JF1073: Selling a business for $360,000,000, Buying Production Companies, & Branching Into Flipping Houses, with Brent Montgomery

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Brent Montgomery Background:
-CEO of ITV America
-Largest independent producer of non-scripted content in the US
-Began his career in tv with stints on series as The Bachelor, Wife Swap, Blind Date
-ITV America produces more than 800 hours of content and 100 programs
-Sold 80% of Leftfield Entertainment in ’14 for $360 million
-Inducted into Realscreen Awards Hall of Fame
-Based in Connecticut
-Best Ever Book: Rich Dad Poor Dad

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, Gillian Michaels – you know who she is, a fitness guru – and today I am very honored and pleased to say we’re talking to a very successful entrepreneur. Obviously, as real estate investors, we are all entrepreneurs, and he’s gonna talk to us about his journey and lessons along the way. How are you doing, Brent Montgomery?

Brent Montgomery: I’m doing great, excited to be on the show! Thank you so much!

Joe Fairless: Yeah, nice to have you on the show. A little bit about Brent, and then he’ll get into it in more detail. He is the CEO of ITV America. He is the largest producer of non-scripted content in the US, and holy cow, he sold his company – or a large stake of his company he founded – for an unprecedented 360 million dollars. That right there is enough for us to have a long conversation with him. We’ve only got a little bit of time, so let’s dive right in. Brent, with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brent Montgomery: I started as sort of an entrepreneur from a very young age; while a bunch of my friends were off playing hockey, I was selling baseball cards, being asked by principals and teachers to stop selling baseball cards around the classrooms, and running a lawn mower business. I learned a very valuable lesson with my baseball card business – don’t wait until the trend is over before selling. I accumulated a lot of cards in value, but then I still have those cards at my parent’s house, because the bottom fell out of that market.

I didn’t really think about doing television until I was halfway through college, and just really liked telling stories. I moved up to Brooklyn from College Station, Texas, which is about as different a two places as there could be… And I just kind of slogged along, worked for everybody else in town for a while, and then just had this sort of guts or stupidity to think I can do it on my own. I went out and did not really sell a show for six or seven years, but I kept working for other people by day and doing my own ideas at night and on the weekends.

I finally sold a couple shows, and then in 2009 I created and sold the series Pawn Stars to the History channel, which ended up sort of being the perfect show for me and for the company for a bunch of reasons. We had a show that we could shoot a [unintelligible [00:04:53].20] It was almost like a subdivision of houses, as opposed to just one house. The show is still going; we have about 500 episodes in the can, which is about three or four times the amount of shows for other types of similar shows. And like any business, you don’t wanna be a one-hit wonder; we’ve put an immense amount of capital back into the business to develop more shows, and then finally decided to start buying companies and diversifying our portfolio in that way.

So we bought the company that does Real Housewives of New Jersey and a ton of other shows, and then started more labels underneath the banner. Three years ago I sold to ITV, which is a London-based media conglomerate who was looking to expand into the United States. At that point, after about a year of being underneath ITV America, they asked me to run that group and I brought my team with me.

Now I oversee about a hundred TV series a year, ranging from Fixer Upper to Duck Dynasty, to Pawn Stars, to Hell’s Kitchen, to Queer Eye. We’re doing a new property show with Bethenny Frankel for Bravo, and Fredrik, who’s on Million Dollar Listing. So now I’m mostly involved in TV, but my wife and I are becoming bigger and bigger real estate investors, so it’s a little bit more fun for me to do this interview than [unintelligible [00:06:15].01] ago.

Joe Fairless: You mentioned College Station and New York City as a stark contrast… I went from Lubbock, Texas to New York City, so I can empathize where you’re coming from. And I would say Lubbock is even more of a stark contrast than…

Brent Montgomery: You went from dust to concrete, right?

Joe Fairless: Yeah, dust and cotton to concrete, yes. Absolutely. So 500 episodes – lots of questions that come from this, and I’ll just go in no particular order. 500 episodes – a whole bunch of episodes for one TV series… How do you keep it fresh?

