[CPWG] A white knight on the horizon for .ORG?

[David Mackey]

Greg,

"If we can keep our discussion on track, we will get to a result more
quickly." Your wording seems a bit oblique.

Are you suggesting that discussions around phrases like "End users benefit
from a long-term commitment to the open and noncommercial internet" are off
track?

Cheers!
David

On Sun, Jan 12, 2020 at 5:33 PM Greg Shatan <greg at isoc-ny.org> wrote:

> I think it's critical that At Large focuses on what the future of .org
> will look like, and how we get there.
>
> I don't think there is any legal basis for the .org contract to be
> terminated with PIR.
> Similarly, I don't think there is any legal basis for ISOC's control of
> PIR to be terminated against the will of ISOC.
> It's a waste of time to consider solutions based on these end results,
> whether from the Coalition or otherwise.
>
> However, it is entirely realistic (even it seems unlikely) to think that
> ICANN could block the sale to Ethos Capital.
> If ICANN does block the sale, the result will be the *status quo ante*:
> ISOC will continue to control PIR and PIR will continue to be the registry
> operator for .org.
> Same thing if the sale doesn't go through for other reasons (e.g.,
> Pennsylvania Attorney General review, which appears to be required under
> these circumstances).  ISOC/PIR/.org remain linked.
> At that point, ISOC either ends this exploration or looks at other options.
>
> Alternatively, it's realistic to think that ICANN could put binding
> conditions on its approval of the sale.
>
> Therefore, I suggest that we concentrate on providing advice to the ICANN
> Board on how it should review and analyze this sale.  We should consider
> what criteria ICANN should use, and how these relate to ICANN Bylaws, the
> .org contract, etc. This analysis could result in ICANN blocking the sale
> or imposing conditions on the sale.  If the latter, we should advise what
> those conditions are, and how they would be enforced.
>
> There are multiple legitimate reasons to critique the sale, the seller and
> the buyer -- both the process and the result, and the actions and
> statements throughout.  Unfortunately, there are also multiple criticisms
> driven by self-interest, score-settling, animus, stereotype, exaggeration
> or lack of information; the latter type tends to obscure the former,
> because the latter are more sensational.  We need to separate the wheat
> from the chaff -- a frustrating but necessary step -- and provide the best
> advice we can based on legitimate concerns about this transaction.  And
> it's not a bright line between the two.
>
> Take, for example, the non-profit status of the .org registry operator. I
> see no reason or evidence to show that ICANN or PIR or ISOC were mandated
> or required to preserve the non-commercial status of PIR.  Claims that they
> were have led to some fairly scorching allegations.  But this is a
> distraction.  The better question is forward looking -- being confronted
> with this fork in the road, should the .org registry operator be required
> to remain a non-profit?  If so, on what basis?  If not, on what basis?  In
> either case, what are we trying to protect and preserve about .org as it is
> and as it should be (but not as some wish it had been but wasn't -- e.g.,
> an official non-profit registry)?
>
> If we can keep our discussion on track, we will get to a result more
> quickly.
>
> Best regards,
>
> Greg
>
>
>
>
>
> On Sat, Jan 11, 2020 at 7:44 PM Holly Raiche <h.raiche at internode.on.net>
> wrote:
>
>> A really good summation of what has happened, and why.  The outstanding
>> question for ALAC in this context is whether it was ever in ICANN’s mandate
>> to preserve the non-commercial mission of PIR - or whether it should have
>> been - and whether there are steps that can be taken that can mitigate the
>> for-profit nature of the takeover  - in Katherine Maher’s words, preserve
>> the long term commitment to the open and non-commercial nature of PIR  -
>> now in  the hands of a for-profit corporation.
>>
>> Holly
>>
>> On Jan 12, 2020, at 3:48 AM, David Mackey <mackey361 at gmail.com> wrote:
>>
>> Roberto,
>>
>> "I believe that our two assessment by and large coincide"
>>
>> Agreed!
>>
>> On Sat, Jan 11, 2020 at 11:27 AM Roberto Gaetano <
>> mail.roberto.gaetano at gmail.com> wrote:
>>
>>> David,
>>> Just a point of clarification.
>>> When I was talking about valuation, I was not talking about the sale
>>> price but about an assessment of the PIR assets according to financial
>>> standards. Although I am not an expert, and therefore I might be wrong, I
>>> do believe that the sale price was higher than the objective valuation of
>>> the company, considering the assets including reserve funds, that have been
>>> drastically reduced in the last couple of years.
>>> The reason why Ethos is ready to pay more than the valuation is that it
>>> has a strategy that could extract more value from PIR than ISOC was able
>>> to, and this is, IMHO, a key element in the understanding of the importance
>>> of the operation. My personal opinion is that Ethos wants to change the
>>> business model of PIR - the question is how, and my answer is that this
>>> will be realised through vertical integration with Donuts. This might well
>>> be done via a sale to a different entity that ensures this vertical
>>> integration - in this case I believe that our two assessment by and large
>>> coincide.
>>> Of course, this is just a personal opinion, and I do not have any
>>> information for drawing this conclusion other than what is currently public.
>>> Cheers,
>>> Roberto
>>>
>>>
>>> On 09.01.2020, at 01:19, David Mackey <mackey361 at gmail.com> wrote:
>>>
>>> Roberto,
>>>
>>> I am not an expert of finances either. However, from a broad historical
>>> perspective, I can see the following...
