Sinclair Earnings: Cord-Cutting Impact Magnifies Importance of Retransmission Negotiations

Sinclair SBGI posted a decent second quarter as the revenue came in at the high end and adjusted EBITDA slightly beat the top end of the guidance range. However, total revenue excluding political advertising fell by 3% versus a year ago due to mid-single-digit subscriber churn and ongoing ad weakness. We expect retransmission renewals and even-year political revenue to assist in counteracting subscriber churn, producing low-single-digit revenue growth over the next five years. We are maintaining our no-moat rating and $22 fair value estimate.

Sinclair’s advertising revenue, excluding political spending, fell 3% year over year to $309 million. Stronger national and local auto ad spending was more than offset by weaker insurance spending. The lack of any meaningful political spending until 2024 resulted in a 16% decrease in total ad revenue. Distribution revenue fell by 3% for the second quarter in a row as Sinclair struggles with the secular decline in pay-TV subscribers.

The lower core ad spending and distribution revenue supercharges the importance of the negotiations covering 90% of Sinclair’s Big Four broadcast network agreements over the next 6-12 months. We believe the new agreements will contribute low single digits to distribution growth, but the networks will likely charge higher reverse retransmission rates, limiting the upside.