Brent Montgomery: The variety of what goes through that particular pawnshop was quite immense before we ever started shooting the show. When I went out there and met the guys for the first time, there were Picassos actually hanging in the shop, and there were Super Bowl rings, and there were so many interesting artifacts, which… You can only buy and sell stuff in the pawn world if you know about it. Most pawn shops are gold, silver and electronics, because a monkey can essentially buy and trade those, but if you don’t know everything or know people who know everything about a particular unique item, then you can get burnt pretty quickly.

We were very fortunate to come up with an idea that was interesting, but it wouldn’t have been anything without those specific guys, who were historians by nature, and curious by nature, and now we have a team of people who just look to really call all of the stuff that comes through there and really bring out the stuff that doesn’t look like everything else we’ve shot. So that variety is what we look at in trying to keep the spice.

And also you look at what the audience likes. They like military stuff, they like sports stuff, so we try to super-serve that kind of stuff on a regular basis.

Joe Fairless: How do you find those – in maybe this one specific example, or just in general your approach… It sounds like the idea was there, but it really is finding the experts within that type of programming that can deliver on the idea, so how do you find them?

Brent Montgomery: You know, it’s probably like looking at a house where you try to have a little bit more vision than somebody else. This would be comparable to a house in a really bad neighborhood, where they continue to be on the part of the strip that nobody really wanted to be on all day, but certainly after six o’clock at night.

What we knew going in based on our research was networks weren’t interested in a show about a pawnshop because it was considered lowbrow. So we took the approach of sort of what Giuliani did in Times Square – we went in and we tried to really light the store a nice way, focus really on the corners of the store that had the nice stuff, and not the pimp jewelry and the lawn mowers and other stuff. So we tried to clean it up, and then it became a little bit of a self-fulfilling prophecy. Now it’s in a very different area in Vegas, there’s a lot that’s been built around it; it was kind of the anchor tenant, if you will, in a section that now has a lot of money invested in it.

In the beginning, the process was we heard that networks didn’t wanna buy a pawn show, but we decided not to take that as a no; we decided to go out and spend our money… It was at a time when we didn’t have a lot of money – we put about $20,000 into producing our idea – and then you go out and you shop it to all the different networks. It just happened to be at that time the History channel didn’t look like it does now. At that time it was black and white, and the biggest star on the History channel was Hitler. Every time Hitler would be on, the network would rate really well, but it was a very old-skewing channel, and as the main talent [unintelligible [00:09:47].13]

Joe Fairless: So looking back at your evolution or progress as a professional, you’ve had some major career transitions – you’ve transitioned from journalism to reality TV – and I ask this question because a lot of the Best Ever listeners are real estate investors who have a W2 job, but perhaps they want to transition into real estate full-time… What are some career transition tips that you have?

Brent Montgomery: It’s interesting – my brother, who was a pilot and then got into banking, but had a real knack for flipping houses. I decided to invest with him, but we went through this exact process, and he asked me because I (similar to earlier in the conversation) was trying to run my own business, I had a little office, but I kept working for the man, and I think that’s the way probably a bunch of your listeners are. There is that tipping point, and that’s what I talked to my brother about. I said “Before you just go off and quit your W2 day job, do enough of this to realize first of all whether or not it’s your passion.” Certainly, he had kind of gotten to that point, but I said then you’ve gotta think “Can I go from a job paying me X amount a year to a job that guarantees me not one penny?” It is really feast or famine, based on how good you are at planning, organizing and building your team.

I always like to talk about TV being a team sport, and so much of what we do – and my wife now has left TV to go flip houses and do real estate as well… We have our pre-production plan, we have our production plan, and then we post-produce it in the edit. So it’s a very sort of similar process. There’s that big stretch where you bought the house, you gutted it out, and then it looks so barren for the next eight months, then all of a sudden it goes from a 2 to a 10 at the very end. That’s what our post process is like.

