Wall Street bought TV stations for $7M and sold them into the FCC auction for $74M

In 2016, the Federal Communications Commission held one of the most ambitious auctions ever attempted. For decades much of the electromagnetic spectrum — the airwaves carrying TV, radio and wireless signals — had been held by TV stations, while cell phones and other wireless technologies grew hungry for more of it. The plan: buy spectrum back from broadcasters and resell it to the wireless industry, with the design work led by a Nobel Prize-winning auction theorist.

The auction involved years of planning and enormous sums — and, inevitably, people trying to game the system. NPR's Planet Money told the story in 2020 under the title 'Hacking The Perfect Auction', describing Wall Street finding a tiny flaw in the Nobel laureate's design.

The clearest play belonged to a private equity firm that bought all eleven stations in the WBGN network for just over $7 million, then sold the flagship WBGN station into the auction for $20.1 million — and five stations in total for $73.9 million. NPR later clarified those figures on air, noting the audio had been updated to reflect that the whole network, not just the flagship, had been purchased.

The auction set station payouts by formula, and formulas create gaps between market price and rule price — the firm simply bought on one side and sold on the other.

Small-market stations nobody wanted as TV property were exactly the kind of assets the auction paid handsomely to retire.

The episode shows mechanism design is adversarial: the same rules that made the auction work for the public also told arbitrageurs where to strike.

Any mechanism that assigns big money by rule will be arbitrated by whoever reads the rule best — design for the player who games it, not the one who follows it.

The auction went ahead, and NPR revisited the episode in November 2020, clarifying on the record that the firm had bought all eleven WBGN-network stations for just over $7 million and sold five for $73.9 million. The episode stands as the case study of Wall Street finding 'a tiny flaw' in a Nobel-winning design.