Sinclair, Bally’s Place Big Bets on Each Other

The New York Post reported Wednesday evening that Sinclair Broadcast Group (SBGI) sold the 10-year naming rights to 21 of the regional sports networks it acquired from Disney to Bally’s Corp. for $85 million. The erstwhile Fox Sports-branded cable channels will be renamed Bally Sports. As part of the deal, Sinclair will also receive warrants to purchase a 14.9% stake in the publicly traded gaming operator and additional warrants and options to purchase 15% more in the future (10% based on the achievement of various performance metrics, 5% at a pre-set price after four years). Sara Slane (founder, Slane Advisory), who has consulted for Sinclair, said the deal makes a lot of sense on both sides. In addition to securing the naming rights revenue, Sinclair gains “the chance to leverage the [sports betting] opportunity across their RSNs and local TV stations” (think: digital integration, gamification). The partnership gives Bally’s a platform “that should supercharge its marketing and advertising efforts,” she said.

Chris Grove was less enthusiastic about the tie-up. “It’s not clear how the configuration [between the two companies] generates a top-tier sports betting operator,” said the Eilers & Krejcik Gaming partner, who remains unconvinced of the “value and viability of the Bally’s brand in a sports gambling marketplace where the audience skews younger,” adding that it’s yet to be proven that RSNs “are an effective or efficient marketing channel.” (Sky Bet, which owns almost all the soccer rights in the soccer-obsessed U.K., is a unique exception in a much different market.)

Our Take: In Grove’s eyes, Sinclair and Bally’s are making equally large bets on each other. For Sinclair the risk is that “the brand won’t succeed in a crowded and competitive marketplace. And if the brand doesn’t work, then the equity [Sinclair] got as a big chunk of their compensation doesn’t have a lot of value,” he said. The deal’s 10-year term means if the brand fails, Sinclair is almost assured to miss out on the sports betting land grab in the U.S.

In a separate transaction, Bally’s announced on Wednesday that it had also acquired Bet.Works for $125 million (half of which will be paid in stock). The wholesale acquisition and planned integration of an independent platform provider only adds to the execution risk associated with the partnership. Rolling up brick-and-mortar casino properties is very different from owning and operating a national online sports gambling brand.

In theory, the non-exclusive nature of the Bally’s deal gives Sinclair the opportunity to guarantee themselves some gaming-related revenues above and beyond the $85 million naming rights fee. But it remains unclear if competing gaming operators will pay meaningful amounts of money to advertise on a Bally Sports RSN that has Bally’s sports betting product tightly integrated into the broadcast. Slane is convinced they will. “Any opportunity to not cede ground on an RSN, [competitors] are going to take advantage of,” she said.

For Bally’s, there’s opportunity risk in tying its online sports betting future to a predominantly linear player for the next decade. The company has also made significant cash and equity commitments to Sinclair without evidence that RSNs can convert viewers into sports bettors. As Grove said, “It’s possible integration on a series of RSNs will not produce any customer conversion or loyalty above and beyond what could have been achieved through advertising.” Remember, the linear television audience skews significantly older than the average age of a sports bettor. Daily fantasy sports, paid media (think: Google PPC), affiliate marketing and radio sponsorship are all examples of proven customer acquisition channels.

The public markets seem to like the Sinclair-Bally’s marriage better than Grove does. Bally’s Corp. saw its stock pop +21% on Thursday. Grove explained that investors are gravitating towards the company because “it [now] checks all the boxes. It’s a retail operator with market access in a reasonable number of states. It’s in control of a big chunk of its tech stack. And it’s gotten to the level of its peers in terms of securing a significant sports media deal.” Sinclair was considered among the last of the coveted media partners without a dance partner, due to the number of games on their channels and the company’s immense reach. In addition to its collective of regional sports networks, the Tennis Channel and Stadium, the company owns or operates another 190 local broadcast stations.

SBGI was up 6% on the day too. Perhaps that shouldn’t be a surprise. “If the markets liked the deal on the Bally’s side, they should like it on the Sinclair side given the equity component,” Grove said.

Partnerships between gaming operators and media companies have become commonplace since the Professional and Amateur Sports Protection Act was struck down back in May of 2018. But Sinclair becomes just the third media company to take ownership in a sport betting partner (joining Fox/Flutter and NBC/PointsBet). While Fox and NBC took initial stakes of less than 5% (presumably in an effort to avoid regulatory oversight in Nevada), Sinclair received triple as much equity up front. “Because Sinclair is exercising their equity through warrants and options,” says Slane, “they’re not subject to [any additional] licensing requirements.”

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