So what I said to my brother was “Look, when you think you reach that tipping point of ‘Alright, I did two or three houses  a year. Now if I was full-time’, run the numbers, what do you think you have to do? Ten or twelve a year? How can you do that? Do you need two GC’s that you’re working with, three GC’s? What’s your team gonna look like?” When I say TV is a team sport, I feel like I try to reward my TV team more for passing the ball than dunking the ball. And when you have a team like my wife is now building out for her flipping business, just every single person that you can bring onto your team will actually affect your ability to scale. And I think also just asking people, for your listeners, like — you wanna probably talk to six or eight people who know you and who can be honest with you and will tell you the good and the bad about your plan.

I think everybody always sees — like, our show, Fixer Upper, you can watch that show, and those guys are best in class now, but there were years and years where they were struggling. You have to look at your personal finances and your responsibilities. I started my business before I was married, before I had kids… I couldn’t start my business in the same way now that I did when I was 26.

Joe Fairless: I wanna ask a couple more questions about your career, and then I wanna talk about your wive’s venture and flipping houses and your real estate stuff. You oversee a hundred TV series a year… What are your main responsibilities right now?

Brent Montgomery: I used to be the guy that would come up with the idea and go out and meet the talent. Now my responsibility is to manage the business. So much of the world is going from an analog to a digital world, and TV certainly is the latest content producer to do it. Print media, music, broadcast television, and now we’re in a world where the traditional cable markets are different than they used to be. So the scale, I think, for our business specifically, has to be high. So my job now is to go out and try to broker new relationships with two key categories. 1) The new OTT brands; we’ve got stuff going with Netflix and Amazon and Facebook and YouTube. They’re early in their days in the unscripted world, which is where we play. We’re really excited to have Queer Eye, ReBoot as part of Netflix’s initial roll out in that world. That’s half of my job.

The other half is to go work with the celebrity partners. There’s just so much content out there now, you’ve gotta figure out a way to really separate yourself. Traditionally, there’s a layer of managers and agents and lawyers between the celebrities and producers, so if we can go and convince, like we have Michael Strahan or John Cena or Bethenny Frankel or Larry Spencer to have these straight relationships with us, it really allows us to scale my business, which is what I’m more focused on.

On the tip of the tip of the spear is sort of looking what’s ahead, but I had to have that amazing team that could actually physically run those hundred shows every year. It took years to find a big enough team to do that.

Joe Fairless: And then in terms of knowing when to sell a company… You sold a large percentage of the company you founded; how do you know when is a good time to sell?

Brent Montgomery: I remember my father-in-law once saying “When the stock boys are talking about flipping houses (he used that example, but it could be any business, right?) then it may be too late.” Certainly, I had seen that with my baseball card business, which was a very small business at the time, but I was left holding the bag. I thought there would be a 2.0 in our industry, but I thought I had to be a part of a much bigger conglomerate… Because the whole market is consolidating; you look at Time Warner, you look at Comcast buying NBCU… The whole world is consolidating, and that’s really important. The latest one is Discovery likely buying Scripps, which is HDTV. So we wanted to be a part of something bigger, and that’s when we sort of saw the tightening of the market.

Our business is domestic and now becoming global, where many of your listeners are focused on a very regional business, I would assume.

Joe Fairless: Yeah. So now let’s talk about fixing and flipping. Your wife has started the company and she’s doing it, it sounds like. You’ve alluded to real estate investments… What are you two focused on from an investing standpoint?

Brent Montgomery: We’ve probably got about 20 properties spread between Texas, Los Angeles and the New York City and Connecticut area, so that’s where we spend most of our time. I have to be in Los Angeles every winter. [unintelligible [00:16:12].24] and Los Angeles in on fire, Connecticut is going through a rough patch because it’s so tied to financial services; Texas is in a really good spot, because it’s a ride to work state, it is a no state income… So many big businesses are moving to Texas that go well beyond gas and oil. If you look at Texas, when I grew up I saw friends go from being really rich to really poor or vice versa because it was the one [unintelligible [00:16:40].22] with oil.

