Q4 2020 Sinclair Broadcast Group Inc Earnings Call
Greetings and welcome to the Sinclair broadcast group fourth quarter, 'twenty and 'twenty earnings Conference call.
At this time all participants on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
I will now turn this conference over to your host Lucy was Houser Executive Vice President and Chief Financial Officer. Please begin.
Thank you operator, and good morning, everyone.
And just depending on the call with me today are Chris Ripley President and.
Rob Whiteboard precedent and broadcast and Chief advertising revenue Officer, and Steve Zenker, Vice President Investor Relations before we begin Billie Jo Mcintire will make our forward looking statement disclaimer.
Certain matters discussed on this call may include forward looking statements regarding among other things future operating results such statements are subject to a number of risks and uncertainties actual results and the future could differ from those described and the forward looking statements as a result of various important factors such factors have been set forth and the company's most recent reports as filed.
And with the S E T and included in our fourth quarter earnings release, the company undertakes no obligation to update those forward looking statements and the company uses its website as a key source of company information, which can be accessed at www Dot S. P. G. I thought net in accordance with regulation FD. This call is being made available to them.
Public a webcast replay will be available on our website and will remain available until our next quarterly earnings release and put it on the call will be a discussion of non-GAAP financial measures.
Typically adjusted EBITDA adjusted free cash flow and leverage the company considered adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts investors and lenders as a measure of evaluation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measure.
Mens and may differ from other companies use and or formulations and <unk>.
Company does not provide reconciliations on a forward looking basis further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website www Dot S. P. G. I dot net Chris Ripley will now take you through our operating highlights.
Good morning, everyone.
Looking back on 'twenty and 'twenty. It certainly was a year that will stand out for a number of reasons of course top of mind as the pandemic and its impact on People's lives the economy and businesses.
We saw just how resilient our company could be and how well our employees could respond and adapt to different have a different way of doing business.
The media industry, and Sinclair faced and continue to face many disruptions and core advertising.
Distribution revenues and live sporting events, however, built and hedges to shortened professional sports seasons as well as record political revenues helped to offset some other declines brought about by the pandemic.
The strong demand from political advertisers have validates the importance of the TV media and <unk>.
And secondly, reaching mass audiences.
And we learned as an organization how to dial back costs, while we're retaining productivity and efficiency, despite less than ideal working conditions and 60% of our workforce working remotely.
A special thank you to those employees, who ensured we continued broadcasting to provide important news and COVID-19 updates as well as other content, including sports to our consumers.
2020, and was also notable for the advancement and important initiatives to fuel our growth and the years ahead and perhaps the most significant was our strategically important and long term agreement with valley as your partner and gamification initiatives and cleaning the fast growing legalized sports betting industry.
And enterprise wide partnership brings the mass audience reach of our assets, including our TV stations, Orissa and tennis channel Stadium and start to drive awareness engagement for Bally betting platform, which in turn should drive our viewership and revenue as well as the value of our equity stake and Dallas.
In addition, the Orissa and Theyre being renamed Valley Sports and will receive a naming rights payment as well as a percentage of valleys advertising budget.
Sports betting is just one component of our gamification efforts. We are in the process of developing a new app, which will encourage viewers to actively participate in the sports viewing experience by offering interactive elements such as free to play contest rewards and the ability to engage and interact with other fans and the idea is to make.
Watching sports similar to playing a video game.
During the year, we also made significant progress and our efforts around Nextgen broadcasting launching and 11 markets. The technology allows for our broadcasting all to be mobile personalized and IP compatible and early results indicate the signal strength and picture quality have met or exceeded our expectations.
Over 20 television sets and capable of receiving the advance the enhanced signal were introduced into the marketplace. During the year and we're proud to say that the first one media and thank you. Your labs prototype mobile phone App, we named Mark one after one Mark Aiken, who helped develop the HFC throughput and our standard were developed to us for validation and <unk>.
<unk> other functionality and performance of receiving the new sales through mobile devices.
Our OTT and connected TV assets stair and news on which our free AD supported streaming TV platforms are fast and industry and lingo had breakout years and exceeded expectations with viewership up significantly driving this growth was the importance of local television during this pandemic.
They're featuring over 120 channels, including two commercial free ones dedicated to specific timely news areas, one covering local and national elections, and one focused on COVID-19 developments, including light press conferences across the country on.
Another channel.
Featuring a horse auctions.
It demonstrates the unique ways. These streaming platforms can monetize diverse opportunities.
News on our leading from air of local news and local broadcast news features not only Sinclair news stations, but also many of the other local leading broadcasters.
Finally in 'twenty and 'twenty, we directly donated over $1 million and helped raise an additional $30 million for charitable causes across the country, including natural das disasters and to aid those impacted by COVID-19, before the pandemic, we were and early adopter of raising the minimum wage for our workers to $15 an hour and <unk>.
