It’s a common theme for businesses that are in financial trouble to commit to huge ad campaigns, even though they have little intent to pay for it. Their theory is that with such a “Hail Mary” gamble they might pull themselves back from the brink of bankruptcy. In this Billboard Mastery podcast we’re going to review what this type of situation looks like and how to protect yourself from it.
Episode 151: Beware The Bankruptcy Ad Blitz Transcript
Sometimes as a billboard owner, you'll get a call from an advertiser, maybe a really small thing like Larry's Hobby Shop, wanting to do a giant purchase of billboards. They want to buy five billboards on major interstate highways at $1,000 a month. And you think to yourself, wait a minute, there's no way that hobby shop can ever afford that big an ad spend. And what's actually going on with what they're doing is they're doing what I would call a bankruptcy ad blitz. This is Frank Rolfe with the Billboard Mastery podcast. We're gonna talk all about what advertisers do sometime when they're in deep financial trouble and how it can get you in trouble too. Now, most businesses out there are somewhat stable. You have your blue chips like McDonald's and MetLife, but then you have your more mom-and-pop businesses, and small business is a huge part of the American economy. So you'll never make it as a billboard operator saying, "Well, I'm only gonna work with those blue chip national companies." Your billboards will be vacant almost forever. Remember that the big companies typically get most of that blue chip business. And they do that because those big companies like Nestle can buy nationally all the billboards they want through one provider. Much easier on them, right?
So if you're a small independent, you probably don't have access to those nice glossy blue chip big company Fortune 500 billboards you see, and instead you're relegated more into the small business arena. And with the small business arena comes risk of financial failure. I'm sure even in the earliest billboards, particularly back in the 1920s, people learned the hard way when 1929 came and here comes the Great Depression, and suddenly all those small businesses and even the blue chips were unable to pay their bills. So having to be somewhat of a judge, a referee on who's got enough money and who doesn't, is just part of the equation when you own billboards. Now, why do advertisers do this behavior? Why do they bulk up on billboards right before they go bankrupt? Well, here's how they look at it. What they're thinking is, "Well, you know what? I'm gonna go bust with my current sales. So if I do a giant ad blitz, maybe, just maybe, I can pull myself out of the dumpster." And even some of America's biggest businesses did such a maneuver, and they were the lucky ones and it worked. It's kind of the Hail Mary pass into the end zone in a college or NFL game. Two seconds left on the clock, you're down by four, you know you're gonna do a pass into the end zone and pray someone grabs it. Same thing exactly for the failing advertiser, because if they go bankrupt, they're not gonna pay the bills anyway. And if it works, then they'll be able to pay the bills and no one will ever know how close they were to the edge of disaster.
Fred Smith, the founder of Federal Express, one time couldn't cover payroll in the early years. So he knew that come Monday, Federal Express would be liquidated, he wouldn't be able to pay anyone. Since he couldn't pay anyone, they would all walk off the job, packages would not be delivered, and he would be destroyed. So what did he do? He took a FedEx plane and he flew out to Las Vegas and he gambled what little money he had, and unbelievably, he won and was able to make payroll. And that was the last time they ever had any financial problem. After that, it all was saved. And that's kind of a Hail Mary pass, right? So if a company like Federal Express could engage in that behavior, then you know a small business could. So if that is the logic behind some advertisers in distress to do that Hail Mary pass, how can you protect yourself as the billboard owner from that kind of behavior? You don't want to be sucked into their Hail Mary attempt, because what happens if you get left holding the bag? So when someone wants to rent a billboard from you, you have to think to yourself a little bit of, "Do I really think, is my gut instinct tell me that this person can actually pay the bill?"
I have had advertisers call me and I know they're not a good prospect because there's no way they could afford that billboard. I once had a billboard out at DFW Airport. The billboard rented for $5,000 a month. I had many a small business call me inquiring on that sign, interested maybe in that sign. I would have not rented that sign to any of them because none of them could have financially qualified to pay me five grand a month. I knew that was many times more than their entire ad budget, and more than likely they were trying to do the Hail Mary pass. But part of the issue when you're worried about businesses that are gonna make it or not make it is gonna revolve around how much is your billboard. If you've got a wooden billboard out in the country on a small farm-to-market highway and someone calls you about that ad space, that's maybe what, two or three hundred dollars a month? Most small businesses can handle that. Where it gets a little scarier is when you've got giant monopole signs where the ad rent is in the thousands of dollars per month, because that's a huge amount of money. And you see a lot more defaults on those type of billboards than you ever do on those wooden telephone pole variety.
So part of the issue in trying to gauge whether or not the advertiser is gonna make it will revolve around your sign and how much it is per month. Another issue is what kind of business is it? Some businesses have very large margins. So home builders, for example, they can rent a billboard for an entire year, and if only one person buys one house, that billboard will more than pay for itself. But other people have very low markups. Grocery stores have notoriously bad markups, typically running like 1 to 10% of the dollar is actually net income. And those type of businesses you know will probably not be able to handle a very big ad spend. Also, look around you and what you're seeing going on with the billboards at large in your own community. Are you seeing a lot of ads going up, then suddenly being whited out or the vinyl being dropped for non-payment? When you see that, you know you're entering a cycle where there may be some degree of failure going on, and you need to be a little more worried than when you see lots of ads going up and they're all paying and they're all sticking and they're all renewing. All markets go in cycles, and part of your job of owning the billboard is try to realize what part of the cycle you're in. Are you in boom? Are you in bust? Are you in just a very steady state? There are a lot of options out there for advertisers, obviously. They could do all kinds of internet campaigns, they could do newspaper, radio, television. So why do they pick on billboards, you might say? Well, they know that billboard advertising is a little more unsophisticated, and that many billboard companies are mom-and-pop based, and as a result, aren't that observant over the financial ups and downs of the market or what people can and cannot afford.
So how do you avoid it? What are some of the top steps? Well, number one, just be cognizant of this issue, of this whole Hail Mary advertising spend. Look at businesses when you're gonna go ahead and seriously consider having them as the advertiser. See if you really think they could afford it. You could even talk to them if you have any concerns about it. But I always found that aligning myself with the bigger chains, franchises, was typically the most safe haven. If you can get a McDonald's franchise, Arby's, Wendy's, major gas station, major motel chain, these people are backstopped to some degree by the franchisor, and that's because they've already been vetted through those big companies to make sure that they are financially strong enough to make it all happen. And additionally, those big companies, when those people have trouble, will typically come in and try and fix it, educate them. McDonald's and others, they don't want to see any franchisees fail. It's embarrassing to them, it hurts their entire franchise system. The bottom line to it all is just use common sense, but when someone comes to you wanting to do a giant ad spend, just make sure they're not doing the bankruptcy blitz. This is Frank Rolfe with the Billboard Mastery podcast. Hope you enjoyed this, talk to you again soon.