13 Billboards Key Component of Campaign To Defeat Union Shop

Here's an interesting Reuters article about how 13 billboards were a key component of the successful campaign to defeat the United Auto workers attempt to represent workers at Volkswagen's sole US factory.  Volkswagen wouldn't let the anti-union group campaign on company premises, so the anti-union group bought 13 billboards in town so that workers could see their message driving to and from the plant and so that people in town could view their message.

Don't be shy about publicizing the effectiveness of billboards in getting political messages across.  Midterm elections are in 6 months.

Five Questions for Scott Spector

As a billboard owner and lender I know the importance of insurance.  I had a lending client who's digital billboard was wrecked by a fire in the building next door.  My client replaced the board quickly thanks to insurance.  Scott Spector of the Libsco Financial Group has been meeting the insurance needs of billboard companies for more than years.  He is an associate member of the Independent Billboard Operators Association.  You can find out more about Scott Spector's services at www.libsco.com or by contacting him (847-763-5324 or SSpector@Libsco.com).

1.  How did you start insuring billboards?  20 years ago I had a client who needed insurance for his billboards to get a bank loan.  There was no one out there helping the small business owner with billboard insurance.

2.  Why is insurance important for a billboard company?  A company or individual should always carry liability insurance  just in case something happens.  In regards to billboards I am sure you would want to protect your investment if something happened to them.  We also insure for the monthly rental value if somethings happens to the billboard.  If companies have employees or independent contractors it is the law that you have to carry workers compensation.  We also work with companies to make sure they obtain correct certificates of insurance from companies that work on their billboards.

3.  How are billboard companies unique from other companies when it comes to underwriting insurance?  Location, location, location.

4.  What info will an insurance company want to see to underwrite insurance?  Location, the value of the billboard and rental value.

5.  What is the most common mistake small companies make when it comes to insurance?  Companies or individuals don't think that they can obtain insurance for their billboards for the monthly rental value if something happens to the billboard.

Five Questions for Emerson Schwartzkopf, Editor and Publisher, Out of Home Magazine

Five Questions For Emerson Schwartzkopf, Editor and Publisher, Out of Home Magazine

As a niche business there are very few sources of information on the outdoor business.  Most of us are too cheap to spend the thousands of dollars is costs to join the OAAA.  This week I was delighted to discover a digital magazine dedicated to the out-of-home business.  It's called Out of Home Magazine.  You can subscribe for free to the monthly magazine and a weekly newsletter by registering at the magazine's website.  The magazine is published by Emerson Schwartzkopf who has a 25 year career covering the outdoor-signage industry, including stints as editor of Sign Business Magazine and Digital Graphics magazine.

1.     Emerson, how did you get involved in the outdoor business?

It came as part of the territory when I first joined Sign Business Magazine in 1988. I ended up watching nearly all the major technological changes for on-premise signage and out-of-home, from computer-cut vinyl to digital printing to serviceable outdoor LED displays. I spent most of the 1990s doing hands-on testing of cutters and the first poster-sized printers, as well as tracking ink and substrate development.

2.     What's the history of Out of Home Magazine?

Bob Klausmeier founded Out of Home Magazine in the early spring of 2013. For more than two decades, he sold and assembled signage components, and also represented one of the larger constructors of electronic signage and billboards. His depth in all aspects of outdoor media gave him insights to build a very interesting magazine. I’ve been in the background since the first issue, providing editing and, later, a presence in regular industry news roundups with the Out of Home Weekly and instant updates via our Twitter account. When Bob found a great opportunity last year with an industry supplier, I was glad to step in and take over the magazine.

3.     Who is your target audience?

Out-of-home is a coordination of a pretty diverse lot of people in creative, production and delivery, so it’s more of an effort to bring together readers from many areas. First among equals are, of course, the media companies/owners and the industry suppliers. However, the changes in OOH technology are going to bring clients much closer to the action, so we’re also reaching out in a significant way to agencies. We’re also keeping close with digital-signage networks, because evolving technologies are merging more products into the same delivery mix.

4.     What made you want to be editor and publisher?

Somebody once asked the writer P.J. O’Rourke why he became editor of National Lampoon in its 1970s heyday, and he gave a simple answer – “because I could do what I wanted and nobody could stop me.” I like being in a position where I can be creative and offer something that people want to read.  You need to recognize your responsibility – I’m not going to blow things up just to, well, blow them up – but you can also have fun and give people something that’s worth their time.

