Trump's Upset Hands Merger-Minded Sinclair a Coup With FCC Visit
(Bloomberg) -- Sinclair Broadcast Group Inc., a broadcaster eager for freedom from U.S. rules limiting mergers, lined up a Republican regulator for a company conference in Baltimore’s Four Seasons hotel days after the Nov. 8 election.
Ajit Pai’s trip from nearby Washington turned out to be a coup when Donald Trump’s surprise election win put Republicans in charge of the U.S. Federal Communications Commission. Now Sinclair had a soon-to-be FCC chairman on hand for a gathering of its executives and a meeting with its Executive Chairman David Smith, who has guided the Maryland-based broadcaster through explosive growth and wants more.
The gleaming harbor-front hotel, home to fare including a $32 crab cake sandwich and a $15 “Ulterior Motive" cocktail, offered a memorable perch for impressing Pai. Sinclair has tripled its holdings over the past decade to become the biggest U.S. broadcaster by number of outlets, with 173 stations that it owns or helps operate. It needs relief from FCC rules for more deals, such as a possible bid for the 42-station Tribune Media Co.
“They are actively courting and buttering him up," said Craig Aaron, president of the policy group Free Press that’s critical of Sinclair, saying the company has sidestepped U.S. rules limiting station ownership. “Clearly Sinclair believes that Ajit Pai is going to clear the way for them to do whatever kind of deals they want to do.”
An FCC spokesman said Pai’s trip was arranged before the election, and the chairman spoke to Sinclair’s managers about his views on the media marketplace and broadcasters’ role. Sinclair officials didn’t return repeated telephone calls for comment. The Nov. 16 encounter was noted on Pai’s appointments calendar released by the FCC after a Bloomberg News request under the Freedom of Information Act. The calendar was earlier obtained by Politico.
Sinclair executives have praised Pai, a Republican who was elevated by Trump to FCC chairman in January.
“We do expect this new FCC to tackle the ownership rules,” Christopher Ripley, Sinclair’s chief executive officer, told investors Feb. 22. “We’re very optimistic about this new FCC and the leadership of Ajit Pai. And in terms of what that could lead to on the consolidation side, we definitely anticipate that more consolidation will happen, in fact we think it’s a necessary activity.”
Pai spoke of his views on media ownership regulation at the FCC’s monthly meeting on March 23.
“In many cases the record reflects that there is no evidence to justify some of these rules,” Pai said. “There are synergies that are possible that our rules need to make sure we don’t prohibit preemptively.”
Pai said the agency was “reviewing the appropriate way forward” to deal with the rules.
Shares for Sinclair and other broadcasters have soared since the election amid expectations the Republican FCC will smile upon media mergers. The Russell 2000 Radio & TV Broadcasters Index, which has Sinclair, Nexstar Media Group Inc. and the E.W. Scripps Co. as leading components, has increased 45 percent since the election, compared with a 10 percent rise in the broader Standard & Poor’s 500 index.
Sinclair is credited with pioneering an aggressive tactic to fuel its expansion from a single station in Baltimore in 1971. Under that strategy Sinclair runs programming on a neighboring station’s airwaves; the nearby station retains its own FCC license. The stations can share front-office costs, too.
Critics say those deals evade FCC restrictions on owning multiple stations in a town or city. For instance Pai’s Democratic predecessor, Tom Wheeler, in 2014 called the arrangements an “end-run around the one-to-a-market limitation.” Defenders, including Pai, say the arrangement helps cut costs, lets local stations afford news programming, and promotes station ownership by members of minority groups.
Today, Sinclair owns or controls two or even three stations in many cities, according to its annual filing to the Securities and Exchange Commission. In dozens of instances, one station’s license is owned by a third party that takes programming from Sinclair, or relies on Sinclair for ad sales and business-administration assistance.
In 2014, as the FCC under Democrats passed rules to restrict the sharing arrangements and perhaps even force divestitures, Pai took Sinclair’s side. He voted against the rules change and called the FCC’s action “the most unfortunate item I have encountered.” Congress and a court later killed the rules.
There are signs the chairman will again prove to be an ally. Broadcasters cite an avalanche of digital competition, and say they need to be freed from ownership restrictions to compete.
Already, Pai has single-handedly swept away a vestige of the "unfortunate" 2014 rule, using a terse Feb. 3 order to void guidance issued by his Democratic predecessor. That language told FCC lawyers to closely scrutinize newly proposed station-sharing arrangements.
The chairman also is expected to reverse a decision last year by FCC Democrats that changed a method of calculating the size of some TV stations’ audience. The action -- opposed by Pai -- moved broadcasters including Sinclair and Tribune close to a nationwide limit. The FCC appears ready to reverse itself this year, and to relax other ownership rules, too, Paul Gallant, an analyst with Cowen & Co., said in a March 8 research note.
Pai met with Sinclair another time before rising to become chairman, joining Smith, Ripley and journalist Armstrong Williams at the Arlington, Virginia office of News Channel 8, a Sinclair property. News reports of Pai’s appointment by Trump broke the next day.
The meeting included discussion by Williams of steps to spur minority ownership of TV stations, including defenses of the sharing methods, according to a disclosure filing. Williams in an interview said he co-owns two stations with Sinclair and wanted “to build a relationship with the chairman and his vision.”
Williams, an African-American, said he wants to expand his group of stations, and he felt Pai wants to encourage minority ownership.
“You can never lose by having a good relationship with the commissioners at the FCC,” he said.