Western New York Billboard Companies? Why only one?

Out of maybe 200 outdoor billboards that I see in Western New York, they are all Lamar billboards. None from Clear Channel or CBS, etc. How can this be? How could there be no competition? Did the billboard companies all get together and decide not to infringe on different geographical areas? Wouldn’t that be illegal in some way?

I ask because my billboard lease of 20 years is up, and I want to rent/sell to someone else, or even operate it myself if I have to. Because they are only offering a lease renewal that barely gives me 7.5 percent of what they get in revenue. Hardly seems fair.

In case anyone’s interested. The sign sizes are 14 by 48 (two of them) and exposure is New York State Thruway I-190 . I’d certainly be open to partnerships and obtaining LED replacements signs for anyone in the business.

There are several reasons for what you’re seeing. One is that there has been a huge consolidation in the industry, and about 90% of the smaller companies have been acquired by the three largest operators (Lamar, CBS and Clear Channel). Also, there is a trend for one company to dominate an area because it improves the efficiency of their overhead. And, yes, these companies do swap signs to improve the efficiencies of their markets.

But your main problem is that most signs are legal non-conforming (grandfathered) and the billboard company owns the permit and, therefore, you cannot go with any other billboard company or face losing the sign entirely. In addition, since the billboard company normally owns the permit, they can simply move the sign to your neighbor’s property, and there’s not one thing you can do about it. Maybe the system is unfair, but that’s the way it has worked out.

At the same time, the billboard company does not want to lose the location any worse than you do. So you need to get with them and work out a fair groundrent structure. The industry standard is that the groundrent equate to 15% to 20% of gross. If you are only getting 7%, then that’s wrong. However, how did you come up with that number? Remember that billboard ad space is extremely elastic in price and subject to severe bouts of vacancy, so the only realy way to know what your percentage was is to get a copy of their revenue figures, which you can request.

I have found most billboard companies to be fairly good about keeping the landowner correctly compensated, but you have to approach it in a scientific way and seek a “fair” rent that can be proven out mathematically. And, of course, you have to be a decent negotiator, as they would be happy to pay less if nobody asks for more.

Thank you, Frank. However, your saying it can be moved to the neighbor relatively easily has got to be wrong in certain instances. Worse still is by stating this to me and other landowners, you are doing a dis-service to them. Let me explain why. You may very well be right in 90% of the cases. But in the 10% of cases where this is not applicable, your advice will make them proceed into an skewed negotiation, because they feel they have almost no leverage. I know that was your intention, but that’s what will happen.

I believe this is the case here. Why, because my lot is next to lots that I just purchased for less than they are offering me for just one year lease payment. And that was a lot three times as big with triple the frontage, and that is almost situated better. And was actually sold at property tax auction for $1400. I don’t think any billboard company would pass up an opportunity to buy a better and larger location 10 feet away, and be willing to give me the same amount of money for the next ten years if they could just do that. My working theory is that there is a barrier with doing that with the New York State Thruway Authority such as no new billboards at all, unless grandfathered not only by existing permit, but existing location. As far as them “owning” the permit, I had to sign the permit application 20 years ago, so believe I must have some rights of continuity.

Clearly, every billboard location is different and subject to different state and local ordinances. But the net effect is the same in 99%+ of all cases. Here’s why. If the sign is legal, non-conforming, it cannot be moved or altered, only removed. So if the landowner and the billboard company cannot agree to a ground rent, then the sign is torn down and the income is lost for both parties. If the location is legal, conforming, then all the sign company has to do (assuming that the spacing, zoning and ordinance allows it) is to file a demolition permit and a simultaneous new application on the neighboring property, which no other sign company or individual can get in front of as the sequence is that the first permit filed after the demolition application is in the first position. Essentially, the sign company holds all the cards at all times.

In almost all states, the landowner signs the permit application, but that does not give the landowner any ownership of the permit. Substantial case law supports this. They sign the appliction to prevent fraud by the sign company filing for permits without the landowner’s approval. Up through the 1980’s, most states did not have this requirement, and the billboard companies would pull permits on every legal location (without the landowner knowing it) and then use the permit to blackmail the landowner into signing their lease or moving the permit to the neighbor’s property – which is why they changed the system. In Canada, the case law puts the permit in the hands of the landowner, which is why so much of the outdoor in Canada is wooden, since the sign company does not want to put any significant investment into something they do not control.

The reason that the sign company did not buy the land next to your sign is because almost all sign companies have no interest in owning the land where the sign is located, but prefer to lease it. I did not know this myself until several years into my billboard career, when I was mentored by the head of real estate for Foster & Kleiser in Dallas (now Clear Channel). He explained to me that owning the land only hurt the sign company’s position as it forced them to deal with new issues such as property maintenance and insurance, and also reduced their ability to re-negotiate and even abandon leases that were no longer profitable. In addition, it required large amounts of capital that (based on rates of return) could not be justified when compared to just paying rent (for example, a $6,000 per year groundrent could not justify buying a parcel for $400,000). If this was not the case, then Foster & Kleiser could have bought nearly every parcel their signs were on in the 1950s through 1980s – but instead they only owned a tiny fraction of them (maybe 1% or less). Additionally, most outdoor companies today have a skeletal staff in the real estate department, and would not have the time to research property going to auction, or the manpower to go to such auctions. The modern real estate department only handles lease renewals, permit problems, and ground rent renegotiations.

