Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q2 2021 Earnings Conference Call August 4, 2021 9:30 AM ET Company Participants Lucy Rutishauser – Executive Vice President and Chief Financial Officer Billie-Jo McIntire – Director-Investor Relations Chris Ripley – President and Chief Executive Officer Rob Weisbord – President-Broadcast and Chief Advertising Revenue Officer Conference Call Participants Dan Kurnos – Benchmark Company Steven Cahall – Wells Fargo David Hamburger – Morgan Stanley Aaron Watts – Deuts ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . COMMISSION FILE NUMBER: 000-26076 SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) (State or other ...

Financial Data and Key Metrics Changes - The company's media revenues for Q1 2021 decreased by 5% compared to Q1 2020, primarily due to the absence of political revenue and the sale of three stations [40] - Adjusted EBITDA for the consolidated company declined to $182 million, down 22% from the previous year, but exceeded guidance [42][46] - The first quarter consolidated adjusted free cash flow was $9 million, approximately $117 million better than the low end of the guidance range [47] Business Line Data and Key Metrics Changes - Core advertising revenues, excluding the three sold stations, increased almost 1% year-over-year, better than expectations of a mid-single-digit decline [41] - Local sports media revenues declined by 5% compared to the first quarter of the previous year, impacted by lower distribution revenue and higher subscriber churn [43] - Local sports adjusted EBITDA for Q1 was $9 million, down from the prior year but beat guidance by over $60 million [45] Market Data and Key Metrics Changes - The advertising market showed improvement, with core ad revenues finishing flattish compared to the pro forma first quarter of 2020 and 2019 [10] - April 2021 saw a significant increase in advertising revenues, up over 70% compared to April 2020, and only low-single digits down from April 2019 [11] - The auto industry is facing supply constraints, which may impact advertising spending in upcoming quarters [12] Company Strategy and Development Direction - The company is focusing on direct-to-consumer opportunities for regional sports content, aiming to fill the void left by traditional distributors [22][24] - Sinclair is enhancing its programming through partnerships, such as with Bally's, to improve non-game programming and increase advertising yields [59] - The company is exploring monetization opportunities through ATSC 3.0 technology, which could unlock significant revenue potential [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the core advertising market, particularly in services and sports betting categories [12] - The company is cautiously optimistic about Q2 2021, expecting slightly down performance against 2019 benchmarks but positive trends in April and May [84] - Management highlighted the importance of viewer engagement and the potential for increased monetization through interactive programming and gamification [27] Other Important Information - The company announced the appointment of Laurie Beyer as its first female director, reflecting its commitment to diversity [21] - Sinclair's cash at the end of the quarter was $941 million, with total debt at $12.540 billion and net leverage at 6.4x [48][49] Q&A Session Summary Question: Can you provide insights on direct-to-consumer strategy and advertising yield improvements? - Management acknowledged a change in tone regarding direct-to-consumer opportunities, emphasizing the potential for increased engagement and monetization through digital platforms [58] - The partnership with Bally's is expected to enhance non-game programming and improve advertising yields without significant financial risk [59][60] Question: What is the status of negotiations with distributors and the impact on timing? - Management confirmed that they have direct-to-consumer rights for most teams and are in discussions to enhance those rights, with plans to launch in the first half of 2022 [65] Question: Can you discuss the implications of subscriber trends and the Cox renewal? - Management noted slight improvements in subscriber trends, with expectations of mid-single-digit declines for broadcast and high-single-digit declines for RSNs [87] Question: What are the expected cost savings from programming contract renewals? - Management indicated that they aim to variabilize costs in renewals, aligning interests with teams and potentially reducing fixed costs [75] Question: How does the company plan to utilize free cash flow moving forward? - Management stated that the focus remains on de-leveraging, increasing long-term value, and reinvesting in the company [70] Question: What feedback has been received regarding the new Bally Sports app? - Early feedback on the Bally Sports app has been positive, with significant engagement and plans for further monetization opportunities [100]

[PART I](index=7&type=section&id=PART%20I) This section outlines the company's business operations, risk factors, and essential legal and property disclosures [ITEM 1. BUSINESS](index=7&type=section&id=ITEM%201.%20BUSINESS) Sinclair Broadcast Group is a diversified television media company with broadcast and local sports segments, navigating content, technology, and regulatory challenges [Company Overview](index=7&type=section&id=Company%20Overview) Sinclair Broadcast Group is a diversified national television media company founded in 1986, headquartered in Hunt Valley, Maryland - Sinclair Broadcast Group, Inc. is a diversified television media company with national reach, focusing on high-quality content across local television stations, regional and national sports networks, and digital platforms[19](index=19&type=chunk) - The company was founded in 1986 and its principal executive offices are located in Hunt Valley, Maryland[20](index=20&type=chunk) [Segments](index=7&type=section&id=Segments) The company operates through broadcast and local sports segments, alongside other diverse business units - As of December 31, 2020, Sinclair has two reportable segments: broadcast and local sports. Other businesses, including owned networks, original content, digital and internet services, technical services, and non-media investments, are grouped into the 'other' segment for reconciliation[21](index=21&type=chunk) [Broadcast Segment](index=7&type=section&id=Broadcast%20Segment) The broadcast segment operates 188 stations across 88 markets, offering diverse programming and generating revenue from advertising and distribution fees - The broadcast segment consists of **188 stations in 88 markets**, broadcasting **628 channels**, including **240 affiliated with primary networks** (FOX, ABC, CBS, NBC, CW, MNT) and **388 with other programming services**[22](index=22&type=chunk) - The segment is one of the nation's largest producers of local news, generating over **2,500 hours per week at 130 stations in 82 markets**, and was awarded **356 journalism awards in 2020**[24](index=24&type=chunk) - Revenue is primarily derived from advertising sales and fees from multi-channel video programming distributors (MVPDs) and virtual MVPDs (vMVPDs) for channel distribution rights[25](index=25&type=chunk) Broadcast Segment Network Affiliations (as of Dec 31, 2020) | Affiliation | Number of Channels | Number of Markets | Expiration Dates | | :---------- | :----------------- | :---------------- | :--------------- | | ABC | 40 | 30 | August 31, 2022 | | FOX | 57 | 42 | December 31, 2023| | CBS | 31 | 24 | Oct 31, 2023 - Dec 31, 2024 | | NBC | 25 | 17 | December 31, 2021| | CW | 48 | 37 | Aug 31, 2021 - Aug 31, 2024 | | MNT | 39 | 32 | August 31, 2021 | | Total Major Network Affiliates | 240 | | | [Local Sports Segment](index=12&type=section&id=Local%20Sports%20Segment) The local sports segment includes regional sports networks and a minority interest in YES Network, broadcasting professional sports games and holding exclusive long-term media rights - The local sports segment includes regional sports networks (RSNs) acquired from Disney in August 2019, a joint venture with the Chicago Cubs (Marquee Sports Network), and a minority equity interest in the YES Network[33](index=33&type=chunk) - The RSNs and YES Network broadcast approximately **2,270 professional sports games** and produced **12,200 hours of new content in 2020** (reduced due to COVID-19), reaching about **52 million subscribers nationally** (excluding YES Network)[34](index=34&type=chunk) - The RSNs hold exclusive long-term agreements with **16 MLB teams, 17 NBA teams, and 12 NHL teams**, and will be rebranded as Bally Sports networks[34](index=34&type=chunk)[35](index=35&type=chunk) [Other Segments](index=13&type=section&id=Other%20Segments) Other segments encompass owned networks, digital services, technical services, and non-media investments, diversifying the company's offerings - Owned Networks and Content: Includes Tennis Channel, Tennis Magazine, Tennis.com, and various networks like Comet, CHARGE!, TBD, and Stadium. Internally developed content includes Ring of Honor (ROH) wrestling, The National Desk, and Full Measure with Sharyl Attkisson[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) - Digital and Internet: Operates STIRR (a free, ad-supported streaming app with over **6 million downloads**), Compulse Integrated Marketing (a digital agency), DataSphere Technologies (marketing services for small businesses), and NewsON (a local news app)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - Technical Services: Subsidiaries like Acrodyne Technical Services, Dielectric, and ONE Media 3.0 provide broadcast transmission system services, research and development for NEXTGEN TV, and partnerships for its