I have some questions about how a few things work in the billboard business.
1.) In a ground lease contract, should the royalty to the landowner be a percentage of the gross revenue for the sign or a fixed payment? It seems that each has poitive and negative features. The percentage payment reduces the risk to the billboard operator if they are unable to rent the sign for a period and it allows the landowner to benefit if the rent increases. The fixed payment establishes a known income stream for the landowner (with little or no upside in the short run) but it puts the billboard owner on the hook even if the sign goes unrented or if rental revenue is low. Just wondering how things are typically structured?
2.) I have read your material on building low cost wood signs as a way to get into the billboard business at a low cost. However, I was wondering if there are safety regulations that cover signs? For example, do walkways below the sign face need a tie-off point or railings like I see on some of the fancy ($$) monopole units? Also, what is your experience with submitting plans for wood signs? Do you just draw a sketch with dimensions and specs and have an engineering consultant to the wind load calculations for submittal with the permit materials?
3.) How is the production of artwork coordinated with a sign customer? Do you have a third party vinyl graphics company work with the customer or does the billboard owner need to invest in software, etc. to produce graphic art that is then taken to a printer. Just wondering how that part of the business can be handled by someone who is just starting out.
All of these items are covered in detail in my Home Study Course, offered on this site at a very low cost. But here’s some basic answers.
The structure is a percent, a fixed payment, or both. There are good and bad elements to each, but the straight percent is always the best if you can get it.
Wood signs must conform to OSHA codes – which is where catwalks and ladders come in. Structural drawings for wooden signs may or may not be required, based on the city or county codes.
You can find graphic designers on the internet who can do the art at a very low price (most are not in the U.S.). Often the client provides it. Many of the vinyl printers also offer this service. I would not buy the system to produce it as it takes years to get really good at it.
In my experience, most of the “percentage payment” leases, especially those around large cities, involve a base payment or percentage, whichever is greater. Such as, $20,000 per year, or 30% of net revenue, whichever is greater. If the sign has a good year and does $100,000 in net revenue, the property owner gets their $20,000 base payment plus $10,000. If the sign has a bad year and does $50,000 in net revenue, they still get their $20,000. Not a great lease for the billboard company, but it’s somewhat common for conforming signs in big $$ markets.
Be sure and stay away from any percentage greater than 20% if you can. When you go to sell out to a large company some day, you are going to have problems with 30% leases. The industry norm is a range of 15% to 20% – maybe 25% on a great location. Big companies like things to be standardized, and they freak out when the percentage is higher than the norm. I know a guy who has a great plant, but he can’t sell it because he did his leases at about 40%. If you want to score big with your units, you need to keep them in line with the industry norms to attract the public companies and other larger groups.