Have you ever driven by a billboard and wondered how it got there, who owns it, and who’s profiting?

Well, probably not, but billboard advertising is a $9 billion industry, and an interesting one, so let’s dive in.

‍I'll cover:

• The billboard market in numbers
• The case for investing in billboards
• Pros and cons of billboard investing
• How to invest in billboards
• Expenses and risk

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The billboard market in numbers

In 2023, the number of billboards spread across the United States grew by less than 0.8 percent to approximately 354.5 thousand.

Despite the slight annual increase, the 2023 figure stood 3.9 percent below the number recorded in 2017, when the U.S. harbored nearly 369 thousand billboards.

That includes bulletins, digital billboards, posters, junior posters, and wall murals.

Interestingly, just 2.8% of billboards are digital.

The vast majority are analog — those classic steel or wood constructions that date back to the civil war — and there’s a big digitization opportunity we’ll get into a bit later.

Further key stats:

• Industry size and past growth – The U.S. billboard and outdoor advertising industry is worth $9 billion in 2023 after declining 2.3% annually for the last five years.
• Growth forecast – The U.S. billboard and outdoor advertising industry is projected to decline 5.6% in 2023
• Number of businesses – In 2023, 12,850 billboard and outdoor advertising businesses are operating in the U.S
• Number of people employed – In 2023, the U.S. billboard and outdoor advertising industry employs 36,784 people.

The Case for Investing in Billboards

Owning a billboard is sometimes seen as the holy grail of alternative asset.

It’s ultimately a simple business model: Build (or buy) a board, sell ads, collect revenue. At that point, you’re ultimately running a sales organization.

Collections are steady (although local suppliers pay quicker than national advertisers), and bad debt issues are rare. It provides a regular income cash flow with very healthy margins. EBITDA margins can reach up to 40 – 50 percent for well-placed boards.

Physical billboards typically yield between $750 -$3,000 per month, depending on the market. Digital billboards can get you anywhere from $1,200 up to $15,000+ per month.

It has high ROI and low competition. As a guest on the Billboard Insider Podcast noted, this business is both boring and dynamic: Boring because of consistency of cashflow, and dynamic because of the opportunity for digital sign conversions.

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Pros & Cons of Billboard Investing

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Pros

A Billboard Businesses Can Be Profitable

We already covered the profit potential for a billboard business, so I won’t cover that again, but it’s clear that if done correctly, you can make a tidy profit from owning billboards.

A few well-located and well-maintained billboards can provide terrific income to you for many years.

A Billboard Business Can Be Semi-Passive

This is another area that we covered before, so I won’t go into a lot more detail here.

Although billboards are not completely passive (in fact any real and profitable business is going to require some work and oversight), they can offer a pretty good income without all of the hassle associated with running other types of businesses because you do not have employees or retail customers.

You will need to interact with people who want to advertise on your billboard from time to time, but that is a far cry from dealing with high-volume walk-in traffic and all of the complications that can arise from that

Billboards Are Valuable Assets

Each billboard in your business is a valuable asset that can be sold. More important than the billboard itself are the permits and land leases that you possess that allow you to erect and keep your billboard in its location. These are hard to get and can command a strong price in the marketplace.

Independence

If you are the owner of your own business, you do not answer to anyone. Hard to put a price on that.

Growth Potential

You can grow your billboard business by setting up or buying additional billboards. While it may be challenging to find new suitable locations, it is far from impossible. You can also choose to grow your business by upgrading existing billboards

For example, if you have a billboard in a terrific location that gets tons of traffic, you may want to upgrade to a digital billboard that can generate much more revenue for you

According to AZ Central, the potential rental income for a digital or LED display billboard could be anywhere from $3,500 to $25,000 a month, based on a digital billboard advertising cost for an 8-second spot in a loop of 64 seconds with other advertisers.

Might be worth the upgrade if you have a prime location.

Cons

Good Billboard Locations Are Hard to Find + obtaining Permits can be a nightmare

Easily the most challenging aspect is finding a good location.

Legal locations (i.e. where you can actually obtain a permit/license by the local authorities that allows you to have your billboard), that aren’t already taken are scarce and everyone knows it, which makes it hard to set up new locations and makes it difficult to buy existing ones.

A Billboard Business Can Be Expensive

Getting into the billboard business can be expensive.

The cheapest type of billboard is a one-sided wooden one. That will still cost you thousands of dollars. If you want to go a step up, a steel billboard with two sides costs between $35,000 and $90,000. If you want to go high tech and high end, you could purchase a state-of-the-art digital billboard for more than $1 million.

Strong Competition

The billboard industry is dominated by a few very large players (namely: Clear Channel Outdoor, Lamar Advertising & Outfront Media.

That means that you will be a small fish in a big pond. That does not mean you cannot succeed, but you should understand the challenges facing you when you want to expand.

Billboards Need to Be Replaced Over Time

Billboards face the harsh elements of weather, therefore wear and tear is a real issue and they will need to be replaced over time

How to invest in billboards

As mentioned just now, one of the major cons of Billboard advertising is the upfront cost and effort, so there’s a good bit of legwork to do before you can get to that healthy ROI.

