Q2 2021 Sinclair Broadcast Group Inc Earnings Call
And the company's most recent reports as filed with the SEC and included in our second quarter earnings release. The company undertakes no obligation to update these forward looking statements. The company uses its website as a key source of company information, which can be accessed at www dot <unk> dot net in accordance with <unk>.
<unk> FD. This call is being made available to the public a webcast replay will be available on our website and will remain available until our next quarterly earnings release included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA adjusted free cash flow and leverage the company considers adjusted EBITDA to be in.
<unk> 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 measurements and may differ from other companies uses or formulations. The company does not provide reckon the company doesn't.
I'll provide reconciliations on a forward looking basis.
Further discussion and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website www dot SPG EI Dot net Chris Ripley will now take you through our operating highlights.
Morning, everyone and thank you for joining us I want to start off by expressing how honored and proud we are at Sinclair, having recently been added to the Fortune 500, which started 50 years ago as a single UHF station in Baltimore has grown into a sizable diversified media and technology company with best in class local news and sports content, we look for.
Hard to even greater accomplishments in the years ahead now getting to the results.
We are pleased to report a strong second quarter, which came in at the upper end and in many cases exceeded our expectations and guidance as the AD market continued to recover and we continue to prudently manage our costs.
Of particular note the local sports segment performed well add revenues on a per game basis were higher than forecast and were up over the second quarter of 2019, a trend we expect to continue over the remainder of the year local sports distribution revenue was aided by lower distributor rebates.
On expected.
Our broadcast and other business media revenue came in at the high end of our guidance range core advertising adjusted for station sales was down only 1.5% from the second quarter of 2019 and distribution revenue has exceeded our guidance adjusted EBITDA also exceeded guidance driven by lower than expected.
Expenses in a number of areas.
Total company adjusted EBITDA was $433 million was well above the high end of our guidance range of $378 million with both segments exceeding expectations driven in large part by lower than expected expenses in the quarter Lucy will give you more details later on the call.
Finally, total company adjusted free cash flow beat the high end of expectations by $55 million adjusted free cash flow per share is almost $17 or $1.264 million in total over the trailing 12 months.
Viewership stats for a regional sports content have held up well compared to 2019 far outperforming national NBA, NHL and MLB viewership comparisons over the same period.
This really underscores the power of local content.
The demographics of our viewership continued to show great strength and younger viewers cohorts groups, which are our key focus in our efforts around making sports viewing more interactive and personalized attributes favored by younger viewers.
Now I'd like to give you an update on tennis channel in July tennis channel completed a long term rights renewal with the all England Lawn tennis club that will see Wimbledon the world's oldest tenants tournament remain on the network through 2036, the channel side, its highest rated June ever culminating in.
The most watched match in the channel's history, a French open men's semifinal that generated over 5000 average viewers.
In late May tennis channel unveiled a new app and website that gives fans an unprecedented experience with the most access to tennis statistics and news than anything previously on the market, which currently rates a 4.8 out of 5 stars on the Apple App store Standalone subscription service tennis channel.
Streamed more than 8 million hours in the first half of the year was the number 2 page sports App in America during the French open and top 10 for all paid apps on itunes.
Meanwhile, the network continues to expand its global reach with tennis channel International gains in Germany, Austria, Switzerland, and Greece. During this time tennis channel also earned 15 Telly Awards for excellence in video and TV.
On the topic of sports I'd like to spend some time addressing our direct to consumer or DTC efforts. We continue to push forward on our business plans and have made many key hires as we March towards our initial product launch date targeted for the first half of 2022.
You may have seen materials disclosed via an 8-K in June as a result of expiring non disclosure agreements with certain diamond creditors, which in which we provided an overview of how we think that.
How we think about the DTC product, we continue to engage with the advisors of various stakeholder groups on financings and exchange offers for diamond.
There is no question video consumption habits have and are continuing to change with people opting to consume content outside of traditional linear channels. So we need to be able to provide them with content, however, and wherever they want to receive it having said that we believe that demand for sports content within the traditional core.
<unk> on satellite bundle, we will continue to be strong as is evidenced by the ratings strength of local sports that I referenced in fact, our proprietary research shows that any cannibalization that are DTC product may have on cable and satellite subscribers is expected to be relatively low and we also believe distributors will continue to <unk>.
Local sports content as important programming not only because of our cost their customers' desire it but because it remains economically attractive for distributors cable and satellite providers as well as virtual mvpds that carry the <unk>. We will continue to benefit from obtaining this programming from us at a favorable wholesale price, which.
Provides the consumer a good value for their cable satellite or virtual subscription.
DTC is not expected to appeal to everyone consumers that are most likely to gravitate towards the product or the younger demographic cohorts, who are more likely to be cord cutters or cord, nevers, who desire a more interactive personalized and community driven experience.
We've done focus group studies on what functions and features the younger generation wants from a sports app. They.
They are more focused on the community of fandom interactive elements that they can engage and talk about with other fans as well as contest rewards promotions games merchandising and of course legalized sports betting where permitted.
