the web of 20+ years can now be held to ransom by a random VC firm, and to keep my own email address I might have to pay an additional $$$ annually.
That's a bad deal unless you actually need ten years to migrate, which you probably don't. Better off to take a year or three at the 10% annual increase and then stop paying entirely (~364% of the existing rate for three years, with payments made in the future rather than the present) than to pay 1000% of the existing rate right now.
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The travesty is that ISOC has given up a sure-fire stream of $55+ million/year in tax-free income, along with the ability to easily grow that to over $100m/year with price increases - all for just over $1.1 billion.
As any r/personalfinance reader can tell you a rule of thumb for endowments is to spend a maximum of 4% of your assets each year. This means $44m from the $1.1bn, which means ISOC is immediately worse off than they were forecasting for this year (~$55m). Alternatively use the Yale method, which in today's low-return market will yield similar or worse results.
Moreover it's clear that ISOC are not behaving as the sharpest of investors, so we can imagine that the endowment might be be poorly managed or over-spent.
From https://www.privateinternetaccess.com/blog/2019/11/isoc-pir-.... :
"March 2019:
ICANN receives 3,300 comments uniformly opposed to the change and 6 in favor of removing price caps, and sides with the 0.2% minority.
May 2019:
PIR responded to the comments with an open letter that said,
“We are a mission-based non-profit, and would never betray the trust that you have put into .ORG and us.”
On 7 May, Chehadé registered the domain for EthosCapital.com.
On 13 May, ICANN decided to lift the price caps anyway.
On 14 May, Ethos Capital was incorporated as a new investment firm founded by Brooks. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé and was also a classmate of Chehadé."
The buyer pays the NPV when operated as a profit focused enterprise, then insulates the ISOC from blowback when it actually does this.
The ISOC can then turn around and feign betrayal with the rest of us, its pockets full of money.
But there's no reason that money can't go right back into basic infrastructure. For example, after the Heartbleed bug we learned that OpenSSL was receiving about $2k/year in donations. Surely there are obvious core open-source projects that could use reliable funding: https://arstechnica.com/information-technology/2014/04/tech-...
How is ISOC a dubious charity?
I'd like to place this here for those who only read comments:
.org registry rights belong to a non-profit - the rights were sold to a private equity group - somewhere between 50% and 90% below market rate. It was based on self dealing of the people given stewardship of the non-profit that manages .org
Basically, this is privatization Russian style. Not good. Even if you like privatization, no-bid stuff is just wrong.
Want to help support the democratic institutions which hopefully won't fail us? Look here: https://drewdevault.com/2019/11/29/dotorg.html
Deleted Comment
OT. Isn't 4% also the rule of early retirement, that is if you can live of 4% of your savings you can retire?
Can anyone clarify if this rule applies for both individual and corporate? If so, how would be even more interesting to know?
An immortal, such as a corporation, has to use a safer number, such as 3%, or 2.5% for operations and 0.5% in fees for the fiduciary management. So the permanent endowment needs to be 40x annual operating costs, and the fiduciary needs to grow it by 3% better than (price) inflation per year. That's relatively easy to do when most of the principal won't be touched within the next 30 years: buy all the publicly-traded stocks that have historically paid regular dividends, and reinvest whatever isn't paid out. On a long enough time scale, that's probably 7% better than inflation.
So the fiduciary could possibly be replaced by a robot that only needs 0.05% annually for maintenance, and then you'd only need to endow 34x annual operating costs to run forever.
The 4% spending ratio theoretically varies with market performance but evens out over time. 7-8% typical returns for a total market index/etf, minus a couple % to account for inflation.
Dead Comment
There's so many TLDs today, the ability to raise prices isn't what it was.
Though they could 5x prices and even if they lost 60% of their business, they'll come out ahead. I could understand the worries of .org holders.
This will be a net cost increase, likely a big one (since there are no actual controls), for .org owners.
that is doubling every 7 years thereabouts, far far far higher than inflation or cost bais increases would demand
"Save .org": https://news.ycombinator.com/item?id=21611677
"Take action to save .org": https://news.ycombinator.com/item?id=21664582
"Why I Voted to Sell .org": https://news.ycombinator.com/item?id=21656960
"ISOC sold the .org registry to Ethos Capital for $1.1B" https://news.ycombinator.com/item?id=21667355
> On May 7th, Chehadé registered the domain for EthosCapital.com.
> On May 13th, ICANN decided to lift the price caps anyway. The decision was made by ICANN staff, not its board, evading the obligation to publicly carry out due diligence and explain board decisions.
> On May 14th, Ethos Capital was incorporated as a new Boston-based “investment firm”, founded by Brooks — who stepped down from running the 60-person team at Abry to do so. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé. [0]
Then a couple of months later, surprise, .org gets sold to Ethos Capital... Almost as if this was the plan the whole time...
Here's hoping that somehow these crooks actually end up in jail...
[0] http://blogs.harvard.edu/sj/2019/11/23/a-tale-of-icann-and-r...
While a major charity like the Salvation Army certainly doesn’t care if a single, sub-$100 annual expense doubles or even goes up by a factor of ten, thousands of small organizations across the country might care enough to band together and take action.
Technically .org is not just for American style "non profits", I it was and should be any thing else that doesn't fit the other big 5 eg jwz.org.
That was the problem a lot of shady stuff goes on in the Charity world ("but its for charity") notorious for bullying often much worse than the behaviour of wall street or city bankers and traders.
I feel that a more sensible approach such as ours would have been better served - as coop members tend to be stroppy bastards and would have stood up for the common good - a lot of our ISP side in Manchester where members of alt 2600 .
> Raise rates for long-time owners of common words. They weren’t using that premium space anyway.
This is forbidden by the .org registry agreement, 2.10(c): https://www.icann.org/sites/default/files/tlds/org/org-agmt-...
This hurts my head. Needless to say, the returns on this fund will be _far_ less assured than the returns on simply maintaining the .org business as it was (especially with Goldman managing the fund).
Impressively, even ISOC comes out a loser from this deal. Only Ethos wins, but then, that was surely the point.
https://en.wikipedia.org/wiki/District_attorney
https://en.wikipedia.org/wiki/United_States_Attorney
This is one of the reasons why people around the world are a little sceptical of American exceptionalism.
I can't believe ANY possible explanation (not even incompetency in this case) except direct or indirect bribery.
Really sad to see more and more of theses cases where Non-Profits sell out (e.g. OpenAI), I wonder whether this is a byproduct of people sozialized in the age of hyper-capitalism and consumerism...
While, granted, I was perhaps a little silly to go org (it seemed like a good idea back then!), it's mildly terrifying that my personal footprint on the web of 20+ years can now be held to ransom by a random VC firm, and to keep my own email address I might have to pay an additional $$$ annually.
Sigh.