During Covid, we offered our employees increased flexibility around sick leave to aid with dependent care and allowed flexibility on cashing out vacation hours to assist with financial hardship and revamped how he paid on commission employees due to the pandemic impact on our advertising sales.
And while we continue to make difficult decisions some of which impact our employees I believe Sinclair will emerge from the pandemic more flexible and how it operates and well positioned to capitalize on growth opportunities as we move into 2021 and beyond.
As it relates to fourth quarter trends.
And the quarter ended up better than we expected with EBITDA coming in towards the upper end of our guidance range. Despite additional distributor and rebate accruals due to the shortened NBA and NHL seasons, and stronger than expected core and political advertising revenues and lower than expected expenses also drove the results.
Core broadcast and other advertising revenues were above our expectations for the quarter as November improved to down low single digit percentages and December was relatively flat likely due to the pent up demand after a record setting political season.
Speaking of which we had a record quarter for political advertising and political for the year was $373 million, which was approximately 40% better and our prior record year.
For the first quarter, we're expecting broadcast and other core advertising to be down mid single digits percentages with Covid cases still high new strains of the virus spreading throughout the country and vaccinations just rolling out.
As we look out over 'twenty and 'twenty one.
There is still much uncertainty and limited visibility Covid remains a challenge subscriber churn continues at elevated levels Lee schedules are still being defined and could change quickly timing for further distributor and team Rebase is uncertain and of course 2021 is non election year. Nonetheless.
Nonetheless, we remain focused on our priorities for this year, which I'd like to share with you.
This spring around the time, the MLB season commences, we expect to unveil, our new valley and sports App, which will allow viewers a more personalized and interactive viewing experience and the app will provide significant enhanced functionality and new design and and a new design that will be a key enabler for our initiatives around the gamification of.
Sports viewing and just to give you an idea on the improvement of our new App and its increased capabilities. When you. Initially when we initially launched the first phase of the App will allow us educated users the ability to watch games, which features with with features like being able to rewind and view a replay easily search for enhanced statistics and programming include.
And all the content that Arizona, our sense as well as enjoy increased news coverage about the teams and games and.
Importantly, the new App will allow us to better monetize hundreds of millions of digital impressions that are currently not being fully optimized on the existing Fox sports go App, we expect the new App will be an important component and helping drive increased revenue growth and profitability for our local sports business and the future.
A little more color around the gamification initiatives, we are undertaking our goal is to reach and engage as many consumers as possible through gamification across our entire enterprise of assets by implementing an array of gamification elements, each aligned with and authentic to the content and activity of which.
On which they are offered and we will engage users, while personalizing and customizing their experience for them based on their preferences and habits and we plan to rollout various gamification elements throughout 2021, starting with our sports assets you should expect to see gaming elements being incorporated into our sports network and digital.
Ramming as soon as the third quarter of this year. And addition, we were working on a direct to consumer product that is expected to launch in 2022 and will allow us on S. Educated users the ability to access and even subscribed to certain content from ours and as well as other unique content.
Gaming activities are especially appealing to the 18 to 34 year old demographic and our market studies approximately 60% of this cohort indicated that they would be interested and betting on a live sports event.
This group has grown up with video games and seeks interactivity and community. We believe our initiative on making watching sports more dynamic and incorporating gamification into the viewing experience will resonate with them.
This includes ways to interact with other fans to share their passion and real time and be able to discuss what's going on and the game, a bad call and awesome homerun and our new platform will give them that opportunity.
It will also enable them to engage and contests and where legal facilitate sports betting enhancing the game experience.
Another exciting initiative for 2021, which premiered in January as the National desk, a new National News program and errors weekday mornings on 67 of our stations across the U S and on stir the program utilizes content from Sinclair and local news stations to provide viewers and timely.
News coverage of noteworthy local station of stories.
That are of interest to national audiences and free of commentary from.
Your feedback from the show has been encouraging and we look forward to building on the successful launch as we move through the year.
Of course, we will be continuing the rollout of next Gen TV and the industry expects that by the end of 'twenty and 'twenty, one nextgen TV will be available and 45 markets covering over 60% of U S television households.
Ability for it to provide superior audio and visual experience to target the household or device and be used for day to casting are just a few ways. We believe its important IP transmission technology can be monetize for the future.
Also during 2021, we believe we will be transitioning our current Orissa and operations, which currently are housed at in the Disney facilities and woodlands, Texas to a brand new state of the Art 25000 square foot Sports Media Operation Center at encompass digital media and Atlanta, Georgia.
This facility can run up to 50, Rs and channels, including provisions for ultra high definition channels and the future.
The new digital facility Atlanta will allow us to take advantage of new business models, and we're eager to make the move later this year.
