Parking company leases domain portfolios for 6-12 months, pays cash up front to owner.
At last month’s Domain Roundtable Conference in Seattle, DomainSponsor’s Director of Business Development, Ron Sheridan, said that his company is aggressively pursuing domain leasing deals. This is not a well-known concept in the domain name parking world, so I followed up with Sheridan to learn more about how the DomainSponsor leasing program works.
It’s important to note that we’re not talking about leasing domains on an ad hoc basis, such as through services including LeaseThis.com. Instead, DomainSponsor leasing is a 6-12 month agreement between DomainSponsor and a domain portfolio owner whereby the portfolio owner gets paid upfront for his or her traffic. It’s a way for domain owners to get capital with no interest charges to invest in their businesses or manage their finances. DomainSponsor takes the risk for future performance and the domainer gets a guaranteed payment upfront.
Here’s how it works. You present a portfolio of domains you own to DomainSponsor. These domains must have been registered for a while and you need to have stats to back up the traffic and revenue from the domains. “If the domains aren’t parked with us, we’ll run a test period with the portfolio,” says Sheridan. “During this test, we’ll guarantee their historical RPM so there’s no risk in moving the domains.â€ Tests are typically two weeks.
After reviewing the statistics and accounting for seasonality and traffic fluctuations, DomainSponsor will make a lease offer. For example, DomainSponsor may offer to pay $100,000 to lease the traffic for 6 months. The lease will specify the amount of traffic you are required to send to DomainSponsor. For example, assume your portfolio averages 1M visitors per 6 months. Your lease payment of $100,000 would require you to send 10M visitors to DomainSponsor during that period. If you fall short, you will have to forgo some of your payment. DomainSponsor typically holds back 10% of your payment until the end of the term in case traffic falls short.
There are a couple of key benefits to domain owners for leasing their domains. One is obvious — cash upfront that you can reinvest in domains or spend on a vacation. Also, DomainSponsor effectively guarantees an RPM to you during the lease. For example, say you deliver your 10M visitors and you had been earning a $10 RPM. That would generate $100,000. But if the RPM slips to $5, DomainSponsor would eat the difference and you get to keep your $100,000. (Note: I’m using these RPMs for simplicity; my experience with DomainSponsor is that their average RPMs are much higher.)
So what’s in it for DomainSponsor? If your portfolio delivers more traffic or a higher RPM, DomainSponsor captures the upside. Also, it allows DomainSponsor to earn a more predictable revenue stream by locking in the traffic. Lease structures are flexible; DomainSponsor will consider sharing in some of the upside and downside with the domainer.
Much like a private equity or venture capital firm with billions to invest and not enough companies to invest in, DomainSponsor is aggressively pursuing these leasing deals. “We have a rather substantial amount of capital available for these types of deals,” says Sheridan. “It’s unlikely that someone in the industry could bring us a portfolio that we wouldn’t consider. We have a significant shortage of deals for the capital we have available.â€
Many successful domainers will qualify for a domain leasing deal. For example, he says, DomainSponsor has been known to give “advances” to customers with unexpected expenses. One requirement is that the lessor must own the domains; they can’t be portfolios managed for others.
This idea is not completely unique. Sheridan points out that lock-in and hedge deals occur in other industries. Consider a wheat farmer who locks in his price per bushel in advance of harvesting. The difference with domain leasing is that you get paid upfront and deliver your ‘crop’ over an extended period of time.
Although lessors are required to send a specified amount of traffic, they are not prohibited from selling domains in their portfolio during the lease. “We don’t have as strict a policy as you might imagine on that,” says Sheridan. “We want publishers to be able to manage their businesses effectively,” he continues. “But if the name has a substantial amount of traffic at a high RPM, we need to talk about it [before selling].” He gives the example of one domain skewing a portfolio due to high traffic or a high RPM. Sheridan adds that as long as the lessor can fulfill the traffic requirements, DomainSponsor is “not concerned about locking in any specific name.”
DomainSponsor customers who are interested in leasing may contact their account managers. Sheridan says non-customers interested in leasing who meet the revenue and ownership requirements should contact email@example.com.