For some fans watching the entire game is less important than being entertained by the experiences built around the games in their home teams.
Importantly, the economics of monetizing a DTC user or different from your traditional linear local sports viewer.
Having fans access gains via an app that is on our platform gives us a direct line to the viewer and as a result unlocks a whole set of opportunities to engage and monetize these consumers given the direct relationship with viewers, we're able to create a meta versus or marketplace, where we can serve up a more personalized and on.
Optimized experience for the viewer at the same time the platform supports targeted advertising, which commands a premium price as well as creates marketing opportunities for other interactive elements within the viewing experience that can also be monetized.
So having said all that we do believe the market opportunity for DTC is attractive if just 5% of our homes that we reach with our sands, where do subscribe to a local sports DTC service. It would represent $4.4 million households, and while the subscription revenues alone will be meaningful we would.
The total revenue to be around double that level due to the advertising and other monetization opportunities that I just mentioned.
And our research shows that a 5% penetration rate is very achievable with minimal cannibalization to the traditional mvpds subscribers.
Now I would like to address the valuation of our securities, which we believe are significantly undervalued.
It may help to walk you through a sum of the parts valuation of the company to demonstrate the true value of Sinclair I will start with the 4 assets that are not explicitly part of our broadcast or local sports segment that nonetheless have real value that must be considered in a some other parts valuation the firm.
These assets as our steak and valleys for which we have penny warrants to purchase 7.9 million shares and another $3.3 million in penny warrants that can be earned subject to performance targets, which we believe are very achievable.
And options for another $1.6 million shares at various strike prices for a grand total of $12.8 million share equivalents.
At valleys current share price these warrants and options will be worth over $600 million with a cost to exercise of approximately $60 million.
Then there is the value of our license spectrum, which we have quantified in the past at a at an approximate valuation of $1.7 billion based on applying a $1 per megahertz pop valuation, which was the average price in the last FCC spectrum auction.
During the third is an approximate remaining $1.2 billion net present value tax shelter benefit that came as the result of our RSM purchased back in 2019.
Fourth.
There are non core businesses and equity Stakes, we have in such things as play fly. Thank you labs dielectric 1 media and dozens more investments, which together we believe have a book value on.
Approximately $200 million and which we believe has significantly higher market value.
We have a strong history of direct deriving value from our non core asset investments.
When you include what we believe the value of just these 4 groups of assets are worth alone they equate to a per share value well over they share what the share prices today.
Even after accounting for the cost to monetize these assets.
We do not believe the value is this value is reflected in our market price based on where our stock is trading to trading today.
When you put even a conservative valuation on our 185 TV stations tennis Channel Stadium news on <unk> <unk> and account for the net debt of Sinclair you will get a per a share value that is more than double the current level of where our stock is trading today.
Finally, I'd like to highlight some of our work we've been doing to demonstrate our commitment to corporate social responsibility and sustainability through our ESG initiatives within the company.
While our organization has been involved in with many activities in these areas in the past we have taken steps over the last 18 months to better measure and quantify our progress on these areas as well as put a framework in place too.
To more formalize these efforts.
We have formed several internal groups to help actively guide our activities in all 3 areas.
ESG.
In addition to our ESG Committee, which is made up of executive leadership. We also have formed a working group is dedicated to sustainability employee experience and diversity and inclusion.
The sustainability group is tasked with finding ways to help lower Sinclair carbon footprint through lowering the companys electricity consumption purchasing greener supplies in recycling.
We have started to measure our efforts in these areas to be able to compile and report our progress in the future.
Already we've identified 14 gigawatt hours of annualized energy savings potential from just from just replacing our lights with led lighting and those efforts are underway.
We are also working on quantifying expected electricity savings from HVAC and transmitter replacements, which we plan to rollout over the next 5 years.
And of course.
As we are able to measure these actual savings we get from these activities, we will be able to report on them to you in the future in.
In terms of environmentally friendly purchasing activities. We are proud to be 1 of only 19 organizations that office depot recently recognized for being a leader in Green purchasing This award is given to an organization that 2 organizations that have a high degree of expenditures with eco friendly.
Attributes such as recycled content energy efficiency and reduced use of harsh chemicals.
Soon we'll be launching a context within our company to ask all of our employees to suggest ways. They believe we can reduce our carbon footprint. We believe it is important that all of our employees are thinking responsibility responsibly about the future of our planet for generations to come.
We also have made good progress on social risk on the social responsibility front, which we break into 2 areas community outreach and workforce wellbeing Sinclair has a long history of supporting the communities in which we operate and in national causes such as disaster relief blood drives and airing public service announcements for.
A variety of causes 2020 was the first year in which we start to measure in aggregate our community wide initiatives across our many television stations <unk> and other businesses as a result, the and the results were amazing.
In just 2020 alone and.
What was certainly and not a normal year due to this due to the pandemic.
Sinclair engaged in partnerships with over 340 charitable organizations our efforts during the year raised over 37 million. In addition to collecting over 9 million pounds of food, providing 2 million meals and gathering over 320000 toys Backpacks school.
Lies in coats we.
