QUESTION: HOW TO DETERMINE THE VALUE A NONCOMMERCIAL RADIO STATION

A reader asked: Rookie question, how do you value a non-profit, commercial free radio station for sale?

Sometimes noncom radio deals are complicated. But most often they revolve around the basics of any business transaction: upside potential, existing assets and financial strength of the current operation. These are tangible metrics that are similar to what commercial broadcasters use to establish value.

Other tangible metrics common to both commercial and noncommercial station transactions include the size, demographics and economic realities of the market. Another typical factor is the station’s coverage of the market.

An important factor for commercial stations is CASH FLOW, a term that describes net positive revenue. This is generally a projection based on the amount of money the station generates above expenses. This is important because it informs the buyer how much revenue is available to pay back the loans typically needed to purchase the station. Other commercial station tangibles are the value of property such as real estate and equipment (including towers).

Ratings are often very important because they indicate the station’s ability to draw listeners over time and pay back financing. The number one goal of commercial broadcasters is to make money, so cold, hard numbers generally determine sale prices.

Intangible factors are more often factors in noncom station deals.  These include the motivations of the buyer and seller, providing or extending public service and promoting an organization’s mission.

Not all deals are good deals for both the buyer and seller. Here are examples of recent noncom transactions where, in my opinion, one party got the better deal:

BUYERS ADVANTAGE: KUOW’S PURCHASE OF KPLU

As you’ve probably heard, the licensee of KUOW bought KPLU, licensed to Pacific Lutheran University for $8 million [link].  I think KUOW got the best side of deal. 

KUOW not only bought their biggest competitor, they bought a highly successful station with an annual cash flow of almost $6 million. Even after the deal is approved by the FCC and NPR News leaves KPLU, the new 24/7 jazz station will have substantial revenue from day one.  Plus, as we reported last week [link], KUOW acquired four full-power repeater stations and seven FM translators. The buyer, KUOW, can now use these frequencies as they wish including selling or leasing them to other broadcasters.  

What motivated Pacific Lutheran University to sell KPLU? It appears that the university wanted to cash in and focus on its core educational mission.  KPLU said the proceeds will go to the university’s endowment.

For quite a few years, schools and universities have been moving out of broadcast station ownership. Many of these institutions got into the radio business years ago when acquiring licenses was cheap and easy and not much money was at stake.  I call these folks “accidental broadcasters.” 

Bottom line: KPLU is worth a couple of million dollars more than KUOW paid.

SELLERS ADVANTAGE: WNTI’S SALE TO WXPN

As we reported in October [link] WXPN purchased WNTI, Hackettstown, New Jersey for $1,250,000 in cash and $500,000 in underwriting announcements for Centenary College, the current licensee of WNTI. WXPN is using WNTI as a repeater of its Philadelphia signal.

Centenary’s motivation to sell was similar to Pacific Lutheran’s: The desire to focus on the school’s core business of education. Perhaps Centenary was also motivated by contingent liabilities such as FCC fines for “f-bombs” often heard in rock music.  This concern is common at licensees that own college rock stations.

Press accounts describe the sale as “sudden.” Perhaps WXPN rushed too quickly into the deal because other potential buyers were knocking on the door. While it is true that WNTI’s programming was similar to WXPN’s, the potential additional listeners might not bring in much additional revenue.

To me, this is a situation where WXPN should have offered to lease WNTI rather than pay cold cash. I am not certain if WXPN gained anything more than bragging rights.

BUYERS ADVANTAGE: AVAILABLE CASH & ULTERIOR MOTIVES

Last week it was announced that Educational Media Foundation (EMF) is buying an FM noncom station in Kansas and seven FM translators around the country for $315,000. The seller is Family Broadcasting, a religious organization that has been in decline since its founder, the late Harold Camping, who falsely predicted the end of the world. EMF is the nation’s most active noncom station trader and frequently leases translators to commercial broadcasters.

Acquiring translators was ulterior motive. EMF will reap far more than $315,000 with translators covering West Palm Beach, Florida; Auburn, Alabama; Medford, Oregon; and Eau Claire, Wisconsin.