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Sinclair-Bally’s Deal Could Be a Sign of the RSN Times

Atlanta Hawks
Sinclair’s Diamond Sports operates former Fox Sports-owned RSNs in 21 markets, including Atlanta Hawks home Fox Sports South. (Image credit: Harry Aaron/Getty Images)

Sinclair Broadcast Group’s decision to essentially sell naming rights to its 21 regional sports networks to gaming giant Bally’s could provide the broadcaster with needed capital during an unprecedented time, while also serving as a possible blueprint for other sports channels. 

Bally’s agreed to pay about $88 million
over 10 years for the naming rights to 21 of Sinclair’s RSNs — YES Network and Marquee Sports Network, both minority-owned by Sinclair, were not included in the deal. Bally’s also agreed to purchase a set amount of advertising on the 21 channels, estimated by some analysts to be in the $10 million range. Sinclair received warrants to purchase Bally’s stock in the future. 

Sports betting is expected to be a $12 billion business by 2025, growing to $50 billion at maturity. Though only a handful of states have legalized sports gambling since the U.S. Supreme Court opened up the door in 2018, aligning with a well-known name in the gaming industry could be a good thing for Sinclair. 

“I think the idea of entitling RSNs is a smart idea,” LHB Media & Entertainment president and CEO Lee Berke said, adding that corporate branding of sports and entertainment networks isn’t really that new. But he said networks, when choosing a branding deal, have to be aware of existing relationships that teams have with other companies. For example, he said the NBA’s Detroit Pistons have deals in place with FanDuel and DraftKings. 

“You’ve got to navigate the relationships you have with your key teams,” Berke said. “Things need to be coordinated.” 

Whether other RSNs will follow suit depends on the network. The second-largest RSN group, Comcast’s NBC Sports Regional Networks, probably wouldn’t see an advantage to such a deal, but smaller channels might.

“Do I think that networks in general will be looking at entitlements? Yes,” Berke said. “And not just sports.”

Sign of the Times

The Bally’s deal is a sign of the changing times in the RSN industry, which has been hit hard by the pandemic as major professional sports leagues have curtailed their seasons. Major League Baseball saw the biggest impact, playing a severely shortened 60-game season followed by playoff and World Series games, all without fans. Sinclair said it had to return about $128 million to distributors in Q3 for games that weren’t delivered because of the COVID-19 outbreak. RSN revenue in the period was $597 million, about 1% below consensus estimates and Q4 guidance is for a further decline to $548 million in Q4.

Sinclair also took a $4.2 billion charge related to its RSN assets in Q3 after distribution revenue fell to $597 million, fueled by the loss of two major virtual MVPD distributors, Hulu + Live TV and YouTube TV, which accounted for about 10% of its subscriber base.  

In a research note, Wells Fargo Securities media analyst Steven Cahall wrote that the Bally’s deal was a solid one for Sinclair, but not quite a game-changer. He added that the impact could become more material if Bally’s marketing spend approaches that of some of its sports gambling peers like DraftKings, which is expected to spend about $400 million per year on that expense line.  

Sinclair spent about $10 billion for the RSNs in 2019, purchasing the channels — acquired by The Walt Disney Co. in its purchase of 21st Century Fox, but then divested for antitrust reasons — through a newly formed subsidiary, Diamond Sports Group. Diamond financed much of the deal with debt, taking on partners like Entertainment Studios founder Byron Allen to help with funding. The 21 channels have retained the Fox Sports brand. 

“So for now, even with better ad monetization, Diamond remains heavily underwater vs. its ~$8 billion in debt,” Cahall wrote. 

While there is hope a COVID-19 vaccine will be widely available in time to keep seasons intact, there is still a possibility that the NBA regular season, slated to begin in December, could be postponed, as well as the 2021 MLB regular season if cases surge. For now, the NBA plans to begin preseason games on Dec. 11, with fans gradually allowed back into arenas on a team-by-team basis. For example, the Atlanta Hawks plan to allow fans at about 10% capacity by Jan. 18. MLB has said it plans to play a full 162-game season, beginning on April 1.

FEES SQUEEZE: RSN fee growth nearly doubled between 2009 and 2019, but is expected to slow down in the next three years, acoording to Kagan, a unit of S&P Global Market Intelligence
TOTAL RSN FEES% GROWTH
2019$6.1 billion1.7%
2020 $6.2 billion1.6%
2021$6.4 billion3.2%
2022$6.5 billion1,6%
2023$6.6 billion1.5%

“As much as entitlements are a value for any network, the main issue that all these RSNs are facing is, where do the leagues stand in terms of their respective seasons? How many games will they provide?” Berke said. “Coupled with that is the fact that streaming has been accelerated by this [pandemic], and they really need to be looking at how quickly you can offer up content directly to consumers while still maintaining a presence in the bundle.” 

Fees Will Level Off 

RSN fees, which nearly doubled between 2009 and 2019, are expected to level off in the next three years, according to Kagan, a unit of S&P Global Market Intelligence. Total RSN fees paid will be about $6.6 billion in 2023, Kagan estimates, up from $6.2 billion in 2020. 

Berke said that is to be expected given the maturity of the industry. But sports content is still among the most-watched programming available and still has value to distributors, he added. So while distributors may complain about high costs and how most of their customers don’t watch the games, they will most likely continue to pay up. 

Berke said he doesn’t expect the same level of fee increases in the future, but said RSNs have a lot of opportunities to exploit, including streaming, while still maintaining a relationship with traditional pay TV.

“You just have to adjust how you’re being distributed,” Berke said. “That’s the challenge. The content is there, the technology is there, the interest is there. You just need to match up the business model and the distribution.”