We recently chose the recipients of our seventh annual diversity scholarship awarded to minority students, who demonstrated promising future in the broadcast industry Enel.
Another important component of our community efforts and central to our company mission is our dedication to raising issues of local importance through deep investigative reporting on our stations, which helped us earn.
350 awards in 2020 alone.
This is just scratching the surface of how we give back.
There are numerous community forums, we sponsor and facilitate such as per age health Expos, and most importantly town halls that allow the voices of the community to be hurt.
The other aspect of our social focus is the wellbeing of our workforce. Our most important assets we've taken steps over the last 18 months affirming our commitment to our employees such as forming employee led work groups focusing on diversity and inclusion and the employee experience as well as adding positions to focus on developing.
These important areas.
We also have increased our recruiting outreach efforts to historically black colleges and universities launching a new employee recognition program and have enhanced our learning management system. So that our employees can have a more active role in furthering their learning and development and career progression efforts.
Lastly, we've made good progress on the governance front, we recently announced the expansion of our board of directors from 9% to 11 members and already added Lorrie buyer and new independent director in female Board member MS. Buyer has an impressive background and unique perspective and has joined our audit.
Committee.
We also announced that we hired our first chief information Security Officer and earlier in the year, we added our first chief compliance officer.
I continue to be energized by the commitment and focus of our management team and our entire employee base, who make a difference every day to our clients our viewers and our communities.
With that I'll turn it over to Lucy for a deeper commentary on our financials Lucy.
Thank you Chris Good morning, everyone as Chris mentioned, we had a strong second quarter across all of our segments coming in at the high end of guidance and in most cases, beating expectations.
Additional financial details and comparisons can be found on our public website.
Turning to broadcast and corporate and other businesses. They came in at the high end of media revenue guidance and beat on media expenses and adjusted EBITDA.
Media revenues for the quarter increased 18% to $789 million versus the same period a year ago.
Due primarily to stronger AD revenues as last year's second quarter was significantly impacted by the pandemic.
Comparing the results to the second quarter of 2019, which is perhaps a more meaningful comparison media revenues increased 9%.
After adjusting per station sold and Thats, driven primarily by higher distribution revenue.
Second quarter broadcast and other core advertising sales increased 51% compared to the same period, a year ago and were down just over 1% from 2019 pro forma.
While the automotive category was the primary driver of the decline versus the second quarter of 2019 solid growth in our largest category services as well as strength in the sports betting and pharmaceutical categories offset much of the decrease.
Distribution revenues for broadcast and other increased 3% versus last year and was above our guidance range.
Media expenses were 15% higher in this year's second quarter versus last year, that's on higher network programming fees higher variable interest entity expenses, which were required to consolidate in our financials as well as last year's spending being limited to essential core.
Only due to the pandemic.
Media expenses, however were favorable to our guidance on both continued cost management efforts across multiple areas as well as timing of expenses during the year.
Adjusted EBITDA, excluding $12 million for nonrecurring items was $193 million up 33% from the second quarter, a year ago and exceeding guidance.
Turning to the local sports segment as discussed on previous earnings calls distribution revenue and sports rights payments in the local sports segment can be impacted by the actual number of games delivered versus minimum gained guarantees which can result in rebates to be paid to distributors where to.
<unk> received from the teams.
As a result, our prior estimate of rebates due to our distributors, which reduced this quarter by $11 million as we provided more games than expected and which benefited our local sports revenue in the quarter.
From a cash payment standpoint, there remains $180 million of distribution rebates to be paid.
Of which $15 million is expected to be paid in the second half of 2021 and $173 million is expected to be paid in the first half of 2022.
In addition, rebates owed to us from the teens increased by $3 million for the year in which reduces our local sports rights payments.
Media revenue for the local sports segment increased 36% to $838 million as compared to the second quarter a year ago. The increase was the result of higher advertising revenues is no professional games were played in the second quarter last year lower distributor rebates with.
The $11 million credit taken this quarter and the absence of a $124 million rebate accrual booked in the second quarter of last year.
Excluding the impact of the distributor rebates media revenues were up 12% on the higher advertising revenues.
As compared to pro forma second quarter of 2019 core advertising was favorable in part due to more games played.
Media revenues exceeded the high end of guidance low.
Local sports media expenses for the second quarter were up from a year ago. As there were no professional sports played in the second quarter of last year, and therefore, no sports rights amortization or production cost for professional games reflected in last year's second quarter results.
Of note is that our production cost per game are down from 2019 benefiting from certain cost savings implemented since the start of Covid that we believe should be sustainable going forward.
Also included in this year's second quarter expenses was approximately $23 million of transition services and other onetime costs, primarily primarily related to the move of our RSM production facilities, the new Bally sports App and the rebrand.
Media expenses were favorable to our guidance in part due to timing and in part due to expense controls.
Our local sports adjusted EBITDA for the second quarter, excluding the 23 million per nonrecurring items was 240 million up significantly from the prior year and exceeded the high end of our guidance.
For the consolidated company Sinclair is total company media revenues for the second quarter increased 27% from the second quarter of 2020 to $1.6 billion.
