An examination of the Nexstar/Mission relationship

Springfield television station KOLR, purportedly owned by Mission Broadcasting, pays Nexstar Broadcasting $1.8 million per year under a service agreement, according to the quarterly report filed today with the Securities and Exchange Commission.
In exchange for that, the report indicates, Nexstar provides "sales and operating services to all the Mission stations. Under the terms of a shared services agreement (“SSA”), the Nexstar station in the market bears the costs of certain services including news production, technical maintenance and security, in exchange for monthly payments from Mission to Nexstar." Mission then receives $70 of the net revenue for the station, the report said.
KOLR pays Nexstar more than any other Mission station.
KODE in Joplin pays Nexstar $900,000 a year, the report said, while the total amount Mission pays for all of its stations to Nexstar is slightly over $7.7 million annually.
Essentially, Nexstar ends up getting all of the money, the report indicated.
"The arrangements under the SSAs and JSAs have had the effect of Nexstar receiving substantially all of the available cash, after debt service costs, generated by the stations listed in the table. The arrangements under the TBAs have also had the effect of Nexstar receiving substantially all of the available cash generated by the TBA stations listed in the table. Mission anticipates that Nexstar will continue to receive substantially all of MissionÂ’s available cash, after payments for debt service costs, generated by the stations listed in the table."
All of which really doesn't give Mission much of a reason to exist, though in a bow to FCC regulations, the report clearly states that Mission maintains furesponsibilityity for its programming. finances, personnel and operation.
Anytime FCC regulations reach the point where Nexstar can legally own more than one station in the market, the company can buy out Mission without even seeking the approval of Mission's sole shareholder, David S. Smith, who must be a man of many talents since he is listed on the report as president, treasurer, principal executive officer, principal financial officer, and principal accounting officer.
According to the report,"MissionÂ’s sole shareholder has granted Nexstar a purchase option to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent, for consideration equal to the greater of (1) seven times the stationÂ’s cash flow, as defined in the option agreement, less the amount of its indebtedness as defined in the option agreement, or (2) the amount of its indebtedness. Cash flow is defined as income or loss from operations, plus depreciation and amortization (including amortization of broadcast rights), interest income, non-cash trade and barter expenses, nonrecurring expenses (including time brokerage agreement fees), network compensation payments received or receivable and corporate management fees, less payments for broadcast rights, non-cash trade and barter revenue and network compensation revenue. These option agreements are freely exercisable or assignable by Nexstar without consent or approval by MissionÂ’s sole shareholder."
For his services, Smith receives $375,000 annually, according to the report, while his wife is paid by the hour for unspecified management services.
The continued existence of Mission Broadcasting undoubtedly relies on Nexstar, the report indicates. "Mission is a guarantor of and has pledged substantially all its assets, excluding FCC licenses, to guarantee NexstarÂ’s bank credit facility. NexstarÂ’s bank credit facility, which matures in 2012, consists of a Term Loan B and a $50.0 million revolving loan."