deployment[44](index=44&type=chunk) - Non-media Investments: Includes private equity, mezzanine financing, and real estate investments such as Triangle Sign and Service, Jefferson Park land development, sustainability initiatives, and apartment complexes[45](index=45&type=chunk) [Customers](index=14&type=section&id=Customers) Three major customers individually accounted for over 10% of consolidated revenue in 2020 - In 2020, three customers (AT&T, Charter Communications, and Comcast) individually exceeded **10% of consolidated revenue** for the broadcast and local sports segments[46](index=46&type=chunk) [Operating Strategy](index=14&type=section&id=Operating%20Strategy) The company employs a multi-faceted operating strategy focused on programming, cost control, local market development, and technological innovation [Programming to Attract Viewership](index=14&type=section&id=Programming%20to%20Attract%20Viewership) The company strategically programs local news, network content, and live sports to attract viewers and satisfy advertisers - The company targets programming to attract viewership, meet community needs, and satisfy advertisers by offering local news, popular network/syndicated content, and live sports[47](index=47&type=chunk)[48](index=48&type=chunk) - RSNs plan to invest in popular sports programming and technologies to enhance viewer experience, including customized camera angles, audio tracks, social media integration, and statistics overlays[50](index=50&type=chunk)[51](index=51&type=chunk) [News Initiatives](index=14&type=section&id=News%20Initiatives) Local news is a core mission, complemented by national desks and investigative teams, to serve communities and attract advertisers - Local news is a core mission, serving communities with relevant information and attracting advertisers; **34% of stations' net time sales in 2020 were from local news**[52](index=52&type=chunk) - National news desk and Capitol Hill bureau provide broader context and accountability reporting, including programs like 'Connect to Congress' and 'Full Measure with Sharyl Attkisson'[54](index=54&type=chunk)[55](index=55&type=chunk) - Launched 'The National Desk' in January 2021 on **68 stations** and STIRR, offering commentary-free news from local and national perspectives. The company also has a national investigative team of **15 journalists** and over **30 local investigative reporters**[56](index=56&type=chunk)[57](index=57&type=chunk) [Sports Programming](index=15&type=section&id=Sports%20Programming) Live sports programming, including exclusive rights to major league teams, is a key driver of viewership and advertising revenue - Live sports remain highly popular, attracting loyal fans and desirable demographics for advertisers, often being the most-watched programming in local markets[60](index=60&type=chunk) - Through RSNs and YES Network, the company controls media rights for **16 MLB, 17 NBA, and 12 NHL teams**, reaching approximately **52 million subscribers nationally**[61](index=61&type=chunk) - Tennis Channel holds telecast rights for major tennis tournaments (US Open, Wimbledon, etc.) and offers content via Tennis.com and Tennis Channel Plus[62](index=62&type=chunk) [Control of Operating and Programming Costs](index=16&type=section&id=Control%20of%20Operating%20and%20Programming%20Costs) The company maintains disciplined cost management, leveraging national reach to negotiate favorable programming prices and improve margins - The company employs a disciplined approach to managing programming acquisition and operating costs, leveraging its national reach (**39% of the country**) to negotiate favorable programming prices[64](index=64&type=chunk) - RSNs manage programming rights costs to improve margins, balancing the portfolio to mitigate risks from losing team rights and emphasizing high-quality, low-cost production with technological advancements[65](index=65&type=chunk) [Developing Local Franchises](index=16&type=section&id=Developing%20Local%20Franchises) The company focuses on strengthening local sales forces to grow revenues through increased market share and multi-platform marketing solutions - Focuses on developing a strong local sales force (**600 marketing consultants, 90 local sales managers**) to grow local revenues by increasing market share, developing new business, and offering multi-platform marketing solutions[66](index=66&type=chunk) [Attract and Retain High Quality Management](index=16&type=section&id=Attract%20and%20Retain%20High%20Quality%20Management) Success is driven by attracting and retaining skilled managers through competitive compensation and internal career growth opportunities - Success is attributed to attracting and retaining highly-skilled managers through competitive compensation (base salary, long-term incentives, cash bonuses) and promoting internal career growth[67](index=67&type=chunk) [Multi-Channel Broadcasting](index=16&type=section&id=Multi-Channel%20Broadcasting) The company utilizes FCC rules to offer multiple digital channels, exploring diverse programming formats for profit and community service - Utilizes FCC rules allowing additional digital channels within allocated spectrum, providing viewers with **441 multi-channels as of December 31, 2020**, and exploring alternative programming formats for higher profits and community service[68](index=68&type=chunk) [Distribution Agreements](index=16&type=section&id=Distribution%20Agreements) The company secures distribution agreements with MVPDs and OTT providers to generate retransmission revenue and expand content reach - Maintains distribution agreements with MVPDs and OTT distributors, generating meaningful revenue streams from retransmission rights, and aims to expand these agreements leveraging local news, sports, and entertainment content[69](index=69&type=chunk) [Improvement and Maintenance of Our Distribution Platforms](index=16&type=section&id=Improvement%20and%20Maintenance%20of%20Our%20Distribution%20Platforms) Subsidiaries are vital for maintaining broadcast infrastructure and supporting the deployment of NEXTGEN TV technology - Acrodyne and Dielectric subsidiaries are crucial for servicing and manufacturing broadcast infrastructure, ensuring high-quality, uninterrupted content and supporting the buildout of NEXTGEN TV infrastructure[70](index=70&type=chunk) [Developing New Business](index=17&type=section&id=Developing%20New%20Business) The company develops new business models, including digital platforms and DTC/OTT initiatives, to expand revenue streams and audience engagement - Develops new business models, including online, mobile text messaging, social media advertising, and audience extension services, alongside traditional broadcasting[71](index=71&type=chunk) - Expands digital distribution platforms with a video management system for broadcast-to-digital streaming, dynamic ad replacement, and DTC/OTT initiatives like STIRR[72](index=72&type=chunk) - RSNs aim to maximize advertising revenue through non-game programming, multiplatform offerings, and capitalizing on legalized sports betting for increased ad spend and viewer engagement[74](index=74&type=chunk)[76](index=76&type=chunk) [Strategic Realignment of Media Portfolio](index=17&type=section&id=Strategic%20Realignment%20of%20Media%20Portfolio) The company regularly evaluates media acquisitions, dispositions, and content development for accretive opportunities that scale existing assets - Routinely reviews potential media acquisitions, dispositions, swaps, and original content development, focusing on disciplined, accretive opportunities that complement and scale existing television stations and RSNs[77](index=77&type=chunk) [Digital and Internet Initiatives](index=17&type=section&id=Digital%20and%20Internet%20Initiatives) Digital properties serve as innovative extensions of the core broadcast business, competing for diverse digital and advertising revenues - Digital properties like Compulse, STIRR, Datasphere, and NewsOn are innovative extensions of the core broadcast business, competing for digital, internet, network, and print revenues[78](index=78&type=chunk) [Development of Next Generation Wireless Platform](index=17&type=section&id=Development%20of%20Next%20Generation%20Wireless%20Platform) The company invests in NEXTGEN TV (ATSC 3.0) to merge broadcast and broadband content, enabling advanced data distribution and targeted advertising - Invests in NEXTGEN TV (ATSC 3.0), a new broadcast transmission standard merging broadcast and broadband content, enabling data distribution (text, audio, video, software) beyond traditional video[79](index=79&type=chunk)[80](index=80&type=chunk) - Partnerships (e.g., Cast.era with SK Telecom, BitPath with Nexstar) aim to develop broadcasting solutions, cloud infrastructure, targeted advertising, and deploy NEXTGEN TV capabilities, with launches in **12 markets by January 2021**[80](index=80&type=chunk)[81](index=81&type=chunk) [Monetization of Certain Intellectual Property Rights](index=18&type=section&id=Monetization%20of%20Certain%20Intellectual%20Property%20Rights) The company plans to monetize NEXTGEN TV-related patents through direct licensing, third-party agents, or patent pools - Developed NEXTGEN TV-related patents through ONE Media, LLC joint venture, with plans to monetize them directly, through third-party agents, or via a patent pool for licensing to equipment manufacturers[82](index=82&type=chunk) [Federal Regulation of Television Broadcasting](index=19&type=section&id=Federal%20Regulation%20of%20Television%20Broadcasting) Television broadcasting is subject to extensive FCC regulation covering licenses, ownership, content, and operational agreements - The ownership, operation, and sale of television stations are subject to FCC jurisdiction under the