5.     What are the biggest trends you see impacting the out of home business?

Technology is going to provide more ways to deliver a message, but every incredible digital thingamajig is going to call for a greater focus on the basics of out-of-home business: capacity and measurement. Managing the growing amount of space that can be filled is going to really ratchet up the challenge for media providers as to where and what and how they sell. And those spending the money – the agencies and their clients – will demand more and more details about OOH consumers and crafting some complex strategies to get every penny out of media that’s getting more and more flexible.

Why You need Billboard Insurance

Sign insurance is important.  The digital billboard on the right was destroyed by an electrical short.  One of my lending clients had a digital board damaged by a fire on an adjacent property.

Regular billboards can be damaged by storms and hurricanes.

Lenders will require you to carry three kinds of insurance.  (1) An umbrella corporate liability policy for $1 million which will cover you from lawsuits related to the operation of your business,  (2) A replacement policy on each of your boards which will pay for them to be replaced if they are damaged or destroyed.  (3) Key man life insurance which will pay off the lenders loan in case you die.  This is especially important to a lender if a business is dependent on a single individual.  It also makes sense for you as a business owner.  Do you want the lender wrangling with your spouse over how your business should be run when you die or would you rather have the business pass into your estate free and clear of all debt?

Insurance is cheap.  My $1 million corporate policy costs about $115/month.  In addition I pay about $16/month per billboard for a $25,000 replacement policy.  Digital billboard insurance costs more because digital boards are 5-8 times more expensive than steel.

Small Business Ad spending to increase 10% in 2014

Here's a link to a Media Life Magazine Article which predicts that small and medium sized businesses will increase their advertising by 10% in 2014.  Much of the increase is going to online/digital but I suspect that savvy billboard operators will be able to capture a share as well.  The study's author finds a high use of facebook among small and medium sized businesses.  If your outdoor business is not using facebook you"re missing a cheap way to tell your story to potential advertisers.

Risks of Legal Non-Conforming Billboards

Here's an interesting newspaper story about the risks of owning legal non-conforming billboards.  A legal non-conforming billboard does not comply with existing zoning rules but has been grandfathered because it was constructed before the rules were put in place.  Most zoning rules forbid you from replacing or repairing non-conforming boards so you need to take them down if they get damaged.

A November 17, 2013 hurricane damaged 15 billboards in Kokomo, Indiana.  The Kokomo Board of Public Works and Safety has ruled that the billboards must be removed now that they are damaged because they are non-conforming.

How can you mitigate the risks of owning legal non-conforming boards?

1.  Diversify your billboards geographically so they won't all be damaged by a single storm.

2.  Diversify your billboards across different legal authorities so that all of your boards won't be impacted by a single township's ruling.

3.  Spend money to hurricane or tornado proof your boards so they survive a storm without damage.  One of my clients in Florida hurricane-proofed each billboard.  He changed the design of his signs so that the vinyl posters are suspended over a frame rather than on a solid steel face sign.  A hurricane will blow off the poster and blow through the sign but leave the frame of the sign undamaged.

Cracker Barrel a top outdoor advertiser.

A recent article on the public restaurant chain Cracker Barrel says the company is a huge billboard advertiser.  Cracker Barrel caters to travelers and billboards are great at reaching travelers.  Here's a direct quote from Cracker Barrel's most recent 10-k:

"Outdoor advertising (i.e. billboards and state department transportation signs) is the largest advertising vehicle we use to reach our traveling and local guests.  In 2013 we had over 1,600 billboards and this expenditure accounted for 49% of our tortal advertising spend."

Get in touch with Cracker Barrel if you have signs near their stores.

What Businesses Benefit Most From Billboards

Just read a blog post titled Billboards for Small Businesses: 7 Reasons To Think Twice.  The post is skeptical about billboard advertising: billboards are expensive, they created unwanted calls from sales reps, they have a limited run and they can't be personalized.   The article concludes, however, with an excellent summary of the types of companies which benefit from billboard advertising:

Local Businesses. - Restaurants and retailers near the board.  Think "Turn Here" or "Next Exit" candidates.

