The New Space Race

“Say I set up an entity in the British Virgin Islands, which generally doesn’t impose tax, and I also keep the operations and equipment offshore,” says Jason. “The mining vehicle flies into space, collects the gold from an asteroid, and then the gold is sold to a third party. Can the U.S. tax that income? Probably not, because there is really no connection to the U.S., other than the indirect ownership of the entity.

“I think a good play in this area will involve trying to source that income to low or zero-tax jurisdictions,” adds Jason, who is not involved in any of the space-related deals.

Then there’s the risk the ship will blow up. That risk is so high that the insurance cost on these projects can be as much as 10% of the project cost—a project that might cost, say, about $200 million for the satellite and $100 million for the launch. Insurers find space projects so risky that they actually have employees oversee the construction and design.

“The greatest risk is the launch, and the highest rate of failure is during the launch and the first year,” says Ray Duffy, who has assessed the risks in space projects for insurance companies for decades.

Duffy has a hard time imagining that some of these projects, like asteroid mining, will ever reach fruition—at least in our lifetime.

“It’s a fantastic idea, but it’s the kind of stuff you find in comic books,” he says. “I’ll tell you this much: I wouldn’t invest in it.”

While the science is almost there, undertakings this large are usually the province of governments, not the private sector, says Friedman. He likens today’s space endeavors to the voyages of Christopher Columbus and Sir Francis Drake, whose explorations into the New World were funded by governments. And even with sovereign backing, it still took decades to exploit the natural resources in the new territories and commercialize them.

“Those periods of private entrepreneurship that follow up the science and discovery phase will take decades, if not longer, to have a profitable return on investment,” Friedman says.

As for space tourism, he likens it to climbing Mount Everest. People have been able to do it for some time, but the risks are still high, and about a quarter of those attempting it die in the process.

“It’s a limited market, even after 100 years of mountain-climbing expeditions,” Friedman says. “I think the current group of people will make money, because they’re finding there’s just enough customers at the very wealthy level who are willing to take the risks, but there will be setbacks like with any risky investment, and they’ll have to be prepared for that.”