Mark Twain, the legendary American writer and humorist said, “Buy land, they’re not making anymore.”
History has shown the wealthiest in the world today and throughout history gained significant wealth by acquiring land. The world’s royalty have wealth because of large land holdings. Many commoners today and in history gained and held their wealth through buying land.
Queen Elizabeth, through her monarchy, owns 6.6 billion acres of land in various countries such as Great Britain, Canada and the Falkland Islands, over which England bombed some sheep farmers for a few weeks in a 1982 war. Commoners include Cincinnati’s Ted Turner, the founder of CNN. He owns about 2 million acres in Georgia, Montana and in Argentina.
Twain was right. Land is a way to gain and maintain wealth. No more is being made.
In the 20th century when the passenger railroads were becoming obsolete, their businesses evaporating, what they were eventually left with was land – a lot of land. Land that was ultimately liquidated when railroad companies like Penn Central finally dissolved in the 1970’s. As late as 2006, land once owned by Penn Central was still being sold off and today there are still leases being paid on its former rights and properties, some leases which may exist until 2032.
A few years ago I made a comment on a blog explaining the worth of many radio stations being its land. While AM radio station owners may cry poverty at the annual N.A.B. or National Association of Broadcasters Convention, many have vast land holdings.
Since that blog was published, Cumulus Broadcasting decided to sell the land its legendary KABC and KLOS in Los Angeles occupy, because the land is more valuable than the business of those two radio stations…combined. They’re doing the same with WMAL-AM in Washington, selling off its suburban AM tower site. Once the bulldozers roll, expect a nice new subdivision where the towers once stood.
Clear Channel Media + Entertainment iHeartMedia announced they were going to sell 411 of their tower sites and lease them back. The company owns about 850 radio stations. Many of their FM stations share or lease tower sites from others.
So let me ask a simple question, a question never addressed in the industry trades. What type of radio stations have a lot of valuable land? AM or FM? If you answered AM, you would be correct. In fact the only worth to many AM stations today is the land their towers sit on, because many have no revenues.
Few listeners + Little revenue = Little worth (except for the land).
In Cincinnati, for example, the
Clear Channel Media + Entertainment iHeartMedia AM tower sites have approximately 230 acres of land. One of the four AM tower sites is already leased, or their land holdings here would be much more. Now multiply that acreage number out across 150 markets. This (or any) radio company owns a lot of real estate or at least used to.
Read this, understand it and don’t deny what is happening around you, especially if you work for an AM radio station. Radio companies are pulling the final dollars of equity out of their AM stations and are getting out of the AM broadcasting business.
Last Friday it was announced, through an SEC filing,
Clear Channel Media + Entertainment iHeartMedia, sold the first grouping of 367 tower sites and got a check for $369 million from a company called Vertical Bridge Holdings. Clear Channel Media + Entertainment iHeartMedia will lease back, for 15 years, the tower sites for $20.8 million a year, lose tower rent revenues of $10.7 million a year, but then save $3.3 million a year in operating costs.
Let’s do the math on the 367 tower sites sale:
$20.8 million x 15 years = $312,000,000
$10.7 million x 15 years = $160,500,000
$3.3 million x 15 years = $49,500,000
$423 million in costs over 15 years v. a $369 million one-time payment.
15 years from today it will be 2030.
Clear Channel Media + Entertainment iHeartMedia won’t exist in its current form. By selling off these tower sites, many AM tower sites (something no one is mentioning), some AM stations are being put on death row.
The F.C.C. can talk all they want about “AM revitalization.” It won’t matter now. The dollar speaks and the dollar rules. If a radio station is no longer worth anything, will a company, any company, invest in its product? Technically? Developing content? With personnel? If there’s high risk in getting a return on their investment to ultimately increase a station’s overall value, the answer is no.
Let’s say you want to buy a radio station that has little revenues to speak of. If you don’t get its tower site, is the radio station worth anything? WSAI-AM in Cincinnati, for example. It’s a 5000 watt station at 1360khz. It has little real billing because it’s sold in forced combination with other cluster stations. It has little real expense because it’s a full-time affiliate of Fox Sports Radio. Without its approximately 90 acre tower site, its land, is the station really worth anything? No. Would a company dump the bartered (no cash fee) programming from Fox Sports Radio and invest in developing content? No. That would make no business sense – too much risk for too little reward without its real estate.
In its story on the tower sale, the radio industry trade publication Inside Radio, which is owned by
Clear Channel Media + Entertainment iHeartMedia, said, “Listeners and employees won’t notice any difference…” Employees always pay for any added costs. It’s an immutable law in today’s media.
The one-time payment of $369 million is equal to less than 2% of the over $20 billion debt
Clear Channel Media + Entertainment iHeartMedia owes. It’s been reported the money will be used for “general corporate purposes,” probably to pay the interest on its bonds. Its COO/CFO Richard Bressler said in Inside Radio his team is “constantly looking” at buying and selling opportunities, including the sale of non-core assets.
If a tower site is considered a non-core asset, what then is a core asset?
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