Sunday, May 16, 2010

Lunar Property Rights - A Moon Base Business Case

My interview with Alan Wasser on Lunar property rights definitely generated discussion (including recommendations for changes to the draft bill - thanks everyone). For those not familiar with the space land claims recognition bill, here are the three main points:

  • Establish a Lunar/Martian/Asteroid base and US courts will recognize your claim for up to 4% of its surface (600,000 contiguous sq. miles, 384M acres).
  • Sell the land claims to people on earth (defended by US courts) to immediately recoup investments in the base.
  • Maintain your claim to this real estate by sustaining the base indefinitely with “regular” missions to and from the base.
Again, if you want more details, read the draft bill here. Or comment on the draft bill here. Since this blog focuses on the business side of the space frontier, what would a successful business case for a moon base need to look like (assuming Alan’s draft bill were passed by Congress)?

On the surface this seems like an odd question – can't one build a profitable lunar base for $40B, (assuming $100 per acre)?  Surely $40B is more than adequate not only to recoup investment costs, but to generate an enormous return to investors. But, remember one would have to maintain the base by providing regular transport to and from the moon indefinitely. How long could such a base operate on that one-time cash infusion of $40B before the base would have to start generating enough revenue to offset expenses? Since such regular transport to and from the moon will no doubt be expensive (even using innovative commercial solutions), I believe the revenue portion of the equation will have to be pretty high to offset both base and transport recurring costs.

Don’t hold me to the numbers below, they are for example purposes. You are welcome to build your Moon Base Spreadsheet here, but lets take a look what the numbers say.
First the Assumptions:

And now an initial set of detailed costs:

Now we bring these together in the Pro Formas:

Here are a few humble Observations:
  • Revenue from land recognitions provides incentive to START a base
  • Significant Revenues are needed to SUSTAIN a base. The land grants provide a base about a decade of operations to develop multiple $$ billions in annual revenue. As you saw from the pro formas, even a relatively inexpensive annual operating budget will be $5B per year (assuming six resupply missions per year). That is a lot of revenue to maintain a viable base. 
  • Adding a significant mid-term payout to investors could provide the liquidity the investors desire while still leaving enough capital for the long-term lunar export research and development. The pro formas assume a 200 multiple payout to lunar base investors after three years of operations. Assuming $7B in base startup costs, this would allow for a $14B payment to investors in the start of year four of base operations. Seven years of start-up plus three years of base operations means the investors' big (double your money) payout would come after year 10. 
  • Unless Government, Corporate, and Tourist Customers contribute significantly to base revenue, the base will need to develop significant exportable revenue sources (usual suspects like water mining, solar power farms, etc.) to become self-sustaining. 
  • Increasing the price per Acre paid for lunar real estate (above $100 per acre) is the greatest near-term strategy for increasing base profitability. $200 per acre instead of $100 means the land grants would be worth $80B. Signifcant time should be spent by consortiums on ways to maximize price per acre.
  • Launch pace will be a challenge - can the US handle a launch to a moon base every other Month (six resupply missions per year is my current assumption)?
  • Although not considered here, cis-lunar cyclers may make sense to assist in bi-monthly resupply missions.
  • I asked Alan Wasser what would happen to the land grants if a lunar base successfully opened, successfully sold land grants, and then some years later was to close. Using the railroad land grants of the 1800's as a model, Wasser expects the land grants to be revoked with the closure/abandonment of a lunar base. But to save their investment, he would expect others (potentially including current lunar land grant holders) to buy the struggling base for pennies on the dollar and keep the base operating.
  • The liability of operating the base "forever" is not reasonable nor will a corporation take on that risk without some way to mitigate the risk.
  • I envision a modification to the bill to include language such as “operate the base continually for XX years” as a way to bound corporate liability.
  • Similar to railroad land grants of the 1800’s, corruption and greed are powerful adversaries to good ideas (like transcontinental railroads). I believe this bill will need some language to prevent a lunar base consortium from engaging in the following trickery: Consortium builds a low cost base on the moon’s surface.  US courts recognize the land claims (on the assumption the base would be maintained).  Consortium sells land claims for $40B and distributes ALL the profits to its investors.  Consortium operates resupply missions for the amount of time it takes to sell the land claims (~1-3yrs).  Consortium immediately closes the base with the final sale of the land grants.  Consortium closes the legal entities they used to establish the base shielding its investors from liability.  Note: At this point, if the US courts wanted to revoke the consortium's land grants as a punitive action they could, but they would not be hurting the consortium since the consortium already sold their land claims for $40B. Only those who purchased the land grants would be hurt (disclosure: I am no lawyer, just surmising).
This exercise was very helpful to me. I often need to experiment with a spreadsheet to consider the implications of an idea. Feel free to modify these estimates – again the full spreadsheet is located here.  Can you operate a base for $5B per year? Won’t NASA pay close to $5B per year for access to a lunar base? Do you really need six resupply missions per year?  What if four resupply missions per year were adequate? How do lunar cyclers reduce base operations costs? What would revenue sources like television and marketing rights be worth? What "exportable" revenue sources offer the greatest potential of near-term profits?  All fun elements to go consider.

