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FCC Designating Sinclair Issues for Hearing

FCC chair Ajit Pai said he has issues with the proposed Sinclair-Tribune merger, raising a big cloud over the deal.

“Based on a thorough review of the record, I have serious concerns about the Sinclair-Tribune transaction. The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law," he said in a statement. "When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction. Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues. For these reasons, I have shared with my colleagues a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”

A source says Pai already has the votes to approve the move, with only commissioner Michael O'Rielly yet to vote, but signaling he could support it.

Designating a deal for a hearing has been a death knell in the past, but one former FCC official sees a way for Sinclair to address the FCC issues and perhaps head off the hearing.

Sinclair has been criticized for sidecar deals with spin-off stations that would allow it to keep its hand in, and for the relationship to some of the potential new station owners with existing Sinclair officials.

Another veteran communications attorney agreed Sinclair could conceivably decide to sell stations to new third parties whose connections to the company did not draw accusations of too cozy a relationship.

If so, Sinclair would have to submit a sixth version of the deal, which the FCC will have to put out for further comment, further delaying any deal decision.

According to an FCC official who asked not to be identified, the hearing designation order circulated to the other commissioners for a vote is targeted at the spin-offs with those "cozy" connections, and that the language includes possible "lack of candor" and "misrepresentation" in
Sinclair's structuring of the deal, tough talk that would be red meat for critics of Sinclair's politics as well as its powerful broadcast group.

If the hearing were not avoided, it could take a year or more to conduct.

Pai has been accused by Democrats of favoring the deal, but that was clearly not his message Monday in a highly unusual move for a Republican deregulatory chairman. 

Pai already has the vote of Democrat Jessica Rosenworcel for the hearing designation order (HDO), while Commissioner Michael O'Rielly signaled he can also support it. The FCC needs three votes to designate it for hearing, but also to approve it, so the move is obviously a big blow to Sinclair's chances.

“Today’s announcement is welcome," Rosenworcel said in a statement. "As I have noted before, too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting. With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune. This is overdue and favoritism like this needs to end."

"In general, I have long stated that parties to merger applications are entitled to an answer from the Commission and have expressed deep objections to blindly sending decisions to the Commission’s Administrative Law Judge (ALJ)," said O'Rielly. "Accordingly, I believe that to the extent there are HDOs, to garner my support they must include sufficient and defined timelines for the ALJ to conduct and process a hearing. If included in the Sinclair/Tribune HDO, I am inclined to support it. The ALJ process is in need of significant reforms, including putting an end to the interminable hearing.”

"The proposed divestitures, which are necessary to bring the Sinclair-Tribune transaction into compliance with the commission’s rules, are sham transactions that enable Sinclair to retain control over the divested assets, albeit under the guise of control by a third party," deal critic Newsmax said last week in pushing back on the deal. "This is most evident regarding the divestiture to Cunningham Broadcasting Group (“Cunningham”) and WGN-TV LLC, both of which have close connections to the controlling shareholders of Sinclair and both of which are receiving very favorable prices for the assets they hope to acquire."

The move means that almost certainly the current appeals court decision on the FCC's restoration of the UHF discount, an FCC decision that paved the way for the Sinclair deal, will be issued before that hearing or before the FCC could rule on a sixth version of the deal. If the decision reverses the FCC's restoration of the discount, the deal is hobbled no matter what the FCC Administrative Law Judge decision is. 

Former FCC official and deal supporter Adonis Hoffman thinks there is still hope.

"This is an invitation to the parties to restructure the divestitures," he said. "If the overall deal is in keeping with the company's long-term interests, which I think it its, they could do that in advance of the hearing, and salvage the deal."

"I applaud Chairman Pai’s decision today to designate the Sinclair-Tribune transaction for further review and hearings," said Newsmax CEO Christopher Ruddy of the chairman's announcement. "Clearly this decision is based on the facts and law--specifically that Sinclair has not complied with requirements set forth by the FCC to promote diversity, localism and competition."

"When Sinclair has been forced to sell stations during previous mergers, it has routinely sold them to family and friends and then signed agreements to control the programming on those stations," said Karl Frisch, executive director of Allied Progress, which opposes thd deal. "The FCC is right to call out this scheme."

“We are pleased that Chairman Pai has circulated an order designating the proposed Sinclair-Tribune merger for a hearing," said Jeff Blum, SVP of public policy and government affairs for Dish. "It is a prudent step to closely scrutinize whether the proposed merger serves the public interest and consumers.”

“The American Cable Association applauds FCC Chairman Pai for seeking the support of the other Commissioners to refer the Sinclair-Tribune transaction and the associated station sales to Fox and others to an Administration Law Judge, an action that’s understood to signal the Commission’s disapproval of the deal," said American Cable Association President Matt Polka. ACA is part of a coalition opposing the deal. "From the beginning, ACA has insisted that the transaction is unlawful and certain to create numerous consumer harms, such as higher retransmission consent fees.  It’s well past time for Sinclair to realize that its effort to engage in massive media consolidation has failed and that it should withdraw the transaction without delay so the FCC no longer needs to devote any of its limited resources to a doomed endeavor.”

“We applaud Chairman Pai’s decision to challenge important elements of this transaction," said Phillip Berenbroick, senior policy counsel at Public Knowledge. "The FCC’s merger analysis requires that transactions affirmatively serve the public interest. It was clear at the outset that Sinclair Broadcast Group’s attempt to acquire Tribune Media would harm the public interest and consumers, and decrease diversity and independence in local broadcasting."

"It's positive news that Chairman Pai has expressed concerns about aspects of the proposed Sinclair-Tribune merger," said Michael Copps, special advisor to Common Cause and former FCC chair. "We will have to see how the Administrative Law Judge handles the case and how far his inquiry will range. And Sinclair could still restructure the terms of the deal, although maybe it is finally wearing out its welcome at the FCC."

Energy and Commerce Ranking Member Frank Pallone, Jr. (D-N.J.) and Communications Subcommittee Ranking Member Mike Doyle (D-Pa.) joined the chorus of veteran deal critics praising the move. 

“The FCC’s order could effectively block the Sinclair merger, which would be a huge win for consumers,” Pallone said in a statement. “I urge all FCC Commissioners to vote quickly in support of it. Last week, Ranking Member Doyle and I sent a letter to GAO urging a review of Sinclair’s use of sham agreements to bypass federal media consolidation protections, and I was pleased to see Chairman Pai echo our concerns in his announcement today.”    

“This is a welcome and long overdue development,” asid Doyle. "As I have said many times, Sinclair’s proposed merger would hurt consumers, competition, and the vibrancy and independence of the our nation’s local media. This transaction has been opposed by a diverse coalition of interests from all sides of the political spectrum. I’m glad to see the Commission acknowledging these concerns.”

An FCC spokesperson declined comment on the HDO, saying they could not comment on something they haven't seen.