The old saying applies to domain names as well.
There’s an interesting thread developing at DNForum right now about “Fixed Income Domains” that were offered in the Big Ticket Domains email newsletter.
Big Ticket Domains is a domain brokerage with a frequent newsletter run by Kevin Leto. In December 2009 the newsletter started touting a new option — “Fixed Income Domains”.
The idea was that you would buy a domain name for a fixed price and then Kevin would then pay you that much income back over a certain period of time. Big Ticket Domains would develop a site on the domains and generate ad income for itself, then you could keep the site running with the ads afterward.
Curious, I plunked down $750 for GolfingVideos.net. Kevin was to pay me $50 a month for 15 months, totaling $750.
Now this domain name really isn’t worth much money. But I was curious to see what the hook was. From a business perspective it would be a 0% return plus a domain name after 15 months. For Kevin he would basically pocket the money he earned from advertising over those 15 months. It seemed a little suspicious, but I figured I’d see what it was all about.
But then alarm bells went off in February 2010 when Kevin started offering domains for $1,000 that would pay back $1,300 in 13 months.
That’s a 30% return in just over a year.
Then in August the newsletter offered a $1,500 domain that would pay $2,400 in just 12 months.
That’s 60% in one year.
0% a year is intriguing. But 30% or 60% in a year is a problem when the typical guaranteed investment is paying around 1%. Why would someone offer a 60% return? If they could actually make that much money with the domain in one year then they’d develop it themselves and keep the 60% profit.
It was then that I received an email from someone who noticed I’d bought one of the Fixed Income Domains. He said he hadn’t received all of his promised payments yet. Over time this person just passed it off as a bad call and moved on.
I talked to Kevin this afternoon and he says few people bought the fixed income domains. He says 10 people are owed money from the program.
When you see something that seems too good to be true, it probably is.
You’ve heard it a million times. And it’s true.
It was good speaking with Andrew and discussing how the concept evolved.
The thread on DNF has a lively discussion.
Kevin
Not a good month for few fellow DNF members. There’s another thread about another member.
http://x.co/Txqp
Where I’m from this scheme is called an “investment scheme” and requires the seller/operator of such business to be registered as an investment broker or publicly traded company.
Sounds like an ole fashioned ponzi/madoff scheme.
One could get money up front for renewal fees so you don’t have to sell domains under duress.
Amazing that for such a small amount of money the payments were not even honored.
One wonders why the domain industry is looked upon so negatively but when you have an instance like this, from a top figurehead, than it becomes fairly clear.
Gimme $50K for WinningSex dot com — I’ll give you a bag full of $10’s and $20’s in five or ten years 🙂
I don’t understand why you would buy something for $750 to get $750 over 15 months. That is just losing money and adding extra risk for no reason.
Andrew has made $550 so far on a domain he bought for $750.
So the concept and advantage for the buyer was to get a domain at no cost.
If you read the thread on DNF I’ve explained the concept in depth. And several agreed a good idea but would work better with larger value domains.
I don’t know any of the parties involved, but it would seem to me that unless Big Ticket Domains (Kevin) is totally out of money, it would be worth it for Kevin to pay the small amount of money he still owes, to salvage his reputation. If he can’t pay it due to cash flow problems, he should be more clear about that, but if it is just that his main brokerage business is making money but this side venture did not, then that is not a valid excuse.
I don’t think it was setup as a Ponzi scheme or scam, but when he does not follow through with his promises he can’t get too upset when the people he owes money to start posting things to try to get him to pay.
As an owner of 9000 domains, I do appreciate Kevin for trying new ways to make money from domains, and I think it is great in general to keep trying new business ventures even if all of them don’t always work out well.
This is just a big bowl of wrong.
I’m not an attorney but I wonder if this “venture” could in fact be illegal. It seems to be on the fringe of an unrestricted securities offering. Any thoughts from attorneys out there?
The way I’m reading it, the real income wasn’t supposed to come from ad or other revenue generated by the site. It was basically an unsecured loan that was used to flip *other* domains for profit.
Initially the profit from flipping was to be kept 100% by BTD. Later it looks like a portion would be used as an enticement to bring in other investors.
So the $750 that Andrew paid was used by BTD to purchase a completely separate domain which would be flipped. Two totally separate deals. The “hook” is that at the end of the term, the reward for investing at zero percent would be the ownership of “golfingvideos.net”.
It’s innovative but extraordinarily risky on so many levels.
First, as we all know domains are highly illiquid but for a broker of his caliber it’s certainly possible. However, fundamentally there’s no way to accurately appraise the purchased asset (i.e. the domain to be flipped) like housing, and there certainly isn’t a market maker to bail you out.
