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It almost seems like Sinclair Broadcast Group, one of the largest owners of local TV stations (184 stations in some 86 markets) and the largest owner of regional sports networks (RSNs) in the United States, can’t catch a break.
As of Tuesday, the company was still dealing with a cybersecurity crisis, having been the victim of a ransomware attack on Oct. 17 that took much of its local programming off the air. Data had also been stolen from the company’s servers, though it wasn’t immediately clear what data was taken.
A source close to the situation said Tuesday afternoon that the company was almost back online and fully operational. “We were fortunate, a lot of companies that get hit like this lose a lot more than we did,” the source said, adding that Sinclair was “no stranger to difficult situations and challenges.”
Still, the hack forced the company to issue a disclosure to investors, with its full financial impact not yet known: “While the Company is focused on actively managing this security event, the event has caused — and may continue to cause — disruption to parts of the Company’s business, including certain aspects of its provision of local advertisements by its local broadcast stations on behalf of its customers.”
But as bad as it was, Tuesday’s ransomware attack may not have even been the most challenging day the company has had this month. The other strong contender is Oct. 12, when two top sports executives, NBA commissioner Adam Silver and MLB commissioner Rob Manfred, publicly criticized the company’s strategy in the RSNs business at the CAA World Congress of Sports conference.
Sinclair launched its RSN subsidiary Diamond Sports in 2019, building it around the former Fox Sports RSNs, which The Walt Disney Co. had to divest to secure its acquisition of the 21st Century Fox assets. It paid $10.6 billion for the channels.
Asked about the company onstage, Manfred noted that Sinclair doesn’t have all the digital rights to the MLB games it televises through its RSNs, and it doesn’t have the sports betting rights either.
“We’ve been very clear with them from the beginning that we see both those sets of rights as extraordinarily valuable to baseball, and we’re not just going to throw them in to help Sinclair out,” Manfred said at the conference. “The other part of their problem is there’s excessive leverage on that business. … If you think about what they paid for it, how much debt they have on it, I mean, you think it’s over 80 percent, it’s a huge number. And that leverage has produced headlines that are more negative.”
Added Silver, “For now, clearly, the [cable] bundle’s broken. I mean, we’re seeing now an issue that’s very topical at the moment, our regional sports networks, Sinclair in particular, and we’re trying with them to work through those issues.”
It was those comments that spurred LightShed analyst Rich Greenfield to write in a research note Monday that it was “#GameOver” for the company’s streaming RSN strategy.
“We simply do not believe Sinclair will gain access to any meaningful rights from any of the major leagues/teams,” Greenfield writes. “Sinclair has no expertise in digital or streaming, has never built a direct-to-consumer subscription business and only covers a portion of the US. Sinclair is actually one of the worst possible choices for the leagues to partner with in digital.”
Still, it’s no secret that the RSNs are the single biggest source of revenue for the leagues, and while Diamond may not have all the rights it needs to launch its own product, the leagues would likely need some rights that Diamond holds if they want to go in their own direction.
“It is really a matter of the leagues deciding what they want to do,” the Sinclair source says. “When they decide what it is they want to do, they will have to do a deal with Diamond to do it.”
“They are all facing a similar existential threat and opportunity [from cord-cutting and changing consumer habits],” they added.
Diamond Sports has been seeking to raise some $250 million to support its DTC efforts; however, it disclosed in an SEC filing Oct. 7 that it has yet to strike a deal and hopes to renegotiate its debt. The filing noted that it remains in discussions with creditors, meaning that there is at least some hope of a deal.
And the company needs to strike a deal soon. Moody’s downgraded it in July, writing that “the company’s current capital structure appears unsustainable given very high leverage and weak liquidity.”
But the source close to the company was confident that it could weather the storm. “Diamond has a lot of levers at its disposal,” this source said.
As for the hack, the financial impact may be less material than the company initially thought, especially if it can return to essentially normal operations within the coming days.
But if the hack is like a wildfire, with the potential to do major damage if not extinguished quickly, the RSN problem is like a slow burn. The future is coming, whether the company or leagues like it or not, and the role they play in that new ecosystem will be up to them.
“You need to be staying ahead of the curve, or else the video games will replace you, essentially,” the source said.
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