“Easy Money”

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CHAPTER SIXTY-EIGHT

EASY MONEY

A pause for perspective seems in order.

Financial speculation in the ’80’s has since become notorious, a first-wave of specious speculation which would eventually lead to the economic challenges of 2009. There were “Barbarians at The Gate” in many industries. Radio was no exception. Wild money was floating all about. Station prices were being driven upward by astounding ratios. Gary Stevens, former disc-jockey, became a wealthy man in brokering radio properties. In retrospect, he later was to say that “the replicate key on Lotus” brought many to their ruin. It was a profound and knowledgeable observation.

Valuations were being determined by multiples on projected cash flow, often extended five years into the future. Lotus software would allow an enthusiastic and optimistic buyer to justify inflated purchase prices with ease and convenience. Coming up short on a balance? Just amp up income expectations for your first year of budget and hit the “replicate key”. It would jump revenue numbers straight through to the finish line. You could even program an automatic annual percentage increase for your market in overall anticipated radio revenue for extra juice. It took mere seconds. Sha-zaaaaam. It was fast magic!

Traditionally, radio station prices had been based on a general formula of one and a-half to two times past annual gross revenue or three to four times trailing cash flow. Since many stations operated with a fifty percent annual profit margin, this seemed reasonable. On the other hand, there were no guarantees that competitive or economic conditions would ever remain stable. Even looking at currently impressive performance figures, a clear element of risk was always involved. The most highly-rated stations could see downward swings of twenty or thirty percent in anticipated monthly revenue depending on conditions. Significant drops in listenership could witness a facility declining in revenue forty to fifty percent over a single year’s time. Of course, it could go the other way too. That was the gamble. Understanding the inherent volatility of radio was critical and crucial in determining a measure of worth.  In the eager ’80’s, this factor came to be often ignored.

The loan mechanics didn’t need to worry about failure. Getting the “deal done” was their only interest. The eventual fate of a financed project was completely irrelevant. Why worry? Their cut came up front! Let’s hear it for those replicate keys!! There came to be more bankers than record companies hanging out at radio conventions. It was easy money.

By “traditional” standards, WSKS-FM in Cincinnati was worth somewhere between 1.5 and 1.75 million dollars. WSIX AM/FM in Nashville would come in around 2.75 to 3.50 million.

The combined value of Reams properties would ring the register at 6.0, primarily driven by WIOT and WWCK success. There was still a million dollar note outstanding from past borrowing and Frazier’s buy-out of his former partner’s interest. There was also shared ownership with certain family members in a significant percentage of corporate stock which had been left in trust by Frazier’s father. It was complicated.

The “new rules” made things grand.

Had Frazier rolled Flint, Muskegon and Toledo into a single package in 1986, he could have sold Reams Broadcasting for an easy fifteen million dollars. A little luck and a hot broker might have pushed it up to twenty. It was right there on the table. His other option was to leave the money where it lay and roll the dice. Get your bets down, folks!  Double or nothing!!  Frazier decided to let it ride. You only go around once.

We flew down to Cincinnati on Tuesday, September 23rd, 1986.

WSKS-FM was an anomaly. Her sister station was the powerful 50,000 watt WLW-AM. It was the home of the Cincinnati Reds. The combination represented a rare instance wherein the AM partner was out billing its FM counterpart by at least eight to one. By the middle ’80’s,  it was normally the other way around. Both facilities were operated by Republic Broadcasting. They were about to merge with Cincinnati-based Jacor Corporation. Jacor already owned WEBN-FM in Cincinnati, which meant that Republic had to blow-off their FM to make the deal work. The Federal Communications Commission only allowed a single entity to own one AM and one FM in any given market. Back then.

My original idea had been to rock WSKS-FM and smash it up against WEBN. WEBN was the #1  Album Rock station in Cincinnati. I was certain we could bring them to their knees. That was now out of the question. Frank Wood was the President of Jacor.

Frank had traded WEBN-FM for a significant share of Jacor stock and the corporate position. His father had founded and sold him the radio station. Frank had earned a Law Degree from Harvard University. He had not been disadvantaged. Still, there was little doubt he was a distinguished figure by his own efforts. Circumstances had merely offered acceleration. It was made clear in final discussions that WSKS-FM would be available to Reams only if we agreed to take it Country. The last thing Frank needed was a bunch of assholes from Toledo trying to fuck his pride and joy. Frazier agreed to the condition.

