ICANN published its tax returns for itself and its affiliate Public Technical Identifiers for the year ending 30 June 2024 this week. When combined with looking at the corresponding annual reports, they show soaring expenditures but income has plateaued. While ICANN attributes some of the increased expenditure to the upcoming new gTLD expansion, what does this mean for registries, registrars and registrants? Higher prices?
The returns showed ICANN’s revenue increasing to $184.8m in 2024 from $163.7m in the year ending 30 June 2023. However ICANN’s “total functional expenses” also rose, to $196.8m in 2024 from $172.4m in 2023. For the PTI revenue increased to $10.7m in 2024 from $8.9m in 2023. For the PTI total functional expenses rose to $10.8m from $8.9m.
However when one looks at ICANN’s annual reports, the organisation’s revenue dropped marginally from $150m to $149m while expenses soared from $161m to $180m. Both annual reports and tax returns help round out the picture. The IRS returns help break down income and expenditure into fine detail, however the annual reports give additional information.
ICANN’s major expense detailed in the IRS tax returns was “other salaries and wages”, which accounted for almost 40% (39.7%) of its expenditures or $73.4m for ICANN while for the PTI there was another $7.4m. “Compensation of current officers, directors, trustees, and key employees” accounted for $6.8m for ICANN and $410,000 for the PTI. There was also $15.7m in “other employee benefits” and “payroll taxes”, $8m in “pension plan accruals and contributions” and $10.2m in “other employee benefits” listed in ICANN’s return.
In their 2023-24 annual report, ICANN notes personnel costs totalling $103m for an average of 461 staff members for the year (427 in 2022-23), representing 57% of cash expenses, up from $90m from the previous year.
Among staff members, glancing at the annual report it pleasingly notes a fairly equal gender diversity as of July 2023 – 47.1% identifying as male and 52.9% female. But in the upper echelons ICANN is woefully not gender diverse. Among executives as of July 2023 71.4% identified as male while 28.4% female which included a female Board Chair and Interim President and CEO.
One glaring expense that stands out in the tax returns is legal, which comes under the umbrella of “professional services” in their annual reports. Of legal expenses, ICANN spent a sizeable $3.6m in the year ending 30 June 2024 for services provided by one firm – ICANN’s go-to lawyers for over 20 years, in an arrangement that seemingly has never been put out to tender, Jones Day. This was a drop from the $4.6m ICANN paid to Jones Day in 2022-23 in addition to $2m to global economic consulting firm Compass Lexecon, also for legal services, in the same year. There are also additional legal services listed in the tax returns of $5.2m for 2024 and $2.7m for 2023 for ICANN.
Other significant expenses outside wages and salaries, and legal, was not unexpectedly travel, which accounted for $14.3m for ICANN and $520,000 for the PTI. “Conferences, conventions, and meetings” for ICANN accounted for $6.8m in ICANN’s return. There was also $9.3m for information technology (for ICANN), $5.7m in occupancy (rents etc) for ICANN and another $1.1m for the PTI.
All of these expenses and more for the purposes of the tax returns come under “functional expenses” which totalled $196.8m for ICANN and $10.8m for the PTI.
So where does ICANN’s funding (income) come from? According to their 2023-24 annual report, ICANN reports funding “support and revenue” of $149m ($150m in the 2022-23 annual report), of which $88m ($89m) comes from generic top-level domain (gTLD) registries, $54m (no change) from registrars and other “contributions” totalling $7m (no change).
The annual report explains “ICANN collects funding for domain name registrations by registrants through registries and registrars, and annual fixed fees that are collected from most parties under contract with ICANN.”
“Funding from registries resulting from registry transaction fees and fixed fees accounted for 59 percent of ICANN’s total funding. Funding from registrars resulting from accreditation fees, per-registrar variable fees, application fees, and transaction fees accounted for 36 percent of ICANN’s total funding. Transactions are each annual increment of a domain name registration, renewal, or transfer.”
“Five percent of ICANN’s total funding included contributions: (i) related to improving and enhancing the security, stability, and resiliency of the Domain Name System; (ii) from country code top-level domain managers; (iii) from Regional Internet Registries; and (iv) event sponsorships.”
But as noted above, when comparing expenses for the same periods from the annual reports, these rose to $180m in 2023-24 from $161m in 2022-23. Personnel costs rose to $103m (from $90m), professional services (including legal) rose to $39m ($32m), administration decreased to $21m ($20m), capital costs decreased to $1m ($3m) and meeting expenses rose to $18m ($16m). What does this all mean to domain names? If ICANN’s budget keeps growing – $19m in the last year alone, some of which is attributed to the upcoming new gTLD expansion – and revenue is dropping or remaining stagnant, then fees to registries and registrars will need to increase, which in turn will see the retail price of domains going up even more. And then the volume of domains will drop even further and the circle goes on as registry and registrar fees go up, registrations down.
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