Sinclair CEO Chris Ripley “Very Bullish” On Regional Sports Streaming, Vows “Soft Launch” In Spring; Battered Stock Drops On Soft Q4 Numbers

Undaunted by headwinds, Sinclair Broadcast Group CEO Chris Ripley reaffirmed plans to launch direct-to-consumer streaming versions of the regional sports networks controlled by the company.

“We think it’s going to do great things in the future,” he said of Diamond Sports Group, the consortium-backed entity that operates the 21 Bally’s Regional Sports Networks. “We’re very bullish on that position.” Before rebranding, the networks were run by Fox before the Disney-Fox deal required them to be sold.

Ripley’s comments came during a conference call with Wall Street analysts to discuss  Sinclair’s fourth quarter results. The numbers undershot the Street’s expectations, mainly due to the relative absence of political advertising compared with a record 2020 as well as a cyberattack on the company. Sinclair swung to a loss of $1.18 per share, compared with earnings of $6.27 in the same quarter a year ago. Total revenue slipped 2% to $1.48 billion, missing analysts’ consensus forecast for $1.56 billion.

Sinclair’s stock dropped 6% on the results, to $25.34, mid-way through the trading day. It has shed 6% in 2022 to date and is well off its 52-week high of $39.60.

While Sinclair is the No. 2 owner of local TV stations in the U.S., it has attempted to diversify since having its planned acquisition of Tribune Media scuttled by regulators in 2018. (Nexstar leapfrogged Sinclair to become the top station group after it swooped in to buy Tribune in 2019.) Sinclair, which has gained experience in sports by owning the Tennis Channel and incubating digital outlet Stadium, spearheaded the $9.6 billion purchase of the former Fox RSNs in 2019. The following year, it had to take a $4.2 billion writedown on due to the effects of Covid on the live sports sector.

In addition to the pandemic, Diamond has been hit with other major challenges, among them tensions with numerous pay-TV operators as well as Major League Baseball. With the outsized importance baseball to the RSNs, tensions have spilled into public view in recent months. Friction has also played out more broadly in the sports media arena as the traditional pay-TV model gradually gives way to streaming. RSNs, a product of the pay-TV bundle, face an uphill battle to replicate their vastly profitable history in the streaming era. For one thing, leagues are taking a closer look at determining their own path with streaming rights, as opposed to allowing teams and regional networks to control them, as was the case when RSNs dominated the scene.

Ripley last year expressed confidence in being able to launch a direct-to-consumer streaming version of the Bally’s networks in the first half of 2022. MLB Commissioner Rob Manfred has expressed reservations and lately has been preoccupied with efforts to resolve an ongoing lockout with players, which threatens the on-time start of the 2022 season. In an appearance last October at the CAA World Congress of Sports, Manfred laid down the gauntlet. ““We’ve been very clear with them from the beginning that we see both those sets of rights as extraordinarily valuable to baseball, and we’re not just going to throw them in to help Sinclair out,” he said. One concerns for MLB has been the financial state of Diamond, which struggled out of the gate.

Last week, Sinclair announced it would loan the sports entity $635 million. The deal would give Sinclair more shares in the entity, whose backers also include private equity as well as Byron Allen’s Entertainment Studios.

“We’re excited by the transaction that was announced for Bally’s to reduce its outstanding shares, and that means that our implied ownership would go up in a company that we love,” Ripley said during the earnings call.

Ripley was asked by an analyst if the deal would improve Diamond’s finances enough to mollify MLB. “I do think generally this transaction and the amount of liquidity that’s going into Diamond does answer a lot of questions for people in the ecosystem,” the CEO replied. “It’s a very favorable outcome and puts Diamond in a very favorable financial position for years to come.”

Assuming MLB teams take the field this spring, Ripley said the plan would be to execute a “soft launch” of a DTC streaming offering in the second quarter, with five teams on board to participate.

“We’re been steadily and consistently adding teams on the MLB side, the most recent of which was in January,” he said. “We have had success over the past two years in trying to gain rights from MLB teams.” The company also set a one-year deal with the NBA last month giving it streaming rights in local markets for 16 teams.

Pricing, of course, is a major consideration. RSNs have long been bundled into cable and satellite packages. As WarnerMedia, Paramount Global and other traditional media players have demonstrated, wholesale pricing does not always directly translate to what streaming customers are asked to pay. Contracts for traditional distribution have historically contained “most-favored nation” clauses requiring pricing to remain firm (thus, HBO Now and its successor, HBO Max, long were locked into a $15-a-month retail price point).

Ripley didn’t directly address pricing on the call, but has indicated a belief that many subscribers would sign up regardless of price, which could easily surpass $20 a month.

Meanwhile, Sinclair also faces a renewal deadline this year with Charter, the No. 2 U.S. cable operator, with that agreement encompassing local stations as well as cable networks.

Ripley did not offer any comment on talks with Charter, but did say execs “continue to have confidence” in reaching terms with Dish Network. Dish dropped the Bally’s nets before they officially changed hands, so they have been dark on Dish for more than two years. Despite his optimism, Ripley also implied a carriage deal wasn’t make-or-break. “They don’t have a bundled offering and they’re also very rural, so they’re outside the fan zones that care the most about these teams,” he said.

Internet-delivered pay-TV packages, which tend to be highly price-sensitive when programmers ask for fee increases, have proven nettlesome for all RSN operators. While some fence-mending has occurred with some companies lately, YouTube TV and Hulu + Live TV remain at odds with Sinclair over the Bally’s nets, which have been offline since fall 2020.

While Ripley said the company remains in “active dialogues” with those distributors, its financial guidance for 2022 “does not reflect any additional carriage from any of those players.”