Updated 4.5.2012

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garland@radiobroker.com

Formed in 1996, my firm specializes in the brokerage and sale of Radio and TV properties.

Before we get into the station brokerage stuff I want to plug a broadcast venture my good friend Bill Kinder is doing…

If your station is looking for a one hour outdoor show I would like to recommend the “Big Billy Kinder Outdoors” show. Produced by Bill Kinder and his wife Robin. Bill and I worked together over 35 years ago at his hometown station in Mineral Wells, Texas. He went on to star as the “Jay” of the #1 Jane and Jay show for many years at KJNE-FM in Waco and did a 20 year afternoon drive gig at KSCS-FM in Dallas-Fort Worth. The Big Billy Kinder Outdoors program is now heard Saturdays from 5 to 6 AM on WBAP-AM and several other stations around the North Texas area and is ready to grow. Catch the show website at…

http://www.bigbillykinderoutdoors.com/

You can also get the podcast on your iPhone thru iTunes….search Big Billy Kinder Outdoors.

With the permission of one of the authors Erwin Krasnow. I am providing a link to an excellent article just published in RBR concerning “Seller Financing.” Erwin is one of the most well respected members of the broadcast legal fraternity and has penned many fine articles on broadcast law.

http://www.rbr.com/features/ideas-working-now/23803.html

This site is different from most broadcast broker web sites because I want my clients to understand today’s new broadcast business. Broadcasting is not what it was even five years ago. Today we have the internet and all the media innovations it has spawned….and we are not finished yet….so dive in.

I have had several questions about doing appraisals on stations and the answer is yes I do them. Call and we can discuss your situation.

My Take on HD Radio….

This writer’s opinion of HD Radio has changed over the last several months. With the FCC approving an increase in power for broadcasters HD signals this service may actually have promise. I have been doing a listening test with a credit card size HD FM radio and am very impressed with what I am hearing and believe there are ways to monetize these signals beyond the old “sell a few spots.” If you are broadcasting an HD2 and HD3 signal give me a call and let’s talk.

Special Announcement….

My firm has signed an alliance with an experienced and successful radio station management firm. If you need an entire package of management services including bankruptcy workout, or just help recruiting a top billing sales force contact me and I will get you going with them.

If you are looking at a radio station purchase and want a different set of eyes to help with due diligence we can help with this…and for sellers needing to make a property have more “curb appeal”…this is a service offered also…call today 713-882-2402.

If I am out and you leave a voice mail… please repeat your name and number at least twice. I have had several cases recently where the number was unintelligible and as a result I could not return the call. Please also back it up with an email. I get email on my cell.

There are deals out there if you are able to self fund…i.e. you have the CASH to buy or are able to negotiate seller paper. Please do not call if you need to obtain financing from a bank. It’s hard enough to get a car loan today let alone obtain financing on a broadcast property (I have advised that money is freeing up…IF you are credit worthy and the loan makes sense). Of course if you have the cash and want to loan it to a bank so they can loan it back to you that will probably work…the bank might appreciate having the deposit on the books.

My comments on the present administration…

Anybody that is now operating or wants to start a business is being presented challenges from the present administration. It is obvious they do not like folks that are in business. The 2012 election can not come soon enough as far as I am concerned.

WHERE’S THE MONEY COMING FROM?

I once had a phone call from a prospective buyer wanting to know if I had any stations available in a particular market …as a matter of fact I did. The price was going to be in the $10 MM range. He immediately wanted to know the call sign of the station and all the particulars….I responded…Whoa settle down just a little…I need to know something about you. It was obvious from the start that the buyer was a rookie…no problem I was once one myself. When I asked for some background info on his finances he started to get huffy and said he needed to know more about the station before he provided me with such “private” information. I did my best to explain that a seller did not want to go through the drill of releasing proprietary materials before ascertaining if the buyer was qualified. Besides that is part of a brokers job…to vet a buyer and be a “firewall” between a seller and those that don’t need to know the seller’s private business. Both the seller and I need to know upfront where the money is going to come from….so don’t get your feelings hurt when I ask. If you have equity or access to financing… It would also help to be provided me with some third party verification. I had one client send me a brokerage house print out…it had about $25 MM in it. Step right this way!

