For years, regional sports networks were a home run. They gave fans a place to watch their favorite teams while generating incremental revenue for teams and high affiliate fees for programmers.
Lately, though, there have been questions about whether they will be able to stay in the starting lineup.
As the Chicago Cubs and Sinclair Broadcast Group launch Marquee Sports Network, changes in the TV business are raising questions about the viability of RSNs.
Last year, Sinclair paid what appeared to be a bargain price of $8.9 billion to buy the 21 Fox Regional Sports Networks. They had been owned by The Walt Disney Co. after it acquired 21st Century Fox, but regulators forced Disney (which owns ESPN) to sell them. Early estimates were that the RSNs would fetch $20 billion.
Currently, AT&T is looking to sell its four RSNs, but the price those could fetch is reportedly falling from $1 billion to $500 million as revenues fall short of expectations.
As consumers cut the cord and opt for skinnier bundles, revenues for Sinclair’s regional sports networks are expected to drop.
“It’s a challenged business,” analyst Zack Silver of B. Riley FBR said. “The market is already basically saying that it’s not going to work and there’s no equity value in these RSNs.” Silver expects Sinclair to try to get the teams it has RSN deals with to take equity in the networks in exchange for more moderate sports rights payments.
Sinclair’s RSNs have been blacked out since last summer on satellite-TV provider Dish Network, which appears to be getting out of the sports channel business. Not being on Dish has driven a 20% reduction in the earnings Sinclair’s RSN are expected to generate, Silver said.
“The market is waiting for the other shoe to drop, or to put it more literally, for another MVPD to drop Sinclair RSN carriage,” he said. Sinclair’s RSN deal with Comcast expires this summer, but with Sinclair making deals with AT&T, Charter and others — deals that include Marquee — ”we see a quiet renewal with Comcast as the most likely outcome.”
Wells Fargo analyst Steven Cahall has reduced his forecast for revenue and profit at the Sinclar RSNs. He sees revenue falling to $3.291 billion in 2022 from $3.431 billion in 2020 and earnings before interest, taxes, depreciation and amortization dropping to $1.004 billion from $1.2 billion. Profit margins will decline to 30.5% from 35%.
Sinclair sees the RSNs as an important part of its business. “We are now the industry leader in local news and local sports, two of the most desired live content genres,” CEO Chris Ripley said during Sinclair’s third-quarter earnings call. “We believe the addition of the RSNs represents or presents advertising, production, programming and cross-promotional opportunities, as well as new revenue streams associated with legalized sports betting.”
Added Marquee general manager Mike McCarthy: “It’s a very healthy business. The content on it is DVR-proof.
“I can only talk about the Cubs and Chicago and whether that is must-see television or not,” he added. “And I think we all know the answer to that.”
Game Over, Says Analyst
LightShed Partners analyst Rich Greenfield said RSNs are a blight on the shrinking cable video business and thinks Comcast ought to just say no to Marquee and the rest.
If Comcast does drop Sinclair’s RSNs, it would likely push Diamond Sports, the Sinclair RSN subsidiary, into bankruptcy, Greenfield said.
Greenfield said it doesn’t make sense to force Comcast’s 1.5 million Chicago subscribers to each pay $6 to $7 a month so an average of 150,000 viewers can watch Cubs games.
“Lower RSN fees or RSN tiering would lead to a far healthier, mutually beneficial relationship between the RSNs and distributors, not to mention subscribers, albeit far lower profitability across the RSN portfolio, negatively impacting team values,” he said.
Greenfield wondered why AT&T and Charter have “done the wrong thing” by making deals with Sinclair to carry the RSNs, including Marquee.
“Hulu Live is the most shocking distributor to carry Marquee,” Greenfield said. He noted that the Hulu+Live TV virtual MVPD had to raise prices in the fourth quarter to trim losses. “We cannot comprehend how Hulu Live can afford to add another $6-$7/month to their cost structure in Chicago.”
Greenfield adds that with Hulu on board, the need for Comcast to carry Marquee is less urgent.
“Now a Comcast subscriber can keep Xfinity broadband and shift to Hulu Live to get Marquee,” Greenfield said. “Hulu essentially loses money on a video sub to help Comcast cement a higher-margin, broadband-only subscriber. Not such a bad worst case for Comcast.”