Real-Life Lessons for Would-Be Owners

I received e-mail from a young man who'd read an article I'd written in Radio World about one of the FCC auctions. His basic question was, "How do you go about buying a radio station?"
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I received e-mail from a young man who'd read an article I'd written in Radio World about one of the FCC auctions. His basic question was, "How do you go about buying a radio station?"

I was tempted to e-mail back, "Start with a lot of money and be prepared to lose it all." But I decided not to burst the bubble.

Seriously, I'm not necessarily an expert; but I have owned, individually and with partners, nine radio stations over 15 years. I have learned several constants that must be applied if one is to avoid the pitfalls that come with owning any small business.

So here you go: "Real Life Lessons for the Would-Be Radio Station Owner."

Lesson 1: Make sure you know why you want to buy a radio station.

I purchased my first station from a real-estate guy who'd wanted to hear music that he liked -classic rock - on the radio.

No matter that he lived in a small town in Texas where everybody else thought Garth Brooks should run for president; he, by golly, wanted to wake up to Led Zeppelin. In the end, he found himself paying a lot more than 25 cents a pop to run a very expensive jukebox. I ended up owning the station after it had been dark for almost a year.

What goal are you going to attain through ownership?

We can assume, since you are devouring every word written in Radio World, that you are smitten with broadcasting; but if your goal is the same as my real-estate buddy's, just buy a CD player. It's much cheaper and the transmitter never goes off the air.

More than wanting to run a radio station, you should be personally committed to running your own business. The fact that you know and love the business of radio simply points you toward running a radio station.

This idea of wanting to run a business is important. Once you own your station, you can forget about being the music director and morning drive guy. You want to be an owner? Leave those other things to people you hire. You will (or should) be way too busy.

Lesson 2: Do your homework.

Write that one on the blackboard 500 times before you go further.

Owning a radio station is like owning any other small business, except that you're a licensee and have to jump through those hoops, as well.

True, it is more glamorous than running a donut shop (or maybe not); but in the end, you will live or die with decisions you make long before you ever get the grant to operate from the FCC.

Stations for sale are easy enough to find, but caveat emptor is the byword; every station is being sold for a reason. Find out what it is sooner, rather than later.

Research the town. Population growing or declining? How are housing prices? What are demographics and wages like? What is the competition like? Do major-market signals spill in and steal most of the audience - or worse, do those stations send salespeople in to steal most of the advertising dollars?

Is this a town in which you want to live for the foreseeable future?

You can get comprehensive data on many of these questions from various government agencies, many of which have excellent Web sites.

Lesson 3: Finding a station you can afford to buy is a lot easier than finding one you can afford to run.

I've found stations people would give away just for the tax writeoff. But nobody could make money running them, so what's the point?

The right station is a combination of purchase price, market size, competition and your ability to fund the deal. You might find the perfect station; but if the price is too high, you may have to "just say no." If you overpay, you might start out feeling you are riding high, but you're really already underwater.

Determining the value of a station is difficult, but you don't have to resort to reading tea leaves and animal entrails. You will, though, have to be able to read and understand financial reports.

Even the smallest station owner should have income/expense statements; most will have a balance sheet. If you do not know how to interpret these basic financial tools, stop here, go to the nearest library or community college and obtain a Finance 101 book or course.

Although there's always room for fudging reports (think Enron), the seller will be making reps -"representations and warranties," in legalese -that his numbers are fundamentally correct. He lies, you sue.

So use the reports he gives you to track expenses, accounts receivable, bad debt, sales costs, etc. From those numbers, generate your own profit and loss statement. The number at the bottom of this report (hence the term "the bottom line") that will fund your purchase, so you need to know what that is.

A P&L or income/expense statement also is an excellent way to get a feel for where the money is coming from and where it's going.

Lesson 4: Do your due diligence.

Due diligence is a fancy term for verifying the condition of the assets you are purchasing. Prior to signing a purchase agreement, you will have the right to inspect the station. This inspection must include the financial statements, the equipment and the station authorizations. If you, or a partner, is an engineer, fine. If not, hire someone you trust. Pay particular attention to the "high ticket" items. Does the station own the tower? Are there tower inspection records? Check out the site at night. Do the lights all work? (You would be amazed how expensive a 300 watt light bulb is when it is 500 feet above the ground). How about the transmitter. Are there maintenance records? How old is it? If it's an oldie, are parts still available? Are the licenses all up to date? Broadcast Aux licenses (STLs, etc.) used to be fairly simple to you need a formal frequency coordination study, which of course, costs time and money.

Lesson 5: You are going to be a small businessperson (emphasis on "small").

The federal government defines a small business as one that employs fewer than 500 people. Within the context of that definition, you will be positively microbial in size.

This is OK if you are comfortable with working a whole lot for not much money. As a first- or second-time owner, you no doubt will not be able to afford a cash-flowing station in, say, Kansas City; nor will you be able to buy a profitable cluster in a medium market. No, you will more likely be looking at a small AM or FM or (if you really go for broke), a combo in a small market of maybe 100,000 people.

If you are very good at doing this, you might generate a million dollars of asset value, free and clear of debt, over several years. Really. A million dollars. But to put that in perspective, if you are 30, keep your day job and put the cash you'd give up by going your own way into a 401(k) plan, you'll get there anyway, and with a lot less risk.

When you are ready to buy, you will need to write a check. Where you get the money is the topic for next time.

Jim Withers owns and operates (with the gracious understanding of his long-suffering wife) KSIX(AM) in Corpus Christi, Texas. He has contributed numerous articles to Radio World. Reach him at (314) 345-1030 or by e-mail to