[Ccwg-auctionproceeds] Judith Hellerstein's comments on the Auction Proceeds Draft

[Sam Lanfranco]

I would like to pick up on what Anne E. Aikman-Scalese wrote: To wit:

“/If the CCWG has already examined the Trust mechanism in the context of 
Option A, I apologize for bring this up.It’s just completely unrealistic 
to think that you can establish the required independence by setting up 
a department within ICANN where employees responsible for grant-making 
are hired and fired by ICANN staff and/or Board/.”

The future for new auction revenues is highly uncertain. From an 
economist’s perspective, I would not be surprised to find that ICANN has 
reached seriously diminishing marginal returns from additional auctions, 
whenever the applicants elect not to hold private auctions. In addition 
to the auctions balance being unlikely to grow, ICANN’s own evolving 
financial situation means that the existing balance is not immune to 
appropriation for other ICANN needs, no matter what the intentions are 
today.

>From the beginning of this discussion the implicit understanding was 
that the funds would be released in tranches (slices). Various “tranche 
models” were bandied about. For the moment the endowment preserving 
strategy of only allocating interest earned is essentially a dead 
option, given near zero and negative interest rates, the funding flow 
would be minimal. Other portfolio approaches may combine potentially 
higher yields, but also quite likely with higher risks.

These considerations lead me to believe that the auction revenues are 
essentially a one-time windfall, to be husbanded wisely by ICANN, with 
direction from the ICANN stakeholder community, and possibly used to 
exhaustion over some agreed upon finite time horizon. Should I be wrong, 
and we find that there are significant additional auction proceeds, we 
should consider placing them in reserve, with our decisions here to be 
revisited in terms of lesson learned from the handling of the first 
auctions balance. These are issues to be discussed among the stakeholder 
community.

Lastly, in addition to the issue of required independence and Option A, 
there is the challenge of amassing the appropriate expertise to properly 
and efficiently administer the granting process within a unit of ICANN 
itself. One has to weigh those costs against Option C, where for a 
management fee the administrative process is transferred to a competent 
entity.

The terms of reference for grant eligibility would be set through an 
ICANN policy development process. That would hold for both Option A and 
Option B. Assuming that it is the same for Options A and B, the core 
questions here are (a) the relevant costs of the administrative process 
as between A and B, and (b) the reality (and optics)of process 
independence with in-house ICANN management versus contracted outside 
process management.

My personal views are that an in-house process will be more expensive, 
and more fraught with problems, than a process being run by a outside 
foundation or similar group. ICANN has no expertise in these areas and 
this is not an area where ICANN should learn while doing.

Sam Lanfranco, NPOC

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