AIG Parallels to Biggest Domain Investors
AIG survived a close call when the federal government agreed to give them an $85 billion loan in exchange for equity. As I understand it, this will allow AIG the opportunity to find buyers for some of its assets rather than force them to sell for rock bottom prices in a fire sale. Because of AIG’s global reach, a fire sale would have impacted worldwide markets in a huge way. From my experience working with AIG, I know AIG has relationships with many of the biggest financial institutions and companies throughout the world. Without the US government’s intervention, there would have been a huge impact never seen or felt before on a variety of industries.
Let’s look at it from a domain perspective. There are several major holders of premium domain names. While domain names can be highly valuable assets, most don’t generate a ton of incremental revenue compared to their actual value. If a major domain company made bad hedges (maybe TM investments resulting in lawsuits or some other debt problems) and they needed instant capital to pay this down, they would be forced to sell their valuable assets. If they needed cash immediately, it wouldn’t be easy to get hundreds of millions of dollars in a short time frame from other domain investors.
That said, if they needed to liquidate their domain names immediately, domain values would plunge as not all domain investors would be able to eat the hundreds of millions of dollars in domain names that were poured onto the market. Good luck trying to convince a bank or lender to give you $5 million or $25 million to buy domain names. The best performing names would probably be bought, but the mid-level names and lesser names would flood the marketplace. Those in a strong cash position would buy a small percentage of the best names, but the others would be available, causing everyone elses values to decline.
There wouldn’t be a ton of money to go around in the aftermarket, so domain sales would be difficult. Since we live and thrive in an industry where the most avid buyers are those who own the largest portfolios rather than outside investments, if the money well went dry, it would be hugely impactful on us all.
The next several months are going to be difficult for many. The best advice I can give is to be prepared. Keep enough cash on hand to survive for a bit of time just in case. Irrational thinking and anxiety can cause periods of massive uncertainty and chaos, and we all need to be prepared. Unfortunately, we are all in uncharted territory now and there is no telling what tomorrow will bring to the financial markets.
Reach out to Elliot: Twitter | Google + | Facebook | Email