Businesses Selling High Ticket Items. -  Auto dealers, jewelry stores, appliance dealers.  My highest grossing billboard is sold to a jeweler.

Businesses with mass market products. - Tax accountants, plumbers, doctors, dentists, attorneys.

Creative businesses who want to build a brand.  Brand advertising occurs most often in big cities like LA and New York.  I get little brand advertising at my plant because it is located in a smaller city.  Also, brand advertising is very cyclical and dries up in a recession.

A Digital Sign Home Run

I'm skeptical about digital signs due to the high upfront costs but here's a real life success story from one of my clients.  This one-sided 10X24 digital sign cost $135,000 to construct.  It's on a road leading to costco.

 The sign generates revenue of $4,560/month which works out to $570 per each of 8 flips.

 Monthly expenses are $350 ($100 rent, $150 electricity, $50 insurance, internet $50).

 Cashflow (EBIDTA) is $4,210.

The manufacturer says the sign has a life of approximately 100,000 hours which works out to 11.4 years at 24 hours a day operation.

The IRR on the project is 36%.

Two things make the project a home run.

 First, the sign's owner sells the advertising.    If the owner used a sales rep or agency and paid a 20% sales commission the sign would cashflow $3,298/month for a 27% return on equity.  Second, the sign lease is fixed as opposed to being a % of gross revenue.  If the lease was 20% of gross revenue the sign's cashflow would be $3,398/for a 28% IRR.  If you assume both a 20% sales commission and a 20% of gross sign lease then cashflow on the sign is only $1,722 for a 11% return on equity.

The takeaway: lease and sales costs can have a huge impact on sign economics.

Proposal to Cut Deductibility of Advertising Rears Ugly Head Again

Congressional efforts to reduce the deductibility of advertising refuse to go away as this story in Adweek shows.  If you own billboards or a radio station you should be concerned and prepared to contact your congressmen if this gets out of congressional committee.

Five Questions for Joe Stephenson

Joe Stephenson is an expert at selling billboard advertising.  He has 24 years experience selling billboard ads for CBS Outdoor, Mobile Ads USA and Penn Advertising.  Joe manages Circle City Outdoor, LLC the billboard company which I own.  I highly recommend Joe from personal experience.  He increased the revenue at a billboard plant I own from $900/month to $21,000/month in six months of selling.  If you would like to find out how Joe can help you increase your billboard plant revenue email Joe or call Joe at 727-560-8500.

1.  What determines billboard rental rates?

Location, competition, DEC or Eyes on Ratings and simple economics: the law of supply and demand. 2014 rates are up from last year with more advertisers gearing their ad budgets to outdoor and internet media.

2.  What's the secret to selling billboards?

There is no easy was to sell a billboard.  If it was easy everybody would do it.  but you can improve your changes by following a few simple rules.

• Does your potential client have a need for your product and can you satisfy that need.

•  Think like you are the client instead of the salesperson.  Put yourself in their shoes and think of objections before you make the call.

•  Slowly earn client trust and always leave the door open for further discussions.

3.  Where do you get prospects?

Prospects are all around you.  What businesses near a billboard can benefit from advertising on the board?  Who is currently spending money to advertise in other media and not on billboards?  What advertisers are spending dollars with your competitor?

4.  How long does it take to convince an advertiser to use a billboard?

Usually by your third visit or major communication with the client you are able to start the contract process.  The client has developed trust in you by then and the contract is a formality.

5.  What is the most frequent objection raised by potential advertisers and how do you counter it?

Billboard ads cost too much or are not in my budget.  This is usually to get rid of you and means you haven't told the client how you can help their business.  I try to defer this objection to later and first ask if there are any other objections that keep the client from doing business.  You need to open a dialogue with probing questions so you can show the client how billboard advertising is a wise investment.

Discussions to Limit Deductibility of Advertising Will Hurt Billboard Companies

There is a move afoot in Congress to limit the tax deductibility of advertising.  Here are articles from Ad Week and CommLawBlog.

If enacted this will raise the cost of buying billboard advertising by 34% because your clients won't be able to expense the purchase on their taxes.

How many of your existing clients would leave if you raised your rates by 34% tomorrow?

