Sinclair’s Ripley on RSNs: Believe It or Not

Sinclair Broadcast Group CEO Chris Ripley tried to deflect attention away from the mastodon in the room during an earnings conference call with analysts on Wednesday, telling them that although the broadcaster has secured direct-to-consumer rights with just four Major League Baseball teams less than six months before it is supposed to launch a DTC service, it will have the necessary deals in hand in time. 

“We do think we have critical mass in terms of rights to launch a product,” Ripley said on the earnings call. “And that’s what we intend to do.”

Maybe he‘s right. Maybe Sinclair will craft renewal deals with 10 other baseball teams over the course of the next 20 weeks that include DTC, linear and authenticated rights for more money. 

Maybe the teams, anxious to keep the money spigot from the linear RSNs flowing, will work out some kind of deal for DTC rights that will be beneficial for all, instead of taking advantage of Sinclair's desperation and make them pay through the nose. Maybe the teams, which though the league has hinted that it may keep DTC rights for itself, have changed their minds.

And then again, maybe not.

After months of telling investors and analysts not to be concerned about their ability to secure the necessary rights for its 2022 direct-to-consumer service, it came as a bit of a shock when Ripley said it only had secured those rights with four baseball teams. The Sinclair CEO said that in the past the company has obtained those rights as part of larger carriage negotiations. Ripley didn’t say which 10 baseball teams it needed to obtain rights from — some outlets have speculated the teams Sinclair does have deals with are the Detroit Tigers (77-85), Kansas City Royals (74-88), Milwaukee Brewers (95-67) and Miami Marlins (67-95), all but one with losing regular season records in 2021 —  or when it expected to reach those deals. Sinclair has said it will launch the DTC service in the first half of 2022, likely around April, the start of the MLB regular season. 

The revelation also seems to contradict Ripley’s earlier comments when he said during a Q1 earnings conference call that the company had DTC deals with the “vast majority” of its teams. In hindsight, it appears that Ripley was mainly talking about linear rights with all its teams — baseball, basketball, hockey and whatnot — and not DTC rights.

LightShed Partners principal Rich Greenfield, a vocal critic of Sinclair’s RSN strategy, wasn’t amused.

“Amazing how many times Chris Ripley has misled investors publicly,” Greenfield said in a tweet Wednesday. Later, he expressed doubt that Sinclair will be able to secure DTC rights with teams as they re-up their linear deals, adding that he believes teams are “moving in a different direction.”  

Sinclair’s RSN dilemma comes a few weeks after Major League Baseball commissioner Rob Manfred told an audience at the CAA World Congress of Sports that the broadcaster not only didn’t have sufficient rights to launch its own DTC service, it didn’t have gambling rights from the teams. And Manfred didn’t seem to want to give either of those rights up too easily.  

”We’ve been very clear with them from the beginning that we see both those sets of rights as extraordinarily valuable to baseball, and we're not just going to throw them in to help Sinclair out,” Manfred said at the conference, according to Sports Business Journal.

Gambling rights are an important component of Sinclair’s future RSN success, and maybe Manfred’s comments are merely a negotiating ploy on behalf of the league. But not everybody thinks so.

In the Q3 conference call, Ripley seemed to brush off any notion that the league may be positioning itself to launch its own direct-to-consumer product, adding that the RSNs have linear and authenticated digital deals with teams that would make such an endeavor highly unattractive. 

“What’s important to note is that we have exclusive local rights for our teams,” Ripley said on the conference call. “And those rights cannot be infringed upon by any other party to launch a direct-to-consumer product without significant ramifications. So we continue to negotiate in good faith with all interested parties to make direct-to-consumer a reality.”     

Sports consultant Lee Berke, president and CEO of LHB Sports, Entertainment & Media, said that isn’t so cut and dried because generally team deals are subject to league policies.

That could be as simple as striking a deal with teams to show 140 games on a regional basis, but a league agreement takes that down to 120 games nationally. So it is unclear whether Sinclair’s current deals would prevent teams from launching a regional DTC service but allow a national one. 

“Those are the sorts of things that do happen,” Berke said, adding the same holds true for the NHL and NBA. “It has to, because you are striking a balance between what you can sell nationally and what you can sell locally. So, for them to say, ‘We have a critical mass of rights,’ that’s subject to what the league wants you to have.”

Also read: Sinclair RSNs: Timing is Everything 

Adding to the uncertainty is the obvious animosity between MLB and Sinclair. Berke and other sports executives have said that Manfred’s scathing public criticism of the broadcaster was unprecedented and points to a relationship where the owner of the content has little incentive to help out its distributor.