Adjusted EBITDA, which excludes $35 million of 1 time expenses increased to $433 million and again compared to expectations media revenues were within guidance and adjusted EBITDA exceeded the high end of our guidance range.
Second quarter consolidated adjusted free cash flow, which excludes the adjustments.
With $290 million, which is $55 million higher than the upper end of our guidance.
For the quarter, we had $4.41 per diluted loss per share on 75 million weighted average common shares.
Compared to $3.12.
Diluted income per share a year ago adjusting.
Adjusting for the nonrecurring items loss per share was $4 <unk> for the quarter versus income per share of $3.21, a year ago.
Now turning to the consolidated company balance sheet.
Consolidated cash at the end of the quarter was $964 million, including 539 million net STG and $408 million at Diamond.
Neither credit silos revolver was strong during the quarter and as of quarter.
Quarter end the balance barred under our accounts receivables facility was $183 million.
Total debt at the end of the second quarter was $12.539 million and the net leverage ratio for consolidated Sinclair at quarter end was 6.4 times.
Sinclair television group's first lien indebtedness ratio on a trailing 8 quarters was 2.7 times on a covenant of 4 and a half.
And 3.9 times on a net leverage basis through the bonds, which is in our target leverage range.
Diamond's first lien indebtedness ratio on a trailing 4 quarters was 6.9 times on a covenant of 6 on a quarter, which only springs. If the revolver is drawn over 35% Diamond net leverage was <unk> 9 times.
During the quarter, we paid down $14 million of debt and paid $15 million in common stock dividends.
Turning to our third quarter on full year guidance for our broadcast and other statements. While our guidance reflects third quarter on the media revenue down approximately 1% to 3% to $792 million to $806 million versus third quarter of last year. This is driven primarily by the.
Absence of political revenues in a non election year.
Compare to pro forma third quarter of 2019 media revenues would be up 9% to 11%.
Excluding the impact of political AD revenue third quarter core advertising is expected to be up approximately high teen percent versus third quarter of last year and flat to up low single digit percent versus third quarter 2019.
Third quarter adjusted EBITDA is expected to be between $167 million to $179 million compared to $271 million last year, primarily on the absence of political revenue.
For the local sports segment third quarter media revenue is expected to be up 6% to 13% to 696, 769% to $824 million versus Q3 of 2020.
As a reminder, last year's third quarter included a distribution revenue rebate accrual of $128 million.
For the full year media revenues are expected to be up 15% to 20%.
Third quarter adjusted EBITDA is expected to be 255% to $308 million in full year. Adjusted EBITDA is expected to be $512 million to $652 million, which is higher than our prior guidance.
And that's primarily on more favorable AD revenues and lower sports rights payments.
For the consolidated company third quarter media revenues are expected to be up 1% to 5%.
To $1.5 billion to $1.6 billion.
Third quarter, adjusted EBITDA expected to be $4, 22 to $4.88 million and third quarter adjusted free cash flow of $221 million to $282 million, so with that operator, I'd like to open it up to questions.
Thank you.
At this time, we'll be conducting a question on answer session. If you'd like to ask a question. Please press star 1 on your telephone Keypad, Inc.
Confirmation tone will indicate your line is in the question queue. You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up on your handset before pressing that star keys, 1 moment. Please while we poll for questions.
Okay.
Our first question comes from Dan <unk> with the Benchmark Company. Please proceed with your question.
Great. Thanks, good morning, and.
Nice EBITDA.
Hey, guys.
Lucy just a quick housekeeping question, because I think I missed it what was what did you say political was in the quarter.
Political in second quarter was about $5 million.
Okay perfect. Thanks.
Chris just high level, obviously, there is a ton of.
Conversation around.
And no surprise on the DTC price, we talked about sort of.
A little bit from a narrative perspective last quarter as we think about sort of the balance of the year.
We just had you Dan and Chuck couldn't come to terms of the IOC for the 2022 Olympics I think you guys are still working through with the leads here again.
Subject to many many reverse including expanding the RF and footprint, how do we think about how comprehensive the strategy or footprint you'd like to have going into next year, how much would that impact. The conversation you are having with the leagues and is there any way that you can access.
Right the timing of the DTC operating understanding that standing something up like this is not an overnight proposition.
Thanks, Dan look I think hopefully you can tell from our comments, we are theres a lot of things going on simultaneously. We are building the DTC product as we speak that will build upon the app that we've already launched and so.
It does take a while to to built to put out a best in class product, which is what we intend to do.
And.
I don't necessarily think we can accelerate timing of launch.
Head of first half of 2022 as I as I mentioned.
But we believe we are.
We're putting all the pieces in place to hit that timing and in.
In terms of.
The leagues and consolidation.
Like it all it's all connected.
You've noted.
Anything that we have put out publicly like that 8-K is very conservative and that all it assumes is that we that we that we moved the existing rights that we have.
Over the top.
And we create what really is sort of rudimentary meta versus around that we actually think the concept of a net averse around sports as a <unk>.
Massive opportunity.
And.
Really isn't.
Really isn't fully appreciated.
