Sinclair Writes Down Its Sports Networks by $4.23 Billion

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Sinclair Broadcast Group Inc. wrote down the value of its regional sports networks by $4.23 billion, an admission that it grossly overpaid for cable channels hobbled by cord cutting and shrinking subscriber revenue.

Sinclair paid $9.6 billion in August 2019 for 21 regional sports channels that were once part of the Fox empire. In a quarterly earnings statement Wednesday, the broadcaster said the value of those assets have shrunk by almost half.

Profit from those sports business may tumble 30% this year, according to Geetha Ranganathan, an analyst at Bloomberg Intelligence. Sinclair faces pressure because it has $12.5 billion in debt and has failed to secure contracts from Hulu and YouTube to carry the channels. The broadcaster bought the networks from Walt Disney Co., which had agreed to sell the properties as part of its takeover of 21st Century Fox’s entertainment assets.

“The outlook for Sinclair’s sports segment looks murky given a $4.2 billion impairment charge, elevated levels of cord cutting and recent carriage blackouts,” Ranganathan said.

Sinclair shares fell as much as 9% to $17.88 in New York. Shares of the company, based in Hunt Valley, Maryland, had fallen 41% this year through Tuesday’s close.

Online Deals

Sinclair took the writedown after failing to clinch deals to offer its sports programming on the two online services. Hulu, which is controlled by Disney, recently dropped the channels, as did YouTube TV. The two made up about 10% of subscriber revenue for Sinclair’s sports segment in September. The channels have also been unavailable to Dish Network Corp. subscribers for over a year.

Because the pandemic pushed back the start of the NBA and NHL seasons, there are currently no regular season games on Sinclair’s sports channels, making it easier for distributors to drop them.

“We strongly believe that the RSN model maintains significant long-term value and will continue to do so as live sports return and establish a sense of normalcy,” the company said.

On an earnings call Wednesday, Chief Executive Officer Chris Ripley said subscriber losses for the sports channels have been “higher than what we expected.” But he said the company sees future growth for the networks outside the traditional pay-TV business, including through legalized sports betting and a direct-to-consumer offering that would bypass cable TV distributors.

The company also said it has given the owners of MLB’s Kansas City Royals an ownership stake in the Fox Sports Kansas City as part of a recent renegotiation of the rights fees, and is willing to negotiate repurchases or new terms with bondholders of its sports channels division.

We’ll Listen

“We’re not out there soliciting any sort of response from any of our various stakeholders,” he said. “But of course, if they have proposals to put forward, we listen to those.”

The sour results for the sports division overshadowed Sinclair’s traditional broadcast TV business, which benefited from a surge of political ad revenue this year tied to the election, topping the old record by 35%.

Excluding political ads, the company’s ad revenue trends are improving but “continue to face challenges due to the pandemic,” Ripley said. Many advertisers have curtailed spending until they get more clarity on their business outlook during the Covid-19 outbreak.

©2020 Bloomberg L.P.

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