Sinclair Broadcast Group edged Wall Street analysts’ estimate for revenue in the third quarter, reporting $1.54 billion as the acquisition of 22 formerly Fox-owned regional sports networks hit the balance sheet.
The revenue number rose 37% thanks to the RSNs, but the deal also proved problematic given the timing of COVID-19 and provided a drag on the bottom line. The company said Wednesday that operating losses for the quarter reached $4.2 billion, but after an impairment charge and other adjustments, operating income of $61 million fell $147 million from the third quarter of 2019.
Sinclair, which owns the second-largest portfolio of local TV stations in the U.S., dramatically expanded its sports network holdings in 2019. It led an investment group including private equity firms and Byron Allen in buying the Fox RSNs and participated in the acquisition of the YES network in New York and teamed with the Chicago Cubs on the Marquee network in Chicago. The $71.3 billion Disney-Fox deal saw the RSNs move briefly to Disney, but regulators insisted on them being sold off in order for approval to be given the the main transaction.
Even before live sports went into limbo due to COVID-19, the economics of RSNs were becoming less advantageous than they were when the network’s model emerged a generation ago. The RSNs went dark on Dish Network last year and then on both YouTube and Hulu, which represent about 10% of the distribution footprint for the RSNs, during the third quarter. The networks continue to throw off significant cash flow when teams are able to compete, but carriage deals have become more fraught as cord-cutting continues and digital alternatives multiply.
CEO Chris Ripley defended the company’s strategic shift several times during a conference call with analysts.
“We fundamentally believe that sports rights will be worth more in the future than they are today and that this is a growth industry. It needs to grow, it needs to change,” he said. After going through a “cash flow valley” due to COVID-19, he added, “We intend on reinventing the RSNs around gamification, around community-based fandom and around direct-to-consumer. That’s going to be, we think, incredibly exciting and rewarding for Sinclair.”