Any of the projections that we that we have talked about or released.
But.
There is on as I've said this before.
And I'll say it again.
But we believe that the consolidation of the <unk> space of the of other complementary right.
Is inevitable and.
And Youre of course, probably reading about various rumors about that and.
And we intend on being a part of that consolidation.
And and and.
We think it has just.
Massive industrial logic, not only from a linear perspective, but even more so on a direct to consumer perspective.
And we think Theres a chance to be a leader in direct to consumer sports here on the U S and whoever is that leader in the U S will.
Have a great position to be a leader globally as well just with different right. So.
There's a lot of moving pieces, but.
The picture is becoming much more clear.
Got it Super helpful. And then you spent a lot of time on on value and value on block.
You've kind of dangled, a few things out there not really share how we should be thinking about either timing willingness.
On a pursue some of those actions in the <unk>.
Near term given all of the underlying that you just talked about or maybe that helps facilitate some other things you've talked about and then alternatively, you've historically said after you guys purchased a just absolute massive amount of your shares previously that you were trying to be mindful of the flow I mean does that thought process changed at this point at current levels.
But we all the things that we've talked about in the past are still relevant or flow or where our net debt targets or.
What are other opportunities and investment requirements are.
And so that's all that on both El goes into the into the final so to speak in terms of.
Our decision making.
Hopefully you can tell from my prepared remarks that it's becoming a painfully.
Obvious that the market doesn't understand the value of Sinclair and.
Typically we.
Now on when that when that type of situation happens is when we'd like to act.
Alright, great. Thanks, Thanks for the color on the quarter.
Our next question is from Steven Koh Hall with Wells Fargo. Please proceed with your question.
Okay.
Thanks.
Chris You mentioned 8-K, and the presentation to bondholders.
Maybe around fresh capital for the DTC initiative I was just wondering if you had any commentary around the cost of the DTC launch and if you've been able to size that yet and do you think that you could do this based on the current balance sheet and cash flows or is it kind of a precedent condition.
<unk> fresh capital in order to launch it and as we structure that business do you intend to put the DTC platform within the diamond legal structure or is the intention to keep it outside like you've done with with the balance shares.
So there there's.
A lot of questions in there that.
I can't answer due to confidentiality agreements that have been signed and things still in flux in terms of what the final structure and funding.
Outcomes will be but.
But what I can say is that.
When you take a look at any direct to consumer strategy. The number 1 cost that you have is content the second.
Cost and direct to consumer strategy is subscriber acquisition costs.
And those are your 2 big expenses and what's so unique about the situation. We have is that were loaded with premium sports rights more than anyone else in the country.
And essentially the content costs are already there.
And in terms of subscriber acquisition costs, we also have a tremendous footprint.
Of sports across our broadcast stations Rsm's tennis Channel Stadium.
And.
<unk>.
The best Sports there there are and and it's a great place to to seek subscribers.
And so we have we have huge advantages in launching a direct to consumer strategy because of those 2.
Structural.
Features within within the Sinclair complex so.
So the cost are we have a significant cost advantage.
Anyone who would be thinking about doing this on a de novo basis. In fact, it probably just couldnt do it because you wouldn't be able to get your hands on these rights.
And and the funding there will be a funding requirement. It is still being worked on the details of which we will be happy to explain.
Once it has been finalized.
But.
There are a number of different ways to do it and it's not as because of our advantages is not as significant as 1 may.
Soon.
Great and then <unk> I know that youre not yet guiding to next year. I think 1 question folks will have is whether or not we'll see a snap back in net retrans.
This year is kind of thought of as more of a timing issue. So is it right for us to think about.
The negative growth this year as a timing issue and that we shouldn't we see something pretty healthily positive for next year.
Sorry, Steve I'm not going to at this point this early date.
Getting to the 2022.
Died on net Retrans, but what I will say is you are correct. This year we had.
As we've talked about on multiple earnings calls the mismatch between the network renewables that distributor renewals and the fact that we really only had the <unk>.
1 renewal coming up here on the third quarter and that resolved.
Next year, what I will point you to is.
On the mismatches.
You really don't have those kind of mismatches for next year. So we do have.
Some network renewals to come up at the end of this year.
But we also have.
A major distributor that comes up at the beginning of 'twenty..2 so again you don't have the same kind of timing and mismatches that we had in 'twenty 1.
Thank you.
Mhm.
Our next question is from David Hamburger with Morgan Stanley. Please proceed with your question.
Hi, Thanks, I Hope you would apply to me with a few questions. If not just tell me and I can follow up later.
Yes, I'd like to ask could you confirm that.
SPG retransmission agreement expires here on August 15th.
So I know it got it.
You could do you have any commentary on your comments about any update on the negotiations.
Mentioned in the past, how you'll approach it but I'm wondering given that it's pretty imminent here. If you could give us any update on where that might stand.
Yeah, Thanks, David So.
You are correct in terms of timing related to dish and <unk>.
It is.
It's our policy not to comment publicly on ongoing.
Negotiations, so can't really give you more color than that.
Okay. Thanks.