Finally, I want to highlight another important initiative upcoming in 2021, we are targeting new solutions for advertisers to utilize our extensive combined reach into 70% of U S. TV households by pursuing a unified advertising platform that can give advertisers access to our vast app advertising.
Across our entire portfolio of 186 stations 21 hours and brand tennis channel and stir stadium and news on.
This new platform is intended to give a look across all Sinclair business units on.
<unk> and inventory that allow us to engage advertisers and multi year deals that enable them to reach viewers on a local level through one simplified access point.
As we move forward in 2021 Theres no questions, we still face many challenges and uncertainties. We continue to look ahead and make investments and initiatives that will enable significant new growth opportunities.
I'll now turn it over to Lucy.
Thank you Chris first some housekeeping items to note as a reminder, the RF tens were acquired in late August of 2019, and so while 2024th quarter results.
Do reflect a full period comparisons to the prior year, our full year 2000, and 'twenty results do not as such for more meaningful comparative purposes. I will also include pro forma 2019 results and which assumes we on euro cents on the entire year.
I will also be referencing certain pro forma numbers for our broadcast business, which reflects the sale of three stations Harlingen and Lexington, which were sold in 2020, and Paducah, which was sold in February of this year.
Of course as reported numbers can be found in this morning's earnings release also as we discussed on our last two earnings calls the shortened professional sports seasons, and 2000, and 'twenty and 2021 impact the accounting for our local sports segment and a few significant ways.
And.
First 2020 distribution revenue reflects an accrual for estimated rebates to be paid to our distributors based on the number of games delivered versus the minimum gained guaranteed and our agreement.
Due to the NBA and NHL shortened 2021 season, and we increased our fourth quarter accrual for these rebates by approximately $49 million, bringing the full year 2020 distributor rebate accruals to approximately $420 million.
Of that approximately $220 million is contracted to be paid over 2021, and the remaining $200 million is contracted to be paid in the first half of 2022.
As you may recall, offsetting this amount and our reduced sports rights payments.
And that the teams very to us due to shortfalls and minimum games.
Including the reduction and the 'twenty 'twenty, one NBA and NHL seasons minimum game delivery shortfalls and turn it over approximately $697 million, which is approximately $125 million more than what we guided to last quarter.
This total on the $697 million.
And due to what five.
542 million was realized in 2020, and 155 million is expected to be realized and the first half of 2021.
Please note that with leak schedules and game count subject to change these estimates from the team.
Distributors may also change.
Now onto the financial highlights first I'll go through the segments and details and then doing some other parts from the consolidated company.
Starting with the broadcast and other statements.
Media revenues of 986 million from the fourth quarter exceeded the high end of our guidance range by 25 million.
The quarter benefited from the strongest political AD revenue, we have ever experienced in the quarter totaling 204 million were 10 million higher than our guidance as a result, and the GA run off election.
Political was the primary driver for the 20% increase and media revenue versus the same period last year.
And at the same time, we're advertising also exceeded guidance declining only high single digit percentage rather than the mid teen percent, we were forecasting and.
And as Chris mentioned in November and December were stronger than expected after October and political crowd out.
Pro forma distribution revenues increased 8% compared to the fourth quarter last year. Despite mid single digit percent subscriber churn on a year over year basis.
Media expenses of $533 million were also favorable compared to our guidance range due to lower production and programming expenses and lower G&A.
Compared to the prior year media expenses were 23 million higher due to increased network programming costs offset in part by cost controls.
Adjusted EBITDA of 408 million with $132 million increase over the prior year and exceeded our expectations due primarily to the higher advertising revenues and lower cost than we were forecasting for the quarter.
For the year broadcast and other media revenues were $3 $259 million and adjusted EBITDA was 1.046 billion.
Turning to the local sports segment results for the quarter were better than anticipated, but timing around the start of the NHL and NBA season timing and the team rebates as well as the higher distributor rebate accrual resulted in lower revenues and EBITDA.
Media revenues of 531 million and the fourth quarter were 257 million lower than the prior year driven in large part by the total $168 million of distributor rebates, we accrued in the quarter the dropped carriage by several distributors in the second half of 2020.
The elevated subscriber churn and a decline in advertising as a result on fewer live games in the fourth quarter of.
2020.
Compared to guidance media revenues of 531 million came in and 46 million visa and the low and the bar range as a result of the incremental distributor receipt accrual that we talk without which media revenue would have exceeded the high end of the range by $17 million on.
Higher than expected results and advertising and distribution revenues.
Local sports media expenses of $163 million were $434 million or 73% lower than the fourth quarter a year ago with the vast majority of the decrease due to due to the timing of the sports rights amortization expense with the NBA regular.
CS and being delayed until the end of December and the NH Lcs and delayed until 2021, whereas in 2019 third season began in October and.
