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Mr. Radio goes major league.


An all-sports radio station in New York was not enough for baseball fan Jeff Smulyan. Now he has the Mariners.

Jeffrey Smulyan is the 42-year-old chairman and 60 percent owner of Emmis Broadcasting Corporation, a radio group with 11 stations in top markets from coast-to-coast. It reaches 8.6 million people every week. Added to that are three other profit centers; two research firms and a city magazine. His company employs more than 1,000 people and has an estimated market value of $200 million. He has the mansion on the lake, the gold Rolex, the high-ticket automobiles and all the electronic gadgets required by a man of his stature. In its infallible wisdom, Cosmopolitan magazine named him "Bachelor of the Month" for June '88. What more?

How about a baseball team? During the third week in August, Indiana media were spattered with news about the big Seattle Mariners buy. There was a flash on every TV and radio newscast. The Indianapolis Star ran five stories in a Sunday edition: 112 inches, a good nine feet of copy. Smulyan and Michael G. Browning, president of Browning Investments, Inc., in Carmel, were rumored to be--, had decided to--, were about to-- and, finally, did buy the team. This action was no shock to anyone who knows Smulyan. It had to happen.

Life has not always been rosy for Smulyan. In fact, early on it was more a bed of nettles than posies. Some wondered whether he would ever amount to much. According to one biographer, the day he was brought home from the hospital, his sister, Doris, took one long look, shrugged and walked away. At the John Strange Elementary School in Indianapolis, he was cuffed and regularly banished to the hall for talking baseball and basketball and running his own pep rallies in class.

He did all right through North Central High School and interned summers as a writer on the sports desk at The Indianapolis Star but was no early blooming Dick Schaap or Dave Garlick. By cramming the day before tests, he made it through the University of Southern California with a degree in history and telecommunications, surf, sea and sand.

Smulyan's dad, Sam, a real-estate man, thought a lawyer would make a nice addition to the family. The younger Smulyan liked the West Coast, so stayed on at USC to take law. He made it through and everything worked out fine until he took--and flunked--the California bar exam.

Back home in Indiana, Smulyan the elder gave up on his son as a potential Perry Mason and bought into a small AM radio station in Shelbyville. They renamed it WNTS-AM for "news, talk and sports," but virtually nobody cared except Smulyan who had found his calling--"competitive radio." As manager, he hired a young fellow who was working as a TV weatherman and made him the midday, call-in air personality. David Letterman, with his offbeat, sarcastic wit was supposed to acquire a strong following among typical news listeners: older men who are generally serious, unamused and rigid in their habits. No way. Smulyan left the job, was out of work for a while and fidgeted while his savings ebbed.

Through his later years, Smulyan had other trouncings. Shots at WTTV (Channel 4) and WXIN (Channel 59) in Indianapolis rimmed the hoop but missed. His marriage to Janine, which gave him two beautiful kids, Cari and Brad, bounced off the backboard. Smulyan never got up enough steam to get out of the depot until he was 30-something.

Then he set his sights on another Shelbyville outlet, WSVL. He decided to create an adult station with a contemporary music format for the Indianapolis market. There were only two problems: The broadcast transmitter had to be moved physically closer so it could be heard in Marion County, and Smulyan had to raise $1.2 million to swing the deal.

Two officers in Omega Communications, Inc., a satellite-dish company in Indianapolis, anted into the kitty along with some others, and an intent-to-purchase contract was signed. But Smulyan's bad-luck streak almost held. The Federal Aeronautics Commission gave quick and easy permission to move the tower into the city. The Indiana State Aeronautics Commission, however, held up zoning approval on a technicality for two nail-biting years. There was a court battle with bickering, briefs and bills.

The bureaucratic fumbling ended in March 1981. Four months later a beaming new WENS-FM leaped onto the air to help Indiana celebrate a patriotic Independence Day. Since that July Fourth, Smulyan has been on a fast track of "life, liberty," but mostly, "the pursuit." Using the success of WENS for collateral, he began bargaining and bartering in the big time. "Emmis," which means "truth" in Hebrew and is pronounced "Eh-muss," was energized.

If the Eastern Establishment thought it had cornered a back-pasture bumpkin, it was off the mark. True, Smulyan started picking up distressed merchandise--radio remnants that were down on their luck--but he was confident that he could renovate them.

Some of the bitter lessons of his early life started to serve him well. That unhappy USC law school and bar exam experience made him a formidable negotiator in the conference room. Those glitches in the first Shelbyville station helped him calculate what listeners wanted out of their radio speakers. The passion for sports that exiled him to the hall in grade school led him to create WFAN-AM.

He switched a Big Apple station with dismal numbers and a trifling income to an all-sports format. It aired New York Mets baseball, CBS radio baseball and football packages. Fans loved WFAN (it edged into the black last December).

The expansion scenario went like this: WENS-FM went on the air with the Omega men as backers. WLOL-FM in Minneapolis was purchased in 1983 with a $6 million loan from Continental Illinois Bank and Trust Co. in Chicago. WMGG-FM in Los Angeles and KSHE-FM in St. Louis were financed by the seller, Century Broadcasting Corporation, for $6 million. Another $23 million came from First National Bank in Chicago.

In 1987, Emmis bought another pair in New York City, WHN-AM and WAAP-AM, plus WAVA-FM in Washington, D.C., from Doubleday & Co. for $53 million. WHN-AM's name was changed to WFAN-AM and WAPP-FM became WQHT-FM.

In 1988, Emmis struck a deal for five NBC stations for a mere $121.5 million. The package included WNBC-FM and WYNY-FM in New York; WKQX-FM in Chicago; WJIB-FM in Boston and KYUU-FM in San Francisco. At the end of 1988, it bought KKHT-FM, now KNRJ-FM, in Houston from Malritre Communications.

