I have seen many people selling the domain names of celebrities, athletes, politicians and other famous people. These people typically sell the names under the guise that they can be built into fan sites. Since fan sites may not generate revenue, it’s a form of expressing freedom of speech and protected under the First Amendment. While it may be true that owning a fan site on a domain name that uses the celebrity’s name is perfectly legal, by selling the name (or even buying it), the burden of bad faith may may be met, as the seller is profiting from the celebrity whose name made that domain name worth something.
If someone sells the domain name of a well-known person, they are presumably profiting from that person’s good name. By this virtue, bad faith may be claimed by the celebrity, putting the domain name in peril. As some WIPO panels have recently ruled, a change in ownership can be likened to a new registration. Because of this, buying the domain name of a famous person could be the precurser to a UDRP ruling.
Of course I am not an attorney, so this isn’t legal advice, but just my opinion and general domain advice.
Owning a Celebrity Domain Name
When Buying .org Domain Names
I am going through a huge list of .org domain names, and I happen to be sitting here with my fiancee (well, she just left when I started blogging). The list of names I am looking at consists of a couple thousand .org names in every vertical, language, tense…etc. My fiancee saw a few good names that I would have bought in a second if they were .com, but I explained to her why I wouldn’t buy them in the .org extension. I am happy to blog about my thoughts as I have been asked before.
I believe .org is a good extension if the name makes sense to be in the .org. Since .org stands for organization, I believe the name should either make sense as an association of the term or as a group of that specific term. While .org doesn’t get as much play with commercial domain names, you can still make a commercial venture out of an organization.
Soccer.org would be a great domain name for a soccerl-related organization. If I owned it, I would build a directory of soccer clubs throughout the country. You could offer teaching tools, organizational tools or other enticements to sign up for the organization. I don’t think a name like Grapes.org would make sense as a .org, because it just doesn’t make sense as an organization.
As far as I know, almost anyone can own or develop any type of domain name, with the exception of .gov, .edu, and some country codes. However, we need to keep in mind that consumers expect certain things from certain extensions. If a consumer navigates to a .gov website, they expect to see something related to and managed by the government. If they navigate to a .edu website, they expect and educational website owned by a school or teaching institution. Likewise, they would expect the .org to be managed by an organization or association related to the actual term in the domain name. This can be a big advantage.
Buy a Domain Name and Start a Business
One of the coolest things about owning a domain name is that you can get into just about any type of business your heart desires. Domain ownership breaks down some of the barriers of entry in an industry, and it allows you to jump right in feet first. You don’t necessarily need to sell product or services to be in a particular business, and you can make your own niche in the industry.
Let’s say you always wanted to be a travel agent or restaurant reviewer. You can buy yourself a domain name, easily set up blog software (or have someone do it for you), and start writing. You might not become recognized as the next Frank Bruni or Robert Parker, but you can carve your own niche because you can offer a unique perspective that they can’t. There are thousands of people who are similar to you, so why not reach out to them and share your interests? With a bit of web design and marketing help, you can create a unique site that tells people who you are and why you are pursuing this business. Maybe it won’t grow from anything more than a hobby, but the more you write, the better chance that someone will read it and be interested.
All it takes to do this is a domain name and an interest in a particular business. A friend of mine owns a highly targeted domain name (with an affiliate website), in the same industry my father’s been in for 30+ years. I told my friend that he should attend one of the semi-annual industry trade shows. With the domain name he owns, he will instantly receive respect from the wholesalers and exhibitors, even though they probably haven’t heard of his website. Having a well-targeted domain name tends to do that. People assume that you have a well-funded and respected website when you own a great domain name.
I am not a tax expert and this is far from “real” tax advice, but if you started a French restaurant review blog and generate revenue using Adsense or direct advertising sales, I would imagine you could deduct some of your dinners, as that would probably be considered a business expense. Why not get into a business that you are passionate about? It’s as easy as buying a related domain name and simply uploading blogging software or having a designer create a website that reflects your personality.