The big takeaways for me are:

  1. We all need to look for innovative ways to open the space frontier. Lunar land claim recognition is a huge innovative idea!
  2. Leveraging lessons learned from the US land grants used in the cross-continental railroad, we need to anticipate greed and abuse and write legislation that anticipates and penalizes such behavior.
  3. I would be delighted to support such legislation if it were to make it Congress. My congressmen love getting phone calls from me already!


  1. This analysis is a great jump-off point.

    Your "what if the initial investors are corrupt and try to game the system" modeling raises some interesting questions: most of the obvious solutions conflict with the desire of investors for some near-term or immediate return or make the land more difficult to sell.

    Using NASA or other governmental and research enterprises as customers is probably the safest source of revenue while you develop other products and services. How much would Harvard or perhaps a consortium of Ivies, e.g., pay to have you set up and help operate a research center/astronomical observatory?

  2. Greenwood:

    If you come up with any suggestions for ways to modify the bill to prevent dishonest gain while still enticing prospective entrepreneurs with favorable terms, please pass your thoughts on to the AIAA team developing the legislation (link at the top of the post).

    I agree with you that Governmental support would definitely help generate sustainable revenue levels in the first decade of base use. NASA will pay to have astronauts at such a base. ESA and JAXA will pay too. But the question is how much would these Space Agencies pay? I like your idea of including universities – talk about prestige for Harvard, Yale, etc. (you are now entering the Yale Lunar Hydroponic Gardens)! But to date, universities have not gotten particularly excited about ISS participation which is much closer to earth, much cheaper to participate in (compared to a lunar base), etc. But a great angle to consider (perhaps participation in a commercial venture with guaranteed seats on every other resupply mission would entice them).

    Here are a few other half baked ideas for revenue generation:

    · Take your experiment to the moon program – Instead of one large customer (NASA), many smaller customers (similar to some of my space cargo agent posts – only focused on the moon instead of suborbital/LEO).
    · Raise your TRL – companies pay to have their prototype device included on the next lunar resupply mission (rovers, moon gloves, mining tools, moon dust repellant, etc.). The base tests the device and either returns the device or returns the data about device performance raising the technology readiness level in the process.
    · Lunar Rock auctions on earth. Own your piece of the moon. Each resupply missions would cycle crew – new crew to station, old crew returns to earth. Lunar rocks could be included on each return to earth.
    · James Cameron or Ronald D. Moore pays to shoot their next movie on the moon and at the base
    · Exclusive TV rights to one network (perhaps with imbedded Journalists) – NBC paid hundreds of millions of dollars for exclusive broadcast coverage of the 2010 Olympics in the US market. What would exclusive broadcast rights be worth in a US market, EU market, Asian Market?
    · Exclusive Marketing Deals – what would Nike pay to have the Nike “Swish” on the bottom of all astronaut boots?!
    · Lunar Sports – taking advantage of the reduced gravity to perform some amazing maneuvers for eager TV audiences on earth.
    · The name of each habitat module and the name of each Space Suit/rover is auctioned off to the highest bidder and decorated externally – NASCAR Style
    · Include a Celebrity participant with each resupply mission (Jonas Brothers, Ben Affleck, making TV coverage and media rights more valuable
    · Make detailed lunar mappings available for purchase. This really should stand for a category. Look to turn costs into revenue. What elements of required base activity would someone else be willing to pay for (maps just scratch the surface)?

  3. I have started a thread at about this:

    Some quick thoughts:

    Have it in the bill that is it not just a base but a full fledged spaceport.

    Auction off predetermined plot sizes in the initial land grad instead of the fixed price of $100 an acre. The mountain tops and craters at the poles are more valuable than other regions on the moon.

  4. Colin,

    Excellent article.

    > Unless Government, Corporate, and Tourist Customers contribute significantly to base revenue, the base will need to develop significant exportable revenue sources (usual suspects like water mining, solar power farms, etc.) to become self-sustaining. <

    Yes. Definitely! I'm expecting a properly structured settlement to be designed to start earning enough to pay it's operating expenses (as opposed to its capital cost) almost immediately.

    Of course, the settlement's space ships will charge a huge amount for passage. The Russians are getting 20 to 30 million dollars per passenger to low Earth orbit. Imagine what rich tourists, government space programs, scientific institutions and companies that want to establish businesses on the moon would pay for round trip tickets to the moon.

    Therefore the settlement will want to design ships that carry as many passengers as possible to maximize that revenue. Transporting supplies and freight, in both directions, will also be very lucrative.

