Sinclair Broadcast reports massive profit as it ‘deconsolidated’ local sports networks from its books
Sinclair Broadcast Group said it earned $2.59 billion — yes, with a B — in the first quarter as it “deconsolidated” its local sports segment from its financial statements.
As a result of a March 1 corporate reorganization that included recapitalizing the debt of Diamond Sports Group, which holds the local sports networks, and raising additional capital, Sinclair Broadcast reported a $3.4 billion pre-tax, non-cash gain “on the disposition of assets.”
Hunt Valley-based Sinclair wrote off $4.2 billion of the value of the sports networks in the third quarter of 2020 after the pandemic decimated live sports programming not a year after Sinclair bought the networks for $10.6 billion.
Diamond Sports has been removed from Sinclair’s financial statements, but the company continues to own and remains committed to the networks, Chris Ripley, Sinclair’s president and CEO, said during a conference call.
“While on the surface this may seem to add complexity, we believe it will result in a more simplified, transparent, and focused valuation and credit story for our various stakeholders,” Ripley said.
The $2.59 billion profit for the three months ended March 31 compares with a net loss of $12 million in the first quarter of 2021. Earnings were $35.39 per share compared with a loss of 16 cents per share a year earlier.
Excluding the adjustments, Sinclair said it would have earned $27 million.
The Diamond Sports Group restructuring “follows a tumultuous period of distribution challenges and refinancings,” wrote Steven Cahall, a senior equity analyst for Wells Fargo Securities, in a report Wednesday.
The report noted that Sinclair has been transforming itself, by digesting the regional sports networks, acquired in August 2019, and by taking on an economic interest in Bally’s. Sinclair formed a partnership with the casino operator at the end of 2020 to create an interactive gambling experience with its regional sports networks and television stations.
“This quarter could be an important stepping stone for Sinclair as the constant drone of Diamond challenges fades away with the deconsolidation,” Cahall said. “We think the change is likely to prove a net benefit to the [Sinclair] equity story as Diamond’s problems have been a persistent overhang and distracted from the trends at Broadcast.”
The broadcaster said revenue decreased 14.8% to $1.29 billion in the three months ended March 31, compared with $1.5 billion in the first three months of 2021. The quarterly revenue fell short of the $1.53 billion expected by Wall Street analysts.
But better-than-expected political advertising helped buoy its first quarter revenue, a sign that political ads will reach record levels this year.
“We believe this is a good indicator of how strong this year’s political cycle can be and gives us confidence that we can achieve a record amount of political advertising for a mid-term election year,” Ripley said.
During the conference call, executives were asked whether they see signs that inflation or concerns about an economic slowdown could impact advertisers’ spending and buying decisions.
“We are watching for inflation but we haven’t seen results of softening at this point,” said Robert D. Weisbord, Sinclair’s chief operating officer and president of broadcast. “But we are factoring in what we are looking at to ensure we are covering our bases in case inflation sets in.”
In addition to deconsolidating Diamond Sports, Sinclair sold assets of Ring of Honor wresting promotion in May to sports executive Tony Khan, founder of Jacksonville-based All Elite Wrestling and co-owner of the NFL’s Jacksonville Jaguars. The sale include the wrestling promotion’s video library dating back to 2002, brand assets, intellectual property and production equipment.
Sinclair also said Wednesday it has nominated Dr. Ben Carson, former U.S. presidential candidate and former secretary of the U.S. Department of Housing and Urban Development, for election to the company’s board of directors as its seeks to add diversity to its leadership.
Shares of Sinclair’s stock closed Wednesday at $24.15 each, up about 3%.
