There is reasonable risk in owning billboards, and then there’s an insanely over-the-top risk that billboard owners sometimes engage in. When should you take these type of huge risks and what can you do to mitigate the downside? That’s the focus of this Billboard Mastery podcast.
Episode 63: The Wisdom And/Or Stupidity of Taking Big Risks Transcript
There is risk and then there is extreme risk. One is just a regular part of life and the other can make you look like an absolute genius or a complete idiot. This is Frank Rolfe, the Billboard Mastery Podcast. We're gonna be talking about extreme risk. Let's start off with what is it and why do it? Well an extreme risk is where you take an enormous gamble. This isn't anything about hedging your bets, moderation. No in this case you're all in. You're rolling all the dice. You've got all the chips on the table on one item. Now why would you do that? How would that ever make any sense to do that? Well the first is if it's a life changing opportunity. The founder of FedEx, he gambled everything because he thought it was gonna be a really big deal and he was correct. His name is Fred Smith I believe and he literally gambled it all. In fact he gambled so much to make that enterprise work that one time they couldn't make the payroll. He literally flew a FedEx plane as I understand it to Las Vegas and gambled what they had and won and was able to make payroll. And he did all that because he knew that if FedEx got off the ground he would be enormously wealthy and he was exactly correct.
And in everyone's lifetime there will come to you that life changing opportunity. I don't know what it looks like. I don't know what industry it will be in but it always pops up. And the Billboard industry when you see that life changing opportunity that is the trigger in which you might say well it's an extreme risk and I'm gonna take it. Another thing can be when you just have nothing to lose. If things aren't going your way, if you don't have a lot of money saved up and you want to make something happen sometimes taking that extreme risk seems to make sense, because literally things can't get any worse. So let's give it a shot and often that shot will work out. Number three when you have the ability to mitigate it. Now sometimes extreme risk comes in different forms and fashions and in some cases you're able to mitigate that risk. You're able to lower that. And when you can lower that risk magical things happen. Now suddenly this life changing moment doesn't have as much downside as it did before. And then finally sometimes you take the extreme risk 'cause you see that you're on the right side of the curve and with time things are only gonna get better and that risk will be reduced.
For example if I build a Billboard way out in this countryside, way far from the city and I see the city is growing towards me then it's a pretty good bet that over time as long as I just sit there with that sign my traffic count will go up and so will my ad dollars. Now it's important to understand when you take extreme risk it can go either direction. You have to acknowledge that if it works out favorably you look like a total genius. But if it does not work out that way you look like a complete idiot. So you have to understand that public shaming dynamic. You're risking more than whatever money you have you're risking your reputation. And yes people will criticize you. If you take an extreme risk and you lose people will make fun of you and they'll say, oh I'm so disappointed and what a failure you are. And you have to accept that. That's a part of the bargain. You're gonna take a shot and you're going to take a shot because if it works out they will on the same token say that you are an absolute genius and a master of business.
But understand that if it doesn't work out then bad things can happen. You will be publicly shamed. Now let me give you an example when I was a complete idiot taking extreme risk. I bought some Billboards and two of those Billboards were glamour signs. I never had any before. They were on highway 635 out at the entrance to the Dallas Fort Worth Airport. And at that moment in history those signs were running for more than any sign I'd ever had. Now the problem was to buy those signs as part of the package I had to assign $100,000 to each sign which back then, back in the '80s was a ginormous amount of money. Nobody ever would allocate that much money to a Billboard sign. This is back when you could build a steel monopole sign for about ten to twenty thousand dollars. So why did I do it? Well, I thought it was a life-changing opportunity because those signs each rented for roughly about $5000 a month. So I thought, oh my gosh, I could retire on just these two signs over the years. So I was willing to take a ridiculous amount of risk for these two signs. And what happened? They were both on railroad properties with twenty four hour cancelable notice. And what happened? Right after I bought both signs within just a few months the railroad canceled both of my leases. And that's despite me in due diligence going to them and saying, now you're not gonna cancel these right?
Oh no, we'd never cancel those. Those signs have been there since the 1970s. How wrong I was. Basically the railroad decided to develop the property into an industrial park and thought those signs were bad and they wanted to get them removed. It was a total disaster. The bank looked at that and said, now wait a minute, you owe us two hundred thousand dollars if you tear those signs down. So what did I do? I had to go find replacement locations to move the signs to to keep the bank from defaulting on my loan. It was terrifying. It was humbling. It was horrible. Unfortunately, I was able to pull it off through really sheer luck. But I look like a complete fool. Could I have done it differently? Yes. I should have either never bought those signs or if I had, I should have tried to turn around and flip them real quickly. At least sell off one. That would have reduced my exposure down by fifty percent. But no, I didn't do that. But then let me give you a story where I took an extreme risk and I look like a genius.
The year 1990, roughly, Los Angeles had gone down the drain. The economy there was just terrible. You had the Northridge quakes. It was just awful. And I was tipped to the fact that there was an abandoned Billboard company there where all the signs had basically been left to rot. The guy that owned them was killed in a car wreck and his heirs didn't want anything to do with them. I found that heir. I signed an agreement. He gave me one year of due diligence to see if I could bring them all back to life. It looked like a completely ridiculous risk.
Who in the world would ever think you could take a bunch of rusted steel structures and start from scratch and get all new permits and all new ground leases and all new ad leases and fix them all. But that's what I signed on to do. And along the way, I found that the biggest Billboard company in Los Angeles would give me as much money for just three of those signs as I was paying for the entire company. So I signed up to do a simultaneous close. A very, very risky proposition. If they didn't show up at the closing table, what would happen to me? The answer, nothing very good. They had to show up. So it was a huge, huge risk. I was absolutely terrified they would not show up. And fortunately they did. By virtue of that, I ended up owning all the rest of the signs in the package free and clear with no debt. But it was very, very risky business. So that's how it goes when you take extreme risk. Sometimes you look like a star, a winner, a genius. And sometimes you come out looking like a complete failure, like a complete idiot that you will never be able to explain why you took the actions that you did.
But what's important is the fact that you at least took the actions. In America today, people don't realize, we've grown far away from our entrepreneurial spirit that built the country. That's how America got built was people taking sometimes extreme risk. But that doesn't mean you should be foolhardy about it. When it comes to taking risks, make sure you've covered all your bases and all the due diligence you can humanly do. Try to figure out every way to mitigate the risk so the bad things don't befall you. So try and be sensible when you take that gamble. But sometimes you just have to take the shot. This is Frank Rolfe, the Billboard Mastery Podcast. Hope you enjoy this. Talk to you again soon.