One way to decide how much a radio license is worth is to look for comparable sales, similar to how real estate valuations are done. Look for the most similar sales that happened in the recent past, and that’s a good indication of the value.
Problem #1 – what is being sold?
Normally, a radio station sale is more than the license – it includes the station, and perhaps the tower and most importantly – the land. If the station has a large amount of land for the tower in a major urban area, that land may be a large part of the purchase price.
Problem #2 – multi-station deals
It’s very common for more than one station to be sold at a time. Figuring out how much each station is worth as part of the deal is entirely up to the buyer and the seller.
Problem #3 – extra terms
Some times a station will say “Buyer agrees to pay $x dollars, and 5% of gross revenue for the the next 10 years”. The actual amount of the sale won’t be known until 10 years is up
Problem #4 – Seller takes back paper never expecting to be paid
Seller “sells” station for $20 million – $1 at closing and $1 million a year for the next 20 years. Seller is doing it for some legal reason to get the station off their books, knowing that there is no way the station will generate $1 million a year and in a few years the station will come back to the seller.
Problem #5 – the totally made up price for a station swap
Let’s say Owner A agrees to swap Station A to Owner B for Station B1 and station B2 . The paperwork that is filed says the “purchase Price” is $50 million. No money actually changes hands. There are likely tax reasons and accounting reasons to do that, but the main effect is it inflates the values of comparables for future station sales and the annual FASB required review for intangible assets valuation.
Problem #6: Apples and Oranges
Radio stations are not like condos in a 2000 unit condo development. Each one has unique things. Every station has a different quantity of population it can be heard over – and the people living in that area may be demographically different. A station that can be heard by 100,000 people in East Saint Louis (one of the poorest cities in the country) is worth a lot less than a station that covers 100,000 people in Orange County California.
Stations also carry their reputation and their format. If your radio hosts can get on the air and say “Hey, let’s all go to the beach this afternoon” and 50,000 people show up, you have something of value. If you have an identical station in the same market, but 3 people show up, you don’t have much value. A radio station is a lot more than the hardware.
The net result of all of this is that most station owners rely instead on looking at the cash flow and applying multiples to estimate the value of the station – but that still doesn’t solve the problem if the tower or land is owned by the station. You can’t operate the station without land and a tower (exception: you lease space for an FM station on someone else’s tower), but the land and tower are not part of the cash flow equation. Even if the station went dark and had no income, the land still has a value.