Ways to consider…

Securing a lease

Do you happen to own a large stretch of vacant land adjacent to a major road? No? Then you’ll need to buy or lease the land.

It’s pretty rare for billboard investors to own land outright anymore. All the good spots are pretty much taken, and as the saying about land goes, “they ain’t making any more of it.”

So the common practice is to secure a ground lease with an existing property owner to build and maintain a billboard on their land. The big companies are constantly doing exactly this. A significant part of their operations is actively seeking new, prime locations for billboards, and entering into long-term leases with landowners for exclusive use of their land.

Permitting and legal issues

The challenges you face securing land are likely nothing compared to getting a permit. In fact, this step is so critical and difficult that this is really the only place to begin.

The same barriers to entry that make this this investment space so attractive are also what make it so difficult to get going. You need a permit to build a billboard, and it’s not easy.

Ever since the Highway Beautification Act in the 1960s, roadside advertising has been a highly regulated space. The federal government limits the supply of interstate billboards to certain spacings and zonings, and state & cities can exert even greater levels of control should they so desire.

Regulation is high, and the playing field is limited by design.

Look into local ordinances to confirm they’re permitted under local zoning regulations. (Just because you see existing billboards on a freeway doesn’t mean they’re allowing more — the total number is likely capped.) After finding a suitable area, you’ll need to call the local city or county government, get a zoning map, and start putting the pieces together.

The process can takes years! Prepare for a long, bureaucratic, frustrating marathon of paperwork, headaches, and legal fees.

Digital billboard conversion

One strategy investors are now employing is offering to convert analog billboards to digital. Cities are becoming increasingly fond of digital billboards that they can use to spread news about community events, advocate city services, and promote public safety messages during, say, a pandemic. (This is a core part of the “Smart Cities” movement.)

While city councils are often extremely reluctant to give out new permits, they may let you convert existing billboards into digital screens (especially if you remove 18 static billboards as part of the deal.) But conversions can be quite cost-prohibitive.

Billboard construction costs

Permitting is the tough part. Once you have a permit, building the structure is much easier by comparison, and probably isn’t all that expensive.

The cost completely depends on the type of billboard that you are constructing. Key factors here are size, materials used, and height.

There are 4 primary types of billboards: wooden, metal, monopole, and digital.

Wooden billboards

Wood is the cheapest. Traditionally, wooden signs sit low to the ground, and don’t contain catwalks. Some may not even include ladders or lights. Wooden billboards typically cost between $2,000 and $10,000.

Metal billboards

Metal structure allows for larger displays. 12’ x 24’ is the standard metal billboard size, and although boards of this size can be attached to wooden poles, investors usually prefer steel.

These usually contain a catwalk and are typically raised 12’ off the ground to discourage vandalism. These typically cost between $20,000 to $30,000 to install.

Monopoles

Once you get into the larger sizes (14’ x 48’) you’ll need what’s known as a monopole, or unipole.

These are the boards you see along freeways, and are the most difficult and expensive to build by far. They are full of catwalks, ladders, and big bright lights. They can rise over 100 feet high, and require sophisticated engineering to bring to life.

These types of billboards run from $30k – $75k for single-faced monopoles (those that display ads on just one side) to $60k – $100k for double-faced (those that display on both sides)

Don’t forget there’s a significant cost to just placing the ads themselves. Putting up and taking down ads requires a team of people climbing great heights. A number of billboard companies offer placement & takedown services.

A typical single-faced Monopole. | Photo courtesy of BillboardInsider.com

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Digital billboards

Digital, or LED billboards, are the most expensive by far. Investors like them because ad switching is a cinch, and it allows them to earn more per impression

But setup is highly complicated, and what you save in ad switching costs is immediately sucked up by higher electricity bills. The cost to install digital billboards typically exceeds $100,000 for mid-sized metal installations. For double-faced monopoles with giant LED screens, you’re looking at up to $1 million all-in.

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Other Expenses and risks

Maintenance

Maintenance costs for traditional billboards are generally low. Once you construct the sign, you usually rent the ad space annually. Routine maintenance involves addressing common issues such as storm damage, vandalism (billboards often attract graffiti), and replacing burnt-out lights.

On the other hand, digital billboards incur higher depreciation and maintenance costs. Pixels can fail, advancements in display technology necessitate upgrades, and occasionally, the entire control panel can malfunction, making your billboard resemble the black screen of death on a computer.

Leasing costs

The ground lease is the largest expense. The typical total expense ratio on a billboard’s gross rent is roughly 40%. So a double-faced billboard that rents for $1,000 per month would pay $9,600/year for the lease, and have an annual net income of $14,400 ($1,000 x 2 faces x 12 months x 0.6)

Operation costs

Minimal. You’re biggest operational cost is labor, mostly your sales team, which typically works on commission anyways.

Day-to-day billboard management is essentially an entry-level admin job, and new billboard management software has rendered most of those jobs irrelevant.

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Hope this guide has got you thinking about billboards in a new way!

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Jason

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DISCLAIMER: None of this is financial advice. Finbrain is strictly for educational purposes.

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