UPDATE with closing stock price. Sinclair Broadcast Group stock hit the stratosphere on Monday — bucking the day’s downward trend on Wall Street to gain nearly 35% — as the company’s CEO touted the company’s deal to acquire the former Fox regional sports networks.
Shares in Sinclair rocketed to an all-time high of $60.48 today, on 15 times their normal trading volume. The broader markets closed down slightly amid trade and interest-rate anxiety.
The $10.6 billion acquisition from Disney gives Sinclair a key weapon in the streaming wars, CEO Chris Ripley argued during a conference call with analysts to discuss the deal, which was confirmed on Friday. Deadline and other outlets had reported in recent months that Sinclair was in lead position during the auction. Disney was obligated to sell the nationwide string of Fox RSNs as part of an agreement with the U.S. Department of Justice, which stipulated the sale as a condition of its approval of the $71.3 billion acquisition of most of 21st Century Fox. The Disney-Fox deal closed in March.
The RSN deal, in which Byron Allen is also a participant, gives Sinclair rights to dozens of pro sports teams’ games in 19 of the top 25 markets in the U.S. YES, the flagship of the RSN portfolio, was sold separately to the New York Yankees and Amazon in a deal that is still pending. Sinclair also has a position in YES. Taken together, the value of the 22 RSNs came up a bit short of the $15 billion to $20 billion range initially set forth by analysts.
“We see tremendous opportunity for the RSNs in the continued adoption of digital streaming as well as the nascent legalized sports betting space,” Ripley said during a conference call with analysts to discuss the transaction.
On a pro forma basis, the deal will more than double Sinclair’s annual revenue to $6.7 billion, and triple its EBITDA to $900 million, Ripley said.
He described the networks as offering an “unmatched portfolio of sports media rights.” Such rights are expensive, of course — and their cost has capsized one RSN in Houston and done damage to another in LA due to disputes with pay-TV operators who balked at paying carriage fees hiked to cover the cost of rights.
Nevertheless, Ripley argued that the staggered expiration of rights across the networks “materially de-risks the business.” Sinclair and the Chicago Cubs recently announced the formation of a new RSN that will begin airing Cubs games in 2020.
Ripley declined to get into details about carriage terms, but he emphasized that the company did “significant due diligence” on the distribution aspect of the deal. He said the company determined that the outlook for RSN distribution is “very similar” to that of the company’s local broadcast stations. “When we looked at the situation, we got comfortable with the strength of the product here and our relationships with the MVPDs and our ability to navigate through those renewals.”
In terms of rights agreements between individual RSNs and the teams whose games they carry, Ripley said the weighted average term of those deals is 11 years. “Fox did an excellent job of positioning the portfolio to maximize renewals.”
Sinclair missed out on an earlier M&A opportunity when regulators scotched its planned purchase of Tribune Media in the summer of 2018. Nexstar has a deal pending for Tribune, which would catapult it beyond Sinclair to the No. 1 spot among station owners.