Monday, January 27, 2020

Profiting from Nonprofits? The Sale of Dot-Org

You're probably familiar with websites that end in .org, which is one of the original domain names that the Internet started out with back in the 1980s.  Historically, it was used to distinguish nonprofit organizations from those whose URL ends with .com, which presumably were in it for the money.  That distinction is no longer observed, as anyone with enough money and an idea for a .org domain name that nobody's thought of yet can get one, profit or no profit. 

Nonprofits that got in early and want to keep their .org domains thought they had something to worry about when an Associated Press report came out this week regarding the sale of the Public Interest Registry (PIR), the nonprofit organization that oversees .org.  The buyer is a for-profit entity called Ethos Capital, and they are reportedly paying over $1 billion for the PIR and its rights to receive registration and renewal fees for .org domains.  There were even some protesters with signs outside the Los Angeles offices of the Internet Corporation for Assigned Names and Numbers (ICANN), the umbrella organization that turned over .org to the PIR in the first place and presumably must approve the sale of PIR to Ethos. 

As protests go, this one was small potatoes—about 20 people.  On Friday, Jan. 24, by contrast, a whole lot more folks than that showed up in Washington, DC, for the annual March for Life protesting the 1973 U. S. Supreme Court decision Roe v. Wade legalizing abortion.  The fact that these events got roughly the same coverage says something about media priorities, but that's a discussion for another day.

What's interesting about the protests surrounding the sale of the .org domain operation to Ethos is the concern that Ethos will jack up prices and fees to the point that nonprofits will be unable to keep their domain names.  Theoretically, that is a possibility.  But the point I would like to make is that just as anybody nowadays can buy a .org domain name with enough cash, anybody can organize as a nonprofit and do almost anything a profit-making entity can.  And that's not right.

The phrase "non-profit" itself, as modifying "organization" or "corporation" dates back only to the 1920s.  Before that you might have called them charitable organizations, or charities.  But as life got more complicated, outfits arose that were not strictly motivated by compassion or mercy (the root meanings of "charity"), but nevertheless were not founded simply to make money.  And as corporate tax laws cast an increasingly greedy eye on profits, it became advantageous to operate under the label of a nonprofit, and so more organizations did so.  The only taxes nonprofits pay are typically employee taxes such as Social Security and Medicare, but otherwise they are exempt.

Back when I was young and innocent (now I'm old and not quite so innocent), the word "nonprofit" conjured up in my mind the image of a small, storefront place where the roof leaked and the people there all ate beans out of a can for lunch, because any money they got went into the Cause, whatever the Cause was, and not their own pockets.  The Sisters of Charity founded by Mother Teresa still hews to this model pretty much, I am told, but it's now the exception rather than the rule. 

Some nonprofits are huge multinational corporations with multimillion-dollar budgets.  And, to be fair, many of them still have the nonprofit spirit of keeping as their highest priority a goal other than making money:  relieving poverty, encouraging education or spiritual growth, or any number of other worthy goals that are not monetary profit. 

But just because you have "nonprofit" in your charter doesn't mean you can't pay some extremely remunerative salaries.  A few years ago, the American Red Cross was in the news for the poor accounting it made of donations given to Hurricane Harvey relief, and it was pointed out that their CEO makes $500,000 a year, which they said was in the mid-level of CEO pay for large nonprofits.  Cecile Richards, the former head of another large nonprofit called Planned Parenthood, reportedly was paid over $1 million in the fiscal year 2017-2018.  Clearly, these folks are not eating canned beans for lunch.

Such organizations might reply that one of the main functions of their CEOs and high-level officials is fundraising, and the person asking for money has to be able to hold up their head in a moneyed environment, which you can't do on a $20,000-a-year salary.  And while executives of nonprofits don't expect to be paid at a rate competitive with the for-profit world, they will put up with only so much of a pay cut before they will decide it's not worth it and go somewhere that pays more.  There's competition for executive talent among nonprofits too.

All these are valid arguments in the current environment.  But in view of the almost vanishing distinction between some nonprofits and profit-making entities, I would tell those who have .org domain names to cool your jets.  Obviously Ethos Capital isn't paying a billion dollars for the .org domain system out of the kindness of their hearts.  But these days, nonprofits can be just as rapacious and exploitive as profit-making companies can be.  It appears that some former ICANN members are also involved in Ethos Capital, so the most likely outcome will be that things will roll along more or less as they've always gone, perhaps with even better service regarding domain-name registration and renewal.  After all, the market does work well in most cases, and profit-making outfits in a competitive environment often outperform nonprofits that are not competitive.  The domain-name business is not competitive in that sense—if you don't like the service you get from Ethos in trying to obtain a .org domain name, you will be out of luck—but they may come up with other profitable activities that will synergistically make their services better.

So for now, I don't expect any big changes in this area.  And I also don't expect the CEOs of big nonprofits are going to start eating beans for lunch any time soon either, as the phrase "nonprofit" is just a label now, not a guarantee that its people have taken a vow of poverty. 

Sources:   The Associated Press story about the purchase of the Public Interest Registry by Ethos Capital was carried by a number of newspapers, including the Sacramento Bee on Jan. 25, 2020 at  I also consulted the website regarding the ancestry of "non-profit" and the Wikipedia websites on ICANN, Ethos Capital,, and regarding the CEO salaries at the American Red Cross and Planned Parenthood, respectively. 

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