Per the guidance media expenses were about 10 million higher due to the Nba's decision to resume play in December versus our forecasted they would wait until 2021 to return and that led to both higher game related production expenses as well as high and our sports.
Rights amortization for those NBA games were played in December.
Excluding the timing of the sports rights amortization and production of those unanticipated gained media expenses were approximately $20 million less than guidance.
Local sports adjusted EBITDA was 209 million for the quarter was 26 million below guidance due to the additional distributor rebate accruals and timing of some team rebates that slipped into 2021.
Excluding these two things to local sports segment weighted beaten the high end of the adjusted EBITDA guidance by more than $40 million driven by the higher carriage fees and lower expenses stemming from our forecasting.
For the year local sports media revenues were $2 billion $686 million and adjusted EBITDA was 841 million.
And so selling the parts of the consolidated company Sinclair achieved total company media revenue of 1 billion and $490 million and the fourth quarter, which was within our previously provided guidance range and $91 million lower than the previous year's fourth quarter for the reasons that I just went through.
Sure.
And adjusted EBITDA was $617 million, which was higher than the high end of our guidance range and 167 million better than fourth quarter 2019.
And adjusted free cash flow for the quarter was 416 on yet.
For the full year 2020, the total company and media revenues were 5 billion and $843 million adjusted EBITDA for the year, excluding the third quarter impairment charge as well as other non recurring legal litigation and regular toy costs. During the year was 1 billion eight.
Hundred and $88 million down 12% versus the prior year pro forma and for the year adjusted free cash flow was $1.123 billion were approximately $14 per share.
Now turning to the consolidated company balance sheet consolidated cash at the end of the quarter was $1 259 million, which included $783 million of cash at Diamond and <unk>.
As a reminder of the $420 million of accrued distributor rebates approximately $220 million is contracted to be repaid in 2021, and approximately $200 million in the first half of 2022.
In addition, diamond is expecting $155 million of lower teen payments in the first half of 2021 as a result of the minimum game guarantees.
As mentioned earlier, there are still many moving parts to the league schedules and game counts, which could which could affect the expectation and the distributor and team rebates.
During the fourth quarter, neither credit silos revolver withdrawn.
Total debt at year end, 2020 was 12 billion and $551 million and the net leverage ratio for consolidated Sinclair at quarter end was six times Sinclair television group's first lien indebtedness ratio on a trailing eight quarters was two seven times on a covenant.
And four and a half times and four times on a net leverage basis through the bonds, which is within Stg's net leverage goal of high threes low four times.
Diamond's first lien indebtedness ratio on a trailing four quarters was six three times on a covenant of six and a quarter times, which Ernie Springs, if the revolver is drawn over 35% and I remind you that none of the revolver was drawn.
Three of the bonds Diamond was leveraged eight three times on a total net basis.
Turning to our first quarter and full year 'twenty 2021 guidance.
The uncertainty of Covid and the pace of the vaccine rollout continued struggles and the economy evolving and continued elevated subscriber churn and.
And unannounced league schedules continue to make visibility for the business difficult and challenging to forecast.
Nonetheless, given investor and creditor interest around diamonds performance and outlook, we are providing full year guidance for diamond and certain of the expense side for S. T. G with the disclaimer that the outlook is subject to change for all the reasons I just mentioned.
For our broadcast and other statements are first quarter media revenue guidance and $730 million to 745 million down approximately 4% to 6% from last year's pro forma seven and $74 million.
The pro forma numbers exclude the results of <unk> collagen and Paducah.
The decrease is the result of a full quarter and the pandemic versus really just two weeks last year as well as this year being a non presidential election year.
For the quarter, we are forecasting same station subscriber churn of down mid single digit percentage, which is a little change to the current trends.
First quarter adjusted EBITDA for the broadcast and other segments is expected to be between 122 million and $135 million compared to last year's pro forma $219 million.
The decrease is due to higher network payments and the lower advertising revenues and as a reminder, and as discussed on our last quarter earnings call due to timing of network versus distributor contracts.
Continued elevated subscriber churn and only having one major distributor renewable and the back half of the year. We are estimating gross retrans to grow by low single digit percentage.
We project net distribution revenues and declined by mid single digit percentage for 2021.
Due to a third of our big four affiliate subscribers reset and at or near the end of 2020.
For the local sports segment first quarter media revenue is expected to be 746 million to 754 million down 7% to 8% from last year's $812 million driven by continued elevated subscriber churn and dropped carriage by several distributors in the back half.
2000, and 'twenty offset in part by increased AD revenues from higher game counts.
First quarter adjusted EBITDA is expected to be a negative 55 to a naked and $63 million due primarily to the impact of the loss distribution and sub churn and offset in part by the benefit of having more NBA and NHL games. This quarter also keep in mind the first quarter.