Even NBA commissioner Adam Silver, who has been generally mum about rights deals in the past, seemed to lash out at Sinclair at the Oct. 12 CAA conference, telling the audience that he believed the RSNs are probably worth half of what the company paid for them two years ago.

“They paid $10 billion, it’s not clear it’s a good deal with $5 billion,” Silver said of the Sinclair RSNs at the conference, according to The Streamable. The Sinclair RSNs are also in negotiations for rights with 16 NBA teams. 

Manfred also criticized Sinclair for publicly airing its debt issues with the entity that holds its RSNs, Diamond Sports Group. Diamond Sports has been trying for months to restructure its $8 billion in debt, and in September said it was seeking another $600 million in financing from its bondholders for the DTC launch.  At the CAA World Congress of Sports, Manfred said Sinclair’s debt issues have cast a negative pall on the RSN space. 

During Wednesday’s conference call with analysts, Ripley said Diamond Sports has “ample” liquidity for the next 12 months, and that it is in “discussions with various commercial partners regarding financing.”

And when asked if MLB’s biggest concern with Diamond Sports is its debt, and could be solved by cleaning up its balance sheet, Ripley agreed. 

“I think getting additional financing would be helpful for all parties,” Ripley said. “I mean, that’s sort of undeniably true. And I think you’re spot on in that observation.” 

And then there is the question of whether Sinclair will be able to hammer out 10 rights deals with 10 different teams in time to launch the DTC network. Ripley didn’t say when those deals would come up for renewal.

According to one sports executive who asked not to be named, it is highly unlikely that renewals for all 10 remaining MLB teams were set to expire between now and April, so that means Sinclair will have to renegotiate existing pacts with the teams. 

“The teams have all the leverage,” the sports executive said, adding that clubs don’t have much incentive to open up existing agreements to negotiate DTC rights before they come due. “Why would they do that? What are they getting?”

The executive added that even if Sinclair agreed to terms that were highly favorable to the teams, the sheer number of deals to be done could pose its own problems.  

“That’s an incredibly ambitious task,” the sports executive said of trying to negotiate 10 rights deals by April 1.  

While Ripley appears confident those deals will be reached quickly, negotiations with Dish Network for Sinclair’s TV stations and RSNs continue to drag on. Dish’s carriage deal originally expired in August, was extended to September and currently is in the midst of a long line of one-week extensions as the parties have failed to reach a compromise. Many analysts believe that Dish has had the upper hand in talks since the beginning, and is in no hurry to reach a deal unless the terms are extremely favorable to the satellite TV giant. So, to believe that MLB teams that essentially hold the key to Sinclair’s DTC streaming future will rush to complete a deal to help out the broadcaster may be a bit naïve. 

But talks with Dish are apparently ongoing. Ripley said Sinclair and Dish are in “very short-term renewals at this point,” adding that the company does not comment on “live negotiations.”

Dish Network is scheduled to hold a conference call with analysts at noon Nov. 4 to discuss Q3 results. Perhaps it will add some further clarity to those negotiations.   

However, as part of its Q3 results, Sinclair reduced Diamond Sports’ full-year cash flow guidance by 12%, a move that some analysts took to mean they don’t think they’ll be able to reach a Dish agreement this year.  

And though Cahall agreed that with about $476 million in cash, Diamond Sports has enough liquidity to last 12 months, he added it is going to be a tight next few months for RSN business. 

About half of that cash will be tied up in sports rights payments, bond interest payments and distributor rebates in the first half of 2022, Cahall wrote in a research note, adding that the “real crunch” will occur in Q4 2022. In the meantime, Cahall wrote that Diamond Sports’ unsecured bonds are trading at about 26 cents on the dollar. 

The analyst wrote that investors, once most concerned about the debt restructuring, are now hyper-focused on direct-to-consumer streaming rights. 

“We think it's too close to call,” Cahall wrote, adding that without a direct-to-consumer product, “it's tough for us to see a financial future for Diamond.” 

Berke added that despite Sinclair’s RSN difficulties, the value of sports content remains high, which could raise optimism that a deal can eventually be done. But there will also have to be some changes. The sports business isn’t what it used to be. 

“This is not a crisis of the value of the content — ratings still do well,” Berke said. “But it’s a crisis of the distribution of the content. It’s a fact that the business model is outmoded. All of that needs to be addressed. The easier path is to negotiate this out. But it has been two years, and they have yet to work it out.”