Second, the initial reserves to make this work would need to be very high. Similar to a bank’s reserve ratio. Especially if you make a mistake; imagine taking in $100k then purchasing a domain that can only be liquidated at $50k. Unless there’s $50k in reserves, the “bank” is going to be totally exposed with no recourse. It certainly seems like that is the crux of the problem in that thread (cash flow).
Imho, this definitely isn’t a ponzi scheme. It was simply an attempt to translate a model that already exists in real estate into the world of domains. The question is whether it would ever work with trying to profit from illiquid assets.
Fwiw.
Thank you SL and you are correct. And this is a good platform concept to provide a benefit for both buyer and seller. It just needs some tweeks and the domain market to be more fluid and predictable again.
I read the post on DNF and other forums.
It seems like the idea was reasonable to start with, but when you start offering 30% – 60% returns it becomes highly questionable.
If might not be a pyramid scheme, but the idea is the same. You need to bring in more capital to keep the system going and pay the early investors.
To bring in more capital you need to increase the incentives as time goes on.
If people could “guarantee” that return they would not need outside investors.
Brad
I don’t understand how people invest in these schemes.
The average domain investor is smart enough to tell the difference between the smell of roses and bs, but not for these schemes it seems.
Or is it just that greed clouds the mind?
Did anyone else participate ??
~Patricia – DomainBELL
@Brad: “To bring in more capital you need to increase the incentives as time goes on.”
I think most would be happy with a constant 10-20% return. No need to keep increasing the payout or number of investors *if* there are enough reserves and backend sales. That’s why I don’t think it necessarily falls under a Ponzi scheme.
The problem is how to generate that 10-20% from the money taken in, and retain investor confidence if they don’t. Hedge funds can compare their returns to the S&P as an excuse for losses, and simply sell enough to cover redemptions. But only because the underlying assets are highly liquid.
With this arrangement (domains), it’s an illiquid “asset” combined with a guaranteed return to the investors. Seems like some risk needs to be shared by the initial investors to make it work.
Patricia – the beta was just 8 of my clients and James had 2 of his clients.
People are really misunderstanding. Like in Andrews case he bought one domain for $750 which got transferred to him and he made $550 in 11 months and he has 4 more income receivables remaining to complete his agreement.
The concept I explained in depth on the last pages and it works like a sale leaseback on a commercial property building.
Pat here is copy of the post to Acro explaining how the concept was evolved.
Many of my brokering clients wanted to find a way to monetize their domains that would
produce more steady and predictable income than PPC does and enable more sales on their domains and
at better prices than the market was providing.
So I went to work trying to innovate a solution. I figured the best way to create a platform to enable
this was to look at real estate platforms and wall street platforms and see if anything could be adapted to
domain monetization platforms.
That’s how the idea for taking the real estate Sale > Leaseback monetization platform and adapting it to domains
came in my creative thoughts.
In a sale leaseback deal a company sells a property asset and then leases it back. So the company has now
generated a capital inflow for their business and continues to use the office space in the building.
I then looked at modifying that for a domain monetization concept and figured why not sell a domain in the same
way, generate a capital inflow, then generate a greater long term capital ROI than the monthly cost of capital during
a set period of 1 or 2 years. This would create a way to enhance the values for domainers and provide a way for them to
sell more domains since with this type of fixed income flow the domains would have a more predictable monthly income vs.
the variable flow of PPC and the like.
Then you could achieve the greater ROI by either profitable domain sales during the year term, plus ad sales, and other
rev generators with strong ROI’s.
>From my side it would create a great network of domains to eventually broker for clients down the road as well as increase
the client base by providing a new way to make more money than PPC. And the risk
was relatively marginal since during the 1 year beta it was a limited amount of domains to work with.
The clients would end up getting each domain they bought at for free as it would be a zero cost acquistion by the end of the 1 year term.
And then as Andrew illustrated I tweeked the concept to add an extra period so they could have a profit also of at least 20%.
And that is the platform’s concept in a nutshell.
I agree with what a couple people suggested it would also work better with higher value domains to lessen the risk from my side.
And for bigger 6 and 7 figure domains there is way to enhance sales, domainer income and portfolio values by integrating advertising agencies, wall street funds, and end users into a more complex variation of the platform that I think would work really well.
*
Bernie Madoff is serving time for a similar setup.
If something is too good to be true, then it probably is.
In such schemes, early investors often make money, but it’s the Johnny-come-latelys that lose.
Just be careful before investing in such schemes. The person offering the deal may have good intentions, but, sooner or later, he’s going to find himself unable to make payouts, and you can’t go after assets that don’t exist.
*
Not so Ms D.
This concept is just like a sale leasback transaction not a perpetual payout deal like Madoff did. And the buyer gets a domain first of all and then there is a limited 1 year time period just like a lease. So even in the worst case scenario they still have the domain they got out of the deal.