There is typically the lowest EBITDA quarter of the year due to the acceleration of the MLB team right to peanuts.
For the consolidated company first quarter media revenues are expected to be 1 billion 440, 821 billion for $71 million.
First quarter adjusted EBITDA is expected to be 59% to $80 million and first quarter adjusted free cash flow of negative 85 to negative 108 million net.
And then just very quickly turning to full year 2021 guidance, our broadcast and other statement full year expense and other financial highlights or in this morning's earnings release from I'm not going to repeat them here for the local sports segment media revenues for the full year are expected to be 3.054 billion to 3 billion.
And $326 million and that's up from $2 billion $685 million in 2020.
The wide range reflects the uncertainty around the possible outcomes for this year, particularly around the distributor side and the business on.
Also keep in mind that 2021 does not anticipate distributor rebate accruals, which were included in 2020, although this could change if game counts change. We also expect more games this year, which should drive for advertising revenue.
The range assumes continued chain distributor elevated subscriber churn and a high single digit percentage.
Local sports adjusted EBITDA for the year is expected to be 441, and 709 million versus $8 41 in 2020.
The decrease is a result of higher sports rights payments, primarily as 2020 reflected higher remember game delivery rebates as well as higher production expenses on this year's expected higher game talents offset in part by the increased media revenues, so with that I would like to own.
And it up to questions operator.
Thank you at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is on our question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys once again Thats star one to ask a question at this time.
One moment, please while we pull from our first question.
Okay.
Our first question comes from Dan, who most with the benchmark company. Please proceed.
Close.
Everyone.
Lucy and and Chris Thanks for all the clarification from the additional number of Super helpful. Two questions. Just one on the broadcast side just on the distribution I know Lucy you mentioned that we know that this year was going to be kind of tough one from timing can you just remind us of the anti PD renewed.
And we'll schedule this year and then just kind of your thoughts on net retrans heading into 2022 after a.
A reverse step up this year and then on the RF and side as much as I'd love to ask a question about Bally's acquisition of multi night fight and any ramifications for you I think I'll stick with the more generic the distribution again, there's very wide I think Q4 was a little bit lower than people were expecting and then on the Q1.
On a lot higher I'm, just trying to understand what you guys are assuming.
On your <unk>.
Distribution numbers and then subsequently the impact on guide are there things like the potential for you know.
Hulu Youtube coming back and just want to understand sort of whats going into your forecast.
So I'll, let lucie and to the second one I'll take your first question Dan.
The only thing of significance that happens on the Retrans side for broadcast is dish.
This summer and certainly this is a unique set of circumstances that we're dealing with where as Lucy mentioned, one third of our big four affiliates had significant step ups.
At or near year end.
And.
And that's the first time, that's really happened for US and then you're on the distributor side you've.
Outside of dish there there really isn't.
Other renewal opportunities there to offset.
Yeah. So Dan on your other question regarding like Q4, so to remember.
And booked an additional $49 million.
Bob rebates to the distributors that we werent expecting and that was because of the shortened and the NBA and NHL season and then.
And we will get the team right rebate in 2021 on that so and that's why Q4 looks a lot higher.
Low or on the distribution revenues, but if you exclude that rebate, we actually beat our guidance for distribution revenue and fourth quarter.
Yeah.
And on your assumptions just around the go forward like are there things included in there like Hulu and Youtube coming back like is there a wide range of outcomes to kind of get to that day range of adjusted EBITDA Guide isn't just around sports rights and reimbursements.
And just wanted to make sure that we understand sort of your thought process on that.
Yeah, I mean look it's a wide range for for a lot of reasons right. There's a lot of potential.
Outcome that could happen, but and what's in that range is is some of them.
Option for some amount of carriage and renewables they come back on we're not going to get into.
How much win or anything like that is why we have a range there.
Okay, Great and then actually if I could just quickly I don't know what you're going to do with it I thought. It was interesting you guys are picking up the rest of media.
More of our ancillary curiosity, given everything going on and the AD space, just curious how that kind of fits into the equation.
Yes.
We had a piece of it we wanted to buy the buyout the whole entirety, because we have.
Our business plan to focus on building out platforms for the local small and medium sized businesses.
And you're able to.
Compete and.
With the larger agencies out there and acquiring CTV inventory OTT inventory and.
And we've had significant success utilizing the platform and buy ticketing and internally, we think we could have a growth into the.
Major SaaS business as well.
Got it appreciate all the color thanks, guys.
Thanks, Dan.
Our next question comes from John <unk> with Wolfe Research. Please proceed.
Hi, Thanks.
And we see you talked a little bit about this on your comments and maybe its last follow on for Dan but.
And I missed it so how are you thinking about churn this year and do you think the launch.
Or increased content on streaming services.