BROADCAST STATION “STICK” VALUATION OR THE CONUNDRUM OF HOW TO VALUE A STATION THAT HAS NEVER MADE ANY MONEY…EVER

Broadcast station valuation is usually done by using a multiple of the station’s broadcast cash flow (BCF). Of course this assumes the station is producing a cash flow. Where there is no cash flow, it is the perceived value of what the license is worth plus any hard assets the station may have…commonly referred to as the “stick” or base value) . There are several scholarly tomes on broadcast or radio station valuation (Search: broadcast station valuation). The problem here is that many stations have gone through a succession of owners and have never shown any positive cash flow or just enough to keep the power on until the next sale/transfer. What is a station like this worth? Many new construction permits (CP) are coming on the market as a result of the recent FM allocation auctions. What are these worth?

In the case of a station that has never shown a positive cash flow you need to determine the reason, is it an unfortunate combination of circumstances that has led a succession of owners who had no clue as to what to do with the station? Poor market conditions? Improper format? Poor signal? Also, some stations can be an artistic success and a commercial failure. Such a station might have a format that appeals to a significant audience but the station is unable to sell enough advertising to capitalize on the stations own success. This is frequently because the station has not developed a proper sales force. As any broadcast owner knows, the hardest positions to fill at a station are good sales representatives. I talk to would-be broadcasters all the time that have no clue as to what it takes to put together a sales staff….but that will have to wait for another commentary.

Back to how to evaluate a non-cash flowing station or a dark station ready to go back on the air. A common industry approach has been to factor the amount of revenue a particular facility may generate by looking at the amount of advertising revenue the station may be able to secure out of the total revenue available for radio in the market if it reaches a particular audience level…whew…got that. The problem here is there are many pieces of the puzzle that have to be put together to get an idea of what the numbers should be. What is the financial condition of the market? Power of the station? Is it AM or FM? Is the ownership/management talented? In today’s market we have to contend with how much advertising revenue is going to other competitors on the internet. This is where the question is asked… “Is the internet going to be a foe of the station or a tool to be used by it?” To stream or not to stream? Interactive web site or not? Maybe even podcasts?

Another major factor to look at in evaluating a start up property is the technical condition of the station. Failure to conduct an engineering inspection can be a costly mistake. What looks like a cheap price for an AM property could be a pig in a poke with some nasty surprises. Questions that need to be answered…what is the condition of the AM ground system and tower? Do either need to be painted (tower), repaired or even replaced? Are the copper radials in the ground damaged or corroded away? If the AM station is a directional system, is the pattern still in compliance? Has there been lightning damage to the phasor system and other transmitter/audio processing components? What is the age of the transmitter? Will it need to be replaced? To get the answers hire a competent broadcast engineering firm to do an evaluation. You will need to pay for this but it can save you big money and headaches later.

BUYING AN AM OR FM CONSTRUCTION PERMIT

Things you need to look at are: Is there a format hole to fill in the market? What are the construction costs? How much up side is there in the market for a new radio station? How are the other stations in town doing and why? Can you compete with them if you go on the air? If there are no other stations locally, will the market support a radio station?

How much is a CP worth?

I remember being called in November 2004 while the FCC Allocation Auction was in progress. The caller was bidding on several permits and wanted to know how much he could flip the construction permits for after the auction was over….EXCUSE ME? I had to explain to him that the value of the permits being auctioned was and probably for some time would be highest at the auction price. If he wanted more money for the CP, he was going to have to do something to increase it’s value…move it, upgrade it…or even build it and prove it’s viability as a broadcast business.

