In a number of cases, stations have been sold to a new owner, yet the seller attempts to retain control over programming even after the sale has been completed. In most instances, this takes the form of the seller entering into a local marketing agreement (LMA) agreement with the buyer. The key concern here is the FCC’s “Reversionary Interest Rule,” which prohibits a seller from retaining an interest in the station once it is sold. In these situations, the seller will be deemed not to have sold the station. If the sale is a “spin-off” to comply with the FCC’s ownership rule, retaining a “reversionary interest” could result in a violation of the ownership rule.
The key issue is whether the LMA is part of the underlying sales contract or whether it is a separate contract entered into after the sale is completed. The FCC explained the distinction in a recent decision:
“It is well established that LMAs generally are permissible, so long as they are consistent with the Commission’s multiple ownership rules and the participating licensee maintains ultimate control over its facilities. Former licensees are not prevented from entering into such agreements subsequent to the sale of a station. Unlike the current situation, if an LMA is either a condition of, or consideration for, a proposed transaction, the LMA would violate the plain language of the Reversionary Interest Rule.”
Thus, if you are considering buying a station, and seek to enter into an LMA with the former owner, make sure the contract is separate from the underlying sales contract.
You can see the FCC’s decision here.
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