Billboard Mastery Podcast: Episode 47

Understanding Risk

Life is all about risk, but not all risk is created equal. And some of it can be hedged. In this Billboard Mastery podcast we’re going to drill down on the topic of risk and what you can do to mitigate it.

Episode 47: Understanding Risk Transcript

Life is filled with risk. Every time you get in your car and pull out of your driveway, there's so many risks in what you're doing. You could have a car accident, you could hit something, it's really overwhelming, but all of us drive that car anyway, because we know that we've got our risks hedged, that we've got protections. We understand those risks, and therefore since we know them and are comfortable, we can in fact move forward. So that being the case, what are the risks to a billboard? What do you have to know about what the risks are and how can you work around those? Let's go over what all the risks are and how they might be mitigated.

The first risk would be what we call the Act of God. That could be, for example, a tornado. So tornado blows through and damages or destroys your sign. Now how do you mitigate that risk? Well, first off, the way the billboards are built traditionally does help in that regard. If you have a steel monopole sign, they're constructed with the concept that they can handle winds of 100 miles per hour in most states, it's part of the regulations. But on top of that, what happens when the wind gets that high, the advertisement typically comes off the sign, and then without the advertising wind load, the rest of the sign, just the raw steel, you can't knock that thing down in the strongest tornado imaginable. Steel signs really have the edge regarding storms.

Now, wooden signs, not so much. Wooden signs don't have the ability typically to lose the panel before they may find, it's that moment where structurally they can't hold together. But at the same time, wooden signs are much lower in cost. And wooden signs typically have multiple poles, so if one pole does snap, you put one pole back and you're good to go. So, the other thing to remember is that wooden signs are typically very low. What makes big monopole signs dangerous is their height. That height acts like a lever, most of the force is exerted on the pole, on the steel monopole, about two to three feet from the surface of the earth, that's the fulcrum of all the pressure from that wind load. Wooden signs, however, aren't nearly as tall, or you may have a monopole sign that could be 50, 60, 70, 100 feet or more in height, that's a lot of force.

The wooden sign traditionally isn't that high off the ground, so as a result, there's typically not as much pressure on the poles. What about flooding, you might say? Well, flooding can happen to billboards but typically flooding doesn't really cost any lasting damage, it may hurt your access for a while but unless the ad is coming up to be used shortly, then it wouldn't much matter. And you may be able to obtain insurance for Acts of God and wind damage. So this is an event that typically most billboards on a day-to-day basis, it's not really an overwhelming risk. You rarely see a sign that comes crashing down. You do see signs with damage as you're driving down the highway after there's been a storm, you can see ripped vinyls, panels missing, but by and large, signs are pretty sturdy and that typically doesn't cause you to lose your sign. Another risk is simply a diversion of traffic or change in visibility of your sign.

Now, this could be more damaging than the tornado. If you have a neighbor who puts an obstruction that blocks your sign, then that's not good news at all. So how do we mitigate that risk? Well, number one, if you have a two-sided sign, I guess your worst case would be only one side gets blocked, but better yet, you wanna try to be as proactive as you can to make sure that does not occur. If you see someone developing the property next door, you should reach out to them, and say, "Hey, I wanna make sure we don't block each other." Because remember, if they put up a sign that blocks one side of your sign, you are therefore blocking the other side of their sign.

I found most property owners to be pretty easy to work with 'cause they see that a proactive approach on signage is typically the best thing for them. But also understand the risk, that's why you wanna have in your lease that in the event the sign is blocked, you have the right to remove it. If someone builds a building that blocks your sign, they're probably not too worried about you blocking the other side of their building. So that risk is always out there. And the only head you have to that is the fact if you have to, you can terminate the sign, and if you terminate the sign lease, one other option you might have would be to reduce the other amount that you are paying. So all of that risk is a little harder perhaps to deal within the Act of God risk.

Once again, there are ways that you can reduce it. Next comes the typical thought of having some kind of large repair and maintenance costs or capital expenditure. The key question is how long do signs last, and at what point are signs going to fall apart and you have to replace your investment? Again, we don't know for sure the answer to that but we do know that steel signs are built in a manner that should last seemingly forever. There's really no deferred maintenance I've ever seen on a monopole. Monopoles have been around since the '70s. So at this point in the movie, they've been there typically for 50 years, and in a half a century I've never seen one that had a problem that required any expensive remediation.

Wooden signs as well. Wooden signs are made traditionally out of old telephone poles. Telephone poles are creosoted, and they're pressurized, and they build them in that manner because the power company has no intention of replacing those lines ever once they put them in. I've never once again, seen telephone poles go bad except in cases of standing water. If you have a sign that's in a flood play where it goes under water for a prolonged period, that water may, over time, rot those poles. But by and large once again, they don't need that much work. I've owned wooden signs, themselves were half a century old, and they were still running just fine. So, I don't think you typically are going to see a big capital expenditure due on that sign rolling forward. So if all these risks, the main risks are manageable, then why can't we just operate signs risk-free? Well, we can't.

You have to always stay on top of your sign, if you see something that says that there's been a storm in the area, you need to have somebody up that way who can call, and you can ask and say, "How is my sign doing? Can you see it? Is it okay?" And typically, hopefully, they'll say, "Oh yeah. It's still standing. It's perfectly fine." So, we have to live with risk, you cannot own a billboard in the complete absence of risk. That is not an option. But just as in driving our car, we have to take on some element of risk to move forward. Progress just requires risk. There's an old saying, "Behold the turtle, to make progress it must stick its neck out."

So in many ways, we're all like that turtle. But if we accept risk and we understand the risk, and we try and mitigate the risk, and we try to ensure against the risk, that's the best way to live our life and move forward, because again, you cannot live and you cannot have a billboard company or a single sign that is 100% risk free. But the key is you wanna build signs that are profitable enough that when you adjust for the risk, it still looks like a smart, sensible way to proceed towards financial freedom. This is Frank Rolfe, the Billboard Mastery Podcast, hope you enjoyed this. Talk to you again soon.