Sinclair Posts Higher Political Ad Revenue, Takes $4.2B Local Sports Charge

Sinclair Broadcast
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Sinclair Broadcast

"While core advertising trends in our broadcast segment continue to face challenges due to the pandemic, we did see improvement as we moved through the quarter."

U.S. TV station giant Sinclair Broadcast Group reported "stronger-than-expected" political advertising revenue in its third quarter and recorded a $4.23 billion impairment charge related mostly to its regional sports networks business.

Political ad revenue of $109 million in the third quarter was up sharply from the $6 million in the year-ago period "due to 2020 being a presidential election year," the company said on Wednesday. The firm, led by president and CEO Chris Ripley, operates and/or provides services to 190 TV stations in 88 markets, and owns and/or operates 23 regional sports network brands.

Ripley and other Sinclair executives on an analyst call discussed the record political advertising haul as the U.S presidential election campaign headed down the home stretch in September and October. And Ripley talked about the prospect of added politics-related ad spending if the current vote counting is taken up by the courts amid a prolonged political fight.

"Who knows? See how long it takes to count the votes," Ripley ventured. The Democrats buying airtime on local Sinclair TV stations for their campaign ads crowded out core advertisers, management said, and Ripley was bullish about the overall TV ad climate heading into 2021.

The Sinclair boss argued any pullback by advertisers amid the coronavirus pandemic was expected to end when the health crisis comes to an end. "We think things will return to normal when COVID goes away," he said. "We don't think COVID has caused any fundamental structural change in the (advertising) market."

Quarterly revenue increased 37 percent to $1.54 billion, "with gains driven in large part by the company's acquisition of 21 regional sports networks and Fox College Sports" in August 2019 from the Walt Disney Co. and the higher political ad revenue.

Sinclair posted a third-quarter operating loss of $4.18 billion, which included the impairment charge "taken on the Local Sports segment relating to goodwill and definite-lived intangible assets, and $13 million of non-recurring costs for transaction, COVID, legal, litigation, and regulatory costs." Excluding adjustments, operating income of $61 million fell $147 million from the third quarter of 2019. The Local Sports unit consists primarily of the regional sports networks, the Marquee sports channel, and a 20 percent stake in the YES Network.

The firm posted a quarterly loss of $3.21 billion, compared with a year-ago loss of $60 million. Excluding adjustments, the company recorded earnings of $161 million.

The impairment charge during the latest quarter was caused by falling distribution revenue due to the loss of two virtual distributors, YouTube and Hulu, that combined amounted to around 10 percent of gross distribution revenue for the regional sport networks, as well as higher subscriber churn. Sinclair also estimated a deferred income tax benefit of $1.09 billion in connection with the impairment loss.

"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 Ripley in a statement that accompanied the latest financial results.

"While core advertising trends in our broadcast segment continue to face challenges due to the pandemic, we did see improvement as we moved through the quarter, despite having to balance strong political demand that competed for inventory," he added.