I met with Randy Michaels, who worked with Republic and would become Programming Vice-President of Jacor following the merger. He would much later be named President following Frank’s departure and corporate reorganization necessitated by financial discomfort. Randy’s life was radio. Personal and professional existence was one and the same, with no distinction made between the two. Randy would never understand such a concept of separation. We were quite the same in many ways. He remains extraordinarily talented and is now Chief Executive Officer of the Tribune Company. But in 1986, he was the architect of “The Beaver”.

WSKS-FM disappeared and there it was.

WBVE-FM. “The Beaver”.

Randy recruited virtually an entirely new staff in less than a week. He brought them out for a night of carousing at every Country bar in Cincinnati to capture life-style focus. He rented a local recording studio and brought in a band. The jingles were real shit-kickin’ jams.

Weeeeeeyyyyyyllllll. It’s finally on the ray-dee-ooooh.  Real Country Music. Beaver Ninety-Six-and-a-Haaaaaaaaayyyyyffffff.”

They were inspiring.

Although Reams would not assume control until near the end of the year, Randy wanted to give us a running start. The fact that WSKS had been programming a form of “MTV Rock” was also part of the equation. It wouldn’t hurt WEBN to make that go away immediately. The future was taking shape. Randy also had balls.

As part of our final talks, once the Country issue had been presented as a required prelude to purchase, I suggested to Frazier that we throw-in a condition of our own. Republic had to guarantee an Arbitron performance in the Fall ’86 Cincinnati ratings no lower than WSKS’s then-current level of a 3.8% share. With a completely radical format change being undertaken even as the survey started, this would be a formidable task. Anything less would result in a lowering of the purchase price by as much as a half-million dollars. Randy didn’t flinch and the deal was cut. He was to hit that number right on the nose.

Republic had arranged a little cocktail party for us to meet the staff and introduce ourselves. As expected, better sales players on the FM side had already made the switch to “The Big One”. The rest of the crew was putting in time with two small sales offices at WLW set aside for “the little one”. We would be moving to our own offices and heavily recruiting come acquisition.

From Cincinnati, Frazier and I flew straight down to Nashville.

WSIX AM/FM had been owned by General Electric and sold to another group for whom price inflation would be savior. Operationally, they had pretty much fucked-it-up trying to save their way to prosperity.  Both stations were Country, with most sales action on the FM. WSM AM/FM was the other Nashville Country combo. They were kickin’-butt.

We had a meeting with the Nashville staff and I was impressed with the potentials I saw. Spending several days in the market, the only name I kept hearing was “Jerry House”. Jerry had been at WSIX-FM and had switched to WSM-FM when he couldn’t get a raise. He was now in Los Angleles at KRLA-FM. Word was that he’d love to return back home, but would be expensive.
I obtained some tapes and listened. He’d be worth every cent. He was one of the best I’d ever heard.

WSIX AM/FM was being managed by Cecil Thomas. Cecil’s family had happened to own some rural real estate when an expressway came through. Most of the old family homestead was now a figure-eight interchange covered with franchise outlets. Cecil was worth millions and didn’t have to work. He just happened to love radio and was hoping new ownership would “keep their heads out of their asses” and let him do the job. He’d done it before. He knew Country well and Nashville even better. I told him to not pack any bags and promised I’d keep my head sunny-side up.

Everything was starting to assume a profound surrealistic quality.

Frazier and I discussed immediate priorities. We would sell Muskegon since it had never been a profit center and I wanted Neil Kearney to manage “The Beaver”. The best we might do was $500,000 or so, but corporate “negative flow” would stop. We would also test the waters on a price for Flint. With new parameters of competition already impacting,  it seemed a perfect time. We would also drop “Big Band” on WCWA and move to a “’50’s Oldies” format which would generate audience more compatible with WIOT’s listenership for sales purposes. We never discussed financing of our new properties. I would not presume to intrude on such matters. As far as I knew, Frazier might have more money than Leona Helmsley and Donald Trump combined, pardon the thought.

Not quite.

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