Skip Hoagland's offer to finance the sales of some or all of these domains presents domainers with an interesting opportunity. One of the lovely things about domains is that they provide the most reliable type of security for performance of debt obligations. Automobile debt secured by a lien on the vehicle, and real estate debt secured by a mortgage or trust deed is considered very well-secured, because repo-men and mortgage foreclosure attorneys accomplish their duties relatively efficiently. But compared with the ease with which a domain owner can "repo" a domain name, these sources of security are clumsy, slow and costly.
Skip Hoagland obviously understands what good security domains provide for performance of the payment obligation, because he's offering to "carry the paper" for 15 - 20 years at 3%. I haven’t seen the financing agreement, but this could provide an excellent opportunity for someone to carry away an incredible bargain.
One of the interesting take-aways for me from this article is Skip's comment that "if you are not willing to work 16 hours per day versus just 8 hours, you will never compete against those who do." If you de-personalize the meaning of this comment, what Skip is saying to people in the business is simply that "magic ingredient" is management skill and hard work.
Accordingly, I see another alternative for those, like Skip, with large domain portfolios that have long-term value and a need for current, active management. David Bowie pioneered what are now called "Celebrity Bonds” in 1997, when he raised $55,000,000 by creating a music-powered portfolio and securitizing an income stream from 25 albums. Bowie Bonds were a good investment until 2001, then declined in value until 2004, and finally fell of a cliff along with music industry royalty revenue generally.
So what does this tell you about Bowie? Did he see the emerging trend before industry insiders, or was he was just lucky to pull the ripcord at the right moment? Either way, he avoided the sorrows of many musicians who saw their revenues decline precipitously as the world went digital. It’s worth remembering that his alter ego’s name was “Ziggy Stardust, the Man Who Sold the World.”
But back to domains. Why would securitizing a package of domains be a good financial vehicle? Well, for several reasons:
- They are easily protected from theft and misappropriation (provide good security)
- They provide discrete revenue flows that can be easily tracked and accounted for.
- They benefit from active management, and the trustees / managers of the security can hire good managers to assure investors that the domains will be managed to generate maximum revenue flow.
- They can easily be liquidated, purchased and transferred, so the portfolio does not need to be static.
- A diversified portfolio of domains would provide diversified income streams, so that different social trends can be handicapped in order to surf the waves of future media.
The mechanics for creating a securitization system for domains would not be difficult, requiring only funding from creative investment bankers and crafting of the right documents. Launching the vehicle on an exchange would probably be the biggest challenge, but one that can easily be met when the right portfolio presents the opportunity.
Domainers of the future will want to take a look at securitization of domains. Meanwhile, they can see what kind of deals Skip Hoagland is offering. I'd love to hear what domainers do with his proposal.
