Applicants say an assignment is an assignment; Audio Division calls it something else.
In an unusual decision, the Audio Division has dismissed an assignment application because, according to the Division, it wasn’t really an assignment application.
For anyone who might not have believed that the FCC cares much about all those convoluted clauses in all those long and tedious asset purchase agreements that form the basis of assignment applications, there’s a lesson to be learned here. The Division did indeed read the terms of the deal and didn’t like what it found there.
Truth be told, the deal in question was a bit odd. Cumulus, the supposed “seller”, controls as many radio stations as it can in the Dallas market (that would be five FM’s and three AM’s). In an apparent effort to “offload” one of its stations – that’s at least how the Division saw it – Cumulus proposed to “sell” one of its FMs in the market to a well-established media broker. Nothing wrong with that. But the purchase price gave the FCC some pause.
The parties’ agreement called for the buyer to pay Cumulus the princely sum of $100 – that’s for a Class C3 station in the fifth largest radio market in the country. Such a deal. But hold on. If and when the buyer sells the station, Cumulus gets all the proceeds, minus whatever expenses Cumulus’s “buyer” may incur while he holds the license, and also minus $50,000 for his troubles along the way. Which means that, unlike most deals, the “seller” here will end up having paid the “buyer” the net amount of $49,500 once the “buyer” re-sells the station.
From the Division’s perspective, this wasn’t a “sale” because Cumulus was effectively retaining all the economic risk of operating the station. Rather, the deal terms amounted to a joint venture of sorts, a “brokerage agreement in which [Cumulus’s ‘buyer’] is tasked with finding a buyer for the Station and is to be compensated for doing so by the payment of a $50,000 flat fee when that transaction closes.” Bottom line: the Division concluded that Cumulus “would remain the owner” of the station – so no assignment was being proposed and the purported assignment application could be summarily dismissed.
The Division may have had a point.
The terms of the proposed deal were far from conventional and smacked of an effort simply to re-shuffle Cumulus’s station portfolio, presumably for some self-serving purpose. We know from at least one case a couple of years ago that the Division frowns on that kind of thing.
But let’s look at it from the parties’ perspective. Sure, the deal didn’t impose much financial hardship on the “buyer”, but it also didn’t impose any immediate obligation on him to re-sell the station. In theory he could have held onto it indefinitely (although, admittedly, he had little incentive to do so, since any profits would go back to Cumulus when the station was eventually re-sold). And as long as he did hold onto the station, the contract afforded Cumulus no right to directly influence any of the usual indicia of control – e.g., programming, commercial or hiring policies.
So even if the financial terms of the deal may not have made much conventional sense, what regulatory difference should that make to the FCC? That, presumably, was the argument that Cumulus and its “buyer” planned to rely on, and it’s not necessarily a bad one. But as it turned out, they apparently didn’t get to make any arguments.
Instead, the Division tossed their application summarily, without (as far as we can tell) giving the parties an opportunity to make their case. (Indeed, the idea of tossing the application was apparently the Division’s own – no written oppositions to the application were filed.) Normally, before the FCC can take any action based on a factual determination as to which there is some dispute, the Commission has to conduct a hearing. Here, we’re guessing, there is likely considerable disagreement between the Audio Division and the parties to the application, at least with respect to the implications of the contractual terms. (There was, of course, no dispute about those terms themselves.) But, obviously, no hearing was held.
Where this goes from here is most likely up to Cumulus. It could file for reconsideration or review of the decision, or it could let the decision stand. But regardless of how it proceeds, we can all now be sure that the Audio Division is not shy about (a) reading the fine print of agreements that are submitted to it and (b) drawing its own conclusions about what that fine print means.
And if the Division doesn’t like what it sees, it apparently isn’t shy about acting accordingly.