Diamond Sports weighs heavy on Sinclair Q1 2023 earnings

The bankrupt cluster of regional sports channels operated by Sinclair Broadcast Group weighed heavy on the company's revenue during the first quarter of the year.

On Wednesday, Sinclair revealed it took in $773 million in total revenue during Q1 2023, down 40% from the $1.288 billion reported last year, attributed in large part to operational woes at Diamond Sports Group and its nearly two dozen Bally Sports-branded cable sports channels.

Removing Diamond Sports from the equation, Sinclair said its broadcast and non-media revenue dropped only 7% for the quarter.

Diamond Sports filed for Chapter 11 bankruptcy protection in March, a move that was aimed to help the subsidiary reorganize $8 billion of its debt. The subsidiary was formed after Sinclair acquired around 20 Fox Sports-branded regional cable networks from the Walt Disney Company in 2019.

Since the bankruptcy filing, Sinclair has made partial sports rights payments to some professional teams and leagues, while skipping out on payments to others. Teams that have not been paid include the Arizona Diamondbacks, which is listed as one of Diamond Sports' biggest creditors.

On a conference call with investors Wednesday morning, Sinclair executives spent little time discussing Diamond Sports and its ongoing bankruptcy case, other than to say the regional sports subsidiary was being grouped into the broadcast side of the company as part of a broader restructuring of Sinclair's business announced last month.

Instead, Sinclair executives played up the strength of Tennis Channel, which operates both domestic and international variants, along with the free, tennis-focused streaming channel T2 that Sinclair is launching later this year.

"It's a very significant win for the company that YouTube TV is going to be carrying Tennis Channel and T2," Chris Ripley, Sinclair's CEO, said during the call, pointing to a carriage agreement announced by the company in April. "There are incremental opportunities for Tennis, it has not been on the [streaming services] for a few years, and Fubo is really the only one it had. Now, it's adding YouTube TV, so I'm optimistic about having Tennis Channel fully distributed on all platforms."

In addition to the domestic channel, Sinclair also operates a variant of Tennis Channel and a direct-to-consumer streaming service that is available internationally. The company recently signed an agreement with television maker LG to provide the Tennis Channel's streaming service in several European countries, and the service now reaches around two-thirds of smart TV viewers in Germany, Austria and Switzerland.

Rob Weisbord, the chief operating officer at Sinclair, said domestic and international distribution deals regarding Tennis Channel and its related products helped increased the visibility of its programming during the first quarter of the year. Total viewership for the sports network was up 8%, while total household viewership jumped 7%, Weisbord said, attributing the increase in viewership to Tennis Channel's live coverage of various tournaments.

In the future, Weisbord said Tennis Channel will tap into its growing momentum by launching non-media related products. That includes partnering with a major online retailer to roll out a white-label online store that will carry the Tennis Channel brand and offer related merchandise for sale. The store is slated to launch within the next few months.

ATSC 3.0 momentum 

Executives also said there was growing momentum around the next-generation broadcast standard ATSC 3.0, also known by the consumer brand NextGen TV, which Sinclair has helped develop and promote for the better part of a decade.

At the National Association of Broadcasters (NAB) trade show last month, Sinclair and other media companies notched a win for NextGen TV when the chairperson of the Federal Communications Commission (FCC) announced the formation of a task force comprised of government and industry stakeholders focused on the development and rollout of NextGen TV signals in the country.

Sinclair was one of the media companies pushing for the formation of the task force, which industry officials said would help solve some of the pain points associated with the development of the NextGen TV standard, convince electronic manufacturers to integrate ATSC 3.0-compatible tuners in their hardware, and educate consumers on the new standard.

Still, Sinclair executives said they were caution about the company's revenue prospects moving through the year, particularly on the advertising side, which has seen improvements in some areas. On Wednesday, Sinclair's Chief Financial Officer Lucy Rutishauser said the company was seeing a rebound in the advertising market, but the services sector — which Sinclair counts as its biggest driver of ad revenue — was continuing to experience "softness."

"We will need to monitor [that] closely," Rutishauser said.

Rutishauser also cautioned that Sinclair's retransmission revenue — including carriage fees that are charged to cable and satellite companies — will likely be down throughout 2023 compared to last year, in part because Sinclair doesn't have very many contracts coming up for renewal in the next few months.

Some of Sinclair's biggest carriage contracts will be negotiated toward the end of this year and carry into 2024, Ripley affirmed; while the company didn't discuss the particulars of its carriage strategy, most media companies have been raising charging cable and satellite TV providers more for their channels, which has led to an increase in carriage disputes and customer bills.