And impact in either direction, and then you didn't say much about it so on capital allocation with the move the stock has had over the past few months how are you thinking about the buyback into 'twenty one thanks.
Yeah. So.
And what we've built into into our assumptions on the diamond side for this year and.
And is a high single digit churn rate, which is kind of what we're seeing right now and lumpy mvpds themselves 10 and.
Tom.
And Bob put out there.
And that's what.
Overbuilding in for FERC again, we don't have full year broadcast out there.
But.
And for first quarter, we're looking at mid single digit churn.
On the broadcast on and I think that's consistent with what you're hearing from other broadcasters as well.
And and John on the on the.
Capital allocation front.
We have $880 million left on our authorization last year, we retired 21% of our shares outstanding which is more than.
And by a significant margin on any of our peers.
We have received some feedback from investors that are we need to make a make sure we have a healthy flow to attract new investors. So we want to keep that balanced.
And and of course, we always consider what our future investment opportunities are.
And as we look to deploy cash but.
I think it goes without saying, we think our stock is an incredible value even as it stands today.
Thank you.
Our next question comes from Steven Carl Hall with Wells Fargo. Please proceed.
Thank you.
Chris maybe first could you talk about how youre thinking about approaching some of the performance criteria that allows you to take the additional options and valleys, maybe whats kind of the <unk>.
Execution strategy there since it seems like that's a really significant opportunity for value creation, and then we'll see I'd love to dig into the RF and just a little bit more.
If we took out the $155 million cost benefit for this year and took your midpoint kind of guidance do you think that's a good run rate for earnings power at the Orissa and or does that really underestimate them and maybe lastly on diamond do you think you'll need to draw on the revolver. This year. Thanks.
Okay. So.
On ballets and our performance warrants.
First I'll say the bar is and is very low at least in our opinion as to what needs to be delivered and we think we will we will deliver well in excess of our all.
Of those user thresholds.
And and also importantly, it's it's a it is a.
Its users to the valley that platform from any source as you know, it's all have times debt to track attribution we are promoting.
Valleys across all of our platforms. We're rebranding the network, we're going to have deep integrations.
Across our digital properties across our newscast top shows pre and post game.
And it's going to be a ray of wide ranging.
Our integration strategy, which should drive.
Significant audience and and users into the valley that platform.
And so you know that.
That is the strategy is really.
To be as tightly integrated and if the companies you know we're we're one and in fact, we're even we're even going to are we even think about users.
And as a as one.
<unk> Valley that user is the same as a valley sports user.
And.
We want it to be a seamless integration.
There and we think that will drive more and more users over time.
And two valleys sports sports betting App, which launched this spring and we should easily achieve the targets that were that were put on those performance warrants.
Okay.
Okay. So so Steve your other question.
<unk> was around that and lead the EBITDA, Brian Murray and without the U.
Without the rebates yep.
And so you look you know.
We've given you a range for this year right. We've got a lot on a lot of moving parts that are happening. This year as we've mentioned multiple times throughout our scripted remarks theres a lot of.
A lot of.
Lack of visibility that we have into the year.
So right now and he's giving you the range for this year, we have a lot of the gross opportunities that we've talked about since we bought the urs and right that sort of got put on hold.
And because of Covid and disruption and in game play et cetera, So yeah and look at all and.
We haven't really started to implement a lot of the things day and Chris has talked about now for the for the past year and a half so.
And I can't really tell you beyond 2021, because there's still a lot of moving parts there, but you do have a range for this year.
Core for.
And for our EBITDA expectations, and then I think you had one other question, yes, it's a revolver draw. This year is not expected yeah, not not expected and just let me just follow up with that because you remember Q1 is the lowest EBITDA quarter.
And for the typically from D. R. A sentence and so were not drawn and undrawn revolver and so again.
Assuming our current assumptions, we would not expect we would need to draw on offer.
Great. Thank you.
Okay.
Our next question comes from David Hamburger with Morgan Stanley. Please proceed.
Hi, Thank you good morning, if I could I have one clarification and then two bigger picture questions.
And I heard you right Lucy I think you said you had $420 million.
Distributor accruals and total and then you mentioned 697.
And and reduce sports rights payments. So does that mean, the net benefit to EBITDA and some total was $277 million I think.
Last quarter, you had mentioned the net balance it would be about 200 million. So I'm wondering if that's the right math.
That is on a clip that goes to and from two years right. So you.
Not all of that 60 day, all the for 'twenty is accrued in Q4 of 'twenty.
But only 542.
The team rebates.
And if we benefit in Q4, 'twenty and the other 155.
You won't see and the numbers until 2020.
Right.
Okay. So it was a total of 277, okay. Thanks.
And I'm kind of bigger picture I believe and January Viacom and CBS renewed their affiliate agreement with Hulu live and at the time, you know Sinclair did not opt into that.