So what we’re looking at are sort of price point houses that feel like they’re affordable to what we’re seeing as people are moving more into urban areas. Where we live, in Old Greenwich, Connecticut there are several towns that you can walk in the town, and we like that, we’ve seen our friends like that, we’ve seen sort of a migration away from backcountry and mid country and these McMansions that are a 15 or 20-minute drive to town. In that market it’s crazy, because you go to other parts of the country, a house that’s $200,000-$300,000 is 1,5-2 million dollars there. So the price points are fairly high, which means in success the margins can be fairly lucrative. Where my brother is doing it, he’s probably gonna have to do more volume in San Antonio than he would have to do if he lived up here, but also the risk won’t be as high.

My wife is taking our playbook from TV, which is try to stay on schedule. On TV we’re not usually allowed to charge overages, so as people who moved into houses and hired contractors and see how far off budgets and schedules can go – it was quite shocking; I’m sure to your listeners it’s not. But my wife has real talent to be able to get people to do things without coming across as mean-spirited, and that sort of task master who can work collaboratively with everybody — and communication I think in any business where you’re taking six or eight different subcontractors… Sometimes you’ll have a GC who will manage them all great on their own, and other times you’ve gotta push and prod at every level without offending.

For us, I’ve always gone out and said “Hey, here’s my ability… Volume is the key for my TV business, and if I can offer you as a GC or a subcontractor – in our world as a showrunner or producer – more volume of work, I can get you the discount.” So our ability to go out and say, “Look, we’re gonna try to do 10 or 15 homes this year.” We’re gonna guarantee you that work, you can plan for your own life and your vacations, and that’s our big – I don’t know if it’s an advantage, but that’s our strategy, to go in and have the same people develop our team, and by the time we do our fifth house together, we should all really have a working understanding of how we all like to work with each other, with our third rails as well.

Joe Fairless: And fix and flipping versus investing passively in deals… You mentioned you were a lender with – I think you said your brother, right? Early on, on some deals, or a partner… Why fix and flipping versus the different types of other ways you can do real estate?

Brent Montgomery: We’re doing some passive stuff, as well. I think it’s more fun. It’s obviously harder. I think we’re gluttons for punishment, but there is just something about after six months watching a TV show that you came up with, that you think you saw the diamond in the rough. I think for my wife, when her and her team – and we brought in a real estate broker, so we have a broker in-house, to where we’re taking away that repetitive cost over time, and taking out just having to work with six or eight different brokers; we wanted somebody working for us directly.

But for those guys to find a house, envision what somebody else might not have, and then at the end of the day do those after shots… I’m not involved with my wife’s business because I’m so busy, but I do the before shot; I go right when she buys it, I look at it, and then I go when it’s done. It’s actually the best [unintelligible [00:20:04].05]

Joe Fairless: [laughs] Based on your experience as an entrepreneur and also a real estate investor, what is your best real estate investing advice ever?

Brent Montgomery: My first house I ever bought – there was a big sucker sign on my forehead for upsell. I was looking for a three-bedroom apartment, I bought a three-family house in Weehawken, New Jersey, which I found out years later the houses were built for the people building the Lincoln tunnel, which was in the late ’20s, I think. Those had flat roofs and they were meant to last – I found out years after buying the house – 14-15 years. This was 85 years later.

My best advice is probably trust those inspection reports. I went back and I looked at the inspection report, which as a first-time buyer I kind of glossed over. Every single thing they predicted… If there was a sort of range of 5 to 10 of how bad it could go, they all went to 12. But I learned a valuable lesson there, which was really go out and get a lot more feedback and information and trust from other people before you buy a place.

I think it’s so important now to look at what’s happening at the macroeconomic level in where you live. Obviously, we mentioned earlier my two favorite books, but Rich Dad, Poor Dad is my favorite business book, and then Into Thin Air, which was my favorite non-business book… But everything that he talks about in that book is owning the process, and vertically integrating your real estate business in any way you can to where you’re not paying out fees and everything, when you feel like you can take that leap, when you feel like you can bring a GC on staff, or you can just bring part of the process in-house; it will allow you to have the bigger wins, and also weather the storms of when — the tough thing… Everybody sees Fixer Upper and other shows and thinks every house sells quickly, but that’s not the case.

