Sinclair Broadcast Group outlined its $250 million plan for a separate direct-to-consumer offering for its 19 regional sports networks in a Securities and Exchange Commission filing Tuesday, coupled with a pair of proposals to bondholders that will restructure more than $8 billion in debt.
Sinclair’s RSNs are held in a separate entity, Diamond Sports Group, which has been in talks with bondholders for months about restructuring that obligation. On Tuesday DSG said it has offered proposals that would allow it to borrow an additional $1.1 billion in debt, but added in the filing that it has been “unable to reach a definitive agreement” with its lenders and bondholder so far.
News that the talks had stalled pushed the price of the Diamond Sports bonds down about 6%, according to the Wall Street Journal, adding the price of the bonds had dropped below 66 cents on the dollar for the first time since November.
At the same time, DSG offered some more detail regarding its plans to launch a direct-to-consumer version of the sports networks, claiming it could generate about $300 million in annual revenue from about 1.3 million current pay TV RSN subscribers, another $325 million from 1.4 million non-RSN customers and $400 million from 1.7 million cord cutters. Overall, the company said it believes it can generate about $1.025 billion in revenue from 4.4 million DTC subscribers in the next five years.
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Earlier this month, a report in the New York Post said as part of its debt restructuring, Sinclair was proposing a DTC offering of the RSNs that would be priced at about $23 per month.
While the SEC filing did not talk about pricing, the revenue and subscriber figures imply a monthly ARPU of about $26, which could be in the form of advertising and fees per customer. In his research note, Wells Fargo media analyst Steven Cahall estimated that at $2 billion in total revenue, ARPU would be about $38, split evenly between fees and advertising. But the analyst also admitted to “a healthy level of skepticism” concerning Sinclair’s estimates, noting that the company’s predictions for the RSNs after purchasing them in 2019 ‘proved overly optimistic.”
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Diamond Sports also reiterated 2021 revenue guidance for the RSNs at between $3.07 billion and $3.249 billion. Cash flow for the year is expected to be between $458 million and $637 million. But the guidance appears to depend on the RSNs winning back Dish Network, which dropped the channels in 2019.
In his research note, Cahall estimated that Dish represents about 8 million RSN customers for DSG, or about $400 million in revenue. Dish is set to renew its retransmission consent agreement with DSG parent Sinclair for its broadcast TV stations in August, at which time the RSN agreement could also be renewed.
“We're of the view that the August Dish renewal for SBGI’s Broadcast stations + RSNs likely needs to conclude before bondholders commit to any restructuring,” Cahall wrote.