Communications Act of 1934, which includes assigning frequencies, issuing licenses, and regulating content and ownership[84](index=84&type=chunk) [License Grant and Renewal](index=19&type=section&id=License%20Grant%20and%20Renewal) Television stations operate under FCC licenses granted for eight-year terms, subject to renewal and potential petitions to deny - Television stations operate under FCC licenses granted for maximum eight-year terms, subject to renewal. While renewals are common, there's no guarantee, and petitions to deny can be filed[86](index=86&type=chunk)[87](index=87&type=chunk) - All of Sinclair's most recent license renewal applications were granted for the maximum term. A petition to deny the renewal of WBFF(TV) and two other Baltimore stations (WUTB(TV), WNUV(TV)) is currently pending[88](index=88&type=chunk) [Ownership Matters](index=19&type=section&id=Ownership%20Matters) FCC approval is required for ownership changes, with rules on national reach, local ownership, and foreign investment impacting operational flexibility - FCC approval is required for license assignments or transfers of control, considering factors like compliance with ownership limits, licensee 'character', and foreign ownership restrictions (generally **20% direct, 25% parent without approval**)[89](index=89&type=chunk)[91](index=91&type=chunk) - The Smith family holds approximately **81.1% of common voting rights**. The company's articles of incorporation limit alien ownership and allow repurchase of shares to comply[92](index=92&type=chunk) - The FCC's 2017 Ownership Order on Reconsideration, which eliminated radio/television and newspaper/broadcast cross-ownership rules, was vacated and remanded by the Third Circuit, with an appeal pending before the Supreme Court. Pre-2018 rules remain in effect[93](index=93&type=chunk) - The national television viewing audience reach cap is **39%**, with a UHF discount currently in effect (half of UHF station households counted). Sinclair's current reach is approximately **25% with the UHF discount**[94](index=94&type=chunk)[95](index=95&type=chunk) - Local television ownership rules generally permit two stations in the same market only if there's no digital overlap or if only one is a top-four rated station and the market has at least eight independent full-power stations. The Supreme Court is reviewing changes to these rules[96](index=96&type=chunk) [Local Marketing and Outsourcing Agreements](index=21&type=section&id=Local%20Marketing%20and%20Outsourcing%20Agreements) The company utilizes LMAs and other outsourcing agreements, which are subject to FCC attribution rules and ongoing legal challenges - The company uses Local Marketing Agreements (LMAs) and other outsourcing agreements (JSAs, SSAs) where it provides programming, sales, and operational services to other stations. Grandfathered LMAs (pre-Nov 5, 1996) are currently exempt from attribution rules[97](index=97&type=chunk) - The FCC's JSA attribution rule (requiring attribution if a party sells >**15% of advertising time** for another station in the same market) was reinstated after a Third Circuit decision, with a Supreme Court appeal pending. Termination or modification of LMAs/JSAs could adversely affect business[98](index=98&type=chunk) [Antitrust Regulation](index=21&type=section&id=Antitrust%20Regulation) The Department of Justice has increased scrutiny on television industry ownership concentration, particularly regarding outsourcing agreements - The Department of Justice (DOJ) has increased scrutiny of the television industry regarding ownership concentration, including LMAs and outsourcing agreements. Sinclair received three civil investigative demands (CIDs) from the DOJ in January 2019 related to JSAs and is cooperating[99](index=99&type=chunk)[100](index=100&type=chunk) [Satellite Carriage](index=22&type=section&id=Satellite%20Carriage) Satellite carriers are required to provide local TV signals, with provisions for good-faith negotiation and distant signal licenses made permanent - The Satellite Home Viewer Act (SHVA) and its extensions allow satellite carriers to provide local TV signals and require them to carry all local signals that assert carriage rights. STELAR sunsetted in 2019, but good-faith negotiation and distant signal license provisions were made permanent[101](index=101&type=chunk) [Must-Carry / Retransmission Consent](index=22&type=section&id=Must-Carry%20%2F%20Retransmission%20Consent) Broadcasters elect between 'must-carry' and 'retransmission consent' for cable carriage, with Sinclair opting for retransmission consent for all stations - Broadcasters make triennial elections for 'must-carry' (demanding carriage on cable) or 'retransmission consent' (negotiating fees for carriage). Sinclair has elected retransmission consent for all its stations[102](index=102&type=chunk) - FCC rules prohibit joint retransmission consent negotiations for non-commonly owned stations in the same market. A proposed rulemaking to examine 'totality of the circumstances test' for good-faith negotiations is pending[102](index=102&type=chunk)[103](index=103&type=chunk) [Network Non-Duplication / Syndicated Exclusivity / Territorial Exclusivity](index=22&type=section&id=Network%20Non-Duplication%20%2F%20Syndicated%20Exclusivity%20%2F%20Territorial%20Exclusivity) FCC rules allow local stations to demand blackouts of duplicate network or syndicated programming on distant signals, subject to potential modification - FCC rules allow local stations to demand blackouts of duplicate network or syndicated programming carried on 'distant signals' by cable operators, though exceptions exist. A pending rulemaking may eliminate or modify these rules[104](index=104&type=chunk) [Digital Television](index=23&type=section&id=Digital%20Television) FCC rules permit DTV channels for various services, requiring at least one free video channel and a fee on subscription-based ancillary services - FCC rules permit DTV channels for various services (HDTV, multiple SDTV, audio, data), requiring at least one free video channel and a **5% fee on gross revenues** from subscription-based or third-party ancillary services[105](index=105&type=chunk) [Programming and Operations](index=23&type=section&id=Programming%20and%20Operations) Broadcasters must serve the 'public interest' through responsive programming, record-keeping, and compliance with various content regulations - Broadcasters must serve the 'public interest' by presenting programming responsive to community needs, maintaining records, and complying with rules on political advertising, sponsorship identification, indecency, children's programming, and emergency alerts[106](index=106&type=chunk) [Other Pending Matters](index=23&type=section&id=Other%20Pending%20Matters) Congress and the FCC are considering new laws and policies that could impact broadcast operations, ownership, and profitability, including NEXTGEN TV deployment - Congress and the FCC are considering new laws and policies that could affect broadcast operations, ownership, and profitability, including technological innovations and competition from DTC offerings and internet services[107](index=107&type=chunk)[109](index=109&type=chunk) - The FCC authorized voluntary deployment of NEXTGEN TV, with rules taking effect in 2018 and further guidance in 2020. A petition for declaratory ruling on simulcast streams is pending[108](index=108&type=chunk) - The FCC's 'incentive auctions' reassigned some stations to new channels, with reimbursements from a **$3 billion fund**. Sinclair's stations have transitioned, and the 2018 Quadrennial Regulatory Review of ownership rules is pending[110](index=110&type=chunk)[111](index=111&type=chunk) [Other Considerations](index=24&type=section&id=Other%20Considerations) The summary of federal regulation is not exhaustive, with additional FCC and federal agency rules governing various business aspects - The summary of federal regulation is not exhaustive; additional FCC and federal agency regulations govern political broadcasts, advertising, equal employment opportunity, and other business matters[112](index=112&type=chunk) [Environmental Regulation](index=24&type=section&id=Environmental%20Regulation) The company may face environmental liabilities from past hazardous substance use, with potential future compliance costs or new regulations - The company may face environmental liabilities from past or nearby hazardous substance use at its facilities. While currently in substantial compliance, future compliance costs or new regulations (e.g., climate change) could increase[113](index=113&type=chunk) [Competition](index=24&type=section&id=Competition) Stations and RSNs face intense competition for audience and advertising revenue from diverse media platforms and larger companies - Stations and RSNs compete for audience share and advertising revenue with other TV stations, cable networks, and diverse media including OTT, video-on-demand, radio, newspapers, and digital platforms[114](index=114&type=chunk)[117](index=117&type=chunk) - Competition factors include program popularity, advertising rates, market size, demographic makeup, and the effectiveness of sales forces. The company believes its management, network affiliations, and local program acceptance provide competitive advantages[115](index=115&type=chunk)[120](index=120&type=chunk)[126](index=126&type=chunk) - RSNs face competition for telecast rights from national/regional cable networks, 'superstations', and internet distributors, with some competitors having advantages due to ownership by sports teams or leagues[118](index=118&type=chunk) [Human Capital](index=26&type=section&id=Human%20Capital) The company employs approximately 11,600 individuals, committed to a safe, ethical, and