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Sinclair’s Best-Case Scenario for DTC Biz: $2.9 Billion in Revenue in 2027

Diamond Sports Group
(Image credit: Sinclair)

Sinclair Broadcast Group, which announced a new streaming rights deal with the National Basketball Association and an agreement with creditors that would pump $600 million into its Diamond Sports unit, said that its direct-to-consumer business should generate as much as $2.87 billion by 2027.

Sinclair put its latest projections for its sports business in a filing with the Securities and Exchange Commission.

With the NBA and financing deals in place, it appears Sinclair is set to go forward with plans to build a direct-to-consumer business based on the regional sports networks it acquired in 2019. Those networks were rebranded as Bally Sports networks last year.

According to the filing, the new DTC business would have three types of users: ones who get the product for free as a TV-everywhere service, features-only subscribers that get betting-related app features but not live games and streaming subscribers getting live games directly even without a TV subscription. Sinclair did not disclose how much it plans to charge paying subscribers.

In the filing, Sinclair laid out three scenarios. In the most bullish scenario, Sinclair sees free subscribers growing from 6.7 million in 2022 to 9.6 million in 2027, while features-only subscribers goes from 235,000 to 6.4 million and streaming subscribers grows from 975,000 to 9.7 million subscribers in 2027. For 2023, Sinclair expects to have 8.2 million free subscribers, 1.3 million features-only subscribers and 2.98 million streaming subscribers.

In its best-case scenario, Sinclair said the DTC business is expected to generate $279 million in revenue in 2022, jump to $859 million in 2023 and hit $2.87 billion in 2027.

Expenses would grow from $280 million in 2022 to $606 million in 2023 and reach $1.3 billion in 2027.

The business would lose $36 million in 2023, but have adjusted earnings before interest, taxes, depreciation and amortization of $150 million in 2023. EBITDA would grow to $1.03 billion by 2027.

In the least bullish scenario, the business would have 7.7 million free subscribers in 2022, growing to 9.6 million in 2027, 67,000 features-only subscribers in 2022, growing to 2.4 million in 2027, and 309,000 streaming subscribers in 2022, growing to 3.4 million in 2027.

Revenue would be $111 million in 2022, rising to $1.29 billion in 2027.

Expenses would be $224 million in 2022, increasing to $849 million.

Sinclair forecasts losses of $125 million in 2022 and $14 million in 2023 before turning EBITDA positive in 2024. EBITDA would be $81 million in 2024, rising to $307 million in 2027.

In announcing the financing deal, in which Sinclair is giving up $400 million in management fees over five years, Sinclair CEO Chris Ripley said “the transaction as contemplated in this agreement demonstrates the support of both our creditors and Sinclair in positioning Diamond for success for the long term.”

Ripley said that the additional liquidity and the rights deals Sinclair secured enable the company “to proceed with our plans to launch Diamond’s direct-to-consumer offering, which is important to its future state. The platform will offer a more personalized and interactive viewing experience that we believe will appeal to a wider audience and better engage viewers while offering additional revenue streams for Diamond, driving growth in the business in the years ahead.”

Analyst Steven Cahall of Wells Fargo said that while the deal with creditors removes an overhang among Sinclair investors, they’re probably not thrilled with the TV business giving up its management fees.

“While ... DTC success still feels like a flier, the headline risks are arguably dialed down significantly,” Cahall said. “We thus reiterate how important DSG DTC execution will be on the future narrative.” ■