Joe Fairless: That is true. I often wonder about the portrayal – not necessary of any show that you’ve got, but just in general, the portrayal of the fix and flips and the success rate that they seem to have on every one of the flips within the amount of time they flip it.

Brent Montgomery: I think for the most part it’s probably accurate, but you’ve gotta think these are people who’ve done hundreds of homes and made all their mistakes along the process. If you’re doing it as a part-time job — I think the danger for doing it as a W2 player is you can’t be on-site; you can’t have the sort of task, whipping that team into shape like you could if you could be there on-site  every day. I’m sure most GC’s are happy to not have the investor on-site every day… But that really I think becomes extremely important – as soon as you think you can dedicate full-time to it and take that risk, then you’re gonna be able to really shorten the timeframe on a lot of these properties.

Your point is accurate, I think if you were to take a true sampling of all people fixing houses, the actual percentages of success would be dramatically lower than [unintelligible [00:22:47].24] and stuff like that.

Joe Fairless: Are you ready for the Best Ever Lightning Round? Let’s do it. First though, a quick word from our Best Ever partners.

Break: [00:22:58].12] to [00:23:58].01]

Joe Fairless: Alright, best ever deal you’ve done that you haven’t mentioned already?

Brent Montgomery: Good question. I would have to say getting into business with – I mentioned his name, John Cena, who is a famous WWE wrestler, but like Dwayne Johnson (The Rock), he is going well outside of his comfort zone now. He’s a guy who I sort of went into the meeting thinking “This guy looks like a – I say “meathead” in the most loving way”, he looks like a superhero. I expected him to be a jock… One of the smartest guys I’ve ever come across, one of the most deep human beings. 500 Make a Wishes, which is more than double anybody else’s.

Joe Fairless: Wow.

Brent Montgomery: I thought I was just getting in bed with a great TV host, but instead he’s just a great human being.

Joe Fairless: That’s a good back-story, I had no idea about that. What’s a mistake you’ve made on a transaction that you haven’t talked about already?

Brent Montgomery: I made a huge mistake in one deal where I thought we were gonna be paying out pre-taxes, and it was post-taxes, and the amount of money was in the millions of dollars. Get a second opinion.

Joe Fairless: Yeah… So what was the result?

Brent Montgomery: It all worked out fine, because we were able later to sell the entire business and recoup it, but it could have been really problematic.

Joe Fairless: Yeah, that would be a problem. You talked about John and his Make a Wish Foundation double than anyone else… What’s the best ever way that you like to give back?

Brent Montgomery: I like to give back with time, and… You can teach somebody how to fish, as opposed to just giving them fish. I like to teach that entrepreneurial spirit and spending time with young people. I donate money and do all the sort of passive type things.

Joe Fairless: Lastly, how should the Best Ever listeners learn more about your company or your business? Where should they go?

Brent Montgomery: They could just google “ITV America.” We’ve got a pretty decent website and we’re on a lot of social media. We’re not as outward-facing a brand, but our shows are brands. We like to think that we’re coming up with the new crazy ideas; we certainly love real estate shows. In a good economy, real estate property stuff rates really well; in a bad economy, comedy does well. So we’re in a good economy, we’re doing a lot of property shows – Good Bones – a lot of stuff with scripts, tiny house shows with FYI… But yeah, googling “ITV America” is probably the easiest way.

Joe Fairless: Some fascinating insights along the way… One of them was just that last thing you said, “Good economy – real estate shows perform well; bad economy – comedy performs well.” In all economies, alcohol performs really well; alcohol and cigarettes. This has been a fascinating interview and discussion, from you going from College Station to New York, the career transitions, your advice for the Best Ever listeners – is it your passion? Are you willing to only eat what you kill? And talk to people, get other people’s opinion about the transition and your skillsets. It’s an exercise that I read in a book 80/20 Rule; I forget the author, but he has a similar exercise, and I love that. And then also knowing from very early on, with the whole baseball card example, when is it time to sell and make sure that you’re not left standing up when the music stops. So thanks so much for being on the show.

I hope you have a best ever day, and we’ll talk to you soon.

Brent Montgomery: Alright, you’re the best! Thank you!