All of the above boils down to this. You need to go on the air with a station rehab or new-build CP with equity built into the deal from Day Number One. If I were going to buy a CP, I would want to have about 30 percent equity in the station from sign on. Here is a numbers example…round numbers for simplicity…buy a station for $50,000 and put $20,000 into it to get on the air…this leaves you with a margin of $30,000 to have a station valued at $100,000 when you sign on. If you can’t have equity when you sign on, walk away. Now this is where your talent for picking a programming niche and executing it will be the key…and this is where the real money is made. You will have proven that the facility really has not been a dump all these years…it just did not have the benefit of your programming/sales/engineering genius. Then after four or five years of putting money in the bank you call your favorite station broker (ME) to find a new buyer who wants a solid CASH FLOW MACHINE in place to buy. And we both put money in the bank.

I have some stations for sale now that fit for rehab projects if you have the cash and the will to work hard.

BROADCAST LENDING…AGAIN

I know this point is covered in several places below but it’s worth repeating.

Unless you have the cash in the bank, cash flow to borrow against and a good track record in this business as a successful operator of broadcast stations… or a lot of rich friends that have given you an irrevocable letter of credit…or a portfolio of blue chip stocks, you are not going to get a broadcast loan in this lending climate. If you have a few thousand dollars of unused room on a credit card, feel lucky because that is about all you are going to get.

New Radio Listeners…Where are they going to come from? Ten years from now will radio as we have known it for 80+ years still exist….yes but with new hardware.

A friend of mine recently told me his kids don’t listen to over the air broadcast radio….they have iPod’s to use away from home and internet radio at home off of their broadband attached computer where they also get music etc for the iPod. (Of course there is the iPhone that also has iPod capabilities built in...and now the new iPods have email in them…soon there will be a total merge of devices.) They have not bought a CD in some time by the way. As we all know habits are learned as children…To me (at 62) radio has always been a habit…but I also now own an 120 gig iPod…(Of course with my luck I got mine about two months before the iPod touch came out.) Am I a traitor to my industry or is my industry changing. (Since I originally wrote this I now have an iPhone.)

The near future as I see it….those of us still around will have devices in our cars/pockets/home that will be a combination cell phone/TV/iPod equivalent/computer/internet radio receiver. The auction for spectrum bandwidth for this starts this month. All broadcasters as we know them today if they want to stay in business will have everything they put out on the air be fed to the internet….Smart broadcasters today are already doing it. There are probably now several hundred thousand if not more broadband card equipped lap tops (I have one) that I can listen to any internet streamed radio station while I use my lap top while traveling. Amtrak by the way is re-equipping their entire passenger fleet to put a 110 outlet at each seat for passenger use…I rode in such a car last Spring. Amtrak is also adding Wi-Fi to many stations and much of the train system. I recently returned from vacation…there were several areas where I could not receive broadcast radio in the car because I was too far out in the toolies…but guess what, I could get broadband internet. Go figure….

If you today, are putting together a business plan for a radio station broadcast company, major market or not…just plug in the numbers for internet streaming and programming and get with the program.

As the TV commercial says…”life comes at you hard” If you are not putting out a digital signal (and I am not talking about HD Radio…that is another story) parallel with your analogue you are rapidly falling behind the times.

“THEM THAT HAS WILL GET…THEM THAT DON’T…WON’T”

There is a credit crunch in the land if anyone has noticed. It started when home loan lenders started making stupid loans. I have been in this business long enough to have seen this happen two or three times. Home loan sharks in some cases have constructed loan vehicles where the monthly payment on a house was not enough to cover both principal and interest…the deficit each month is tacked on the back end of the loan principal to generate even more interest….How stupid is this? Now the lenders are whining because the poor schmucks they conned into taking out such a loan are unable to make the nut every month. This is now spilling over into my business. Banks and other lenders are turning off the loan spigot to potential borrowers for media transactions. Merger and Acquisition deals of all types are being scrutinized closely…many are being delayed or canceled altogether….

Unless, and this is where it gets good…you have the cash.

Cash deals are king. Just think… no monthly payment to that nasty, ill tempered banker who really does not understand your business anyway. He/She gave you the loan in the first place only because you promised him/her the marriage of your first born Dartmouth/Stanford/Harvard etc. business school educated son/daughter to their loser offspring. But I digress….What I am getting at is if you want to get into the Radio/TV business and can raise the equity… step right this way.

