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!