TV Station Giants to Benefit From Record Political Ads in 2020, Analyst Says

Joe Biden day 4 DNC - H 2020
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Joe Biden on day 4 of the Democratic National Convention 2020.

Democratic presidential candidate Joe Biden's record August fundraising means "both campaigns are tracking towards record fundraising and advertising spending," says Guggenheim's Curry Baker.

Election season is on track to bring in record political advertising spending, with big broadcast TV station groups, such as Nexstar, Gray and Tegna, among the key beneficiaries, according to an analyst report.

Guggenheim Securities analyst Curry Baker on Wednesday forecast "a record political cycle in 2020 with total political advertising expected to exceed $10 billion." He mentioned ad prognosticator GroupM's forecast along those lines, which compares with the $8.7 billion recorded during the 2018 mid-term elections.

Local TV stations are benefitting from this, the analyst said, writing: "We believe political spending on local TV could top $3.2 billion, a 20 percent-plus increase from 2018, the previous record cycle."

One key driver of latest momentum was Democratic presidential hopeful Joe Biden's record August fundraising. "Last week, the Biden campaign announced it raised $365 million during the month of August, setting a one-month record, previously held by President Obama – $193 million in September 2008)," the analyst explained. "Looking back to August 2016, Hillary Clinton raised $143 million and then-candidate Trump raised $90 million. The good news for broadcast TV is that Biden is spending heavily on traditional advertising."

For example, in early August, the Biden campaign unveiled a $280 million fall advertising blitz, including $220 million allocated for TV, which Baker said was "a record political advertising buy."

President Donald Trump's campaign at the end of July had $300 million of cash and had raised $1.1 billion, with August numbers not yet available, the Guggenheim analyst noted. "Recent reports are saying the President's campaign is looking to accelerate fundraising efforts, presumably due to Biden's huge August haul, and the President is considering spending $100 million of his own money over the next two months," he said, concluding: "Our bottom-line takeaway is that both campaigns are tracking towards record fundraising and advertising spending with two months left until the election."

Looking at competitive states for the presidential election, as well as key Senate and gubernatorial races, Baker's takeaways are two-fold: "All data to date supports a robust 2020 political cycle; and we believe the pure-play local TV stations groups (Nexstar, Gray, Tegna) are best positioned to benefit from the 2020 presidential cycle." He said Nexstar remains his top stock pick among local TV broadcasters, followed by Gray.

With Republicans controlling the Senate 53-47, but the future being in play Baker also argued that "the current state of all the races shows a dead heat for control," with six Senate contests considered a toss-up and another six being close. "The top 10 Senate races have raised $465 million (through the end of June or July), on pace to meet, and possibly exceed, $612 million from the top 10 Senate campaigns in 2018 and already ahead of the $383 million raised by top Senate campaigns in 2016," the analyst said. "We expect fierce spending, both by campaigns and third parties, on Senate seats over the [next] two months."

Baker's bullish commentary on local TV groups comes after Kagan, the media research unit of S&P Global Market Intelligence, had said in a report last week that TV station firms' political ad revenue had been "negatively impacted" by COVID-19 during the second quarter, but a "huge second half" of the year was "looming." It added: "Fresh off the Democratic and Republican National Conventions, political advertising is ramping up for U.S. TV broadcasters as limitations due to COVID-19 are expected to boost TV's take of the important revenue segment."