In reference to email…I am now including a “read” receipt to be sent back to me on all email I now send out. Due to problems with anti-spam software both on my end and folks I respond to I find this necessary. I have tried to avoid it for a long time but have finally seen the need.

NOTE TO SMALL MARKET SELLERS

It is almost impossible to get a bank loan on a small market (or any radio station) deal today…as a result I need small market stations that the seller can “tote the note” on. I have many experienced rookie buyers that need help from sellers to be able to buy. I especially need stations under $500k. If you have questions about how to structure a sale where the owner has to “carry paper” contact your FCC counsel…if you don’t have an FCC attorney (and you should have one) call me and I can recommend an excellent one with many years in the business.

Do you have a construction permit for AM…FM or TV? Let’s talk.

RADIO STATIONS FOR SALE

Las Vegas, NV High Power AM CP for sale….Transmitter site has been secured….$300k Cash

Tennessee 50kW AM needs owner with strong sales background…great present format $250k.

Alabama Stand Alone AM…Great Market and Facility $250k.

Victoria, Texas area FM…Call for details.

Several Major Market AM’s for sale to cash buyers…possible terms to buyers with strong financials. Call for details.

International Projects

If your company is interested in expanding to Europe and areas out of the US there are many interesting opportunities available.

Call for information 713-882-2402. Please be financially qualified.

BROADCAST STATION ACQUISITION ADVICE AND IDEAS FOR BUYERS AND SELLERS

If you are looking to buy your first property or have one to sell, let's talk. 

Sellers always want to talk to "qualified" buyers. If you will, send me information about yourself and your company. I do not mind working with new broadcasters…

But you are going to have to tell me where you expect to get the money to buy the station you want….and in many cases you are going to have to have the money before you start looking for your station.

If you email me and your mail is "bounced" please call and let me know.  Some ISP's are using filters to fight "SPAM."  These filters are returning legitimate mail in error...please advise me if this happens.     

Do you have a Construction Permit that is running short on time?   Give me a call, I may have some joint venture money available to build the station and get it licensed before the CP dies.....

A SHORT PRIMER ON STATION FINANCING

The following on station financing has been prompted by a conversation I had once with a "backer" of a first time buyer.  I was contacted by a gentleman with several years experience in various phases of the broadcasting industry who said he wanted to buy his first radio station and he knew the type format he wanted to do.  I explained I had a station that might fit his criteria....but I would have to have some evidence of financial ability to close a $2.5 Million transaction before releasing any information about the station in question.  The client put me in touch with his financial "backer"...I explained what I needed and he immediately became very belligerent...that they did not need to provide any information until they knew what the station was and so forth.  I tried to tell him that the owner had requested that I "vet" all potential buyers to determine financial ability before releasing information....the conversation went downhill from there.  The lesson here is secure partners and financing before trying to buy. You will gain credibility with sellers and brokers.

The following are the "facts of life" in the radio station trading business.

1.  If you are doing your first deal...the more the seller is going to want to know about your finances and your ability to raise money before information about a property is forthcoming.

2.  Very few stations are going to be sold on a "this transaction is subject to the Buyer being able to secure financing" type contract.  A station owner is not going to want to disclose to his staff and competition that a station is being sold on the hope that a buyer can qualify to obtain financing...and then have the deal go south because the money did not materialize.      

3.  First time buyers are rarely going to get bank financing.  In the present business climate some experienced buyers are not going to get loans unless they have "outside" assets to pledge against a loan.  Most bankers (99%) do not understand the broadcasting business...if it does not have a car or boat title attached they are without a clue.

A recent transaction that I was involved in and its failure to close directly relates to the above three “facts of life.” Primarily number three. The buyer did not have financing in place or written assurance that he was qualified before contracting to buy a station. The banker he was dealing with evidently led him down a merry path of confidence that he could place the loan and when the papers went before the loan committee at the bank the answer was “NO.” The buyer is out several tens of thousands of dollars in escrow and other expenses….all down the tubes except as a very expensive learning tool.

