Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Rush Limbaugh’s Problems are Sirius XM’s Opportunity

Rush Limbaugh’s problems could be a major opportunity for Sirius XM (NASDAQ: SIRI). The satellite-based service could have a chance to add the biggest name in radio to its lineup.

The nation’s most popular talk-radio personality is facing a host of problems; ably outlined in a recent Politco Magazine story. Those problems could soon cost Rush his lucrative broadcast deal and drive him to satellite, whether he wants to go or not.

Rush’s biggest problems include:

  • Being dropped by several major radio stations; including WABC in New York, WRKO in Boston and KFI in Los Angeles. In Boston Rush moved from the 50,000 watt; WRKO, to a 5,000 watt station in the suburbs. That move means the Rush Limbaugh Show is only heard in parts of Boston; and not the wider area WRKO covered.


  • Even stations in many smaller markets are dropping the Limbaugh show, because they can afford the carriage fees required to run the program.


  • The top five major national radio advertisers; T-Mobile, Comcast, Home Depot, GEICO and Sprint, refuse to buy advertising on the Rush Limbaugh Show. The advertisers are afraid of a boycott effort organized on behalf of law student Sandra Fluke; whom Rush called names on the air in 2012.


  • In several markets; such as Indianapolis and San Francisco, Rush’s show was shuffled from radio stations that paid fees to carry it to outlets owned by his employer iHeart Media; the organization formerly known as Clear Channel. This means that iHeart is effectively paying itself to broadcast Limbaugh in some markets.


  • Some national advertisers such as JC Penney (NYSE: JCP) now refuse to run commercials on political shows like Limbaugh’s.


  • Many radio stations are dropping Rush because they cannot sell enough expensive advertising to justify his presence on their lineup.


  • There are also rumors that iHeartMedia (OTC: IHRT) is teetering on the edge of bankruptcy and can longer afford Rush.


Many observers expect that Limbaugh will have to take a huge pay cut, when his $38 million a year contract is renegotiated this summer. iHeart is certainly in trouble; its stock was trading at $1.10 a share on May 25, 2016.

The latest earnings report indicates that iHeart is losing money. iHeart reported a net income of -$458.17 million and a profit margin of -6.49% on March 31, 2016. It also reported a free cash flow of -$297.27 million on the same day. That’s pretty sad when considers the fact that iHeart reported revenues of $6.26 billion on March 31, 2016.

There is a strong possibility that iHeart can simply no longer afford Rush, which is where Sirius XM comes in. Unlike, iHeart; Sirius is making money it reported a net income of $575.37 million on March 31, 2016. Sirius also reported a free cash flow of $332.02 million, and a profit margin of 14.27% on the same day.

Sirius’s revenue is also growing; increasing by $120 million during first quarter 2016. Sirius XM reported revenues of $4.57 billion in December 2015; that increased to $4.69 billion in March 2016.

This puts Sirius in a position to make Rush a lucrative offer much as it did with another controversial radio legend; Howard Stern. Stern negotiated a new deal that reportedly gives him a $90 million annual salary with Sirius in December 2015, Tech Times reported.


Broadcast can No Longer Afford Rush Limbaugh

It looks as if iHeart radio; and broadcasting in general might no longer be able to afford Rush Limbaugh; yet Sirius might be able to. Rush might be well worth the money; he still reaches 13 million listeners a week on the nation’s most popular radio show.

More importantly, Sirius does not have to worry about controversy; because it depends on subscriptions and not advertising for its revenue. Sirius currently charges listeners fees ranging from $10.99 to $19.99 a month. Those fees generated $1.296 billion in cash from operations; and $101.95 million in cash and short-investments, during the first quarter.

In contrast; iHeart reported a negative cash from operations figure of -$81.58 million for the same period. It appears that the radio network can simply no longer afford its biggest star, but Sirius can.

Sirius can offer Rush a few other things that iHeart cannot; including a three-day work week, Stern currently only spends three days in the studio each week. Rush might get more cash; and more time to work on his golf game, at Sirius. Another reason Rush might go, is that he will no longer be at the mercy of advertisers. Instead he would have a regular salary, and no reason to fear big corporations.

The big questions will be is Rush willing to move to Satellite Radio; and will Sirius be willing to pay his salary. If Sirius management is smart, they will get out their checkbook for Rush. His presence on their lineup would be well worth for the paycheck and the controversy.



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