On 13 September 2013, ICANN entered into what may well be the most lucrative contract ever granted in ICANN’s history with Power Auctions LLC to conduct its Last Resort Auctions for new gTLD strings with more than one applicant.
Under the ICANN rules if there is more than one applicant for a particular domain name extension or string otherwise known as a new gTLD,(including those strings found by panels to be confusingly similar) the winner will be decided by a Last Resort Auction held by ICANN.
However ICANN in not going to be conducting the auctions themselves, instead they entered into a contract with Power Auctions to conduction the Auctions.
Under the agreement ICANN paid Power Auctions $230,000 which is “intended to cover the development of the auction rules, the auction system and system user manual”.
So ICANN is covering all the costs of Power Auction development of the auction platform.
The contract with PowerAuctions is one of no downside, all costs have been paid by ICANN leaving Power Auctions only with Tremendous upside which can easily reach tens of millions of dollars in fees.
Moreover it seems the same platform that ICANN paid Power Auctions $230,000 to develop that they are using under a related company, Applicant Auction, to hold private auctions to settle contention between new gTLD applicants.
In addition to the upfront fee of $230K, Power Auctions will be paid an auction management fee, per auction.
For each auction that is conducted, Power Auctions will receive 4% of the winning price, for winning prices up to $10 Million.
Should the winning price exceed $10 Million, Power Auctions will receive 4% of the winning price up to $10 Million and 2% of the amount of the winning price in excess of $10 Million.
The minimum fee for an auction of a contention set that is conducted is $15,000.
If a contention set is scheduled for an auction but is resolved by the participants prior to the auction, the auction management fee payable to Power Auctions will be $10,000.
Power Auctions is guaranteed at least $135,000 in total auction management fees.
If the aggregate fees for auctions (both conducted and cancelled) is less than $135,000, ICANN will pay the difference between fees earned and $135,000.
This agreement as I said was signed just recently in September of 2013.
I do not recall ICANN issuing an RFP for this service in recent years nor do I recall any comment period which was opened up by ICANN on the extremely lucrative contract.
The fact that ICANN clearly anticipated new gTLD auctions going over the $10 million mark on some strings indicates that both ICANN and Power Auctions anticipated that they system they designed was designed to increase the prices paid by the applicants which would increase the amount of money paid by the winning applicants to ICANN and increase the amount of money Power Auction made from the auctions.
In the case of private auctions applicants have the option to use Applicant Auction or RightoftheDot.com, the two parties who are actively holding private auctions, each of which have their own offering and fees where applicants can choose between single sealed bid where the winner pays the 2nd highest bid as ROTD offers or go with the ICANN/applicant auction model where bid keep increasing to return the highest amount to ICANN and the auction provider
However the ICANN last resort auction will be governed by set rules and fees which are set by ICANN where both ICANN and their chosen auction provider will extract the highest possible bid from the applicants which in both ICANN and the auction provider encouraged all parties to bid the highest price to benefit ICANN and the auctioneer.