4.  Startups always take more money than you think!!!...

5. As a result of a 2005 case in the U.S. Court of Appeals for the D.C. Circuit, (Kidd Communications v. FCC 2005 U.S. Appeals) financing may even be harder to get than before. This case deals with the rule against reversionary interests in the sale of a station…or in more plain English the rule (FCC Section 73.1150) against using the license of a station as collateral. I would suggest you contact your FCC counsel and discuss how this case could affect your ability to secure financing. If you don’t have FCC counsel I can suggest some to contact.

6. I also have advice on how a seller can protect their interest in doing a sale where they carry paper on the sale. Please contact me direct on this and I will put you in contact with an attorney that practices before the FCC if you are not using one now.

I do not want to discourage anyone from realizing your dream of owning that first station.  As a former owner I will tell you it is a lot of work.  Forget 8 hour work days...they will turn into 12 to 18 hour days very quick. 

Using a Broker like myself...  Some buyers and sellers are of the view that they don't need the services of a broker.  There are many "deals" out in the market that are not advertised by the sellers.  In fact the fewer people that know a station is for sale the better as far as many owners are concerned.  It is a broker’s stock and trade to know what stations are for sale and what owners can be talked into selling if they are not actively marketing their properties.

SOME ADVICE FOR SELLERS

You are not going to get 22 times cash flow on a small market station.  Yes, I know that some stations recently and one in particular in Texas were reported as having sold for 22 times cash flow.   This is only going to happen in probably the top 50 markets.  Most banks will only (if you can get them to look at the deal) do 4-5 times cash flow.  That means the buyer will have to put in the balance in cash unless you carry the paper yourself (and be in 2nd position behind the bank).  The only way you are going to get a big premium is if your FM station has the potential to upgrade into a much larger market.    My firm was in discussion with the owner of a small market combo billing in the $150,000 range about listing the stations for sale.  The market has about 6,000 in population with 40,000 or so in the county.  There are 3 other radio stations in the county also.  The seller wants close to $1,000,000 for the combo.   In a market his size, to bring $1M he needs to cash flow $125k to bring 8 times cash flow (which is a realistic multiple) in a market his size.  He also does not want to do the work to bring up his station's cash flow and as a result raise the value to where he wants it.  That is to be left to the hoped for buyer to do.  Yes his combo may be worth $1M one day but not on a present "as is...where is" basis.  There are lots of people wanting to get into the radio station ownership business but pricing has got to be realistic in relation to market size.  That's the way it is...deal with it.

SOME MORE ADVICE FOR SELLERS

On Star Trek the Ferengi have their “Rules of Acquisition.” I think I will start “Garland’s Broadcast Rules of Acquisition.”

Number 1 will be “Sellers always want more than their stations are worth…and Buyer’s want to pay less than a station is worth.” Stay tuned more to follow….

SOME MORE ADVICE FOR BUYERS

I was once contacted about a property that I had listed.  The potential "buyer" was informed of the price and the terms (CASH) of the transaction.  A meeting was set up with the seller, his banker and a partner in the deal, and another broker who I have had a many year (30 +) association.  The meeting was to be held in another city and I was unable to attend.   The buyer assured me that he had financial backing up to $20 Million...more than ample funds to do this deal and have enough left over for working capital....probably for a couple of years.  When the meeting took place the first thing the "buyer" wanted was to structure a terms deal for 25 years.  Whoa!!...what happened to his ability to do a cash deal.  There goes the buyer's credibility...and maybe some of mine on how to "vet" a buyer.  When I was first contacted the buyer had dropped some names that I knew...one of which was a client...but did not want that client told of the "buyers" interest in this property...no problem with that on my part.

The gist of this paragraph is if you want to do a 25 year terms deal, let me know up front so I don't have to waste my associates and clients time.  Maybe too many people have seen those real estate shows on late night TV that purport to show you how to buy $5 Million worth of real estate with no money down and flip it the next week for $10 Million and think they can put that to work in the radio business. Sorry it does not work like that.