>>>
>>> .ORG established in 1985. Estimated Value = $0.
>>> .ORG transferred from Verisign to PIR in 2003. Estimated Value = $0 plus
>>> right for Verisign to maintain .COM contract
>>> PIR sold from iSOC to Ethos in 2019. Value = $1.135 billion (yet to be
>>> closed)
>>>
>>> I don't have any reason to doubt the valuation of the proposed
>>> transaction. I trust Ethos has done their financial homework properly. I
>>> also have no reason to doubt that iSOC has not done their homework too.
>>> Ethos and iSOC seem to believe they have found fair market value.
>>>
>>> I think it's irrelevant to worry about the valuation of the transaction
>>> in 2019, as agreed to between Ethos and PIR. It's up to the buyer and the
>>> seller to establish a fair market price. I also think it's a red
>>> herring to worry about any potential .ORG domain price increases. That ship
>>> has sailed.
>>>
>>> I do think end users have an interest in whether PIR is sold as an asset
>>> from iSOC (non-profit) to Ethos (for-profit). The mission of those two
>>> organizations are very different. It is well accepted that for-profit
>>> companies only have one mandate to their shareholders and that is to make
>>> money. It's simple and should not be controversial in, and of, itself. They
>>> may want to protect the value of their asset, PIR, but their overriding
>>> mission serves the interests of their shareholders.
>>>
>>> I think many people are missing the nature of Ethos's investment.
>>> Although ICANN may add guard rails to protect against pure-profit
>>> behaviour, I suspect the investment payoff to Ethos is when they sell their
>>> asset in the future. A metaphor that can be used is when a company
>>> purchases a building. They maintain it and collect rent for a number of
>>> years, but the big payoff is when they sell it for capital gains in the
>>> future. Capital gains is the profit motive, not the rent/revenue that's
>>> earned each year while managing the asset. Hence, it is highly likely that
>>> Ethos is making a $1.135 billion bet that it can maintain and grow the
>>> value of PIR, so that it will make more than $1.135 billion in the future.
>>> This is what private equity companies do. If Ethos is successful, PIR will
>>> be worth more than $1.135 billion in the future. Still the current and
>>> future valuation of PIR is not relevant to end users. End users are often
>>> well served by properly functioning capital markets in the right context.
>>>
>>> However, in this case, it's the switching of the organizational mission
>>> from a non-profit, iSOC, to a for-profit, Ethos, which causes problems and
>>> risks for many Internet stakeholders and end users. Current .ORG
>>> registrants are switching from assumed stakeholders to Ethos/PIR customers.
>>> The nature of the relationship is changed during the transaction.
>>>
>>> Regardless on how this is done, I believe Katherine Maher, CEO and
>>> Executive Director of the Wikimedia Foundation, makes a valid point in
>>> wanting to preserve "a longterm commitment to the open and noncommercial
>>> internet". Hence, I believe At-Large End Users interests do not align with
>>> iSOC organizational interests for purposes of this transaction.
>>>
>>> Cheers,
>>> David
>>>
>>> On Wed, Jan 8, 2020 at 4:06 PM Roberto Gaetano <
>>> mail.roberto.gaetano at gmail.com> wrote:
>>>
>>>> Hi David.
>>>> One sentence in your email prompts another element that we want to
>>>> consider if we want to build a complete picture.
>>>>
>>>> > On 08.01.2020, at 20:51, David Mackey <mackey361 at gmail.com> wrote:
>>>> >
>>>> > < ….. >
>>>> >
>>>> > I guess it's not totally surprising as we've seen the Internet expand
>>>> over decades across the globe to the point where organizations like PIR are
>>>> valued in the billions of dollars.
>>>> >
>>>> > < ….. >
>>>> >
>>>>
>>>> I am not an expert of finances, but I believe that the sale price of
>>>> PIR is appropriate for granting ISOC a steady income - once invested - that
>>>> is at least what PIR was providing.
>>>>
>>>> OTOH, I am not convinced that the current value of PIR is above a
>>>> billion - but I may be proven wrong. Whatever the case, we should wonder
>>>> why Ethos believes to be able to extract from PIR a higher revenue than
>>>> what PIR produces today.
>>>> IMHO, the ability to raise price is not the good answer. This ability
>>>> is provided by the contract with ICANN, and predates the sale - so it is
>>>> something that ISOC has without doubt factored in the sale price.
>>>> The best chance to increase the profitability comes from a different
>>>> business model or a different corporate structure (or both, obviously). The
>>>> first thing that comes to my mind, that I have hinted already in my early
>>>> comments - but then not elaborated upon - is vertical integration. I am not
>>>> claiming to be an expert on the domain name business, but as co-chair of
>>>> the Vertical Integration Working Group I have learned a lot.
>>>> PIR, as registry, has to treat all the registrars equally. When PIR
>>>> owned a registrar, it was obliged to provide to all other registrars the
>>>> same information given to it. However, a registrar can pick and choose
>>>> registries to partner with and with whom to share information even of
>>>> strategic nature. Considering the relationship that folks in Ethos have
>>>> with Donuts, it would not be surprising to see in the future a
>>>> collaboration where - to be compliant with ICANN rules - Donuts is running
>>>> the show, and PIR would set its business accordingly.
>>>>
>>>> Should we take this also into account to assess the situation? Maybe we
>>>> should. But maybe the first step could be to discuss whether this is a
>>>> reasonable scenario or whether I am off the mark.
>>>>
>>>> Cheers,
>>>> Roberto
>>>>
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