Sinclair Broadcast Group is selling Chicago’s WGN-TV to a Baltimore County auto dealer but would remain in control of the station in what critics say is a bid to skirt ownership limits and win federal regulatory approval for its proposed $3.9 billion acquisition of Tribune Media.
Under the terms of the $60 million station sale, filed Wednesday with the Federal Communications Commission, Hunt Valley-based Sinclair would provide everything from programming to advertising sales to the buyer, essentially running WGN through a services agreement.
The licensee of WGN would be a newly formed company headed by Steven Fader, a longtime business associate of Sinclair Executive Chairman David Smith. Sinclair will have an option to buy back the station for the same price, subject to adjustments, within eight years.
Fader is CEO of Atlantic Automotive Corp., a Towson-based auto dealership group that does business as MileOne Autogroup. Smith holds a controlling interest in Atlantic Automotive, according to Sinclair financial statements.
Fader, also chairman and co-founder of private equity firm Atlantic Capital Group, could not be reached for comment Thursday.
The services agreement puts Sinclair in charge of advertising sales and gives it the right to provide local news and other programming to WGN. Sinclair would keep 30 percent of all ad sales and receive a $5.4 million monthly service fee for operating the station during the first year, with annual increases and performance bonuses.
Sinclair has long used such agreements to operate stations it couldn’t own under FCC rules, and executives defended the practice Thursday.
“These agreements are structured to be consistent with similar agreements that the FCC has approved for over 10 years,” said Rebecca Hanson, senior vice president of policy for Sinclair.
Sinclair agreed to buy Chicago-based Tribune Media in May, creating what would be the largest ownership group in the U.S., with 233 TV stations, before any required divestitures. The deal has been facilitated by the FCC’s easing of ownership restrictions last year, but the combined company would still exceed a 39 percent cap in national audience reach.
Tribune Media was created when the Tribune Co. split off its newspapers, including The Baltimore Sun, into Tribune Publishing in 2014. Tribune Publishing changed its name to tronc in 2016.
Sinclair announced last week that it would sell Tribune stations WGN and WPIX-TV in New York, as well as stations in nine other markets, to get under the ownership cap.
On Wednesday, Sinclair filed a similar application to sell WPIX to Cunningham Broadcasting Corp. for $15 million, with an option to buy it back, and an agreement to provide advertising sales and programming to the station.
Cunningham Broadcasting is owned by the estate of Carolyn Smith, the mother of the Sinclair chairman.
It remains to be seen whether such an ownership workaround passes muster with federal regulators, including the FCC and the Department of Justice.
The proposed merger has met with opposition from liberal groups and media advocates over concerns that Sinclair’s right-leaning editorial views would unduly influence local news at Tribune Media’s 42 TV stations. Others have objected on the basis of media concentration.
The Coalition to Save Local Media, a broad range of industry and advocacy groups opposed to the Sinclair-Tribune merger, issued a statement this week calling out the station sales plan as “smoke and mirrors.”
“Instead of fully divesting stations, Sinclair admits it will skirt the rules through side deals with prospective buyers allowing Sinclair to continue to manage the stations and giving it the ability to repurchase those stations at a later time,” the coalition said.
Conservative news outlet Newsmax Media filed an objection to the divestiture plan with the FCC on Wednesday, calling the proposed sale of WGN and WPIX a “sham” that will give Sinclair the ability to manage the stations after they have been acquired by third parties.
“The FCC must send a clear message to Sinclair that this type of game-playing will not be tolerated,” Newsmax said in the filing.
The Sinclair-Tribune deal has been facilitated by an easing of TV station ownership restrictions under President Donald Trump and his chosen FCC chairman, Ajit Pai. The FCC voted in April to reinstate the so-called UHF discount, a technologically obsolete regulation that helped reduce coverage calculations.
In November, the FCC changed ownership rules, eliminating the requirement that a market have at least eight independently owned TV stations before a single owner can have two stations. It also allowed case-by-case exceptions to the prohibition of owning two of the top four-rated stations in a market, if the owner could prove it was in the public interest.
The FCC inspector general is investigating whether Pai improperly pushed for the rule changes to benefit Sinclair, according to news reports.
The broadcast group employed both of those ownership rule changes in an FCC filing last week, asking for consent to own two of the top four-rated stations in three markets in North Carolina, Pennsylvania and Indiana, for example.
During an earnings call Wednesday, Sinclair executives said they expected to close on the Tribune acquisition in the second quarter.
“We still don’t have technical approval from either the DOJ or the FCC, but we feel we’re getting close,” Sinclair CEO and President Chris Ripley said.