Sinclair Reports Strong Ad Growth; Deconsolidation Demonstrates the Risks of Owning RSNs

Despite decent broadcast top line growth, Sinclair posted a mixed start to 2022 as Diamond Sports Group, or DSG, (the holding company for the regional sports networks) has been deconsolidated as of March 1, 2022. The need to recapitalize DSG, along with the installation of a new five-member board with four independent directors, forced the deconsolidation of the group. As a result of the transaction, the firm booked a $3.4 billion pretax noncash gain. Despite the change, Sinclair continues to own nearly 100% of the equity. We do not expect to change our $30 fair value estimate after adjusting our model for the deconsolidation.