This is a ponzi scheme if older buyers get a single cent from their montly payments from newer clients.
Furthermore, the websites are pure bullshits!
GolfingVideos.net has no added value and link massively to another crapy website shoppingspecials.tv
Just surprising that Google index such websites.
This is clear that an intelligent domain monetization approach can’t be open to external domainers.
Such a system has always a limited room for domains (1000, 20k at a maximum, corresponding the amount of find grained topics), and therefore, it is never interesting to let get in domainers with their bunch of domains. They will fill the available room with domains, but as they are way more domains that can work with such a system than the available room, why loose time with domainers that bring you no added value, and create niche duplication.
Furthermore, if the system is largely automated, their added-value is even poorer, and if the system require the user to work, e.g. to create unique quality content, as this mob is known to be lazy, it won’t neither work.
I think these are the reason why all opened systems have failed so far.
Kevin can spin this any which way he wants, this is nothing but a scam. He is still refusing to pay people their payments and over this weekend i will be in discussions with a few ‘investors’ as how to address this scam through legal measures. We are not talking a couple hundred bucks or even a couple thousand bucks. its much more than that
“Like in Andrews case he bought one domain for $750 which got transferred to him and he made $550 in 11 months…”
From the clients’ perspectives, did they really want the actual domain names or were they buying in to the concept of making 40%+ on their investments?
For instance, did clients really care about buying a name like SouthBeachMiamiProperties.com for $1,250, or were they interested in earning “$1800 @ $150 Per Month For The 1st Year!” (This name was previously offered and is now owned by someone else).
Andy – I agree, the problem is domains like SouthBeachMiamiProperties.com and GolfingVideos.net only seem to be worth those sales prices if they are making the level of ppc/ad income Kevin promised, so if they then end up making a lot less money, then their value is much lower and there is little chance they will ever sell. If the buyer still wants the domain anyhow then this is not a big problem, but if they were just speculating, then it becomes a problem since getting the domain for “free” is not really of any value to them.
I can tell you in my case the thought was the domain won’t cost me anything and Kevin will try to develop it to get some traffic. So after the first year if it’s getting traffic it would make money.
Of course I was only offered what I paid. If someone offered me a 40% return I wouldn’t care at all about the added traffic after the payback.
Hi All,
Let me illustrate the value here in a “case study” manner so more will understand how this benefits the buyer of
a fixed income domain.
I’ll use Andrew Allemann for the case study since he was the first to buy a fixed income domain.
Andrew paid $750 for GolfingVideos.net. He then got full ownership and the domain pushed to his Fabulous account.
Andrew next made $550 in the first year from 11 fixed income payments of $50 each.
Here is Golfing’s traffic for 2010.
Month UV’s Visitors Page Views
Jan 2010 93 148 793
Feb 2010 78 201 400
Mar 2010 101 344 829
Apr 2010 124 321 1420
May 2010 113 374 1318
Jun 2010 191 772 991
Jul 2010 173 1448 1624
Aug 2010 161 678 776
Sep 2010 85 282 379
Oct 2010 58 189 280
Nov 2010 57 198 270
Dec 2010 79 224 359
Total 1313 5179 9439
So now lets say Andrew decides “Hey thanks Kevin for the $550 of income to this point from my 11 payments so far,
I’m going to just sell the domain now and cash out of the program”.
So he bought Golfing for $750, he’s made $550, and he’s decided to opt out and sell at that point,
so his net cost of acquisition is now only $200.
Next, I’d like a few domainers here to chime in and post what they think Andrew could sell GolfingVideos.net if he put
it on the market today.
Your estimates: ?
Andrew is a very astute buyer so I’m sure when he acquired it in the back of his mind he calculated
the worse case scenario of what the domain could resale down the road.
Let’s say he could only get $500 for it after the one year of owning it. Anyone doubt that? I think
he could get even more, but lets keep it that he could only get $500 for it.
So he posts it for sale and finds a buyer for $500.
Now do the math. He bought the domain for $750. He made $550 in income and then lets say sold it for only $500.
So his net investment cost was $200 and he flipped that for $500 and thus made
a $300 profit on a $200 net cost of investment for the year.
So even figuring if someone only stayed in the program for 2/3rd of their term they could
still make it quite profitable.
And even if someone stayed in for 1/3rd they could exit and still make money by reselling
the domain.
@Kevin
TBH, I think GolfingVideos.net is pretty low value name as a stand alone domain.
“Golf Videos” is the dominant term.
I don’t see anyone paying $500 for this domain unless it has good traffic and revenue.
If someone really wanted the term they could just hand reg the .ORG
Brad
I wanted to add the search volume –
“Golf Videos” – 9900 Phrase / 3600 Exact
“Golfing Videos” – 140 Phrase / 91 Exact
I just don’t see much value with that term in .NET (outside any traffic and revenue).
