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.\u00a0\u00a0 Look for the most similar sales that happened in the recent past, and that’s a good indication of the value.<\/p>\n
Problem #1 – what is being sold?<\/strong><\/p>\n Normally, a radio station sale is more than the license – it includes the station, and perhaps the tower and most importantly – the land.\u00a0\u00a0 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.<\/p>\n Problem #2 – multi-station deals<\/strong><\/p>\n It’s very common for more than one station to be sold at a time.\u00a0 Figuring out how much each station is worth as part of the deal is entirely up to the buyer and the seller.<\/p>\n Problem #3 – extra terms<\/strong><\/p>\n Some times a station will say “Buyer agrees to pay $x dollars, and 5% of gross revenue for the the next 10 years”.\u00a0\u00a0\u00a0 The actual amount of the sale won’t be known until 10 years is up<\/p>\n Problem #4 – Seller takes back paper never expecting to be paid<\/strong><\/p>\n Seller “sells” station for $20 million –\u00a0 $1 at closing and $1 million a year for the next 20 years.\u00a0\u00a0 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.<\/p>\n Problem #5 – the totally made up price for a station swap<\/strong><\/p>\n Let’s say Owner A agrees to swap\u00a0 Station A to Owner B for Station B1 and station B2\u00a0.\u00a0\u00a0 The paperwork that is filed says the “purchase Price” is $50 million.\u00a0\u00a0 No money actually changes hands.\u00a0\u00a0\u00a0 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.<\/p>\n Problem #6:\u00a0 Apples and Oranges<\/strong><\/p>\n Radio stations are not like condos in a 2000 unit condo development.\u00a0\u00a0 Each one has unique things.\u00a0\u00a0 Every station has a different\u00a0quantity of population\u00a0it can be heard over – and the people living in that area may be demographically different.\u00a0\u00a0 A station that can be heard by 100,000 people in East Saint Louis\u00a0 (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.<\/p>\n Stations also carry their reputation and their format.\u00a0\u00a0 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.\u00a0\u00a0 If you have an identical station in the same market, but 3 people show up, you don’t have much value.\u00a0\u00a0 A radio station is a lot more than the hardware.<\/p>\n 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.\u00a0\u00a0 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.\u00a0\u00a0 Even if the station went dark and had no income, the land still has a value.<\/p>\n","protected":false},"excerpt":{"rendered":" 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.\u00a0\u00a0 Look for the most similar sales that happened in the recent past, and that’s a … Continue reading