Some stations had to go. The Federal Communications Commission allows an owner only one FM and one AM station in a market and only 12 in the country by type of signal. Smulyan had to decide which stations to sell. He also had to take NBC off of WNBC-AM according to his agreement with NBC.

Obviously, there is more to the business than owning stations. They have to be programmed so people will set the buttons on their car radios and lock into them. Here, Smulyan shines. Example: The Los Angeles outlet was playing soft rock and attracting a 1.8 audience share of the market. He switched to a "dance oriented, urban contemporary, contemporary hit" format that his research people developed. That station, WPWR-FM "Power 106" climbed to first place in the market with a 7.5 share.

Smulyan credits his associates with major contributions. Emmis employees are encouraged to buy stock so they will feel they are part of the company. When they invest, they join an exclusive club. Jeff holds the majority. Morgan Stanley & Co., the investment banking firm, and CIGNA Companies, the insurance people, combined in a leveraged capital fund own 20 percent. Stephen Crane, executive vice president, has 9 percent and employees and company associates have 10 percent. And, for old-times and good-times sake, David Letterman votes a 1 percent share and sits on the board.

Speaking of the bottom line, things are going well. Without understanding the business, however, you might not buy stock, even if it were listed. Emmis is privately held, but since it has $50 million in bonds out on the public market, it has to file with the Securities and Exchange Commission. According to a recent report, debt is $194 million on a negative equity of $30.5 million. Debt payment on interest and principal was $23 million in 1988 with what some say was a $22 million cash flow.

In another type of business, management might sweat, but group radio stations "go with the flow," cash, that is, to service debt. Analysts claim Emmis is one of the least-leveraged, conservatively financed and best-managed companies in the field.

Intangibles are a station's valuables: the license to broadcast, the numbers or ratings in the market that dictate the asking price for spots, audience loyalty, the contracts with popular on-air talent and a management team with a pressure cuff on popular culture and the ability to respond quickly to switches in listener taste.

"Here's an example of how appreciation works," Smulyan explains. "We bought into Los Angeles in 1984, a station that never made any money, and paid under $12 million. The cost would be $60 million today for an FM in Los Angeles that is a dud with no cash flow. People are willing to pay $60 million to buy into that pool of revenue because they know the cash flow of other stations. Our KPWR-FM is number one in the market and has been for two-and-a-half years. Needless to say, our cash flow and billing now are significantly greater than at the entry price."

The Emmis media empire stretches beyond 11 stations from coast-to-coast. Three other wells pump steadily in Smulyan's back yard.

One is Emmis Research, run by vice president Jon E. Horton for the sake of Emmis stations, "fellow broadcasters" and other firms. The mission is "to research audience habits and perceptions and make effective recommendations for action." Smulyan is his own best buyer on the assumption that "you have to know your customers. Give your customers what they want and never impose your will on the marketplace. Of course, instinct is part of it, too," he concedes as no afterthought.

Another research subsidiary is Duncan American Radio, a service that is edited and compiled with tremendous computer effort by James H. Duncan, Jr. The company crunched together eight books in 1988. "American Radio" (spring, summer, fall and winter editions), which is termed the quarterly bible of the business or "the industry's most complete and timely source book of radio ratings and program information." The subscriber list is about 2,400.

The next-to-latest Emmis acquisition is Indianapolis Monthly, with a circulation of 53,000. The minute the ink was dry on this deal Smulyan cleared the area of competition. He bought Indianapolis' other city magazine and folded it. Why? "In a city of our size one magazine is all we need," declares Smulyan. "From a marketing standpoint, it eliminates confusion." The other contender, IW (formerly Indianapolis Woman), folded and eliminated itself. That cleared the deck.

The Smulyan touch is already at work. Advertising pages have increased 22 percent and advertising revenues 55 percent, compared with last year's January through August. "Jeff built up the advertising sales staff," explains Deborah Paul, Indianapolis Monthly's publisher-editor. "He gives you what it takes to be successful."

You bet. All that is left on the Mariners deal now is for the owners association to vote them in. Smulyan owns 10 percent; Browning owns 10 percent; Emmis owns 50 percent and their old backer, Morgan Stanley, has 25 percent. The last 5 percent is spread among Emmis executives.

From what you know now it makes perfect sense. Smulyan takes on under-achieving properties. The 13-year-old Mariners qualify because they are home at the bottom of the American League and drew slightly more than a million fans last year, way below the norm.

Smulyan buys low into a "pool of revenue," counts on appreciation and turns companies around. The Seattle team was appraised at $76.1 million last year. The previous owner bought it for $10.2 million, so there was an increase of $65.9 in seven years. Smulyan and company are said to be paying just under $80 million. They could be in clover, even if no fans show up. They just go out to the Kingdome, sit in their boxes and watch the grass and their franchise value grow.

Smulyan predicts the future this way: "We don't have a five year plan, but I imagine we will always be in radio. We will probably look for related areas. We have been asked to consult in Japan and France. The rest of the world is a long way behind American broadcasting, so as countries open up into commercial radio, I think we will get some opportunities."

Stay tuned.

PHOTO : Jeff Smulyan heads Emmis Broadcasting Corporation, the nation's largest radio broadcasting

PHOTO : company.

J. Douglas Johnson is a frequent contributor to Indiana Business.
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Title Annotation:Jeffrey Smulyan of Emmis Broadcasting Group
Author:Johnson, J. Douglas
Publication:Indiana Business Magazine
Article Type:company profile
Date:Oct 1, 1989
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