Five Questions for Frank Rolfe

Franks Rolfe is a successful billboard entrepreneur and educator.  From 1982 to 1996 Frank built the largest privately owned billboard company in Dallas.   Frank sold this company to Universal Outdoor (predecessor to Clear Channel) and subsequently owned a billboard company in Los Angeles which he successfully sold to Heywood Outdoor.  Frank runs the OutdoorBillboard.com  website (www.OutdoorBillboard.com) which is a great forum and news source for small billboard companies.  Frank also operates Outdoor Billboard University (www.OurdoorBillboardUniversity.com) which sells training materials and conducts the outdoor boot camp.  I highly recommend that you bookmark Frank’s websites if you are interested in learning about the industry.    

What made you start OutdoorBillboard.com?

I didn’t start OutdoorBillboard.com, Dave Reynolds did. Dave started that site at a time when the Internet was just starting up, and he thought a listing service of billboards for sale would be of value. I started OutdoorBillboardUniversity.com along with Dave. That’s the website that’s dedicated to teaching people about the billboard industry. We started it because Dave noticed that there are no books or courses in existence on the industry, so he urged me to write one. It was fun thinking back about everything I learned about billboards and putting it down on paper and CDs.

What’s the biggest change you’ve seen in the outdoor business in the past 20 years? 

The invention of printed vinyl. Back in the 1980s and early 1990s, virtually all billboards were painted by hand. This was expensive, slow and dangerous. In addition, we could not paint by hand the amazing graphics that vinyl allows – just painting a human face was hard and seldom photo-quality. Vinyl has allowed for photos as large as the sign face – in 100% accuracy and color – as well as the elimination of having to wait for weather conducive to paint on location to install the ad. When I owned my billboard company, the biggest focus of all was on the paint shop. It didn’t matter what you sold, you could not get paid if the ad was not up, and the painters had you over a barrel. A week of rain or freezing temperatures meant no ads could go up, and no revenue in the door. Times are much better with the invention of vinyl. It’s a win/win for everyone – except the sign painters!

What the best advice you can give someone who’s just starting out?

My advice would be to think small and grow into something big. I started with one billboard and ended up with over 300. The nice thing about billboards is that you can take manageable small steps to hit your goal, as opposed to businesses that require a leap of faith. That’s how WalMart was built – it grew from just one small town store – as did Bass Pro Shops.  It’s a lot easier to take action when you are not gambling your entire life savings.

What’s the biggest mistake people make in the billboard business?

Not being realistic on their numbers. If all the signs on the highway rent for $500 per month, you’re probably not going to get $650. And if the note payment is X, and the rent less expenses is Y, and X is bigger than Y, you’re not going to cash flow positive. I remember doing some due diligence on some billboards in Las Vegas in which the ground rent alone was higher than the gross revenue. Those kind of deals only work in fantasy land, and fantasy land is very expensive and depressing in real life. If the numbers don’t work, then move on to the next deal.

What’s your opinion on the merits of the billboard business versus the 8 sheet business?

The biggest hurdle to being an 8-sheet operator is the sheer volume of units you have to own to have the critical mass to make a full-time job of it anymore.  Back when I was blowing and going in the 1980’s, the 8-sheet operators were my heroes, as they were making a fortune by renting 400 signs at a time to Camel or Colt 45, and had the fanciest offices in Dallas. I went to one 8-sheet operator’s office, and it was filled with auction-quality antique outdoor posters of Coke and Dr. Pepper and leather furniture, looking out over downtown Dallas. Fast-forward to the voluntary withdrawal of tobacco advertising from billboards, and the same owner is dead of a heart attack and his kid offices out of a run-down industrial building.  You can make money with many different types of outdoor billboards, but there’s no question that larger units make significantly more money. You can make a handsome full-time living off 10 full-size signs, but it’s hard with 8-sheets unless you have a bunch of them.

Keeping Track of Your Billboard Company Financials

You used to have to pay an accountant to keep track of your billboard company financials or spend several hundred dollars for accounting software which would only run on a single computer.  If your accountant was on vacation or your computer crashed you had no access to financials.  Those days are no more.

I recommend  Quickbooks by Intuit to keep track of your billboard financials.  I use it for my lending companies as well as my billboard company and highly recommend it.  Here are the benefits.

