In the world of broadcast transactions, optimism is often the fuel behind deal momentum. But when that optimism turns into unchecked assumptions, it can become dangerous — not just for buyers, but for lenders, operators, and entire portfolios. This week’s installment explores how “fuzzy math” creeps into broadcast valuations, why it persists, and how to spot it before it derails a deal or turns what could have been a good deal into a bad dream.

1. Bad Assumptions Break Deal Logic

Broadcast valuations frequently rely on certain financial assumptions that are either outdated, overly optimistic, or just not in touch with market realities:

• Revenue Recovery Assumptions
  Many models assume a return to pre-COVID ad revenue levels, ignoring the permanent shifts in advertiser behavior and audience consumption that got their start during COVID and remain to this day.
  
  Example: A station projects a 15% YoY rebound in local ad sales, despite losing key categories like automotive and retail to digital platforms.
  
• Deferred Capex Blind Spots
  Sellers often downplay future capital needs, assuming aging infrastructure can be “sweated” indefinitely.
  
  Reality: New technology, equipment upgrades, and basic facility maintenance are unavoidable — and expensive.
  
• Political Revenue Dependence
  Some valuations lean heavily on political ad cycles, treating them as recurring revenue rather than one-time windfalls.
  
  Problem: Political revenue is volatile and non-recurring. Basing long-term value on it is a recipe for disappointment.

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2. “Hope Pricing” vs. Hard Realities

“Hope pricing” refers to valuations built on best-case scenarios rather than conservative, risk-adjusted forecasts. It often includes:

• Aggressive EBITDA Multiples
  Applying unrealistic multiples to broadcasters’ cashflow without adjusting for one-time events or declining revenue trends.
  
• Ignoring Audience Decline
  Valuations that assume stable or growing viewership, despite ratings data showing erosion in key demos.
  
• Digital Revenue Mirage
  Overstating the impact of digital initiatives that are still unprofitable or marginal.
  
  Example: A broadcaster touts its Over the Top (“OTT”) app as a growth engine, but it contributes less than 2% of total revenue and lacks a monetization strategy.

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3. Why Lenders Walk Away

Lenders are increasingly wary of deals built on fuzzy math. Red flags include:

• Unverifiable Projections
  Forecasts that lack third-party validation or ignore market comparables.
  
• No Sensitivity Analysis
  Models that don’t show downside scenarios or stress tests.
  
• Overleveraged Structures
  Deals that rely on high debt loads with thin equity cushions — especially in declining markets.
  
  Case Study: A regional broadcaster sought to finance a multi-station acquisition with 80% debt, assuming 20% revenue growth. The lender walked when the model failed to account for declining retransmission fees and rising content costs.
  
• Lack of Lender Collateral
  Worth an entire rant all by itself, the fact that FCC rules preclude Lenders from collateralizing an FCC license is probably one of the biggest deterrents to securing regulated lending.

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For What It’s Worth:

Valuations built on fuzzy math don’t just risk poor returns — they can jeopardize entire portfolios. In today’s media landscape, realism isn’t pessimism; it’s prudence. The best deals are grounded in hard numbers, not hopeful narratives.

That’s 30 for now, thanks for listening…