Of course you could do much more with a domain name than start a blog. You could build a directory site or e-commerce site with a little more work. By purchasing a domain name, you are buying a piece of land in the business district of your choice, and you can build whatever you would like. Is jewelry your thing? Why not set up shop on Jeweler’s Row on Sansom Street in Philadelphia? Want to work in the stock market? Why not buy a property on Wall Street? With domain ownership, you can virtually open a business anywhere you want!
Euros vs. Dollars in Domain Names
If I sold a domain name in June 2001 for $1,000,000, it would have only been worth roughly €1,173,000 Euros. If I sold the same name for $1,000,000 in November of 2002, it would have been worth roughly the same amount in Euros. Today, if I sold a domain name for $1,000,000, it would only yield €637,800 Euros. The name would have to have sold for close to twice the price to equal the same value.
While the value of domain names has risen over the same time period, the appreciation of the domain’s value may lose out to the depreciation of the dollar. When considering whether to accept an offer, it’s important to keep in mind.
Clearly, with the lower valuation of the dollar, domain names are becoming cheaper to buy for European investors, although I haven’t noticed an uptick in European investments. I am not an economist and can’t speculate why, but the declining value of the dollar may make you think twice about turning down a large offer and using those funds in a non-US dollar-driven investment vehicle.
Domain Name Valuation Based on Revenue Multiples
Industry professionals occasionally debate about whether buying based on a pay per click revenue multiple is smart, and on what revenue multiple is appropriate to make a purchase. Naysayers (like myself) will argue that there is much more to a domain name than PPC, so simply using a revenue multiple is short sighted. Many who use revenue multiples argue that it’s one of the easiest and best ways to value a domain name, and it is especially important when buying a group of names or a portfolio.
While I don’t believe names should be bought or sold simply on a PPC revenue multiple, I do believe domain names should be bought based on some sort of revenue multiple. In any major business, marketing spend is typically allocated based on the return that is expected from the investment. Most of the time, the company will use a model to project a return based on expected response, lifetime value, depreciation, attrition…etc, etc. They will input the variables they know from past experience and make an educated guess on variables they don’t know. This gives an annual rate of return and can help place a value on an investment.
Using similar calculations based on my past experience, I come up with a value for a domain name before buying or selling it. I like to use 3-5 years as the amount of time to earn back the initial domain investment, but it varies depending on the domain name and my plans for it. With geographic domain names, I can determine approximately how much revenue I will be able to generate based on advertising sales, and I can justify a purchase price based on that. Had I used PPC multiples, I probably wouldn’t have been able to justify my purchase price.
When doing a calculation such as this, keep in mind the cost to develop and maintain the website, the cost of data and data entry, and the time it will take you to make the sales or the cost of paying someone to make the sales. Just because a domain name can make $100,000 per year as a website doesn’t mean the name is worth $300-500k based on my thinking. Since the cost of building and maintaining a website can be high, and the time considerations can be great, it is important to keep these figures in mind. While this isn’t perfect, it can help determine the value of a domain name to make an offer or a sale.
Domain Name Registration Dilemma
One of my father’s business associates of 20+ years has a company I will call “J. Smith”. Most of their products are sold via private label, but they do use their brand for some direct to consumer sales, although they are always sold in retail stores as they are a wholesaler. Today, I navigated to his website, “Smith.com” and got an error page. I did a Google search and found that his company website is actually “JSmith.com.” I did a Whois search, and lo and behold, “Smith.com” was previously registered but now remains unregistered.
I called my father’s friend on the phone to talk about a couple of things and to catch up. During our conversation, I told him he should really buy his last name .com, either for his business or so nobody could do anything with it. Since he doesn’t use the domain name for anything other than email and a placeholder, he was reluctant and didn’t seem interested. I told him if he didn’t want it for his business, he should buy it for his son who might want it down the road. He said he would tell his son, but who knows if he will.
As savvy as I have become, I’ve found that there are many people who don’t realize the importance of a domain name – especially their own last name! Anyway, I am wondering if I should register the name for him. What do you guys think?