Just a follow up on.
Steve <unk> question you.
You did recently offer some funding proposals to existing diamonds for creditors, maybe just kind of give a bigger picture could you kind of tell us what where your goals were trying to achieve with those proposals.
With new money presented there potentially capturing discounts.
Can you talk a little bit about why the agreement with humans group Okay.
Why you had to.
Keith those negotiations with creditors themselves understanding that you still have an open channel with advisors and improved on successful how do you cope with the next steps.
You'll need to do to achieve those goals now.
So I think it would be wrong to say that they have been unsuccessful. It's been more of a series of moving towards a deal that is amenable to both sides.
And as we've said before and I'll say again, we are not interested in just doing any deal where we're doing the right deal.
And I think we've made.
Progress in that regard and.
And in terms of objectives, you really hit the nail on the head, it's raising new money.
Capturing discount.
And those.
Those are probably a net number 1 and number 2 objectives and and.
And so we continue to work it and.
I think.
I would not characterize it as on the successful.
Okay.
Okay. I mean, it looked like there were about $500 million of new money that you were looking for is that a fair assessment.
At this point, we haven't really.
<unk> commented on there is private negotiation statement.
Okay.
Sure.
1 other question if you'll allow me so we noticed that the adjustment to the T sport.
EBITDA for non wholly.
Joint ventures on wholly owned joint ventures, with now up to over $100 million for the trailing 4 quarters.
The highest it has ever been.
Im wondering can you confirm that the increase is due to accounting for the recent sports rights renewals with a 3 and they'll be on MLB teams over the last 12 months, where you gave equity and the patients to the teams.
And if that is correct how would that adjustment look if you were to annualize those contracts given a couple of them were recent and then let me just piggyback on that.
Please do you have as many as 10 sports rights contracts renew over the next 12 months.
<unk> NBA and NHL contracts that just expired.
1 of those seasons this year it looks like about all but 1 of those appear to be NBA or NHL teams are you going to take the same approach offering equity in those patients to better variable is those contracts.
B teams.
Is that also what's driving your expected, 2% to 3% increase in sports rights payments in 2022 that you had on the cleansing materials, that's a little bit less than historical trends.
And those will go up but I'm curious.
There's a lot on there David so I'll try to unpack it a bit.
Maybe Lucy can try to answer the question about.
The amortization change, but but undoubtedly I'm sure. It did have something to do with the fact that.
Ownership was granted to our most recent renewals.
With the with the last 3 MLB teams.
And.
That is a strategy, which we've been very open about in terms of.
Substituting cash payments for equity distributions, which certainly variable is as our cost structure. So we like that it aligns interest as well and we don't get into.
How many teams which teams are coming up in the future as a matter of policy.
But we tend to have teams coming up every year.
<unk>.
And equity will be part of the mix.
Can't project, whether that will be the <unk>.
Ultimate outcome.
For each other that theres other ways to variable is the cost structure. There is other ways too.
Sort of bifurcate the cost as well.
<unk>.
And I think just to get to your sort of I think comment about our projection on on costs going forward.
In 2022.
I do want to make sure that it's understood that.
In 2021.
We if you were to exclude rebates.
Sports rights payments would would've been up less than 5% over 2020. So I just want to make sure that that trend is understood because I think on the as reported it was around 7%.
And when you move into 2022, we expect that to go down.
As you noted.
Around 2%.
And Thats really just rolling our contracts forward.
What in terms of renewals renewals can sometimes spike up.
The annual growth rate.
As we saw in 2021, but theres really 2 factors that go into the renewal discussion 1 is.
What are the.
What is the market competition for those rights.
And and then the second factor is what other teen comparable.
For that individual team and how do they compare to the rest of the league in terms of what they're getting paid and how how big they are relative to the size of their market things. Some things like that that you would imagine sort of sort of like a <unk>.
Valuation that would be done on the company and so.
In the case of <unk>.
Deals that were recently done I would say that we had a favorable.
Position as it related to market competition, but unfavorable as it related to teen comparable.
Situation and so going forward on the renewals that I see in the pipeline.
Both of those factors are favorable as far as market competition.
Teen comparable.
The teen comparable situations so.
So I think it will be.
Those renewals that come up we will not have the type of impact that.
That we saw.
On on 2021.
Yeah.
Okay.
I mean do you have any color on the 100 million plus of adjustments or is that somewhat of a follow up cleaner balance.
Yes, David if you can follow up with US later on on that level of detail, but I do want to go back and.
Answered the prior question on the new money financing.
And the amount that was cleansed and the term sheets with $5 million to $600 million.
Okay.
Okay, and then just a couple quick more housekeeping I think Chris.
Chris You mentioned the last earnings call that the streaming rights for the NFL, NBA and NHL, where up to be renewed at the end of the season can you kind of tell us where you are on those.
We're having productive conversations and negotiations with with all the weeks at this point and.
The existence of a deadline being the next season that comes up we think it will be a helpful.
On a helpful, forcing factor to finish those drive them to the finish line.
And on.
Expected increase in the costs associated with those.
Or is that something again, we don't want I would like to talk about.