inclusive workplace with competitive compensation and wellness programs - As of December 31, 2020, the company had approximately **11,600 employees**, with about **2,000 represented by labor unions**[127](index=127&type=chunk) - Committed to a safe, ethical, and harassment-free workplace, supported by governance policies, a code of business conduct, and employee safety programs. Values diversity and inclusion, with broad outreach programs and mandatory diversity training[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - Regularly gathers employee feedback to improve experience and foster engagement, including a Remote Work Survey during COVID-19, and promotes innovation through initiatives like the Innovation Summit[131](index=131&type=chunk)[132](index=132&type=chunk) - Prioritizes employee health, safety, and wellness with affordable healthcare, improved paid time off, expanded sick leave, and an employee assistance program. Implemented strict COVID-19 safety protocols[133](index=133&type=chunk)[134](index=134&type=chunk) - Compensation includes market-competitive pay, 401(k) with increased match, employee stock purchase plan, healthcare, and life/disability insurance. Increased minimum hourly wage to **$15** and provided COVID-19 relief funds[135](index=135&type=chunk) [Protection of the Environment](index=27&type=section&id=Protection%20of%20the%20Environment) The company promotes environmental awareness, participates in sustainability initiatives, and invests in energy-efficient broadcast infrastructure - The company's digital content business has minimal environmental impact. It promotes environmental awareness through news, participates in sustainability initiatives (e.g., LED lighting, recycling), and installed over **100 energy-efficient TV transmitters**[136](index=136&type=chunk) [Available Information](index=28&type=section&id=Available%20Information) The company provides public access to its SEC filings and reports on its website, ensuring compliance with disclosure requirements - The company uses its website (www.sbgi.net) as a source of information, providing annual, quarterly, and current reports (10-K, 10-Q, 8-K) free of charge, and complies with SEC disclosure requirements[138](index=138&type=chunk) [ITEM 1A. RISK FACTORS](index=28&type=page&id=ITEM%201A.%20RISK%20FACTORS) The company faces numerous risks that could materially affect its business, financial condition, and results of operations [Risks relating to our operations](index=28&type=section&id=Risks%20relating%20to%20our%20operations) Operational risks include COVID-19 impacts, acquisition integration challenges, subscriber declines, intense competition, and cybersecurity threats - The COVID-19 pandemic has significantly impacted advertising and distribution revenue due to suspended sports seasons and reduced consumer spending, leading to potential impairment charges on goodwill and intangible assets[140](index=140&type=chunk)[142](index=142&type=chunk) - Strategic acquisitions and investments, such as the Acquired RSNs, increase leverage and debt service requirements, posing risks like integration challenges, failure to achieve synergies, and assumption of unexpected liabilities[146](index=146&type=chunk)[147](index=147&type=chunk) - A decline in Distributor subscribers or a shift to services that exclude the company's programming networks could materially adversely affect revenues, as seen with **high single-digit subscriber falls for Acquired RSNs in 2020**[150](index=150&type=chunk)[152](index=152&type=chunk) - Inability to renegotiate distribution agreements on comparable or more favorable terms, or requirements to share revenue with affiliated networks, could decrease distribution revenues[153](index=153&type=chunk) - Intense, wide-ranging competition for viewers and advertisers from other programming networks, OTT services, mobile media, and large companies with greater financial resources could impact viewership and advertising revenues[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - New technologies (e.g., more channels, digital recording) and changes in ratings methodologies (e.g., Nielsen's issues due to COVID-19) may reduce advertising revenues and increase operating costs[158](index=158&type=chunk) - Dependence on unpredictable programming appeal and increasing programming costs (network and syndicated) can negatively affect business and results of operations, especially during weak advertising markets[161](index=161&type=chunk)[162](index=162&type=chunk) - Changes in retransmission consent regulations, including pending FCC rulemakings on 'good faith' negotiations and exclusivity rules, could adversely affect distribution revenues[163](index=163&type=chunk)[167](index=167&type=chunk) - Theft or misappropriation of intellectual property (programming, technology, digital content) can negatively impact revenues and operations. Litigation to enforce IP rights is costly and distracting[168](index=168&type=chunk)[169](index=169&type=chunk) - Cybersecurity risks, incidents, data privacy breaches, and IT failures could disrupt operations, lead to improper disclosure of information, damage reputation, and incur significant remediation costs[172](index=172&type=chunk) - Labor disputes, legislation, and union activity (affecting ~**2,000 employees**) could lead to strikes, production delays, increased costs, and reduced profit margins, impacting advertising revenues[173](index=173&type=chunk) - Economic environment effects, including subscriber erosion and the COVID-19 pandemic, led to a **$4,264 million non-cash impairment charge** on goodwill and definite-lived intangible assets in 2020 for the local sports segment[174](index=174&type=chunk) - Claims may be brought against the company for content posted on its internet services (websites, social platforms) by users, leading to costly defense and diversion of management attention[176](index=176&type=chunk) [Risks related to our concentrated voting stock ownership](index=35&type=section&id=Risks%20related%20to%20our%20concentrated%20voting%20stock%20ownership) The Smith family's concentrated voting power controls shareholder matters and could trigger debt obligations upon significant divestitures - The Smith family holds approximately **81.1% of common stock voting rights**, controlling most matters submitted to a shareholder vote, including director elections and corporate transactions, potentially leading to actions not in the interest of other security holders[177](index=177&type=chunk) - Significant divestitures by the Smiths could reduce their voting control below **51%**, potentially triggering debt buyback offers, defaults under credit agreements, or termination rights for LMAs and other outsourcing agreements with Cunningham Broadcasting Corporation[179](index=179&type=chunk) [Risks relating to our broadcast segment](index=36&type=section&id=Risks%20relating%20to%20our%20broadcast%20segment) The broadcast segment faces risks from advertising volatility, programming costs, loss of network affiliations, regulatory fines, and ownership rule changes - Broadcast advertising revenue is highly volatile, influenced by factors like automotive/services advertising levels, political advertising cycles (**27% of revenue in 2020**), economic health, programming popularity, and competition from other media[181](index=181&type=chunk)[182](index=182&type=chunk) - Purchasing television programming in advance based on revenue expectations carries risks; if actual revenues are lower, the company could experience losses, impacting security value[185](index=185&type=chunk)[186](index=186&type=chunk) - Internally originated programming requires large upfront investment, and its commercial success is unpredictable, depending on public acceptance and competition, which could lead to losses[187](index=187&type=chunk) - Loss of network affiliations or inability to renegotiate favorable terms could result in losing significant programming, requiring costly replacement content, and reducing revenues[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - Risk of investigations or fines from governmental authorities (e.g., FCC indecency, children's programming, sponsorship identification violations) due to live news or third-party content, potentially delaying license renewals. In 2020, the company paid **$48 million** to resolve FCC matters[191](index=191&type=chunk)[192](index=192&type=chunk) - Federal regulation limits operating flexibility, requiring FCC approval for licenses, renewals, and acquisitions. Non-renewal or delayed approvals could lead to revenue loss[194](index=194&type=chunk) - FCC's multiple ownership rules (National Ownership Rule, UHF discount, Local Television Ownership Rule) and federal antitrust regulation may limit ability to operate multiple stations, reduce revenue, or prevent cost reductions. Supreme Court decisions are pending on some rules[195](index=195&type=chunk)[196](index=196&type=chunk) - If required to terminate or modify LMAs, JSAs, and other outsourcing agreements, the company could face loss of revenues, increased costs, losses on investments, and termination penalties[201](index=201&type=chunk) - Investment in new technology initiatives, such as NEXTGEN TV, may not result in usable technology or monetizable intellectual property, leading to potential loss of investment[205](index=205&type=chunk) [Risks relating to our local sports segment](index=41&type=section&id=Risks%20relating%20to%20our%20local%20sports%20segment) The local sports segment is vulnerable to media rights non-renewal, distributor losses, content criteria failures, joint venture risks, and team popularity fluctuations - Media rights agreements with professional sports teams have varying durations; inability to renew on acceptable