Sinclair Broadcast Group took a loss on the value of its regional sports networks for the second time since buying the package for $10.6 billion from The Walt Disney Co., this time writing off an additional $1 billion of its book value.
Sinclair’s subsidiary, Diamond Sports Group, took an impairment loss on the rebranded Bally Sports networks in the recent third quarter. Diamond, which owns the 19 networks, now reports financial results separately from Hunt Valley-based Sinclair as part of a deconsolidation earlier this year.
Diamond reported a loss Monday of $1.2 billion for the three months ending Sept. 30, citing a heavy loss of subscribers.
“Our Bally RSNs have been negatively impacted by elevated levels of subscriber erosion which we believe was influenced in part by shifting consumer behaviors,” the company said.
A more fragmented media entertainment landscape and the current economic environment have taken a toll, Diamond said.
At the height of the pandemic when national sports leagues canceled games and cut seasons short, Sinclair was forced to write off an even bigger chunk of the sports networks’ value. The TV station owner took a $4.2 billion charge to goodwill and intangible assets for the July-to-September period of 2020 when it lost $3.2 billion.
With the additional $1 billion written off this year, Sinclair has now written off nearly half of what it paid for the networks.
Chris Ripley, Sinclair’s president and CEO, did not rule out a sale of the sports networks during a conference call Monday with analysts, though he said no sale is in process. He said advisers from investment bank LionTree and Moelis are “talking to parties about deleveraging, strategic partnerships and things of that nature.”
The sports networks are expected to benefit from the company’s new sports streaming service, Ripley said. Bally Sports+, a direct-to-consumer streaming service that launched in September in 14 NBA and NHL markets and on Roku, offers untapped potential, he said.
“As market awareness builds and as more and more people that are outside the bundle come in and watch their favorite home teams, that should definitely make up for some of these losses that we’re taking,” Ripley said.
Strong early results have shown that revenue can be generated beyond subscriptions by adding gaming elements, e-commerce components and targeted ads, he said.
Already, 70% of customers kept the service after a free trial.
“We could not be more pleased with the performance of the product and user engagement,” Ripley said. “We have seen encouraging demand for the service despite relatively low product awareness in the marketplace.”
A big advantage of Sinclair’s streaming strategy is that the single biggest cost — payments to teams for sports rights — already has been paid, he said.
Diamond said the continued loss of subscribers and other factors are expected to hurt future projected revenues, leading to the networks’ devaluation. Of the $1 billion impairment charge, $723 million had to do with subscriber loss.
During the quarter, total revenue decreased 10% to $684 million. Revenue from distribution, generated through fees paid for the right to distribute the Bally sports networks, fell 11%, to $565 million, largely due to high subscriber erosion.
That trend is expected to continue in the current quarter, through Dec. 31, the company said.