Sinclair Broadcast Group reported a massive loss for the quarter ending Sept. 30 as it wrote off a chunk of the value of the regional sports networks it bought last year for $10.6 billion due to the coronavirus pandemic.
The Hunt Valley-based broadcaster announced Wednesday that it lost $3.2 billion for the July-to-September period as the company took a $4.2 billion charge to goodwill and intangible assets.
A year earlier, Sinclair lost $60 million. On a per-share basis, the company lost $42.66 a share, compared with a 65 cent loss a year ago.
The hefty write-off meant Sinclair needed to reassess the value of the 21 regional sports networks and Fox College Sports it acquired in August 2019 from The Walt Disney Co. The move put Sinclair, already the nation’s largest owner of broadcast television stations, heavily into sports programming.
The sports networks make up the largest collection of such channels in the market and include exclusive local rights to 42 professional baseball, basketball and hockey teams.
But COVID-19 delays and shutdowns of professional sports cut into that business and its distribution revenue declined due to a number of factors, including the recent loss of two distributors — YouTube and Hulu — that made up about 10% of September’s local sports distribution revenue.
“It’s pretty clear that they acquired a business that’s highly dependent on live sports, and that has been a business that has suffered tremendously in the COVID-19 shutdown," said Tuna N. Amobi, an analyst with CFRA Research. “The longer that shutdown continued, the more impact it started to have on the overall outlook for that acquisition. ... In hindsight, it looks like it’s, at best, somewhat ill-timed.”
Shares of Sinclair fell 7.9 percent Wednesday to close at $18.10 each.
But excluding those adjustments, the TV station owner reported that it would have earned $161 million.
Sinclair said its revenue jumped 37% to $1.5 billion compared with the third quarter of 2019. The gains were driven mostly by the sports networks and by higher political advertising revenue during the election season.
“Driven by stronger than expected political and sports advertising revenue, and stringent cost control measures during the pandemic, Sinclair’s results for the quarter, excluding the impairment, exceeded our expectations and guidance,” said Chris Ripley, Sinclair’s president and CEO.
Political revenues jumped to $109 million in the third quarter compared with $6 million in the third quarter of 2019 because of the presidential election. Advertising in the broadcast segment has continued to face challenges during the pandemic, but ad demand improved during the quarter, Ripley said. The pandemic and resulting economic woes also led to a higher rate of subscription losses, he said.
But he noted that the company has several initiatives in the works to drive growth. Sinclair plans to launch a new sports app by the start of the spring baseball season and will unveil The National Desk, a new headline news service, early next year.
The Evening Sun
In addition, the broadcaster is continuing to roll out NEXTGEN TV, a new television broadcast technology, to about 45 markets by the end of next year. Other growth drivers include Sinclair’s free streaming platform STIRR and legalized sports betting opportunities, Ripley said.
In addition to the $4.2 billion charge, Sinclair’s operating loss included $13 million in nonrecurring costs for transaction, COVID-19, legal, litigation, and regulatory expenses.
Amobi maintained a hold rating on Sinclair’s stock, noting the distribution challenges with the networks being dropped by YouTube and Hulu.
“Still, [Sinclair] reaffirmed its long-term positive view on the [regional sports networks] ... with potential upside in sports betting, ads and distribution, plus digital and direct-to-consumer,” Amobi said in a report Wednesday.
Despite the recent COVID-19 challenges and shutdowns and delays of professional sports seasons, Sinclair is betting on the future of sports network ownership, Ripley told analysts during a Wednesday call.
“We fundamentally believe that sports rights will be worth more in the future than they are today, that this is a growth industry,” Ripley said. “It needs to change, it needs to evolve. ... We intend on reinventing the [sports networks] around gamification, around community-based fandom and around direct-to-consumer. That’s going to be incredibly exciting and rewarding for Sinclair.”
The losses have not affected the company’s cash flow from operating activities or its debt covenants, the company said.