terms or loss of rights (e.g., due to outbidding, teams forming own networks, or league decisions on digital rights) could adversely affect revenues and operations[206](index=206&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - Success of the local sports segment heavily depends on distribution revenue from Distributors and OTT providers. Loss of major Distributors (e.g., Dish, YouTube TV, Hulu in 2019-2020) or renewal on less favorable terms can materially impact revenues[210](index=210&type=chunk)[211](index=211&type=chunk) - Failure to meet content criteria (e.g., minimum professional event telecasts) in distribution agreements can lead to fee reductions, rebates, or termination. COVID-19 disruptions in 2020 led to **$420 million in revenue reductions** and accrued rebates[212](index=212&type=chunk) - Joint venture arrangements for RSNs are subject to operational risks, including impasses on decisions, inconsistent goals among partners, partner bankruptcy, mandatory capital expenditures, and exit rights requiring the company to purchase interests[217](index=217&type=chunk)[218](index=218&type=chunk) - The local sports segment's success is substantially dependent on the popularity and on-field success of MLB, NBA, and NHL teams whose media rights are controlled. Declining popularity or failure to reach post-season play can negatively impact viewership and advertising revenues[220](index=220&type=chunk) - Advertising revenue volatility in the local sports segment is influenced by the success of automotive/service industries, economic health, programming/team popularity, new rating methodologies, and competition from other media[221](index=221&type=chunk)[224](index=224&type=chunk) - Labor disputes (player strikes, lockouts) in professional sports leagues could prevent airing of scheduled games, decreasing revenues, and potentially obligating the company to make payments to teams despite disruptions[225](index=225&type=chunk)[226](index=226&type=chunk) - The RSNs may need to obtain FCC-regulated licenses for video distribution uplinks and downlinks upon termination of existing transition services agreements, with no guarantee of FCC consent[227](index=227&type=chunk) [Risks relating to our debt](index=47&type=section&id=Risks%20relating%20to%20our%20debt) Substantial debt levels pose risks to servicing obligations, cash flow for investments, and vulnerability to economic conditions and covenant breaches - The company has a substantial debt level of **$12,551 million at December 31, 2020**, compared to a shareholders' deficit of **$1,185 million**, posing risks to debt servicing, cash flow for investments, and vulnerability to adverse economic conditions[229](index=229&type=chunk)[230](index=230&type=chunk) - Inability to generate sufficient cash flow to service debt obligations could force the company to reduce investments, dispose of assets, seek additional capital, or restructure debt, which may not be successful[231](index=231&type=chunk)[232](index=232&type=chunk) - Despite current debt levels, the company and its subsidiaries can incur substantially more debt, further exacerbating financial risks, as existing debt instruments have qualifications and exceptions to restrictions on additional debt[234](index=234&type=chunk) - Variable rate debt (approximately **$5,839 million at Dec 31, 2020**) exposes the company to interest rate risk; a **1% increase in rates would raise interest expense by $57 million**[235](index=235&type=chunk)[387](index=387&type=chunk) - Covenants in financing agreements limit actions that could increase security value (e.g., restrictions on debt, dividends, asset sales, mergers) and may require actions that decrease value, potentially leading to default and acceleration of debt[236](index=236&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) - A failure to comply with debt covenants could trigger cross-default provisions, accelerating amounts due and potentially leading to foreclosure on secured assets or bankruptcy[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Issuance of equity to third parties in RSN subsidiaries could cause existing subsidiary guarantors of DSG notes to cease being wholly-owned, substantially decreasing their total assets, net income, and attributable EBITDA, adversely affecting ability to meet DSG note obligations[243](index=243&type=chunk) - Joint venture agreements may contain provisions requiring cash payments (e.g., purchasing partners' equity interests at pre-determined prices), which would reduce available cash and ability to repay debt obligations[244](index=244&type=chunk)[245](index=245&type=chunk) [General risk factors](index=51&type=section&id=General%20risk%20factors) Adverse financial and economic conditions can negatively impact the company's industry, business, and financial results - Adverse financial and economic conditions can negatively impact the company's industry, business, and financial results, affecting advertising revenue (especially from automotive and service industries), asset divestiture values, business partnerships, and access to capital[246](index=246&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=51&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC - There are no mine safety disclosures to report[250](index=250&type=chunk) [ITEM 2. PROPERTIES](index=51&type=section&id=ITEM%202.%20PROPERTIES) The company owns and leases various facilities across the U.S., including offices, studios, sales offices, and tower/transmitter sites, all believed to be in good operating condition and adequate for current business operations - The company owns and leases offices, studios, sales offices, and tower/transmitter sites throughout the U.S., strategically located for maximum signal coverage[248](index=248&type=chunk) - All properties are considered to be in good operating condition, subject to normal wear and tear, and adequate for current business operations, with no single property representing a material amount of total properties[248](index=248&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=51&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in various lawsuits, claims, and regulatory matters in the ordinary course of business, with no material judgments or decisions rendered to date - The company is a party to lawsuits, claims, and regulatory matters in the ordinary course of business, currently in various stages with no material judgments or decisions rendered[249](index=249&type=chunk) - Further discussion of certain pending lawsuits can be found in Note 13. Commitments and Contingencies within the Consolidated Financial Statements[249](index=249&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=51&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The company has no disclosures related to mine safety - There are no mine safety disclosures to report[250](index=250&type=chunk) [PART II](index=53&type=section&id=PART%20II) This section covers the company's common equity market, selected financial data, management's discussion, and internal controls [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=53&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Sinclair's Class A Common Stock is traded on NASDAQ under 'SBGI', while Class B Common Stock is not publicly traded. The company intends to pay regular quarterly dividends, subject to Board discretion and financial performance. Stock performance showed a cumulative total return of **110.82% from 2015-2020**, lagging the NASDAQ Composite and Telecommunications Indices. The company repurchased approximately **19 million shares of Class A Common Stock for $343 million in 2020** [Common Stock Market and Holders](index=53&type=section&id=Common%20Stock%20Market%20and%20Holders) Class A Common Stock is listed on NASDAQ, while Class B Common Stock is not publicly traded, with a limited number of record holders - Class A Common Stock is listed on NASDAQ under 'SBGI'. Class B Common Stock is not publicly traded[252](index=252&type=chunk) - As of February 25, 2021, there were approximately **40 shareholders of record** for Class A Common Stock[253](index=253&type=chunk) [Dividends](index=53&type=section&id=Dividends) The company intends to pay regular quarterly dividends, subject to Board discretion, financial performance, and covenant restrictions - The company intends to pay regular quarterly dividends, with future dividends at the discretion of the Board of Directors, based on financial results, cash requirements, and covenant restrictions[254](index=254&type=chunk) - In February 2021, a quarterly cash dividend of **$0.20 per share** was declared[255](index=255&type=chunk) [Comparative Stock Performance](index=54&type=section&id=Comparative%20Stock%20Performance) The company's stock performance from 2015-2020 showed a cumulative return of **110.82%**, lagging broader market and telecommunications indices Comparative Stock Performance (December 31, 2015 = 100.00) | Company/Index/Market | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | | :------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Sinclair Broadcast Group, Inc. | 100.00 | 104.84 | 121.50 | 86.67 | 111.83 | 110.82 | | NASDAQ Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | | NASDAQ Telecommunications Index | 100.00 | 112.56 | 135.96 | 125.10 | 158.73 | 192.30 | [Stock Repurchases](index=54&type=section&id=Stock%20Repurchases) The company did not repurchase any stock during the quarter ended December 31, 2020 - For the quarter ended December 31, 2020, there were no stock repurchases[258](index=258&type=chunk) [ITEM 6. SELECTED FINANCIAL DATA](index=55&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) The selected consolidated financial data highlights a significant operating loss and net loss in 2020, primarily