Now question is I guess ,how can I sell the domain assuming I wanted to?.
IMHO, you don't...selling will most likely (if it is a legitimate TM claim) just put the next party AND you at risk. Just because you sell it doesn't mean you are no longer responsible.
Also, usage will play a critical role in any UDRP. Chances are if they value the name that much, and follow through, they have screen shots of the ads. If the ads were targeted (directly or indirectly) to their "venue", or market or their customers, there is a very high probability of losing. If they weren't pointed to anything infringing on their Mark, then you at least have a chance... how good a chance depends on the panelist and the facts (or their ability to persuade).
My personal (non-lawyer) advice would be to wait for something legal in the mail (certified usually). Do some homework and verify who is sending the C&D before responding, or don't respond at all until/unless you get official notice of a UDRP/WIPO. Also make sure your contact info is correct on whois to make sure you will receive such notifications. The last thing you want to do is give them fodder to throw back at you... and going from ads to non-ads may be enough in and of itself to cause a loss.
Or, lastly, offer to transfer the name for your acquisition costs and be done with it. Down side is that even then you aren't guaranteed they won't still go after you...
As far as redirecting to another site... it depends on the facts of the situation. If it is a legitimate TM claim, that can be construed as causing FUD by redirecting people looking for xyz to xyza. Or trying to profit from their mark. Redirecting Apple.com to Orange.com would cause confusion and uncertainty around Apple.com without a doubt.
[Just non-lawyer opinions
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