Who else might raise eyebrows on Wall Street?

Part 1 of 3

With financial scandals reverberating through Wall Street, one of the reforms that has been proposed is to ban corporate loans to their own officers. That suggestion came from President George W. Bush, who is facing criticism for profiting from just such a loan while he was a director of Harken Energy. The Senate voted Friday to add a ban on loans to corporate officers to a bill on tougher corporate accounting rules that's sailing toward quick passage.

So, we wondered, how many of the publicly traded radio companies have made such loans, or other related-party transactions that might raise eyebrows in the current suspicious climate on Wall Street?

Radio One (O:ROIA), as reported, came under scrutiny just last month by the Wall Street Journal for the loans it made to corporate officers to buy Radio One stock. CEO Alfred Liggins tackled the questions head-on in a conference call with reporters and analysts (RBR.com 6/26 & 27), saying that all of the transactions were perfectly legal, designed to enhance the executives' interest in building shareholder value and had been fully disclosed in the company's SEC filings.

Radio One made loans to Liggins for slightly over $21M in 2001, to CFO Scott Royster for $7M in 2000 and to General Counsel Linda Vilardo for slightly over $2M, also in 2000. Liggins' own loan will have to be paid back someday, presumably by selling stock that has increased in value, but Royster and Vilardo will eventually receive bonuses to cover the loans - - provided they stay with the company through 2010 and 2008, respectively. All three loans are secured by Radio One stock.

Radio One's latest proxy filed with the SEC also details a number of other related-party transactions, including the LMA of WAMJ-FM in the Atlanta market from a Liggins-controlled company, studios in Baltimore leased from Liggins and his mother, Radio One Chairman Cathy Hughes. There are also some smaller unsecured loans - - a loan of $380K to Liggins in 1998 (now worth over $460K, including interest), $262,539 to COO Mary Catherine Sneed in 1999 (now $306K) and $100K to Hughes in 2000 (now $112K). Radio One also leases the transmitter site for WDMK-FM Detroit from a subsidiary of SynCom, which owns a large stake in Radio One and has Terry Jones sitting on the Board of Directors.

Beasley Broadcast Group (O:BBGI) sold most of its towers and associated real estate to the Beasley family before its IPO and now leases them back. The tower sale involved no cash and was financed solely with $5.1M in unsecured notes. There is still about $5M in principal outstanding to be paid on those notes. In all, the company receives approximately $342K in annual interest income from the notes and the family is paid rent of $467K. The SEC filing says those terms are "at least as favorable" as the company could obtain from an unrelated party.

BBG also leases some of its other studio and tower facilities from various members of the Beasley family.

Fisher Communications (O:FSCI) has loans totaling $1.2M outstanding to three members of the founding family - - $848.5K to an estate and trust controlled by Chairman Donald Graham Jr., $150K to Director Jacklyn Meurk and her husband and $34K to Susan Hubbach, whose daughter, Carol Fratt, is a Director.

Back when Ed Christian launched Saga Communications (A:SAG) in 1990 - - and well before its IPO - - his financial backer, Boston Ventures LP, loaned him $6907K to finance his initial investment in the company. That loan was later reissued by Saga itself and the company agreed in 1998 to forgive the balance over five years as part of Christian's compensation package. The final 20% of that loan will be cancelled this year.

Saga also loaned Christian $125K in 1999 at 7% interest, which he in turn loaned to his daughter's company, Surtsey Productions, to buy KVCT-TV Victoria, TX. Saga is prohibited from owning the station directly, but has a JSA agreement with it that runs for 16 years. The loan has been repaid and Saga is continuing to make JSA payments to the daughter's company. Surtsey also leases office space from Saga and receives payments from Saga stations for its graphics design services.

Saga also noted that it bought one of its radio stations from a company in which Donald Alt, a Saga Director, had a financial interest, and that Director Robert Maccini, a broker with Media Services Group, received a commission from another station purchase.

Clear Channel Communications (N:CCU), the largest radio company of all, has relatively few related party transactions in its latest proxy. The company paid $447.1K for consulting and transportation services in 2001 to Radioactive LLC, a company owned by Clear Channel Radio CEO Randy Michaels. CEO Lowry Mays, President Mark Mays, CFO Randall Mays and other Mays family members received accounting and tax services from Clear Channel, which the company said cost $62,250.

Viacom (N:VIA) has a deal to swap $25M in advertising over five years for a 5% stake in MovieTickets.com Inc. MovieTickets.com is currently 26.4% owned by National Amusements - - the theater chain which is Viacom's biggest shareholder and through which CEO Sumner Redstone has voting control of Viacom. National Amusements is run by his daughter, Shari Redstone, who is also a Viacom Director. Viacom's SEC filing also noted that National Amusements pays Viacom to show its movies and that a related company, Midway Games Inc., sells video games to Blockbuster, which is partly owned by Viacom.

Westwood One (N:WON) doesn't have any loans outstanding to its officers, but it does have a management agreement with a major shareholder - - Viacom's Infinity Radio. WW1 pays Infinity a base fee of $2.5M per year, plus a bonus for exceeding cash flow targets. It also granted stock warrants to Infinity as an additional incentive. Infinity sold 3M of its 4M warrants in 2001 and earlier this year for a total of $66.8M.

Arbitron (N:ARB) still has some dealings with its former parent, Ceridian (N:CEN). It subleases office space in New York to Ceridian, based on what the space costs Arbitron, and Arbitron pays Ceridian for tax services.

Disney (N:DIS) had very little to report - - just $67.5K in architectural payments to Director Robert Stern's firm and legal fees of $1.3M to Verner, Liipfert, Bernhard, McPherson & Hand, of which Director George Mitchell (the former US Senator) is Chairman.

Cox Radio (N:CXR) obviously has complicated links to its privately held parent company, Cox Enterprises. Cox Enterprises borrows money with its investment grade credit rating and then makes loans to Cox Radio at the parent company's commercial paper rate plus 0.4%. Cox Radio also paid $3.1M to Cox Enterprises last year for management services and office rent, plus $600K for tower and studio rent in Atlanta, GA and Dayton, OH.

Tomorrow:
Related-party transactions at radio's fast-growing Hispanic groups