due to a substantial impairment of goodwill and definite-lived intangible assets. Total revenues increased in 2020, driven by media revenues, while total debt remained high. Basic and diluted EPS were negative in 2020, contrasting with positive figures in prior years Selected Statements of Operations Data (In millions, except per share data) | Statements of Operations Data: | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------------- | :--- | :--- | :--- | :--- | :--- | | Media revenues | $5,843 | $4,046 | $2,919 | $2,567 | $2,521 | | Non-media revenues | 100 | 194 | 136 | 69 | 102 | | Total revenues | 5,943 | 4,240 | 3,055 | 2,636 | 2,623 | | Operating (loss) income | (2,772) | 470 | 660 | 737 | 602 | | Net (loss) income attributable to Sinclair Broadcast Group | (2,414) | 47 | 341 | 576 | 245 | | Basic earnings per share | (30.20) | 0.52 | 3.38 | 5.77 | 2.62 | | Diluted earnings per share | (30.20) | 0.51 | 3.35 | 5.72 | 2.60 | | Dividends declared per share | 0.80 | 0.80 | 0.74 | 0.72 | 0.71 | Selected Balance Sheet Data (In millions) | Balance Sheet Data: | 2020 | 2019 | 2018 | 2017 | 2016 | | :---------------------------- | :----- | :----- | :----- | :----- | :----- | | Cash and cash equivalents | $1,259 | $1,333 | $1,060 | $681 | $260 | | Total assets | $13,382| $17,370| $6,572 | $6,784 | $5,963 | | Total debt | $12,551| $12,438| $3,893 | $4,049 | $4,204 | | Redeemable noncontrolling interests | $190 | $1,078 | $— | $— | $— | | Total (deficit) equity | $(1,185)| $1,694 | $1,600 | $1,534 | $558 | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=56&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides an in-depth analysis of Sinclair's financial performance, condition, and operational results, including an executive overview, critical accounting policies, and detailed segment-level performance. It highlights the significant impact of the COVID-19 pandemic on seasonality and financial outcomes, particularly the impairment charges in the local sports segment. The discussion also covers liquidity, capital resources, and contractual obligations, emphasizing the company's ability to manage debt and fund operations amidst market uncertainties [Executive Overview](index=57&type=section&id=Executive%20Overview) Sinclair is a diversified media company focused on broadcast and local sports, pursuing strategic partnerships, NEXTGEN TV deployment, and managing distribution agreements - Sinclair is a diversified television media company with broadcast and local sports as its two reportable segments, complemented by other businesses like owned networks, digital services, and technical services[265](index=265&type=chunk)[266](index=266&type=chunk) - Key events in 2020-2021 include a strategic partnership with Bally's for sports betting technology, the sale of two stations, acquisition of Zyp Media, and the launch of 'The National Desk' news service[271](index=271&type=chunk)[272](index=272&type=chunk)[274](index=274&type=chunk) - Distribution agreements were renewed with FOX, ViacomCBS, Comcast, and Verizon, but three major Distributors (Dish, YouTube TV, Hulu) dropped carriage of RSNs in 2019-2020[274](index=274&type=chunk) - Significant progress in NEXTGEN TV deployment, with launches in **12 markets by January 2021**, and the formation of the Cast.era joint venture with SK Telecom[278](index=278&type=chunk) - Financing activities included redeeming **$550 million of Redeemable Subsidiary Preferred Equity**, repurchasing **$343 million of Class A Common Stock**, and issuing **$750 million in senior secured notes**[279](index=279&type=chunk)[280](index=280&type=chunk) - Industry trends include declining traditional MVPD subscribers (offset by vMVPD growth), consolidation among Distributors, record political advertising in 2020, and the FCC permitting multi-channel broadcasts[285](index=285&type=chunk) [Critical Accounting Policies and Estimates](index=63&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial statement preparation involves significant estimates for revenue, goodwill, program costs, and taxes, with increased uncertainty due to COVID-19 - The preparation of financial statements requires significant estimates and judgments, particularly for revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, income taxes, and variable interest entities[286](index=286&type=chunk)[287](index=287&type=chunk) - The COVID-19 pandemic introduces significant uncertainty, impacting estimates and assumptions, requiring increased judgment and carrying higher variability and volatility[288](index=288&type=chunk) - Revenue recognition for advertising is based on delivery of spots/impressions, with deferrals for ratings shortfalls. Distribution revenue is recognized as signals are provided, based on contractual rates and estimated subscribers[289](index=289&type=chunk)[290](index=290&type=chunk) - Goodwill and indefinite-lived intangible assets are evaluated for impairment annually or more frequently. A **$4,264 million non-cash impairment charge** was recorded in Q3 2020 for the local sports segment due to subscriber erosion and COVID-19 impacts[292](index=292&type=chunk)[295](index=295&type=chunk) - Program contract costs are amortized over the period of economic benefit, with fair value assessments based on future advertising revenues. Sports programming rights are amortized over each season, with amortization suspended during COVID-19 related game delays[297](index=297&type=chunk)[298](index=298&type=chunk)[482](index=482&type=chunk) - Deferred tax assets and liabilities are recognized based on temporary differences. A valuation allowance is provided for deferred tax assets if realization is not probable, with a significant increase in 2020 due to reduced future operating income and RSN impairment[299](index=299&type=chunk)[300](index=300&type=chunk) - The company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, having power to direct activities and absorbing significant losses/returns. This includes certain third-party licensees and RSN joint ventures[302](index=302&type=chunk) [Results of Operations](index=66&type=section&id=Results%20of%20Operations) The company's operating results in 2020 were significantly impacted by the COVID-19 pandemic, disrupting usual seasonality and leading to a consolidated operating loss of **$(2,772) million**, primarily due to a **$4,264 million impairment charge** in the local sports segment. Despite this, total revenues increased to **$5,943 million**, driven by higher media revenues, particularly political advertising in the broadcast segment and the full-year inclusion of Acquired RSNs. Expenses also rose, notably media programming and production costs. The company anticipates increased distribution and advertising revenue in 2021, contingent on sports season completion and macroeconomic recovery [Seasonality / Cyclicality](index=66&type=section&id=Seasonality%20%2F%20Cyclicality) Operating results are subject to cyclical political advertising and seasonal fluctuations, further disrupted by the COVID-19 pandemic - Broadcast segment operating results are subject to cyclical fluctuations from political advertising (higher in even-numbered years, especially presidential election years like 2020) and seasonal advertising increases in Q2 and Q4[307](index=307&type=chunk) - Local sports segment results fluctuate based on MLB, NBA, and NHL seasons, with Q2 and Q3 typically higher. However, COVID-19 disrupted usual seasonality in 2020 and may continue to do so in 2021[308](index=308&type=chunk) [Consolidated Operating Data](index=66&type=section&id=Consolidated%20Operating%20Data) Consolidated operating data reflects significant revenue growth in 2020, alongside a substantial operating loss driven by impairment charges Consolidated Operating Data (In millions) | | 2020 | 2019 | 2018 | | :------------------------------------------ | :--- | :--- | :--- | | Media revenues | $5,843 | $4,046 | $2,919 | | Non-media revenues | 100 | 194 | 136 | | Total revenues | 5,943 | 4,240 | 3,055 | | Media programming and production expenses | 2,735 | 2,073 | 1,191 | | Media selling, general and administrative expenses | 832 | 732 | 630 | | Depreciation and amortization expenses | 674 | 424 | 280 | | Amortization of program contract costs | 86 | 90 | 101 | | Non-media expenses | 91 | 156 | 122 | | Corporate general and administrative expenses | 148 | 387 | 111 | | Impairment of goodwill and definite-lived intangible assets | 4,264 | — | — | | Gain on asset dispositions and other, net of impairment | (115) | (92) | (40) | | Operating (loss) income | $(2,772) | $470 | $660 | | Net (loss) income attributable to Sinclair Broadcast Group | $(2,414) | $47 | $341 | [The Impact of COVID-19 on our Results of Operations](index=66&type=section&id=The%20Impact%20of%20COVID-19%20on%20our%20Results%20of%20Operations) COVID-19 negatively impacted advertising and distribution revenues, leading to rebates and an impairment charge, with future impacts remaining uncertain - COVID-19 negatively impacted broadcast advertising revenue in 2020 due to lower local and national net sales, partially offset by a **$334 million increase in political advertising**[312](index=312&type=chunk)[318](index=318&type=chunk) - Local sports segment advertising revenue decreased in Q2 2020 due to postponed NBA, NHL, and MLB seasons, but increased in Q3 with event resumptions. Distribution revenue was negatively impacted by subscriber erosion and three Distributors dropping RSN carriage, leading to **$420 million in rebates**[313](index=313&type=chunk)[499](index=499&type=chunk) - The company's business was designated essential, but facilities experienced temporary disruptions. The full extent of COVID-19's future impact on financial condition, results, and cash flows remains