ICANN posts a net loss for the first time since its incorporation in 1999

ICANN’s published its most recent Form 990 tax return last Friday for fiscal year 2018. Form 990 is a financial disclosure required by law to be made annually by non-profit organizations in the United States, and if financial stability is a metric of overall organizational health — and we argue that it is a critical indicator — then ICANN’s vital signs are troubling to say the least.

In fiscal year 2018, ICANN — for the first time since its incorporation in 1999 — has posted a net loss. IThe return covers the financial year ending June 30, 2018. Here are some takeaways from the tax return:

-Net assets fell from $465 million in FY 2017 to $451 in FY 2018.

-Revenue fell from $303 million to $137 million; the prior year had a big boost from auctions including .web.

-Expenses were essentially flat year-over-year, down less than $1 million.

Top contractors who too quite a chunk of the cache includes

  • Jones Day, ICANN’s regulart law firm  received $5.4 million, down from $8.7 million in 2017 for legal expenses.
  • Zensar Technologies, the IT consultancy that develops and supports ICANN software. It received $3.7 million.

In total ICANN paid 183 contractors and employees six figures.

The  EO Göran Marby, who now earnins more than his immediate predecessor Fadi Chehadé but a bit less than last-but-one boss Rod Beckstrom took ome a compensation was $936,585, having received a bonus of almost $200,000 during the year. His base salary was $673,133 by far the biggest earner.

In total 12 employees/contractors had compensation of $400,000 or more. This number balloons to 18 when you consider untaxed compensation. 9 employees/contractors had compensation of $300,000 or more, with six people popping up to $400k when you consider untaxed compensation.

What happened?

Greg Thomas, Managing Director of The Viking Group LLC opines in his CircleID post;

“Well, much like the 20-something millennial that it is, the ICANN organization has overestimated its ability to spend while neglecting to prepare for the proverbial “rainy day” when revenue reality doesn’t live up to rosy projections. More than half of its current shortfall can be accounted for by an inexplicable human-resources surge, with 26 new employees and a $13 million increase in compensation from the prior year. There appears to be a disconnect between compensation and the not-for-profit’s mission to serve the public interest.

This would be concerning enough, but what is far more troubling are the clear implications that new generic Top-Level Domains are not performing as expected, with market adoption of domain names in the new gTLDs not matching the optimism which accompanied their roll-out. While there are some interesting examples of innovation in a few of the new gTLD namespaces, the vast majority of new entrants to the DNS appear to be pursuing mostly legacy business models in an attempt to become the primary .COM alternative in their market. There are no indications that any sort of disruptively innovative development is on the horizon that might hope to transform the domain name industry and the DNS.

Although ICANN is proposing major cuts in expenses, the mere existence of these dynamics makes any assessment of ICANN’s accountability and transparency — along with the community’s track record of counter-balancing the organization — much more than an academic exercise. This is because, while budgets with more holes than Swiss cheese may be de rigeur for the Silicon Valley’s technology industry, ICANN can’t rely on a stock IPO or Series B round of venture capital to cover shortfalls caused by deficit spending. Instead, it must look to its contracted parties — registries and registrars — to forage for new stopgap financing.

DO you think ICANN can manage its coffers?

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