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Sinclair could lose millions as sports remain sidelined, analyst says

A Wells Fargo analyst estimates the broadcaster will be on the hook for $130 million largely due to a lack of baseball games this year.

A Wells Fargo analyst estimates the broadcaster will be on the hook for $130 million largely due to a lack of baseball games this year.

(Image: Sinclair Broadcasting Group/Handout, Graphic: The Desk)

Sinclair Broadcast Group could lose around $130 million in cash as it refunds pay TV distributors due to a lack of sports programming, according to an analyst.

On Monday, Steven Cahall with Wells Fargo said Sinclair’s Diamond Sports division will come out short at the end of this year’s abbreviated sports calendar.

Sinclair operates nearly two dozen regional sports networks that were acquired from the Walt Disney Company last year (Disney bought the channels from 21st Century Fox, but regulatory hurdles required them to divest them in order to close on the Fox deal). That seemed like a good bet at the time — until the current COVID-19 health pandemic hit.

Since March, leagues and teams have been weighing their options on how to go forward with games in the age of the coronavirus. After a delay, Major League Baseball is just about to begin its regular season, though early games will likely be without the presence of fans.

Major League Baseball’s shortened season will see around 60 games played this year — significantly less than the 140 games that were promised before the COVID-19 pandemic hit.

Cahill estimates Sinclair paid around $2 billion for sports rights before the COVID-19 health crisis started. More than 60 percent of that money went to Major League Baseball to secure television broadcast rights for distribution on Sinclair’s regional cable sports networks. Other money went to acquire broadcast and streaming rights for National Hockey League and National Basketball Association games.

Cahill predicts Sinclair will receive around $693 million back in refunds, with the majority of money coming from Major League Baseball. The National Basketball Association will make up the rest, while the National Hockey League will issue no refunds, Cahill estimated.

Sinclair will reimburse major pay TV companies like Comcast, AT&T and Charter/Spectrum around $823 million for not broadcasting baseball, hockey, basketball due to the health crisis. But that leaves Sinclair on the hook for around $130 million — money it will have to eat or make up somewhere else, Cahill says.

“With cord cutting also accelerating, we think Diamond remains a high-risk asset for an eventual restructuring, which remains a distraction to Sinclair’s equity,” Cahill said in a note to investors.

Things could turn around for Sinclair and its stock price if it decides to divest its regional sports networks, Cahill said, noting the broadcaster should consider it as the number of people ditching costly cable and satellite packages accelerate.

Citing the high cost of programming, some traditional and streaming pay TV services have opted not to carry Sinclair’s regional sports networks.

Earlier this year, YouTube TV dropped all of Sinclair’s regional sports networks, even though the broadcaster said it offered parent company Google a short-term extension and a discount to carry them. YouTube TV eventually reached an agreement to restore a small number of Sinclair-owned regional sports networks to the service, but the agreement didn’t include the new Marquee Sports Network, which broadcasts games from the Chicago Cubs baseball team.

In a similar move, Dish Network dropped Sinclair stations last year from its satellite service and streaming alternative Sling TVDish Network founder and co-chairman Charlie Ergen later said if the company re-added the networks, it would likely result in a fee increase for subscribers. Ergen said internal viewer figures indicated the channels were not popular with users, and the sports networks were unlikely to return to either platform in the future.