by Erwin G. Krasnow, Doug Ferber & Bishop Cheen
Deal flow speaks volumes about the entrepreneurial appetite for broadcast properties, and with the FCC’s broadcast incentive auction drawing closer, Garvey Schubert Barer attorney Erwin G. Krasnow ([email protected]), DEFcom Advisors CEO Doug Ferber ([email protected]) and SNL Kagan Analyst/Consultant Bishop Cheen ([email protected]) have written an extensive commentary de-bunking common auction myths. Our sixth installment discussed the myth that seller’s revenues and BCF predict future performance.
Here, the trio discuss the myth that real estate brings value to a deal.
Broadcast stations often have several acres of real property for their transmitter and tower site plus additional space and structures for studios. Sadly, the independent value of land for real estate does not add much to a station’s fair market value.
The value of a station’s antenna site separate from the broadcast property is irrelevant unless the tower can be easily moved or used for other purposes, e.g., leasing space to cellular operators. See Erwin G. Krasnow and John M. Pelkey, “How to Turn Steel into Gold: Monetize Your Towers,” RBR/TVBR, June 29, 2012. Increasingly tougher zoning laws, the FCC’s short-spacing rules, neighborhood restrictions (relating to lighting, signage and architectural styles), and strict federal environmental standards (e.g., windload regulations) make it difficult to find a substitute tower site or to upgrade the existing tower.
By contrast, the FCC’s liberalized main studio rule allows buyers much greater latitude in relocating the station’s studios. Typically, the real estate element of a deal is of relatively low value compared to the value of the station’s license, its technical facilities, and/or its operations/results.
Yet, from a buyer’s perspective, it is essential that the seller either include the tower site as an asset, or be able to assign a long-term tower lease with attractive terms, in order to keep the station on the air. Viewed separately, communications towers are an asset that might be monetized or turned into a profit center.
A related misconception is that excess assets add to the station’s value. In addition to owning real estate, a station may own equipment in quantities and qualities that do not translate into increased value. It’s similar to the myth that if a homeowner adds an expensive swimming pool to a house, the value of the house is likely to increase by more than the cost of the pool. In many cases, the homeowner will not recoup the cost of the investment. The key issue for buyers should be the stream of income; anything that can add to or subtract from that stream should be part of the analysis.
Next time, they’ll cover the myth about banking on a 100% leveraged purchase.
Erwin Krasnow co-chairs the Communications Group of Garvey Schubert Barer, is Washington counsel to the Media Financial Management Association and former NAB general counsel. He has represented sellers and buyers of broadcasting, cable, tower and telecommunications properties in transactions totaling in excess of $21 billion. Reach him at: [email protected]/
Doug Ferber began his career as an entry level sales trainee for Bonneville International Corporation in 1984. After milestone assignments with Capital Cities/ABC and Interep National Radio Sales, Doug has brokered more than 50 transactions valued at over $400,000,000. He founded DEFcom Advisors, LLC, a Media Financial Consultancy Company, in 2009. Reach him at: [email protected]/
Bishop Cheen writes the “CAPITAL Letters” blog for SNL Kagan, is a consultant for Kagan Media Appraisals on valuations, expert witness and other financially focused assignments. He also teaches seminars and online courses (for the SNL Knowledge Center) on trends, economics, and valuations in the media/telecom industries. Bishop retired from Wells Fargo in 2012 as a managing director and senior analyst. Reach him at: [email protected]/
