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9 May 2019

Sinclair somehow emerges as Fox RSN victor, paying through the nose

Sinclair has reached a deal to acquire 21 regional sports networks (RSNs) from Disney for $10.6 billion, around three months after CNBC claimed the US broadcaster had dropped out of the running. In a case of David versus Goliath, somehow or another Sinclair has managed to beat away bids from Amazon – and its share price is already reaping the benefits.

As well as opening doors into the hugely lucrative live sports streaming market, the deal marks a potentially bigger cash cow in the form of live sports gambling, with country-wide legalization across the US hanging in the balance. The wealth of user data Sinclair can leverage through the deal, as well as the technology clout, gives it merit for plenty of cross-collaboration in the gambling scene.

The RSNs will operate under a newly formed Sinclair division called Diamond Sports Group and Sinclair President and CEO Chris Ripley described the deal as an “extraordinary opportunity to diversify Sinclair’s content sources and revenue streams with high-quality assets that are driving live viewing. We also see this as an opportunity to realize cross-promotional collaboration, and synergistic benefits related to programming and production.”

Amazon has been putting sports front and center of its bid to challenge Netflix, but instead of taking on the full slate, it opted for the Fox flagship RSN, the New York-based Yes Network, in partnership with New York Yankees. With Yes Network alone costing $3.5 billion, a deal which is still pending regulatory approval, it was unlikely for Amazon to pursue the remaining 21 RSNs – clearing the field for Sinclair to emerge as a frontrunner, despite Amazon having mountains of cash.

Other bidders reported to have entered the bidding for Fox’s 22 RSNs included Liberty Media along with Major League Baseball, Apollo Global Management, Providence Equity Partners, KKR, The Blackstone Group, Silver Lake Partners, William Morris Endeavor and CVC Capital are all interested. One of the reasons we saw Sinclair as unlikely victor was that these broadcasting groups would have to get all the money to fund such a deal from out of a combination of their own advertising revenues, plus any overseas licensing deals they might cut – and the same is true for the private equity groups. As such, Sinclair has gone into business with US tycoon Byron Allen, who participated by spending $165 million on 4 US TV stations, hardly a drop in the bucket compared with the $10.6 billion Sinclair has signed over.

We have said time and time again, the ideal way to build a sports channel, is to copy the progress of Eurosport, now owned by Discovery Group, which is to pay less for “oddment” rights, the overseas rights for major sports which are not valued too highly, along with minor sports which most channels cannot justify buying. Then build an audience from these scraps and an advertising revenue, and finally begin bidding for major sports items. Amazon is pretty much well down this route already, as is, of course, Discovery.

“While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture. As one of the largest local news producers in the country and an experienced producer of sports content, we are ideally positioned to transfer our skills to deliver and expand our focus on greater premium sports programming,” added Ripley.