Advisers Can Aid In Post-Auction Planning

Stations deciding to sell their spectrum in the FCC’s incentive auction and cease their business operations will be required to treat the event as a one-time sale or loss, the real accounting challenges will arise for stations that want to sell their spectrum but continue operating their business. They have options including channel sharing, joint ventures and license sharing. The differences between these interpretations have far-reaching consequences.


First there was color, then came satellite delivery, then HDTV, then multicast, then….

It’s been a long time since anything about television was black and white. That’s OK when it comes to innovation, but more unsettling when it’s related to planning for tax and accounting implications associated with changes. Unfortunately, the situation around the spectrum auction and repack seems to include a lot of gray areas.

This message was crystal clear during a recent Distance Learning webinar led by Stephen Theuer, a partner in the Audit and Enterprise Risk Services group at Deloitte & Touche. Theuer is a member of an ad-hoc group comprised of CPAs from the Big 4 accounting firms that has been looking to find some common ground in the accounting methods television groups will use for financial transactions arising from the auction.

Echoing the discussion that ensued during a session Theuer moderated at MFM/BCCA’s Media Finance Focus 2016 conference this past May, the Aug. 11 webinar clarified the diversity of opinion that currently exists among broadcast company financial professionals and their external auditors. As Theuer observed, the potential to have a different view than your company’s auditor underscores the importance of ensuring everyone gets on the same page.

Without getting too in-depth on the accounting principles, I want to highlight some aspects of the exchange between Theuer and MFM participants in the conference session and webinar. They will help to reinforce Theuer’s recommendation to take advantage of the FCC’s openness to addressing industry concerns to ensure organizations make the wisest possible decisions when finalizing auction-related transactions.

Channel Sharing


While all of the MFM participants agreed that stations deciding to sell their spectrum and cease their business operations will be required to treat the event as a one-time sale or loss, the real accounting challenges will arise for stations that want to sell their spectrum but continue operating their business. As the FCC has explained, these stations could enter into a channel-sharing agreement (CSA) with a host station that doesn’t participate in the auction and agrees to share its spectrum with the “sharee.”

In a CSA scenario Theuer outlined, the seller/sharee station has agreed to pay half of its proceeds from the auction in return for sharing half of the spectrum licensed to the host station, which the FCC refers to as the “sharer” party in CSAs. The agreement would also lay out the fees to be paid by the sharee for services provided by the host station (electricity, transmission, etc.) as well as renewal terms for the agreement itself.   

Joint Ventures

Theuer asked industry participants whether they thought this CSA would fall under accounting rules governing a lease agreement, a joint venture or a multiple element arrangement. Participants agreed there’s more to the arrangement than what’s typically involved in a lease agreement.

Where industry finance teams and their Big 4 advisers can wind up parting ways is about whether CSAs can be viewed as joint venture agreements. As Theuer explained: “In a typical joint venture, both parties are sharing equity in the business, but what’s being shared here is spectrum.”

This point of view would lead to the conclusion that the CSA is a multiple element agreement, where one element involves having the sharee pay cash for sharing spectrum for a given length of time and other elements address the services being provided by the sharer, similar to an outsourcing agreement. The assumption here is that both parties are continuing to operate as separate brands and TV station businesses in the market.

License Sharing

Proponents of the joint venture interpretation argue that a CSA does involve sharing equity, since the sharee is paying for half of the host station’s spectrum. For Theuer, the determination would depend upon whether the sharee owned (half of) the same license as the host station. He explained saying, “You would need to show that you owned an undivided interest in that part of the spectrum.”

The difference between the two interpretations has far-reaching consequences. From a financial reporting standpoint, it will dictate how much of a company’s revenue or expenses can be deferred over a given period of time, which in turn impacts cash flow and taxable income.

A station that sells its spectrum and exits the business will need to treat all of the auction proceeds as “something that hits the P&L and can’t be deferred.” On the other hand, stations that enter into a CSA would be able to defer the portion of the proceeds paid to the host station over the period of the agreement. In this case, the joint venture interpretation offers more favorable accounting and tax treatment than that associated with multiple element arrangements.

Finding Clarity 

One item about which all parties agree is the FCC’s commitment to sustaining and increasing diversity in the local TV marketplace. This can be achieved by having a majority of the seller stations opt for CSAs rather shutting down their operations. For confirmation of this, look no farther than the sample CSA on the FCC website that includes a 20-year term.

In fact, the FCC has been encouraging stations to explore, and even enter into, channel sharing agreements for more than a year, even before the reverse auction part of the process even began. Now that the forward auction is underway, it’s important to ensure television groups are aware of all the considerations that should be factored into their CSA negotiations, whether sharee or sharer/ host stations.

The divergent opinions that surfaced during Theuer’s presentations reinforced our standard recommendation that companies consult with their legal and tax advisers before making business decisions, such as those involved in securing CSAs, to ensure they in the best interests of their companies and shareholders. It may also be beneficial to take advantage of the FCC’s openness to hearing industry concerns and resolving issues such as the shared license /equity stake debate.

While the FCC has said channel sharing agreements will involve sharing the broadcast license as well, parties entering into joint ventures will need to make sure their advisers agree. Making the wrong assumption about what will be allowed for tax purposes could stand in the way of both a successful auction and the future diversity of broadcast television.

Addressing Your Question And Concerns

The webinar featuring Stephen Theuer’s insights from the Big 4 task force is the latest in a series of MFM educational programs. As the association for media finance professionals, we are dedicated to responding to the financial management issues facing TV stations and other media businesses.

To that end, I hope you’ll let us know about any educational programs we can offer to assist you and your station in its efforts to map out a successful future. I also encourage you to become more involved in MFM and to make your voice heard as a member of our Television Committee; it was this group that helped us to identify and tap into Stephen Theuer’s insights as a member of the Big 4 task force.

Even in the days of “black and white” television there were a lot of gray areas that helped to give greater definition to the images. By working together, we can provide some of the added definition that will give station owners a much clearer picture of the auction’s (and repack’s) tax, accounting and other implications.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.

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