I just received an email telling me about the upcoming auction for golfclubs.com, which is priced at $1.5million.

Here’s the pitch:

If you have been looking for an opportunity to develop a site on a seven figure domain name then here is your chance – you could own GolfClubs.com for much less  than the 1,500,000 USD asking price if you develop it and get it earning money
to cover monthly payments of 35,642.16 USD. 

If you went cash flow positive after a year, then your actual out of pocket for the domain could be less than 300,000  USD.

What do I think is wrong with the sales pitch?

In addition to the purchase price, you’ve got to shell out an awful lot of money in development costs.

Then you have to launch your site and generate the revenue that will allow you to make some money for yourself, pay any other overhead (this is not a Google Adsense proposition) and then make enough to cover the cost of the $35,642.16 monthly payment.

In simple terms, that probably means you have to rake in at least double that repayment just to stand a chance of recouping your investment on the domain and the development.

Is that a good deal?

Is it even necessary? And let’s be brutally honest about this.

Yes, a domain name can generate a lot of visitors to a web site, but just because you have a great name, it is by no means a certainty that it will make money – if you have a site that doesn’t sell effectively, you’re not going to make any kind of return and that $35,642.16 will soon eat your cash and leave you feeling foolish.

Golf clubs are a price-sensitive purchase. They sell online, but I bet the majority of online shoppers in that market are more likely to use price comparison web sites in order to find the biggest discounters. They won’t buy just because your name is golfclubs.com.

Search for “golf clubs” on Google and almost all of the top 10 positions and those buying Adwords placement are pushing “discount” purchases.

To me, that makes the valuation rocky at best.

The sales pitch places an emphasis on the fact that the name has to be developed. At least that part is right.

But development is expensive and in my opinion (for what it’s worth), that name is not a domainer purchase, it’s an established end-user purchase. In fact, I don’t think you can build a business with it, you can only reinforce one. It’s more marketing than substance.

In order to generate cash, golfclubs.com requires not only the investment in the name and development, but also stock.

The profit comes from the difference between the buying price of golf clubs and the selling price – and it’s that margin that has to pay the $35,642.16 payment each month before the owner can eat.

Imagine the stock holding required to generate that kind of income.

Now I know I tread a different line to most domainers. I look for niches that I can capitalise on and then look for others to do the work.

Usually, I only have find the customer. Somebody else takes the capital risk when they do the job – be it on specialist equipment, staff, stock and other things – in short, it’s a simple deal for me with no downside and no risk.

I’m not suggesting for a moment that there’s anything wrong with buying golfclubs.com – except that in a domain deal, like any kind of deal, you have to look closely at the numbers.

Times have moved on from the early speculation games we all played.

Domain names will not automatically increase in value because buyers are more sophisticated than that, so investing $1.5million in a name now is no guarantee that it will be worth more later. The added value has to be built at that kind of price.

At least the sales pitch for golfclubs.com emphasises the need for development and a business plan and to me, that is a massive statement and as much a warning as a sales pitch.

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