Goodwill

Goodwill. It’s not Hunting. It’s not a nonprofit. It’s an accounting thing that explains the otherwise unexplainable.

Example time.

KFUNK has been running its radio station for 45 years and, as ratings continue to decline, it realizes that the wireless spectrum it leases a decade at a time from the U.S. government, via a grant from the FCC, is worth more than whatever multiple of cash flow from its stations would give it.

So it decides to sell itself to Verizon, which is happy to own that extra spectrum, allowing it to give better wireless phone service to its customers. The sale is for $50M. The station has $20M in cash, plus its call letters and radio frequency numbers. That’s it.

Since Verizon is going to just shut down the radio station, one could ask, “Wait—why are you paying $30M for… nothing I can touch?”

Well, what they are buying is the spectrum. It’s a legal grant. A piece of paper. A deal term, courtesy of the U.S. government, for which the radio station paid essentially nothing. That’s $30M for an asset that was free.

Hm. How’s that work?

Well, the accounting gods are thinking and thinking: what do we name that intangible asset that appreciated from nothing to $30M? Should they call it “phantom appreciation of air”? Or “money made up from nothin’”? Or “cash mirage”? Or how about “goodwill?” Yeah, sounds better.

So when Verizon makes the purchase, they’ll show that, for their $50M, they got $20M in cash and $30M in goodwill. And some funky music. Hm. Good to hear bluegrass is making a comeback.