uncertain[314](index=314&type=chunk)[511](index=511&type=chunk) [Broadcast Segment](index=68&type=section&id=Broadcast%20Segment) The broadcast segment saw revenue growth in 2020 driven by political advertising and higher distribution rates, despite increased programming expenses Broadcast Segment Revenue and Expenses (In millions) | | 2020 | 2019 | 2018 | Percent Change '20 vs.'19 | Percent Change '19 vs.'18 | | :------------------------------------------ | :--- | :--- | :--- | :------------------------ | :------------------------ | | Distribution revenue | $1,414 | $1,341 | $1,186 | 5% | 13% | | Advertising revenue | 1,364 | 1,268 | 1,484 | 8% | (15)% | | Other media revenue | 144 | 81 | 45 | 78% | 80% | | Media revenues | $2,922 | $2,690 | $2,715 | 9% | (1)% | | Operating income | $789 | $546 | $751 | 45% | (27)% | - Distribution revenue increased by **$73 million in 2020 (5% YoY)** due to higher rates, partially offset by subscriber decreases. Advertising revenue increased by **$96 million in 2020 (8% YoY)** primarily due to a **$334 million increase in political advertising**, offsetting COVID-19 related declines in other categories[317](index=317&type=chunk)[318](index=318&type=chunk) - Media programming and production expenses increased by **$84 million in 2020 (7% YoY)** due to higher network affiliation fees, partially offset by decreases in advertising, employee compensation, and travel costs due to COVID-19[324](index=324&type=chunk) Broadcast Segment Advertising Revenue by Programming Type (Excluding Digital) | Programming Type | 2020 | 2019 | 2018 | | :---------------------- | :--- | :--- | :--- | | Local news | 34% | 33% | 34% | | Syndicated/Other programming | 27% | 29% | 28% | | Network programming | 24% | 24% | 25% | | Sports programming | 12% | 11% | 10% | | Paid programming | 3% | 3% | 3% | [Local Sports Segment](index=71&type=section&id=Local%20Sports%20Segment) The local sports segment's revenue increased significantly in 2020 due to the full-year inclusion of Acquired RSNs, but was offset by a major impairment charge Local Sports Segment Revenue and Expenses (In millions) | | 2020 | 2019 (b) | | :------------------------------------------ | :--- | :------- | | Distribution revenue | $2,472 | $1,029 | | Advertising revenue | 196 | 103 | | Other media revenue | 18 | 7 | | Media revenue | $2,686 | $1,139 | | Media programming and production expenses | $1,361 | $769 | | Media selling, general and administrative expenses | 243 | 90 | | Depreciation and amortization expenses | 410 | 157 | | Corporate general and administrative | 10 | 93 | | Impairment of goodwill and definite-lived intangible assets | 4,264 | — | | Operating (loss) income | $(3,602) | $30 | | Income from equity method investments | $6 | $18 | | Other income, net | $160 | $10 | - Media revenue increased to **$2,686 million in 2020 from $1,139 million in 2019**, primarily due to the full-year inclusion of Acquired RSNs. Distribution revenue was reduced by **$420 million in 2020** due to rebates from lower professional sports game counts caused by COVID-19[335](index=335&type=chunk) - Advertising revenue decreased in Q2 2020 but increased to **$124 million in Q3 2020** with the resumption of sports events. Media programming and production expenses increased to **$1,361 million in 2020**, mainly from amortization of sports programming rights[336](index=336&type=chunk)[337](index=337&type=chunk) - A total impairment loss of **$4,264 million** was recorded in 2020 for goodwill and definite-lived intangible assets in the local sports segment[340](index=340&type=chunk) [Other Segment](index=73&type=section&id=Other%20Segment) The 'Other' segment experienced media revenue growth from owned networks, while non-media revenue declined due to reduced broadcast equipment sales Other Segment Revenue and Expenses (In millions) | | 2020 | 2019 | 2018 | Percent Change '20 vs.'19 | Percent Change '19 vs.'18 | | :------------------------------------------ | :--- | :--- | :--- | :------------------------ | :------------------------ | | Distribution revenue | $199 | $130 | $113 | 53% | 15% | | Advertising revenue | 131 | 110 | 75 | 19% | 47% | | Other media revenues | 7 | 13 | 16 | (46)% | (19)% | | Media revenues | $337 | $253 | $204 | 33% | 24% | | Non-media revenues | $114 | $217 | $146 | (47)% | 49% | | Operating income (loss) | $65 | $26 | $(78) | (150)% | (133)% | | Loss from equity method investments | $(42) | $(53) | $(61) | (21)% | (13.1)% | - Media revenue increased by **$84 million in 2020 (33% YoY)** due to higher distribution and advertising revenue from owned networks. Non-media revenue decreased by **$103 million in 2020 (47% YoY)** due to reduced broadcast equipment sales as the FCC's spectrum repack process wound down[347](index=347&type=chunk) - Media expenses decreased by **$3 million in 2020 (1% YoY)**, while non-media expenses decreased by **$70 million (42% YoY)** primarily due to lower cost of goods related to broadcast equipment sales[348](index=348&type=chunk) [Corporate and Unallocated Expenses](index=74&type=section&id=Corporate%20and%20Unallocated%20Expenses) Corporate expenses decreased in 2020 due to lower legal costs, while interest expense rose due to acquisition financing Corporate and Unallocated Expenses (In millions) | | 2020 | 2019 | 2018 | Percent Change '20 vs.'19 | Percent Change '19 vs.'18 | | :------------------------------------------ | :--- | :--- | :--- | :------------------------ | :------------------------ | | Corporate general and administrative expenses | $148 | $387 | $111 | (62)% | 249% | | Interest expense including amortization of debt discount and deferred financing costs | $656 | $422 | $292 | 55% | 45% | | Loss on extinguishment of debt | $(10) | $(10) | $— | —% | n/m | | Other income, net | $325 | $6 | $3 | n/m | 100% | | Income tax benefit | $720 | $96 | $36 | 650% | 167% | | Net income attributable to redeemable noncontrolling interests | $(56) | $(48) | $— | 17% | n/m | | Net loss (income) attributable to noncontrolling interests | $71 | $(10) | $(5) | (810)% | 100% | - Corporate general and administrative expenses decreased by **$239 million in 2020 (62% YoY)**, primarily due to a **$258 million decrease in legal, consulting, and regulatory costs** related to litigation and the RSN acquisition[351](index=351&type=chunk) - Interest expense increased by **$234 million in 2020 (55% YoY)** due to acquisition-related financing for Acquired RSNs being outstanding for the full year, partially offset by refinancing activities and lower LIBOR[354](index=354&type=chunk) - Other income, net, increased by **$319 million in 2020**, driven by a **$158 million increase in investment value** and a **$159 million measurement adjustment gain** on variable payment obligations from the RSN acquisition[357](index=357&type=chunk) - Income tax benefit increased to **$720 million in 2020**, resulting in an effective tax rate of **22.9%**, primarily due to the RSN impairment charge and a **$61 million benefit from the CARES Act** allowing federal net operating loss carryback[358](index=358&type=chunk)[628](index=628&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2020, Sinclair had **$2,183 million in net working capital** and **$1,259 million in cash**. The company's primary liquidity sources are cash on hand, operating cash flows, and borrowing capacity under Bank Credit Agreements and the A/R Facility. Key financing activities in 2020 included establishing a **$250 million A/R Facility**, repaying revolving credit facilities, issuing **$750 million in secured notes**, and redeeming **$550 million of Redeem

Financial Data and Key Metrics Changes - The fourth quarter media revenues reached $986 million, exceeding guidance by $25 million, driven by record political ad revenue of $204 million, which was $10 million higher than expected [29][30] - Adjusted EBITDA for the quarter was $408 million, a $132 million increase year-over-year, surpassing expectations due to higher advertising revenues and lower costs [30][35] - Total company media revenues for the year were $5.843 billion, with adjusted EBITDA of $1.888 billion, down 12% compared to the prior year pro forma [35][36] Business Line Data and Key Metrics Changes - Local sports media revenues for Q4 were $531 million, $257 million lower than the prior year, primarily due to $168 million in distributor rebates accrued [31][34] - Local sports adjusted EBITDA was $209 million for the quarter, $26 million below guidance due to additional distributor rebate accruals [34] - Broadcast and other segments saw media revenues of $986 million, with adjusted EBITDA of $408 million, reflecting strong political advertising and better-than-expected core advertising revenues [29][30] Market Data and Key Metrics Changes - Pro forma distribution revenues increased by 8% year-over-year despite mid single-digit subscriber churn [30] - Core advertising revenues showed improvement, with automotive advertising up 38.5% quarter-over-quarter [88] - The company anticipates continued elevated subscriber churn and challenges in the distribution market due to the pandemic [39][41] Company Strategy and Development Direction - The company is focusing on gamification initiatives, including a partnership with Bally's for sports betting, which is expected to enhance viewer engagement and revenue [10][19] - Plans to launch a new Bally's sports app in spring 2021 to provide a personalized viewing experience [16][17] - The company is transitioning RSN operations to a new state-of-the-art facility, which will allow for the operation of up to 50 RSN channels [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing challenges posed by COVID-19, including uncertainty in subscriber churn and league schedules [16][38] - The company remains optimistic about advertising recovery as economic indicators improve and vaccinations roll out [88][90] - Management expects to exceed budgeted first-quarter revenue numbers from an advertising perspective, driven by a strong recovery in the economy [88] Other Important Information - The company donated over $1 million and helped raise an additional $30 million for charitable causes during the pandemic [13] - The company has $880 million remaining on its share buyback authorization, having retired 21% of its shares outstanding last year [58] Q&A Session Summary Question: What are the assumptions regarding distribution and retransmission? - Management noted that the only significant retransmission renewal this year is with DISH, and they are managing expectations around distributor renewals [46][48] Question: How is the company addressing churn and capital allocation? - The company is building in high single-digit churn for Diamond and mid-single-digit churn for broadcast, while also considering share buybacks and future investment opportunities [57][58] Question: What is the strategy for Bally's partnership and RSN performance? - The strategy involves deep integration with Bally's to drive user engagement and the expectation of achieving performance targets for user thresholds [62] - Management indicated that the RSNs are expected to have a range of EBITDA expectations due to various moving parts and uncertainties [63]