Renewal for the CBS affiliates that you own.
But my understanding if you could.
Verify this is that you did opt back and just before the Super Bowl for the CBS affiliates at Sinclair yet.
Yet I believe you did.
Carriage and be <unk> once again with Hulu I'm wondering if discussion with Hulu discussions with Hulu around that opt in and before the Super Bowl CBS and affiliates had or had not included.
<unk> of carriage of the RSA and this once again and if not.
And I'm wondering why not and.
And would this kind of negotiation differ from say, how you'd approach dish. This summer with the renewal at the Sinclair level versus again carrying the our sons.
Yeah.
So look we always come.
And talk to distributors about all of our content assets.
We can't we don't get into.
Specific negotiations and specific.
Distributors because those are confidential, but we are satisfied with the deal we did.
With Hulu Orissa and carriage is only just one form of consideration and the mix and I think as you know, it's a little bit different with the virtual mvpds as it relates to how that works. There is a decision and made he made with opt ins and we maximize the value of that decision.
And and.
And in terms of your question going forward on dish, we've had tremendous success with all of the traditional mvpds.
Coming with incentives to take broader packages of content and and I would expect us to continue to have that success and the future.
So if I might just follow ups could you kind of characterize what's different about the relationship with and the Mvpds I mean, I noticed as well with Youtube last year, they only renewed for the baseball season, which you know.
And it's certainly not traditional what you've seen historically with Mvpds I mean should we anticipate again this greater level kind of volatility.
Volatility and the distribution contract with the Mvpds.
Yeah, well there the V. Mvpds are have a different business model, they're skinnier bundles lower priced targeting.
You know.
The lower economic socioeconomic strata for consumer and and.
And and there is a difference and the way we interact with them the networks.
And do a master agreement with the.
And the virtual <unk> and then we opt in and so.
There is a difference and the way that and mechanics works and if there is a difference and their business model as well in terms of what they're what they can afford and what they value.
So that's that does tend to lead to different outcomes.
Okay, and if I could just one more question I noticed you've put out a press release that you renewed your programming contract with the Milwaukee Brewers and I was curious last year with the Kansas City Royals and he was given the Royals equity and the station and I'm wondering as well if.
Net renewal included giving Brewers equity and the station and and do you have any other renewals upcoming.
If you did where you would approach the negotiations and the similar manner.
Sure. So we have a binding term sheets for all the teams that we had near term.
Explorations on which included the Brewers and the Marlins both included.
Equity participation, which as we've been saying for a while now we prefer because it variable is this more of the compensation aligns interest and so both of those deals had that component.
And we.
And we have generally every year, there's a few teams that come up. So we have we have some more of that will expire for next season.
And then those discussions are just getting started but equity.
And because of the the reasons that I've stated in terms of variable ization and alignment of interest.
It will be increasingly a a component of the mix of consideration.
Are you able to discuss the dimension of the verb realization and that sort of cash compensation.
And maybe even just directionally, how we might expect sports rights payments over the next the near term and near or intermediate term might trend as a result.
And these types of transactions.
Yeah, so contrary to the national market, which you're hearing about NFL wants to double and <unk>.
Big increases happening across the board the local market, where he plan is much less competitive we're not seeing.
And those types of cost pressures and.
And and so.
We're not expecting.
Our rights to to escalate by fair enough and if I very much at all and.
And and when you give a team equity consideration as part of the mix sits in lieu of cash.
Fixed rates payments. So it's really just a rights payment, but you know in a different form and a.
A different sort of ricks risk free return dynamics for them.
Okay. Thank you very much thanks for the questions.
Thanks, David.
Our next question comes from Alexia <unk> with J P. Morgan. Please proceed.
Thank you just on the sports side I'm curious what has been the feedback on the response from the sports leagues MBA and it and then.
Child MLB for example.
And on valleys partnership and plans for gamification of the presentation and I'm, just sort of staying on that sort of topic. You know the return on the NBA NHL and the upcoming MLB season has been accelerated conversations you know talks with dish Hulu or Youtube.
So the response has been overwhelmingly positive from the leaves and our team partners, they're very excited about the new branding.
Our efforts around gamification.
There is a keen keen interest.
Amongst those parties to incur.
Increase engagement and young among younger audiences and as I noted in my remarks, and all of our.
Data and research points to a high propensity.
For.
Sports betting and the younger cohorts for.
And for gamification and they're the video game culture and.
Sports betting.
And is a great tonic.
And to increase that engagement.
And.
The younger viewers, which you know.
And still have great affinity for the sports just don't consume the games and nearly the same capacity as there as their parents and.
And and and having interactive engagement having rewards.
Are we believe and all the data points to that being a key to unlocking.
Their fandom.
