During Sinclair’s quarterly earnings call on Wednesday for the first quarter of 2020, CEO Chris Ripley said some interesting stuff regarding the Fox Sports RSNs that have been owned by Sinclair for nearly a year.
Ripley noted that minimum game requirements, which had been speculated as a reason that the NBA and NHL wanted to finish their regular seasons, did exist in its carriage contract with both teams and providers. However, those minimums varied by team and provider, and if the minimum wasn’t met, it appears that providers could only receive a portion of those carriage fees. Additionally, Ripley said that any shortfalls are usually dealt with at the end of either the season or calendar year in question.
Here’s the relevant wall of text from Seeking Alpha’s transcript of the call, which includes Ripley saying that Sinclair has continued to pay the teams and distributors have kept paying Sinclair the carriage fees.
The sports rights agreements entered into between our RSNs and the professional sports teams typically include a minimum game delivery obligation. Adjustment provisions in those agreements address shortfalls by teams including rebates tied to the number of games actually deliver. Commercially, certain of our affiliation agreements with distributors also include game delivery minimum.
We can — if we cannot deliver the minimum number of games under the agreements, there is a mechanism for distributors to recoup a portion of their carries fees. Each contract is unique and confidential and therefore has different parameters and remedies for any potential shortfall of games deliver. Despite the postponement of games of play, we continue to make payments to the teams and our distribution partners continue to pay us.
The mechanism for truing up for any content not received under our sports rights agreements or not delivered under our affiliation agreements generally takes place at the end of the season or calendar year. While we believe that sports will come back this year and be in high demand at this time, the leagues have not indicated when games will resume. Therefore, we do not know where we will end up in relation to the game delivery minimums. Keep in mind that the NHL and NBA regular seasons were almost complete when the seasons were suspended, so shortfalls in those weeks if any should be minor.
Later on in the Q&A portion of the call, Ripley said that Sinclair does expect a shortfall in the amount of games played in responses to two different questions.
And in terms of what we’re expecting, like we don’t know how many games will ultimately be played. But we do expect less than the, the normal amount of games to be played. And that should result in some sort of rebate situation where, the teams play to get paid less than the MVPDs get a rebate.
And then in terms of rebates, as I mentioned, we think we’re likely going to be headed into a situation where there is rebates. We don’t know the magnitude of those, till we get more clarity on when the games we played and how many will play. So, what we will do though is, update our guidance. Once we have a clear picture, my guess is that will be the next quarter. And from there you’ll be able to tell, what the impact is.
The comment about the minimum games requirement not being met being resolved at the end of the calendar year is very interesting, especially when in relates to a company like Dish (which has been locked in a carriage battle regarding the Fox Sports RSNs since last summer), which doesn’t want to pay ESPN carriage fees for April because of a lack of live events. ESPN’s carriage deals seem similar to Sinclair’s in the sense that it has time (until September 2021) to make up for not delivering those live events. Sinclair’s timeline isn’t as long, but it’s also not as short as a month to month basis.
In the call, Ripley also made mention of the rebrand for the Fox RSNs (which will hopefully happen soon so I can stop typing the phrase “Sinclair-owned Fox RSNs”) and the pending launch of a new app (presumably to replace Fox Sports Go), which will one day include live betting (as has been surmised over the last year).
Despite of COVID-19, we are still hard at work on initiatives to ensure our success in the years ahead. Top of mind are the digital reboot and rebranding of our RSN. As part of these efforts, we are developing a more robust and dynamic app that will enhance the user experience, allowing the viewers to interact with live sports in ways that have not been previously available. This eventually is expected to include legalized sports betting capabilities.
Finally, regarding Sinclair’s piecemeal carriage deal with YouTube TV, Ripley implied that would not be the norm going forward for providers and that YouTube TV needed to cut costs and also keep carrying various Fox Sports RSNs.
Yes, YouTube, we’ll have to see, they were, they’re under a lot of cost pressure to make that offering breakeven. And so, it was really a cost exercise for them. And some of the RSNs, they ultimately didn’t take were the more expensive ones in the larger markets. So, that’s what really drove the outcome there. I think it’s a unique situation in terms of what they decided they wanted to do, and I don’t think it really has any broader implications.
There was clearly a lot going on during that call, so here’s a quick and dirty summary.
- Sinclair confirms the limit of game minimums, expects not to hit those minimums, and will likely end up offering partial rebates.
- The rebrand of the RSNs and the new app are both coming, eventually.
- The YouTube TV carriage deal with an exception, not the new rule.
And that’s about all, folks. There’s a bunch of other stuff Ripley and other Sinclair execs talked about in the call, but most of it is financial information related to the two and a half months before live sports across the country came to a halt, so it’s tough to drag much RSN-related info out of that which would still be relevant today.