Specialist
Executive at LHB Sports Entertainment
Agenda
- Sinclair Broadcast Group's (NASDAQ: SBGI) operating environment – implications of recent MLB [Major League Baseball] commentary toward rights ownership
- Expectations for packaging, ARPU and subscriber uptake for a Bally Sports D2C product
- MLB’s strategic partnership options as a potential alternative to Sinclair
- Outlook for Q4 2021 and beyond – sports rights fee trends and Sinclair’s sports betting opportunity
Questions
1.
MLB [Major League Baseball] Commissioner Rob Manfred has made some fairly pointed commentary towards Sinclair and Bally’s D2C application efforts. What would you consider the most important points here? How much do you think this is public posturing vs real tension among the two stakeholders?
2.
Do you think this partnership will be a necessary evil, where neither the MLB nor Sinclair can go at it alone, in the sense a sports rights deal is struck among the two, and so under contract there might be protections or non-competes that wouldn’t allow them to disassociate themselves from each other? Could the MLB leave Sinclair in the dust and go for a D2C venture independently?
3.
What would happen to rights in a post-bankruptcy situation? Do you think the creditors would have claims on the sports rights, so they monetise them, the actual lenders of the debt, rather than them being recalled to the leagues or the teams?
4.
What do you think Sinclair aims to do with bringing on more digital rights on average? Considering it has TV deals that include digital rights with the Marlins, Rays, Royals and Brewers, is that misleading as it’s really just local cable-authenticated-only TV everywhere rights rather than pure-play D2C digital streaming, where streaming potentials are included, if Sinclair does roll out a Bally Sports streaming product? Would the Marlins, Rays, Royals and Brewers still not allow the eventual Bally Sports product that Sinclair touts?
5.
Could you discuss Sinclair’s legacy business? This had historically been 52 million subs and 35 million unique households. The pay-TV model brought carriage for these RSNs [regional sports networks]. What are your expectations for that continued carriage drop issue? Sling, Fubo, Hulu and YouTube TV are already all dropped, Dish dropped. Might any of those come back, or do you think these drops are permanent?
6.
How do you think tiering networks out of the base package would impact uptick? I’ve heard 25% uptake of the base reach would be a ballpark, but how do you think a player such as Dish would assess pricing this? Would it be some premium over the retrans that’s already being paid? How do you think that MFN [multi frequency network] impact would drive the go-forward for the linear subs?
7.
Is the tiering the only recourse you’d anticipate from the distributors? How likely is a reduction in fees? It seems this isn’t a trend in retrans negotiations, it’s just setting new normals and coming in flat vs ever reclawing the fee per set per month. Would you expect that to occur, as well as tiering up? Might the fee they pay go down vs wherever it sits per station?
8.
Can you explain the disparity between the value perception from the distributors for RSNs and broadcast stations? Surcharges for those on the station side are reaching USD 16-17 a month and the affiliates themselves are free-to-air, so what do you think is the driver for the local stations to perhaps be more important to the overall bundle and keep it together, rather than the RSNs?
9.
From its deck, Sinclair is talking about receiving USD 2bn in revenues from its D2C product, 4.4 million subs, so that’s a USD 38 ARPU. You mentioned a USD 23 price, and then the balance is made with ad revs or sports betting. Presumably, USD 23 a month is a nationwide package offering where all of the teams within the stations are offered to the end user. Do you think that value proposition could reach a 4.4 million-subscriber uptick over the five years? That’s only an 8% cut of the 52 million subs on the linear side. Would enough people, probably sports betters who are tuned into out-of-market games, get to a USD 23 a month product getting 4.4 million subs in five years?
10.
What do you think would be a more attractive entry price point? Does any of that lowering price come with a repackaging rather than just all teams and games included? What alternative go-to-market approaches do you think could work better for Sinclair?
11.
What’s the percentage probability that Sinclair will launch a commercially viable D2C product?
12.
It seems a lot of it is around the conflicts of interest in Sinclair being the best strategic partner to solve the bleeding fans and ageing demographic issues. How do you think about the RSN structure being in MLB’s best interest? It seems Sinclair is holding out on rate because the balance sheet, losing MVPDs [multichannel video programming distributions] because of the risk of tiering that we discussed. MLB is also losing the fans YoY, and so it’s dealing with an attendance drop. Does anything make Sinclair the best option for it from a value proposition? If not, who do you think are the alternatives? Is it a go-it-alone or another strategic partner?
13.
Who are the frontrunners for a new strategic partnership? Amazon obviously has dipped its toes with Yes in Seattle. What might the new frontier of a strategic streaming partner be?
14.
If MLB’s partner is a streaming provider that’s already in the market, will this to have to be a separate product, given the market perception that tacking a sports offering onto an existing ESPN+ or HBO Max product makes things prohibitively expensive to the consumer?
15.
Could you elaborate on the “subject to league policy” comment that you pulled out of Sinclair’s 10-K? Would that just mean that the leagues have that ultimate out in the RSN deals if they don’t like where things are headed?
16.
With so many players going into streaming, how can NPVs be positive when you’re making so much money with licensing deals? Same way to address it for the RSNs. How should we compare the economics when considering the dual model of affiliate and advertising vs streaming, especially given your point that the legacy model won’t go away, it’s not a like-for-like replacement? Is this just a less profitable business model vs what had been peak reach with a way to monetise them through retrans and advertising?
17.
How do you expect sports rights fees to trend? It seems there have been a lot of renewals and AAV [annual average value] inflation, and so if Sinclair is already on the hook for USD 1.8bn annually, how should we filter that down per team? You hear random stats of Marlins are USD 85m a year, Royals are USD 50m a year. How should we estimate a high-low average, perhaps based on team popularity or how much the team drives
profitability for the RSNs? How much more inflated might these become?
18.
Can we discuss the sports betting opportunity? There are estimates that by 2025 it’ll be USD 12bn, USD 50bn in steady state, but what might be serviceable for the networks? I presume it’s moving the linear views to digital views, to then clicks, to then making a bet of which Sinclair could receive a cut. What could a blue-skies opportunity be for Sinclair in commercialising sports betting?
19.
There’s a disparity from MLB’s positioning in terms of Sinclair’s value proposition vs that of the teams, where the teams’ lifeblood and ability to make payroll and fund operations is largely driven by RSN rights fees. Is there an element where the teams are very inclined for Sinclair to avoid bankruptcy, and is there enough emphasis that the teams could place on the leagues to actually retain Sinclair as a strategic partner, given any disruption might cause teams to also be at risk for bankruptcy? What would the more positive outlook be and is it largely driven from the teams’ perspective?
20.
What’s your 2-3-year outlook for the sports ecosystem, given everything we’ve discussed, a lot of moving parts, a lot of areas of uncertainty?
