Sinclair Broadcast Group’s stock soared nearly 35% Monday as the transformative nature of its $10.6 billion deal to become the nation's largest owner of regional sports networks became apparent.
The deal, announced Friday, will more than double the Hunt Valley-based broadcaster’s revenue and enable it to attract even more viewers with the help of streaming services and the growth of legalized sports betting, executives said Monday.
Sinclair will partner with the owner of The Weather Channel to buy 21 regional sports networks and Fox College Sports from The Walt Disney Co. Disney acquired the networks in its purchase of 21st Century Fox’s entertainment business and was required to spin off the sports portfolio to secure antitrust approval.
Sinclair’s stock spiked 34.5% percent Monday to close at $60.48 a share.
Marci Ryvicker, an analyst with Wolfe Research, raised the target price for the second time since Friday, to $82 per share from $63, after having raised it Friday from $49.
Analyst Tuna Amobi called the acquisition “arguably the most transformative deal in [Sinclair’s] history.”
Sinclair grew from Baltimore’s WBFF Fox45 in 1971 into the nation’s largest owner of broadcast television stations.
“This transaction allows us to expand our focus into the other most desirable live programming genre, sports,” Sinclair President and CEO Chris Ripley said Monday during a conference call with investors.
Sinclair also owns professional wrestling’s Ring of Honor and acquired the Tennis Channel in 2016. The broadcaster said in January that it will launch a regional sports network with the Chicago Cubs. Sinclair also owns Stadium, a joint venture focused on college sports and professional highlights, and offers high school sports programming.
The Fox sports networks acquisition will put Sinclair’s local news or premium live sports into 19 of the nation’s top 25 markets and more than double its annual revenue to $6.7 billion from $2.8 billion.
“We see tremendous opportunity for the [regional sports networks] in the continued adoption of digital streaming, as well as the nascent but fast growing legalized sports betting space,” Ripley said. “There are also opportunities for increased advertising, cross promotion cooperation, enhanced non-game programming and remote production.”
Sports viewership outperforms other genres, Ripley said, because of the teams’ loyal fan bases. The networks, which have 74 million subscribers, come with long-term exclusive sports media rights deals, typically 11 years, with 42 professional baseball, basketball and hockey teams.
The portfolio excludes the YES Network, which is being acquired separately by the New York Yankees with Sinclair as a minority partner, according to a report in The Wall Street Journal.
The company said it believes legalized sports betting — expected to grow into a $5 billion industry over the next six years — will attract fans and new advertisers to the regional networks.
Seven states have legalized sports wagering, including Delaware, Pennsylvania, West Virginia and New Jersey, all of which did so after the U.S. Supreme Court struck down a congressional ban in May 2018, though Maryland lawmakers failed to take up measures to allow sports betting in the recent legislative session. Voters would need to approve such a move by referendum.
Even as regional sports networks lose viewers as more pay-TV customers cut the cord, Sinclair sees a big future for the networks in digital streaming. The networks have been available through what’s known in the industry as multichannel video programming distributors. Such “MVPDs” offer TV channels through the internet, generating nearly 5 million new subscribers on DirecTV Now, YouTube TV, Hulu, Sling and others since 2016.
“We see the digital distributors, the streamers, being the next frontier for distribution of these games,” Ripley said. “We’re already doing a significant amount of streaming business with the virtual MVPDs, but we’d love to expand our distribution to as many platforms as possible.”
Sinclair’s “portfolio of sports assets should be well anchored by the [regional sports networks], providing a unique package of sports media rights with 42 teams in several major U.S. markets,” wrote Amobi, an an equity analyst at CRFA Research, in a report Monday.
To acquire the sports networks, Sinclair is forming a wholly owned subsidiary, Diamond Sports Group LLC, with Byron Allen, founder, chairman, and CEO of Entertainment Studios. Allen, whose Los Angeles-based firm bought the Weather Channel last year, will become an equity and content partner in Diamond.
Sinclair expects the deal, which requires U.S. Justice Department approval, to close in the third quarter.
Disney, which acquired 21st Century Fox’s entertainment business for $71 billion in March, had agreed to sell the sports networks within 90 days because it owns ESPN. (Fox is keeping Fox News, Fox Business, Fox Sports and the Fox TV network.)