Trump’s Meddling in Sinclair Deal Puts FCC in Tight Spot
(Bloomberg Opinion) -- As Ronald Reagan might have put it, there he goes again.
It was about 8 p.m. Tuesday when President Donald Trump posted this tweet. It came right after his post suggesting that the U.S. and the European Union drop all “Tariffs, Barriers and Subsidies,” and about an hour before he tweeted about the “Rigged Witch Hunt” again.
It caught my attention because it is the kind of Trump tweet that I find most troubling. Just as he has done with the U.S. Justice Department’s antitrust division, Trump was injecting himself into a regulatory proceeding in an utterly inappropriate way. In so doing, he put the head of the Federal Communications Commission, Ajit Pai, in an impossible spot, while causing people to question whether the rule of law still matters in this government.
Do you think I’m exaggerating — that maybe I’m falling prey to the dreaded Trump Derangement Syndrome? Let’s look a little closer.
In May 2017 — five months into Trump’s presidency — Sinclair Broadcast Group Inc. announced that it planned to buy Tribune Media Co. for $3.9 billion. Sinclair, the largest broadcaster in the country, is as pro-Trump as any media company in the U.S. — Fox included. During the campaign, it had cut a deal with the president’s son-in-law, Jared Kushner, that gave its stations access to Trump in return for a promise that it would run interviews with the candidate without commentary.
After Trump became president, the company hired one of his aides, Boris Epshteyn, to be its chief political commentator. And it was well-known for its practice of sending pro-Trump commentary to its anchors across the country, to be read during newscasts. The most memorable — and controversial — such commentary came in April, when Sinclair’s anchors, at the behest of their corporate bosses, were forced to denounce “fake news” promoted by members of the media who “use their platforms to push their own personal bias and agenda to control ‘exactly what people think.’”
Sinclair’s 192 stations reached about 40 percent of the country. If it were able to add Tribune’s 42 stations, it would broaden its footprint to some 72 percent of the U.S., including such major markets as New York, Chicago and Los Angeles, which Sinclair has yet to penetrate. Needless to say, the thought of this happening made the president happy.
Meanwhile, over at the FCC, it appeared that Pai, who had been nominated to one of the Republican seats on the commission by President Barack Obama, and then promoted to chairman by Trump, was moving heaven and earth to make the Sinclair deal possible. You see, a Sinclair-Tribune tie-up would violate the FCC’s ownership rules because the combined companies would reach far more than the 39 percent of U.S. homes than allowed under federal regulations.
Pai then revived an old regulation called the “UHF discount,” which allowed a UHF station to count only half the households within its reach. This brought Sinclair much closer to the needed 39 percent.
Although Pai described the change as necessary to allow broadcasters to compete with digital media companies that didn’t face the same regulatory burdens, his critics immediately connected the looser rule with the Sinclair deal. “FCC Wants to Ease Rules to Benefit Broadcast Giant Sinclair,” read the headline of a story in Wired magazine. Jessica Rosenworcel, the only Democrat on the commission, was quoted in the article saying, “I think it has reached a point where all our media-policy decisions seem to be custom built for this one company.”
Pai’s defenders — and he has plenty of them, because he’s been an inside-the-beltway conservative for two decades — said he was anything but a Trump lackey, and would never stoop to bend regulatory policy to benefit a single company. In another article, Wired called him a “ruthless conservative ideologue,” with his allies portraying him as simply carrying out the conservative agenda. One of the first things he did as chairman was roll back the net neutrality rules that had been installed by his predecessor, Tom Wheeler. Given that deregulation was something he believed in, it made sense that he would also want to pare back outmoded broadcast ownership limits.
Consumer groups like Public Knowledge quickly sued the FCC over the loosened rules, which had the effect of delaying the Sinclair-Tribune merger — though the company’s chief executive, Christopher Ripley, routinely expressed confidence that it would be approved.
In the meantime, FCC staff members began to look at the details of the deal, and they didn’t like what they saw. Even with the loosened ownership rules, Sinclair needed to shed three stations to get under the 39 percent bar. It appeared to the staff that the transactions it proposed to spin off those three stations were shams. According to the FCC, Sinclair planned, for example, to transfer Tribune’s Chicago station, WGN
to an individual (Steven Fader) with no prior experience in broadcasting who currently serves as CEO of a company in which Sinclair’s executive chairman has a controlling interest. Moreover, Sinclair would have owned most of WGN-TV’s assets, and pursuant to a number of agreements, would have been responsible for many aspects of the station’s operation. Finally, Fader would have purchased WGN-TV at a price that appeared to be significantly below market value, and Sinclair would have had an option to buy back the station in the future.
Wheeler told me that when the FCC staff investigates a proposed deal, the chairman is kept apprised every step of the way. He also said that the chairman has a great deal of leeway to decide how the commission should react to the staff’s findings. Thus, what Pai did upon learning about the alleged sham transactions would suggest that his defenders had been right all along — that he had been acting out of principle, however misguided his critics might think those principles are.
He called for a hearing designation order, which requires Sinclair and Tribune “to come before an F.C.C. Administrative Law Judge to prove why the transaction is in the public interest and compliant with agency rules,” as Wheeler put it in a recent blog post. The order accused Sinclair of “misrepresentation” and “lack of candor,” among other things. Companies facing this kind of FCC review usually decide to walk away.
And then came Trump’s tweet.
Presumably encouraged by the president’s full-throated support, Sinclair decided that it would not abandon the merger, and would instead go through with the hearing, hoping that the commission would ultimately follow Trump’s lead and approve the deal. (It has already withdrawn the three questionable transactions.)
The tweet puts Pai, and the FCC, in a terrible spot, however. If he sticks to his guns, he will be upholding the findings of the staff, not to mention the rule of law and the integrity of the agency. He will have punished a bad actor for acting badly. But he will almost certainly draw the ire of his volatile, erratic boss, who just happens to be the president of the United States.
But if he approves the deal — perhaps using the withdrawn transactions as his rationale — it will be viewed as a craven act aimed at pleasing a man who cares not a whit about proper regulatory procedure and the rule of law. To Trump, the levers of government are only useful insofar as they can reward his friends and punish his enemies. If Pai lets the Sinclair deal go through, he’ll be signaling that is willing to abandon his conservative principles for a president who has no principles.
Another agency will have lost its credibility in the Trump era. I hope that doesn’t happen. But I fear that it will.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is co-author of “Indentured: The Inside Story of the Rebellion Against the NCAA.”
©2018 Bloomberg L.P.