• The service is cheap ($10-25/month depending on the number of users).  
• You can give your accountant free access to quickbooks at tax time which limits the number of info requests you'll have to field at tax or audit time.
• The service is on Intuit's servers which means you can conveiniently access financials from any internet connection.
• The service is secure and reliable.  I cannot remember a service outage apart from normal maintenance as long as I have been a customer.
• You can set up recurring invoices for long term outdoor clients.
• The system can process credit card as well as cash or check payments.
• The service can also handle payroll accounting issues which frees up your time for more important matters.

Why Do You Like The Billboard Business?

The billboard business is my favorite lending sector.  Here's why.

First, there are barriers to entry in the form of restrictive building codes which keep competitiors out.

Second, the billboard business is less cyclical than other forms of media.  US billboard revenues declined 18% during the 2008-2009 recession versus a 30% decline in radio revenue and a 44% decline in daily newspaper revenue during the same period.  Billboard revenues are location based (McDonalds next exit) rather than brand based (e.g. Nike).  Brand advertising gets cut severely during recessions.

Third, the business has low technology risk.  Radio stations face competition from the internet and ipods.  Newspapers face internet competition.  Signs aren't impacted by the internet.  People still drive to work.

Fourth, the business is simple.  You need someone to pay bills and someone to sell.  Radio stations need on-air personnel and talented technical personnel.  Newpapers need printers and writers.

Proforma financials for a billboard.

I've summarized below the proforma financials for a 14 by 48 billboard which is in a good location.

Revenue of $1,500/month if the billboard is one sided.  Rents can be higher if the billboard is next to a freeway in a big city and lower if it is on a less frequented road.

Land lease expense of $300/month or 20% of gross revenue.

Insurance of $50/month.

Electricity of $100/month.

Sales commissions (if you don't sell the sign yourself) of 20% of revenue or $300/month.

That leaves cashflow of $750-1,050/month depending on whether you sell the ad yourself of pay a sales rep.  It's easy to like a business with a 50-75% cashflow margin.

Outdoor Industry Websites

Here's a list of valuable outdoor industry websites.

Signvalue.com (www.signvalue.com) tracks outdoor sign values.  They show billboards for rent and billboards for sale by state.

Signweb (www.signweb.com) is a news site on outdoor signs.

Digital Signage Today (www.digitalsignagetoday.com) tracks the digital sign industry.

WP Media Lending (www.wpmedialending.com) is my company's website.  It talks about our lending policies and who we are.

Billboard Source (www.billboardsource.com) talks about various kinds of billboards.  It is geared to advertisers who want to buy billboards.

The Outdoor Advertising Association of America (www.oaaa.org) is the trade group for outdoor advertising.  Their web site has into on industry revenue and regulatory trends.

Scenic America (www.scenic.org).  Know the enemy.  This is the website of the organization which wants to eliminate billboards in the United States.

OutdoorBillboard.com (www.outdoorbillboard.com) is the leading site for small outdoor advertising companies.  They have a discussion forum, a list of signs for rent and sale and plenty of how-to articles.

Good and Bad Billboard Leases

Have seen lots of billboard leases over the past 20 years.  A bad lease can make it difficult to get financing or ruin your business prospects.

What's in a good billboard lease.

1.  A term of at least 20 years with optional extensions.

2.  Assignability to someone else without consent.  This makes it easy to sell your business.  Some landlords will take forever to sign an assignment and can use the assignment process to extract more rent or an assignment payment.

3.  Lease costs of about 10-20% of estimated board revenues.  The means $100-200/month for a typical 14 by 48 billboard.  The worst lease I've ever seen had a true up clause which promised the landlord 40% of gross revenue.

4.  A 20% of gross revenues circuit breaker clause - If your lease has a clause limiting rent to the lesser of a fixed amount or 20% of gross revenue you have protection if rents drop severely during a recession.  Outdoor revenues declined by 20% during the 2009 recession.  It's nice if your lease expense declines when revenue declines.

5.  No automatic lease inflators.  US outdoor revenues grew 4.5%/year from 1992-2011 and from 2%/year from 2002 to 2011.  My experience as a sign owner is that ad clients do not agree to mandatory 5%/year automatic increases.  If you agree to a 5%/year lease inflator you will probably see your sign margins shrink because you won't be able to increase rates as fast as your lease expense.  If you do agree to an inflator use the Consumer price index which can be measured objectively and will drop or remain close to zero during a recession.