Terms on live negotiations.
But I would point back to my comments around.
What goes into the dynamics of a negotiation around market competition and teen comparable.
And.
And as it relates to the digital rights, we are the only buyer for those.
There is no 1 else they could be sold to so.
So we have a relatively good position.
1 last just quick 1 loosely you'd normally give a churn number.
On your prepared remarks, we've seen better video results for most of the distributors. This quarter I was wondering if you could tell us what your assumptions are for churn both with SG before it.
Sure sure so.
You are correct in that the public disclosures of the distributors showed slightly better.
Churn.
But at this point, we've left our guidance intact for what we were assuming before which is mid single digit percent churn per broadcast and high single digit.
Percent churn for Diamond, so just to add to that David.
You guys follow us.
I'm sure just as close as we do but the quarter over quarter trends of the recent big Mvpds are very very encouraging they don't necessarily.
Immediately help you in a big way.
In core and year over year comparisons for Q3, or Q4, but they really point to much better outcomes.
In Q1 of 'twenty 2 in Q2 of 'twenty 2 so we haven't changed our math of our guidance as we said to be conservative, but I will say we were very very encouraged by what we saw what we're seeing so far.
Okay. Thank you very much on thank you for the questions.
Our next question is from Aaron Watts with Deutsche Bank. Please proceed with your question.
Hi, everyone. Thanks for having me on I appreciate all the detail let me start with 1 on the station side I know you touched on auto.
But how much was auto down and QQ how is it looking at <unk>.
How much of a drag do you think.
Auto currently is on core AD Pacings I think you had mentioned up high teens for 3 Q I mean, it's on.
Low single digit basis point drag mid single digit percent drag just trying to get my arms around that.
Erin versus the 2019 per second quarter, it was low teens sales.
We have a strategy that we've been working with the tier 3 auto dealers to promote services used cars as well as drilling into what available inventories they have and we're segmenting where.
Where the buyers are through our omni channel solutions that we provide to the dealers.
It's obviously been on the news with.
Semiconductor chip shortage.
The dealers are having a tough time getting vehicles with that being said the grosses are at all time highs. So we're working through it.
Again as a reminder, our service categories.
<unk> category and it's been led by financial insurance.
In the new category of those broken those asked about for a couple of years as the sports betting.
Company, which were 3 ex up versus <unk> versus 'twenty, where we first started to see in the money. So we're in a healthy position growth.
From a core advertising position.
Okay. Good that's helpful. And then just 1 more from me Chris wanted to follow up on the D to C platform as you work for it to be ready for the start of MLB next year, just for the sake of clarity what what hurdles remain in terms of rate.
To launch.
Across your whole portfolio for example.
All your team and lead partners agreed to the plan appreciating you just made some comments on the NBA and NHL and then on the other side of the coin you have clearance from your distribution partners to go forward with the non authenticated D to C launch.
Mhm.
So on the ladder we.
Do we.
We have we have clearance and we have the right to do that from the distributors and then in terms of the teams we do have to renew.
Complete our renewals for the NHL and NBA and there are a few or several teams that on the MLB side, which we.
We have to we have to secure the DTC rates for.
Okay, great. Thank you very much for the time.
Thank you.
Okay.
Our next question is from David Karnofsky with J P. Morgan. Please proceed with your question.
Alright, Thank you Christopher DTC slide deck seem to imply a monthly kind of 19 to $20 <unk> for the service would you expect to charge that amount or is the price.
Here on Youre, assuming some level of seasonal churn and then the gods of the steady state margins of 40% in 5 years can you clarify is that only with distribution revenue or does it also assume a material contribution from the advertising and other features you mentioned.
Mhm so.
To your latter question that is all in we do think the.
Beyond subscription revenue there is significant opportunity is not just on advertising, but in E Commerce and watch and play.
Fandom based community features.
And so so that margin is based on the total revenue.
What was your first question again.
Just on the <unk> for the service it looks like.
Just within 12 months here on 19 to 20 other mills that was the right way to look at it or are you assuming the average customer would have some churn would be signed up for less than a year.
Yes, no no.
There is churn built into the model absolutely in their annual and monthly plans built into the model. So.
It's not necessarily going to give you the exact price point and I will say that.
Cleansing deck is the mall is a moment in time everything is still subject to change and final pricing plans in <unk>.
And packaging is is still something that is yet to be finalized.
Yeah.
Okay.
Paired remarks, you highlighted non core assets worth $200 million book.
I was hoping you could walk through what the more material assets are what your long term plans for some of those investments are and how should investors think about applying the rate mark about it.
Yes, we're going to we're going to try over the in the months to come here to try to get more detail on that too to you all as an investor community. Because we do think it's really underappreciated something like play fly, which we own 42%.
<unk>.
Has just been killing it there can their college in EMR.
And expanding into into pro MMR and.
Also have the preeminent sports.
AD agency.
New York So.
They are really interesting and they are.
They have undoubtedly accreted in value substantially and that's more that's something that there very well could be an exit on.
Just trying to think of it like it has a tie into our core business, but it's.