These are just the facts as I know them. But again, every location is a separate case, and you should do decent due diligence to see what your rights are.

The key item here is that all landowners and billboard companies need to work together for a win/win solution. Even without free-market competition, you can still have a situation in which both parties respect each other and come to a fair deal for all.

I’ve actually sat next to the billboard sign company representative at the tax auction as he bid on the land of the unfortunate landowner who had failed to pay the property tax of only hundreds of dollars. The billboard company was more interested in snatching it, than simply paying the taxes owed which there was no barrier to doing so. So saying the sign company has no interest in owning the land is way off base.

Your statement “use the permit to blackmail the landowner into signing their lease or moving the permit to the neighbor’s property” is what your saying they can and still do. So switching the system did nothing.

And the statement “a trend for one company to dominate an area because it improves the efficiency of their overhead” could be used for the oil companies to dominate a geographic area, but I’m certain gov’t would step in. I’m not sure why this is tolerated in the billboard industry since allowing this not only hurts landowners from a fair lease, but also hurts local advertisers because there’s no competition.

Ok, Frank, I am getting a lot out of this.

Let’s just put aside my speculation of collusion, for the time being.

Here’s the way I see it using the information you have outlined.

Three possible scenarios with my analysis on negotiating “power”:

  1. Billboard company owns the rights to the signs and can move it to another nearby location. Then I would certainly agree with your 15 to 20% lease estimate. Because the billboard company is negotiating from a position of strength. That being just moving it, if the landowner wants too much.

  2. The sign can only be as-is where-is. Thus as you said, can be win-win or consequently lose-lose. This actually gives the landowner a much better negotiating position, and I would argue certainly better than 20%.

  3. Landowner being able to replace existing signs with their own. This being the best landowner negotiating position, since it eliminates the lose-lose possibility.

And the reason I am discounting #1 which you says fits 99% of anything you’ve seen is because the land is virtually worthless. I would agree with you if it had some value, for another purpose, making the billboard companies chances of buying nearby land harder. But to put it in perspective, the exact same size parcel next to mine sold for $200. That’s why I’m guessing that my case is #2. And I agree, “due diligence”, and that’s why I’m starting here at your website. It won’t be where I end. I’m actually hoping to find some partners/lawyers/agents/contacts through this website.

Please, I’m interested in any and all opinions on what I’ve written.

You are going to have a tough time getting more than 20% ground rent – as that’s essentially the fair amount.

The sign company has to pay the debt load on the sign structure, the overhead to rent the ad space, the cost to install the ad, the lights on the sign, the insurance, and the repair and maintenance. On top of that, it has to endure the risk of losing the sign to a windstorm, having the lease cancelled for development, etc. And you have to factor in vacancy, which still pays out groundrent even though the sign has no revenue.

When you add in all the costs, the sign company and the landowner are basically splitting the net income 50/50 using a 20% ground rent. You are getting 20% of the gross revenue NOT the net income after all of the aforementioned costs. That’s why 20% has become the industry standard over time.

At the same time, in situations in which the revenue is much larger – such as LA, NY and Chicago – then you can increase the percentage because many of the costs are fixed. On Hollywood Blvd. in LA you might get 35% of gross.

As far as billboard agents going to real estate auctions, sure, a guy might go to one in which the parcel their sign is on is up for auction to protect their interests (remember that at foreclosures and tax sales, all leases are negated) but I’ve never heard of anyone going to land sales of neighboring properties, like you discussed.

Since I don’t own any billboards any more – and consult for both billboard companies and landowners – I’m not trying to give you a “distorted” picture of how it works.I’m just telling you what I know.

OK. But since the sign company wants to sign a twenty year deal. What could be 20% now, eventually works down to maybe 5% over twenty years. How does that play out as an “industry standard”.? Shouldn’t then the deal maybe start at a higher percentage, since the ground rent is “fixed” yet the revenue will increase with inflation over the twenty years?

You are exactly correct. Every lease should contain a provision providing for a CPI increase, to track inflation. It should re-adjust every year. That is completely fair. Otherwise, all ground rent will erode to -0- with inflation over time.

hello frank:

if the industry norm for ground rent is 15% to 20% gross rent, does that ratio apply to a digital sign location?

That’s an extremely complicated question and one that we get all the time. The answer is yes and no. LEDs cost a ton (about $400,000 for a 14’x48’ installed) and only have a usable life of 10 years and then have to be replaced. So there is a huge additional capital outlay on LED. At the same time, money is money, and the revenue from LED can be a multiple of a static sign. Yet there is also the problem of competition – normally that LED can be hung on any number of signs in the market.

So the correct answer is “whatever you can negotiate”. If you have a location so hot that no other sign can compare, and an LED would stay full 100% of the time, then the billboard company would definitely pay you more rent than a static sign (although you’d still have to figure out a rent that is win/win given the additional cost). If your location is average, then you might not get much more than a static sign, as they could just move the LED to a different unit. Note that many sign companies put LED on units that have a flat groundrent with no percentage rent, just to avoid this issue.

I would be interested in talking to you more about your billboard locations. I am with a locally owned billboard company in the WNY area. you can call me at 716-983-9820

@tomayoxathotmail very old thread here, but i’m curious how did this all shake out for you? are you still in the same position? if yes, i own a billboard company and would be interested in discussing with you.