POLITICAL DOLLARS COME WITH STRINGS ATTACHED

TV broadcasters are entering 2008 expecting to reap billions of dollars in political advertising and to begin growing their top lines once again.

But an article that appears in the November/December issue of BCFM’s bimonthly magazine, The Financial Manager, reminds us that dealing with candidates involves federal regulations that affect stations’ credit and collections policies.

The article was originally written by the late Pete Szabo, founder of Szabo Associates, and has been updated by his brother Robin, president of Szabo and a BCFM board member, and Sally Buckman, a media regulation expert at Leventhal Senter & Lerman.

According to the article, there are good reasons for requiring advance payments from campaign committees and making them adhere to the same credit policies we apply to similar advertisers.

These committees are quickly created and then dissolved just as quickly when a candidate pulls out of the race.   

But FCC regulations dating back to 1992 limit the extent to which we can offset our risk through requiring advance payments for political ads.

In response to a request from a firm whose clients included political candidates, the FCC ruled that where a candidate or its agent has an “established credit history … requiring any advance payment is inappropriate if the station would not apply the same requirement to commercial advertisers or their representatives under its customary payment/credit policies.” 

The FCC responded to broadcaster concerns about this far-reaching rule with a clarifying statement: Broadcasters would be required to extend credit to a political advertiser “only if the station would extend credit to a similarly situated commercial advertiser under the station’s customary payment/credit policies.”

For example, a station may have a policy that requires advance payment from a commercial entity that has been established only for a temporary time or purpose, like a concert promoter that has an uncertain credit history with the station because it is a new company.

Or it may have a policy requiring advance payments from advertisers with an unstable financial condition, such as a company advertising a “going-out-of-business” sale. The station can require advance payment from a political advertiser that falls within one or more of these categories.

In instances where the advertising is being purchased by an agency for a candidate, the station can be required to extend credit to the agency only if the agency has accepted legal responsibility for payment of the account and the agency qualifies for credit under the station’s credit policies.

A related concern was the potential for discrimination that could result from extending credit to one candidate over another by applying the same credit policies to all candidates. According to the FCC, “so long as a station’s policies are not designed as subterfuge to favor particular candidates and are applied even-handedly to all, impermissible discrimination does not occur.”

With these regulations in mind, stations can require payment in advance from political candidates if their policy requires advance payment for similarly-situated commercial customers.

However, they may not require payment from federal candidates more than seven days prior to airdate, the FCC has ruled.

Stations that are planning to extend credit to political campaign committees or their agencies should review their treatment of commercial clients to ensure that all advertisers are receiving the same scrutiny of their credit applications.

The NAB suggests using a three-part test to decide whether credit might be given to a candidate’s ad agency:

• The agency must be creditworthy.
  
  
• The agency must assume liability for payment.
  
  
• The station would give credit to that agency if it assumed liability for payment for a similar advertiser, such as a store about to go out of business.

This test is essentially the same in cases where candidates or their committees are directly applying for credit.

If the candidate is established in the community, is credit-worthy and assumes personal liability for direct payment or for payment of the committee’s bills, he or she (or the committee) should receive credit—assuming that the station would give credit to a commercial advertiser under the same circumstances.

It’s important to check with a company or station’s legal counsel on these matters. There is increasing complexity in the way our ad time is being packaged, sold and purchased.

The FCC, NAB, the state broadcaster’s associations and legal counsel are all available to offer assistance. And seeking advice not only help you avoid pitfalls but also may become a vital part of your defense should a complaint occur.

Join Us in Burbank

I would like to remind you of our upcoming West Coast Regional Seminar—“Anytime…Anyplace: Making Money from the Growth in Personalized Media." It’s set for Thursday, Jan. 24, at the ABC/Disney studios in Burbank, Calif. More information is available at www.bcfm.com.

Finally, I’d like to encourage all BCFM and BCCA members to nominate recipients for the BCFM Working Capital Award; the BCFM Rainmaker Award; the BCCA Member Contributor Award; and the Peter F. Szabo Career Achievement Award.

We need your help to recognize your colleagues who give so much to provide education and other resources for members.

Information and nomination forms are available at www.bcfm.com/index.aspx?PageID=455.

Mary Collins is the president and CEO of the Broadcast Cable Financial Management Association, a professional society for addressing the diverse needs of financial and business professionals in the broadcast, cable, and electronic media industries. Her column appears here every other Friday.