Sinclair reshuffle spurs big quarter

Sinclair Broadcast Group said it earned $2.59 billion in the first quarter as it “deconsolidated” its local sports segment from its financial statements.

As a result of a March 1 corporate reorganization that included recapitalizing the debt of Diamond Sports Group, which holds the local sports networks, and raising additional capital, Sinclair Broadcast reported a $3.4 billion pre-tax, non-cash gain “on the disposition of assets.”

Hunt Valley-based Sinclair wrote off $4.2 billion of the value of the sports networks in the third quarter of 2020 after the pandemic decimated live sports programming not a year after Sinclair bought the networks for $10.6 billion.

Diamond Sports has been removed from Sinclair’s financial statements, but the company continues to own and remains committed to the networks, Chris Ripley, Sinclair’s president and chief executive, said during a conference call.

“While on the surface this may seem to add complexity, we believe it will result in a more simplified, transparent, and focused valuation and credit story for our various stakeholders,” Ripley said.

The $2.59 billion profit for the three months ended March 31 compares with a net loss of $12 million in the first quarter of 2021. Earnings were $35.39 per share compared with a loss of 16 cents per share a year earlier.

Excluding the adjustments, Sinclair said it would have earned $27 million.

The Diamond Sports Group restructuring “follows a tumultuous period of distribution challenges and refinancings,” wrote Steven Cahall, a senior equity analyst for Wells Fargo Securities, in a report Wednesday.

The report noted that Sinclair has been transforming itself, by digesting the regional sports networks, acquired in August 2019, and by taking on an economic interest in Bally’s. Sinclair formed a partnership with the casino operator at the end of 2020 to create an interactive gambling experience with its regional sports networks and television stations.

“This quarter could be an important stepping stone for Sinclair as the constant drone of Diamond challenges fades away with the deconsolidation,” Cahall said. “We think the change is likely to prove a net benefit.”

The broadcaster said revenue decreased 14.8% to $1.29 billion in the three months ended March 31, compared with $1.5 billion in the first three months of 2021. The quarterly revenue fell short of the $1.53 billion expected by Wall Street analysts.

But better-than-expected political advertising helped buoy its first quarter revenue, a sign that political ads will reach record levels this year.

Sinclair shares rose about 3% to close Wednesday at $24.15.