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2020 was $736 million, nearly double last year's figure and 15% higher than pro forma Q3 2019, exceeding guidance by 19% [10][35] - Consolidated media revenue increased by 42% or $449 million from Q3 2019, with pro forma media revenues declining by $53 million year-over-year but up 5% excluding distributor rebates [31][32] - Adjusted free cash flow for Q3 was $551 million, $140 million above the high end of guidance, and pro forma free cash flow was $550 million, up $199 million from Q3 2019 [36][37] Business Segment Data and Key Metrics Changes - Broadcast segment media revenues totaled $817 million, exceeding guidance by $12 million, with adjusted EBITDA of $271 million, a $62 million increase year-over-year [40] - Local sports segment media revenues were $727 million, more than double the prior year, with adjusted EBITDA of $464 million, exceeding guidance [41][43] - Political advertising revenue reached approximately $363 million, a 35% increase over the previous record year of 2012, significantly contributing to overall revenue growth [11][39] Market Data and Key Metrics Changes - Subscriber churn improved slightly in Q3 compared to Q2, with broadcast segment churn in mid-single digits and local sports segment churn in high single digits [12][16] - The loss of YouTube and Hulu as distributors impacted subscriber churn and revenue, contributing to a non-cash impairment charge of approximately $4.2 billion in the local sports segment [17][28] Company Strategy and Development Direction - The company is focusing on initiatives to monetize future growth opportunities in legalized sports betting, advertising, and direct-to-consumer distribution [19][22] - Plans to launch a new sports app aimed at enhancing viewer experience and integrating gamification elements are underway, expected to launch in spring [21] - The company is optimistic about the future of sports rights and intends to reinvent RSNs around community engagement and direct-to-consumer models [83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of core advertising revenues post-COVID, citing improvements in traditional MVPDs' subscriber numbers [62] - The company will not provide guidance for 2021 due to uncertainties surrounding COVID and its economic impact [27] - Management remains focused on cost control measures, having reduced OpEx and CapEx expenses significantly during the year [57] Other Important Information - The company estimated a deferred income tax benefit of approximately $1.1 billion related to the impairment loss, which does not affect cash position or cash flow [30] - Consolidated cash at the end of Q3 was $632 million, with total debt at $12.463 billion and a net leverage ratio of 6.5 times [44] Q&A Session Summary Question: Update on subscriber locks and market evolution - Management indicated that YouTube and Hulu represented about 10% of gross distribution revenues, with only 5% of RSN subscribers up for renewal next year [51][52] Question: Insights on Q4 subscriber churn expectations - Management noted that Q4 estimates reflect slight improvement in subscriber churn based on Q3 progress and traditional MVPD disclosures [62] Question: Update on cash flow and debt restructuring options - Management stated they are in a strong liquidity position and are not actively soliciting responses from stakeholders regarding debt restructuring [64] Question: Core advertising environment and auto category performance - Core advertising in Q3 was down mid to high single digits, but there was improvement in the auto category [71][74] Question: Future of distribution deals and RSN strategy - Management clarified that the recent YouTube TV agreement was an anomaly and not indicative of a broader trend in distribution deals [78] Question: Managing costs and media rights agreements - Management emphasized the importance of aligning media rights agreements with variable compensation structures to manage costs effectively [97]

Financial Data and Key Metrics Changes - Consolidated media revenue for Q2 increased to $539 million due to the inclusion of the Local Sports segment, which was not present in the previous year's results [47] - On a pro forma basis, total media revenues were $1.260 billion, down from $1.710 billion year-over-year, primarily due to pandemic-related advertising market weakness and absence of live sports [47][50] - Adjusted EBITDA on a consolidated basis increased 31% to $254 million, but on a pro forma basis, it declined by $391 million [54] - Consolidated adjusted free cash flow was $46 million, which was $79 million below the lower end of guidance [57] - Total debt at the end of Q2 was $12.399 billion, with a net leverage ratio of 6.4 times [68] Business Line Data and Key Metrics Changes - Core advertising for broadcast and other segments declined 36% in Q2, with a significant improvement noted in June, where the decline was 26% [12][50] - Sports segment adjusted EBITDA was $110 million, down from $440 million year-over-year, primarily due to distributor rebate accrual and absence of live games [55][67] - Media revenues for the Sports segment decreased 38% to $616 million compared to pro forma results of $992 million in the previous year [65] Market Data and Key Metrics Changes - Subscriber churn across all segments was 7% year-over-year, slightly higher than previous trends, attributed to COVID-19 impacts [52] - The advertising market showed signs of recovery, with July finishing down 20% compared to the previous year [51] Company Strategy and Development Direction - The company is focused on leveraging growth opportunities in sports betting and enhancing non-game programming to improve viewership and revenue [22][24] - The launch of NEXTGEN TV technology is expected to enhance broadcast quality and provide new monetization opportunities [25][28] - The company has locked up approximately 85% of RSN subscribers for at least two years following a successful agreement with Comcast [29][85] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the advertising market and the upcoming political season, which is expected to mitigate weaknesses in core advertising [14][51] - The company acknowledged ongoing challenges due to COVID-19 but remains committed to managing expenses and optimizing capital structure [62][70] Other Important Information - The company has repurchased approximately 19 million shares, representing 21% of total shares outstanding since the beginning of the year [37] - A new headline news service is set to launch in early 2021, focusing on breaking local news stories [34] Q&A Session Summary Question: Improvement in core advertising and COVID impacts - Management noted consistent improvement in core advertising bookings, although they are being booked later than usual due to COVID-19 [77][79] Question: Stability of subscriber base and cord-cutting outlook - Subscriber churn was reported at 7%, with management forecasting similar levels for Q3 due to economic conditions [82] Question: Comcast renewal and distribution percentages - Management confirmed that 85% of RSN subscribers are locked in for two years or more following the Comcast agreement [85] Question: Timing of cash inflows from team rebates - Management clarified that cash inflows from team rebates are expected in Q3 and Q4, while cash outflows to distributors will occur after 2020 [86][89] Question: Liquidity and capital structure management - Management emphasized a commitment to strengthening the capital structure and exploring various options for debt management [91][92] Question: Recent station renewals and retransmission growth outlook - Management refrained from providing full-year guidance on retransmission growth due to market variability [121]

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q1 2020 Results Conference Call May 5, 2020 9:00 AM ET Company Participants Billie Jo McIntire - IR Lucy Rutishauser - EVP & CFO Chris Ripley - President & CEO Rob Weisbord - President, Local News & Marketing Services Jeff Krolik - President, Sports Division Conference Call Participants Aaron Watts - Deutsche Bank Dan Kurnos - The Benchmark Company John Janedis - Wolfe Research Avi Steiner - JP Morgan Davis Hebert - Wells Fargo Steven Cahall - Wells Fargo Operato ...

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