“That’s 100 percent the strategy,” Sinclair chief executive Chris Ripley said in an interview. “We will become the preeminent local news and sports provider in the country. And those two genres, in terms of live viewership, are head and shoulders above any other genre.”
Ripley added: “The current marketplace is getting flooded by big tech — Netflix and Amazon — on the general entertainment side. That’s a problem for anyone who wants to make money. We didn’t want to go up against 800-pound gorillas with unlimited cash.”
Disney was forced to sell the RSNs, as they are known, by the Department of Justice because of antitrust concerns as part of its $71.3 billion acquisition of Fox’s entertainment assets that closed earlier this year. (The slimmed-down new Fox is also built on news and live sports.) By acquiring the 21 RSNs, Sinclair will own the linear TV and streaming rights to the games of 42 pro teams: 14 Major League Baseball teams, 16 NBA teams and 12 NHL teams. The sale requires Department of Justice approval.
The purchase includes a tapestry of rights on channels across the country, from Phoenix to Detroit to St. Louis. These are often among the most-watched local stations, but much of the networks’ financial success since many were formed in the 1990s has been tied to the cable bundle.
The channels, which pay teams for the rights to broadcast games and then sell those rights to cable distributors, have counted on wide distribution of cable packages. In addition to lost revenue for RSNs from cord-cutting, many of the rights deals include already-locked-in annual increases in payments to teams. And as some networks have asked for higher distribution fees, they have been met with pushback.
SportsNet LA, which shows Dodgers games in Los Angeles, is not available in many homes in Los Angeles. Comcast did not carry the YES Network, which airs New York Yankees games, in 2016.
Ripley said he expects to package the RSNs and broadcast channels to cable distributors, which pay fees to broadcast stations even though they are available over the air free. He suggested there would be some business operations streamlining involved in sales and back-end management as well.
“We will package things up and incentivize distributors to take everything in one package,” Ripley said. “Already having good relationships with distributors will be a benefit. And we’re not going to market with unreasonable asks. We don’t expect this to be a fast-growing revenue business.”
What the channels do have is exclusivity, which Ripley emphasized. If St. Louis Cardinals fans want to watch the Cardinals, or Detroit Tigers fans want to watch the Tigers, they will have to go to Sinclair.
“I fundamentally believe that sports rights will be valuable for the foreseeable future and will continue to increase in value,” Ripley said. “There is no greater form of entertainment in terms of passion and willingness to spend. That’s the passion we’re tapping into and supplying, no matter what happens to the cable bundle, streaming, digital — these games will have a place in any ecosystem.”
Ripley said Sinclair also sees opportunity in legalized sports betting and building out content on the RSNs. When they were owned by Fox before the Disney acquisition, most of the channels offered little beyond live games and pre-and postgame coverage. Sinclair, Ripley said, would also consider airing some RSN content on its broadcast stations in the future.
Sinclair’s push into sports has been in the works for several years. The network is in the process of finalizing a $3.5 billion deal that would make it a part-owner of the YES Network, according to a person with knowledge of the deliberations. YES was also part of the Disney-Fox deal. Other partners in that sale include the Yankees and Amazon. (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)
Additionally, Ripley said, the price of the networks made them particularly attractive. Once valued at more than $20 billion, Sinclair paid roughly half that. Ripley said he believed that the price was lower because many of the usual media firms who would want the RSNs, and could afford them, were unable to bid. AT&T and Comcast probably would have faced regulatory approval issues, while Disney was the current seller and Fox had already sold them.
Rich Greenfield, an analyst at research firm BTIG, suggested the lowered price tag was indicative of a suppressed market. While the networks might have seemed inexpensive, he said, cord cutting and distribution concerns plus the increased rights payments to teams means that “most, if not all of the earnings could be wiped away over the next 4-5 years. It is no wonder that every major private equity firm pulled out of the process.”
As it has acquired broadcast stations in recent years, Sinclair has come under fire for its conservative-leaning programming during news broadcasts on its local stations. Deadspin created a video that cut together clips of anchors on local stations reading scripted remarks excoriating “fake news” that seemed to echo some of President Trump’s rhetoric. (Trump also supported Sinclair’s effort to acquire Tribune Media, which was ultimately rejected by the FCC.) More recently, Sinclair was criticized for airing a commentary segment on its stations that defended using tear gas on migrants at the border.
Asked how such reporting about its news operation could affect the reaction to Sinclair’s acquisition of the RSNs, Ripley said: “First of all, I take umbrage that there’s anything wrong with our news reporting. But setting that aside, is it a chance to rebrand the company? I think in many ways that is true. But you’re not going to see any of these networks branded as Sinclair Sports. We’re not a front-facing brand and never will be.”