    Beyond that, as I said in :

    "If land speculation and investment can pay to develop the infrastructure, many, many other uses for the land will open up. A few we can foresee: tourism related businesses, facilities for astronomy and scientific research, facilities for producing TV broadcasts for Earth (Lunar gravity will produce fascinating entertainment and sports programs), a landing field for visiting ships, with repair and re-supply facilities for those ships. Solar power collectors will take a lot of land, and location will matter a lot.
    Hydroponic farming for the inhabitants of the Lunar base will be profitable, and so will mining of things they need, especially water. Small factories will appear to produce things that originally had to be imported from Earth, starting with oxygen and construction supplies. The first export products will probably be small Lunar rock souvenirs or jewelry. Later, maybe Helium 3 could be exported.
    But the most profitable uses will appear in the future and are certainly beyond our ability to predict now. Could Ponce De Leon have predicted that that "worthless" swamp in the middle of Florida would end up as Disneyland? Would you expect Lewis and Clark to predict that those 'worthless' snow covered mountains would eventually find very profitable use for ski lodges?"
    > Launch pace will be a challenge - can the US handle a launch to a moon base every other Month (six resupply missions per year is my current assumption)? <
    Why assume that all launches will be from the US? I would think the Kourou launch pad in French Guiana, and similar launch sites, would get quite a few of them, if not all, because of lower costs and easier regulations, etc.
    Finally, the purpose of this law is to create a permanent human space settlement, never to be abandoned. It should do everything possible to maximize the probability of that.
    In I answered the question: "What if the settlement does not produce enough operating revenue to pay off its debts and make a profit?"
    "If not, then sooner or later it ends up like the Iridium satellites or the U.S. land grant railroads. The railroad companies went bankrupt, but the new owners kept operating the trains. Bankruptcy wipes out the debt, but the system still functions and the world has its benefits.
    This legislation must be structured to be sure that, if a settlement company goes bankrupt, its ships and settlement will be sold, if need be, for pennies on the dollar, to others who will keep them operating."
    But you have raised some good points on that subject, and land buyers, especially big ones, may well require the settlement to take out some form of performance bond or insurance to assure the land buyers that the ships will keep flying, even if the original settlement company were to default.
    Again, great job.

  5. Daniel:

    I agree that different plots will be worth different amounts. I believe a consortium's land sale strategy will be key. At least three approaches here:

    (1) Sell the land as fast as you can to recoup your investment and fund the base in the early years.

    (2) Sell the land based on some strategy to maximize its price per acre. A few Strategies include: (A) make land available near current development (the base, solar farms, observatories, etc.) (B) make land available based on geological content (which you brought up).

    (3) One interesting idea I had was NOT selling the land at all but leasing it only. This way the consortium could maintain its ownership of the land and just allow others to use it for a period of time.

  6. Alan:

    Again, excellent comments. Thanks. I really like:

    "land buyers, especially big ones, may well require the settlement to take out some form of performance bond or insurance to assure the land buyers that the ships will keep flying, even if the original settlement company were to default."

    Your insurance solution may help solve my issue with consortiums abandoning a base after they sell the land grants. It may not actually prevent consortiums from abandoning bases and paying some sort of insurance penalty, but it may well keep the bases operational by transferring liability to insurance companies.

    Also, I encourage everyone to checkout At this website, Alan Wasser answers lots of questions related to this Space property rights.

    Thanks Alan for your dedication to this work. And thanks for your comments, very helpful.

  7. There is only one problem: Who enforces US law on the Moon? Do you think China would care about US land claims on the Moon? Why do US people think the rest of the universe is just another state of their great nation?

  8. glErik:

    Although I will fully concede the US's general arrogance towards most international matters, I think Alan Wasser does a nice job addressing the issue of why American courts are so key to this whole Lunar Land Recognition plan. Checkout Alan's FAQ's here (especially question 20):

    To summarize Alan's point, since most of the buyer's of these land grants will be from the US, as long as those land grants are supported by US courts, the grants should sell well – at least in the US. By selling well, the profits from this sale help ensure the lunar base is in operation for many years to come.

    In your question, you bring up the Chinese. Agreed, they may not honor a decision from a US court. Two potential scenarios:
    1. The Chinese eventually start their own lunar base and claim an overlapping area of land.
    2. The Chinese land a probe on the site of your future lunar vacation home .

    What now? Well, you look to terrestrial corollaries for how we deal with these issues right here on planet Earth. Fishing, Oil and natural gas drilling, rights to Antarctica’s resources, Damming of rivers, etc. – all of these were at one time confrontational subjects. Some still are. But nations recognized the conflict and met to workout an agreed-to system of international laws that work best for all parties. Eventually this will happen with lunar property rights as well. But how long will it take? What if the importance of extraterrestrial property rights could be increased and highlighted on the international stage? Two great ways to force the world to take notice of an issue is through (1) international conflict or the threat of (2) international conflict. So I hope the Chinese do land a probe on your (or my) lunar land. This would definitely create the conflict we are looking for. We need to start talking about the implications of our action in space and stop being so single worlded in our decision making. But then again, I am an American, so I am kind of arrogant about these things. :)