Brad
Kevin – Thank you for that detailed info. That helps a lot. I am impressed GolfingVideos.net got that much traffic, but the bigger issue is how much money it was actually making. At that traffic level, I assume it was making less than $50/month (maybe $10/month?) , so you were losing money on it. Was the hope that by doing SEO you would average over $50/month from it? Or, for example, was this domain really only worth $100 to you at the time of the sale, so if that is all you netted from it ($750 sale proceeds – $50/month lease payment + ad income) was $100 you would be happy, and so would the buyer?
Hi Eric,
Thank you I’m glad it clarified the concept some more.
I feel the domains the buyers selected would all be the in the $250 to $3500 tier range and that way after each month’s payment it increased the profit, value and benefit of the deal for them and yes then increased my cost factor accordingly based on rev performance.
And again James is a very bright individual and he liked the concept so much he kept asking me repeatedly to market it. As I’ve posted, I was reluctant at first since I wanted to see what my precise costs would be during the year term, but he was so enthusiastic I caved in and said ok but just a couple of your clients until any variants in the performance assumptions could be determined on a predictable scale.
Kevin – What I am asking is what was golfingvideos.net worth to you at the time you sold it? Would you have not sold it for less than $750 to a different buyer (not using the sale/leaseback structure)? Or would you have been happy to get $100 for it.
I understand that now with content/traffic/income it has a higher value.
I usualy list domains from my own inventory at prices ranging from $15k on the high side to $250 and then do specials like weekend discounts, holiday discounts, and those can range from 1/4 to 3/4 discounts.
So on the case study domain, on a discount day in the newsletter I would go with about a $500 max price reduction and not been thrilled LOL but whatever ok on it.
One thing I’ve learned in all my years of buying and selling domains is you have to be flexible in your price expectations in accordance with the marketplace conditions.
The first thing I ask a client when they send me a domain to sell for them is “what is your price objective?” so I can see if they are in sync with my valuation of their domain and then work out to what range of price expectation they would be content with.
Getting a realistic price is one of the hardest aspects of brokering. And then when you have a buyer but the seller won’t budge it makes it quite a job and usually a frustrating experience.
The majority of clients on the high price domains are now aware of the reality of the new market prices and setting revised price expectation to make their domains saleable. But I do still have some that refuse to negotiate with buyers offering for example $1 Million for a domain where the seller is fixed on $2 or $3 Million.
Kevin – All that is logical, but what i don’t understand is how you expected to make money from the sale/leaseback. If GolfingVideos.net was worth $500 to you, then for the deal to be worth it fro your prospective, you would need to have made at least $500 in ad income from it during the lease period. While that may be possible, and certainly something to shoot for, it seems like an unrealistic target. Am I missing something? Or, did the domain make that much? Or did it get a lot less traffic than you expected?
KRL,
1) Did you think a domain name like GolfingVideos.net would earn $750, the cost of the domain name, in revenue in one year, despite it’s low search volume?
2) If you thought a name like GolfingVideos.net could make $750 in a year, why in the world would you ever sale it for one year revenue multiple?
3) You promised people that they would earn a fixed monthly income. There were no exclusions or other investment disclaimers that said if something goes bad they don’t get paid. So why haven’t you paid your obligations to these people? Would a bank allow you to pay your obligations when your business turns around or would they tell you to come up with the money?
The guy who started the thread on DNForum seems to need the money more than Andrew. Would he and investors have bought into this “idea” or whatver it is if they knew payments would only be made if your “idea” works out and when you can pay? Doubt it, as it appears they were told it was fixed income domain names and they’d be paid x every month.
Kevin Leto can twist anything and everything. He answers all but the tough questions – like the one above.
I DOOOOO need the money and Kevin knows I need the money.
The Golfingvideos.net website is a poor long tail agregator with very limited traffic.
The website is 100% based on Youtube, even the tags, and tag navigation.
The added value of such a website is 0.
Furthermore, this website is against Adsense TOS for Youtube, as you have to exclude content from Youtube to be taken into account for Adsense (with a dedicated commentar).
“So he bought Golfing for $750, he’s made $550, and he’s decided to opt out and sell at that point, so his net cost of acquisition is now only $200.”
What’s the opportunity cost that he lost ? For $750 he could have picked up 10 better backorders on NJ
“Next, I’d like a few domainers here to chime in and post what they think Andrew could sell GolfingVideos.net if he put it on the market today.”
I’d say this domain is worthless than the $200
“Andrew is a very astute buyer so I’m sure when he acquired it in the back of his mind he calculated the worse case scenario of what the domain could resale down the road.”
I’m sure in the back of his mine he did some calculating, but I’ve got a feeling it was a different sort of calculating.