And and so the leagues and teams are perfectly aligned with that very excited about it very excited about the bally's partnership valleys, just announced they've become a authorized partner of NHL.
And so essentially we are bringing the leagues and new customer.
Which they definitely appreciate and so nothing but but good news in terms of.
The new partnership and and the implications it has.
For the teams and leagues and then in terms of your second question look undoubtedly the return of sports is very very important to us.
And in terms of other our value proposition.
And two distributors. These are some of the highest rated programs on television.
Tremendous value add.
And and that definitely plays a role and in our discussions with distributors.
Okay. Thank you very much.
Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad. Our next question comes from Aaron Watts with Deutsche Bank. Please proceed.
Hi, everyone.
Thanks for having me on.
Couple of questions first on the station side core advertising seems to.
To be moving and the right direction.
Could you just highlight some of the things that are driving me on <unk>.
Improvement and what's still lagging and perhaps you can mention auto specifically and there and then what's your current view on when or if core advertising can ultimately recover to pre pandemic levels.
Yeah, I'll take that Erin.
Fourth quarter automotive.
Quarter over quarter was up 38, 5%. So we're very encouraged as the supply chain gets fixed.
And that the spend will continue to see upward increases and services was up 27% quarter over core.
And we're bullish on on this AD revenue business, we establish the Sinclair sports group and that will unlock value across the <unk> broadcast and the tennis channel as well.
And we're working on several deals that will be unique to what we've done and in the past so.
Once COVID-19 seems to stabilize we see advertiser returning to the pre pandemic levels and.
Coming out of the first quarter with the vaccinations, even though there is uncertainty we're very confident on that.
We will exceed the budget from our first quarter revenue numbers from an AD perspective.
So all of that leads to very good optimism also the sports fantasy gaming category will see a breakout year from expenditures as well so it'll be a new category.
That will help drive our AD growth Yeah, I wanted to just add to that area and that we were very pleasantly surprised by the strength of core advertising in Q4, given all the political we were we were we were absorbing as I mentioned.
On December was basically flat and so.
Lots of market distill and shut down businesses are not fully operational.
But.
As I'm sure you've read as I've read.
Economic indicators are very strong for a for a strong recovery next year and the general economy and advertising is a derivative of that economic activity so to be where we are.
And where we were back in March and April compared to now I wouldn't.
And I'm very pleased what's going on on the core and.
And then when you when you when you start to lift.
Some of the reduction activity levels from Covid, which we're having a very strong rollout on the vaccine.
In terms of numbers and people getting it and and.
I'm very optimistic about how that how that release of <unk>.
And economic activity will will impact our core and two other factors that lead us to.
The optimism is there.
Across most of our day parts, we've seen audience share growth, which leads to more revenue for us as well as as Christmas and mentioned the launch of <unk>.
N D.
And that expansion so it gives.
Many of our stations that we're in and the news game on news outlet and.
<unk> gotten some critical acclaim from our viewers, which leads us to believe that the ratings will follow as well and so it opens up a new day part for revenue for us.
Alright, great that is really helpful.
And I could shift gears over to the Diamond sports side, just two quick ones.
Thinking about the cost base and 21 versus 2020 and trying to set aside kind of the shifting team payments.
But can you highlight how many how much incremental cost it comes into play and 21 that wasn't part of 2020, perhaps related to the app launch or other things along those lines.
Yeah. So so we.
We price have.
And remember there is a there's initiatives related to launching the app and rebranding, but theres also on cost in there as we as we move off of the Disney and Fox TSA, and we get out of bloodlines and into the encompass facilities.
Chris talked about and his remarks.
And so you're you're looking at you know I would say for these.
On the transition on initiatives gross opportunity cost and I'll try that 100 million dinner embedded and.
In 2021.
And again these are all either things and we are required to do and then we'll save TSA cost and pertained to Disney or a box as a result of theirs, where these are things that are going to propel the growth opportunity and we've been talking about.
Okay got it and then last one from me and I. Appreciate the time you completed a debt exchange last summer and part I think the captured discount and trading levels on the Diamond sports debt.
As you consider ways to bring down leverage and or the interest burden now at that entity is another exchange offer or liability management exercise still being considered and if so any sense of timing you can give us on that.
Yeah.
Yes, no we are.
We're very interested and that we have active discussions.
We're we're not.
Timing I can't predict where more interested and doing the right deal as opposed to just any deal and.
And and Ah another exchange.
I think could be very likely.
Okay. Thank you again.
Yeah.
Okay. Thank you.
Thank you we have reached the end of the question and answer session and I would like to and now I'll turn the call over to Chris Ripley, President and Chief Executive Officer for closing remarks.
Thank you all for joining us today, and if you should need more information or have additional questions. Please don't hesitate to give us a call.
And.
This concludes today's conference and you may disconnect your lines at this time and thank you for your participation.
Okay.