If your financing and/or business plan is not rock solid, it is inadvisable to participate in an FCC construction permit auction. If there is a default, the bidder may still be on the hook for a large payment, with no broadcast asset to show for it.
The FCC just released information on two such cases.
The first involved Kankakee Valley Broadcasting Company Inc., which was bidding on an FM allotment in Culver IN during Auction No. 62. The facility was eventually won during Auction No. 93, but at a reduced price – and KVBC is on the hook for the difference.
According to the FCC, it bid $354K for the station. The eventual winning bid was only $200K. After adding in an FCC charge of 3% on the difference, KVBC had to pay $160K for absolutely nothing.
The FCC charged the company an interim of $10.6K, which was added to the amount it already had on deposit. The final calculation is that it still owes the FCC $89.2K.
The other case was also was rooted in Auction No. 62. Sheila Callahan and Friends Inc. defaulted on a $52K bid for Whitehall MT allotment. It was subsequently picked up during Auction No. 91 for $3.1K gross bid, which due to a bidding credit was adjusted down to a net bid of $2,015. The FCC used the gross bid for the calculation, which left SCAF in the tank for a $48.9K difference.
So far it has FCC credit for only $1,560, meaning it is now being charged $47,340 to settle the account.
RBR-TVBR observation: For those of you keeping score at home, the default on the Indiana station cost the initial bidder 80% of the eventual winning bid with nothing to show for the expenditure. In the case of the Montana station, the initial bidder is paying almost 16 times the eventual price fetched by the CP.
The moral of the story is that if you have even the slightest reason to question the staying power of your auction bidding company, stay out.
This explains why Kankakee bid against itself several times in Auction 93. They were on the hook anyway…
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