It's more of a financial investment.
And.
And we have a private equity partner that will drive.
Ultimate outcome, there and then you've got things.
Like dielectric and 1 media.
Which.
Our wholly owned and <unk>.
Full of IP assets.
And.
In hard assets that really don't get.
<unk>.
And then beyond that we've got.
Things like thank you labs in India, which has increased in value significantly because they are investing in.
<unk> 3 point al but also.
So in.
<unk> low.
Low energy efficient radio heads, which a lot of the global.
Network operators.
Are very interested in is <unk> as an energy hog.
<unk>.
Having radio heads that are more efficient than anyone else on the marketplace, which is what.
Sandia labs has and.
Also on open.
Ran.
Is it unique competitive advantage so.
Net these are things that we don't really talk about because we own a minority position in <unk>.
It doesn't it's not consolidated on our books.
But will yield significant value in the future and so we are.
It's $200 million of book value today, but we're quite confident.
Multiples above that.
When.
Exits come on this non core portfolio so.
Well, we will endeavor to get you more details on that in the future.
Very helpful. Thank you.
Our next question is from Lance Vitanza with Cowen and company. Please proceed with your question.
Hi, Thanks for taking the questions I actually have a couple if I can squeeze them in the first just a quick conversation a minute ago around the direct to consumer <unk>. It might've given the impression that there would be like a single price point, but I'd be thinking about this is multiple play on opportunities where there may be a lower price point plan for the casual viewer.
And then for for someone who wants more access because of the routinely wagering $100.
<unk> is a $1 per month on sports if that person might want to purchase as sort of a more inclusive type of a plan.
How do you think about that other ultimately opportunities for sort of price discrimination here the model.
Absolutely the model is exactly that a model at this point so it doesn't it does have things like annual plans on monthly plans.
But it doesn't really go beyond that in terms of complexity, but when you think about how this will roll out.
Im sorry, there is a casual fan there is a sort of lower features only.
Subscription on the model too but.
That's pretty small component.
And but what.
There will be the opportunity to create more skus and more price points in the future.
I don't personally believe that you should have too many choices because it's the consumer.
It doesn't like that its called the tyranny of choice and.
And so but I think you hit on something that I actually firmly believe in and it's not really modeled anywhere but for a for a person who is heavily engaged in sports betting.
I envision.
A significant amount of income coming name from watch and play which is the gamification.
Real time gamification of a of a sporting event, where they can play it like a video game they can be having at risk at money on the line.
Positions that are changing every 10 to 20 seconds based on their actions.
And.
And I think thats going to be like in game betting but on steroids.
And.
Actually the first we're working on that experience with valleys first up and tenants.
As tenants.
It is probably.
It is set up very very well to do that.
But we're going to move that same philosophy through MLB NBA NHL too.
And.
And we think that ends up being a very significant revenue driver not only for this enterprise, but we also see.
At World that you alluded to where people engaged in that type of activity will get.
Subsidized are comped.
Subscriptions from the sports books.
Just as just as a casino with comps someone's hotel room or meals.
There'll be very interested in Comping People's subscriptions.
If they are at a certain level of play.
And so.
So thats, so thats I do think that will be.
Part of the future.
And then my other question is how should we think about the liquidity at diamond given the 180 or so million of payments the rebate payments come in come in over the next year or so 400 loan on a cash there today is that enough how much liquidity do you really need to done and I'm talking about before.
You know.
Crucible of any incremental capital that you might want to race launched direct to consumer, but what's sort of the minimum liquidity that you would envision at diamond do you feel comfortable from a liquidity standpoint.
Well look we every every quarter we of course do all our outlook on our test.
And we are comfortable that there is sufficient liquidity through the next 12 months.
And I'll, let Lucie answer what we think a minimum amount maybe.
Yes.
Yes, that's a little bit more.
Complex question Lance because we are in this evolving peer.
Period, with Drs ends and rolling out.
Rolling out the gamification and rolling out.
The app and other things so.
Well look I think on what I would say on that is that.
There isn't a lot there is a little bit of.
Seasonal change, but since most of the revenue comes through subscriptions there isn't huge there isn't a need for a huge working capital cash balance at <unk>. So.
We're not going to cite a specific number but it's not like other businesses, where you need to create a need to keep a big cash balance.
Okay and then last for me is someone earlier asked about where <unk> was going to be house. I think we're concerned is that it's outside of the DSG box, but just to be clear regardless of where this box is setup you can't run direct to consumer without for constant from Diamond right.
Am I wrong on that.
Right now youre not wrong on that and.
As I mentioned, we're still working on it and how exactly how the funding will work and what they final structure will be.
But there is.
Everything will be done.
On a arm's length fair basis, so any.
Wherever whatever the final structure may be.
There will be.
Fair compensation paid for.
For all parties involved.
Thanks, guys.
Thank you. Thank you.
We've reached the end of the question and answer session. At this time I'd like to turn the call back over to Chris Ripley, President and CEO for closing comments.
Thank you all for joining US today, if you should need any more information or have additional questions. Please don't hesitate to give us a call.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.