Sinclair to Buy Disney RSNs

Broadcaster partners with Entertainment Studios’ Byron Allen
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With just about a month to spare, the Walt Disney Co. has settled on a buyer for 21 former Fox Sports regional sports networks, with Sinclair Broadcast Group emerging as the winning bidder with an offer of about $9.6 billion.

Disney put the networks on the block in October, part of the conditions of its $71.3 billion purchase of certain 21st Century Fox programming assets. As part of that deal, Disney agreed to sell the RSNs within 90 days after closing the larger Fox deal. With that deal closing on March 20, Disney had until June 18 to finalize an RSN transaction.

Mike Trout of the Los Angeles Angels of Anaheim

Sinclair's purchase included Fox Sports West, TV home to Mike Trout's Los Angeles Angels of Anaheim.

“We are pleased to have reached this agreement with Sinclair for the sale of these 21 RSNs, subject to the conditions of the consent decree with the U.S. Department of Justice,” said Disney senior EVP and chief financial officer Christine McCarthy in a press release.

Sinclair had been in the running for the RSNs from the beginning — it heat out competing bids from Liberty Media and Big3 Networks. As part of the transaction, Sinclair will form a new subsidiary — Diamond Sports Group — which will contain the RSNs. The deal does not include the YES Network, the New York area RSN that was reportedly purchased by the New York Yankees for $3.5 billion. Sinclair was said to be a minority partner in that deal, along with online retail giant Amazon. 

Entertainment Studios founder and CEO Byron Allen has agreed to become an equity and content partner in a newly formed wholly-owned subsidiary of Sinclair and an indirect parent of Diamond Sports. Allen, whose Entertainment Studios purchased the Weather Channel last year, will add some distribution expertise to the partnership. 

After adjusting for minority interests, Sinclair said the deal has an enterprise value of about $10.6 billion.

The RSNs hold exclusive local rights to 42 professional teams consisting of 14 Major League Baseball (MLB) teams, 16 National Basketball Association (NBA) teams, and 12 National Hockey League (NHL) teams. In 2018, the channels had a combined $3.8 billion in revenue and served about 74 million subscribers.

The addition of the RSNs is expected to give further leverage to Sinclair in retransmission consent negotiations for its 191 TV stations across the country, a development that has at least one cable lobbying group coming out against the deal.

On Friday, ACA Connects, which represents hundreds of small cable operators across the country, said it opposed the Sinclair RSN purchase because it will enable the broadcaster to raise prices to millions of consumers.

“Big 4 broadcast network programming and RSN programming are both critical for ACA Connects members,” ACA Connects said in a press release. “By jointly negotiating these assets when they serve the same market, Sinclair can raise prices to cable operators for both offerings.”

The group said that the Federal Communications Commission had similar concerns about Sinclair’s merger proposal with Tribune Media, which was scrapped last year. 

“And it is why we expect antitrust regulators to reject Sinclair's proposed acquisition of Fox regional sports networks as well,” ACA said. “We look forward to making this case at the appropriate time.”

Sinclair expects to pump about $1.4 billion in cash equity into Diamond Sports, including $700 million in cash and $700 million in debt at Sinclair Television Group, Inc.

The deal adds to Sinclair’s sports portfolio, which consists of the Tennis Channel, Stadium (a joint venture focused on college sports and professional highlights), and Ring of Honor Wrestling (professional wrestling). Earlier this year, Sinclair partnered with the Chicago Cubs on Marquee Sports Network, a Chicago-area RSN that is expected to debut in the 2020 baseball season. 

“This is a very exciting transaction for Sinclair to be able to acquire highly complementary assets,” Sinclair CEO Chris Ripley said in a press release. “While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture. As one of the largest local news producers in the country and an experienced producer of sports content, we are ideally positioned to transfer our skills to deliver and expand our focus on greater premium sports programming.”

The RSNs to be acquired by Sinclair are: Fox Sports Arizona, Fox Sports Detroit, Fox Sports Florida, Fox Sports Sun, Fox Sports North, Fox Sports Wisconsin, Fox Sports Ohio, SportsTime Ohio, Fox Sports South, Fox Sports Carolina, Fox Sports Tennessee, Fox Sports Southeast, Fox Sports Southwest, Fox Sports Oklahoma, Fox Sports New Orleans, Fox Sports Midwest, Fox Sports Kansas City, Fox Sports Indiana, Fox Sports San Diego, Fox Sports West, and Prime Ticket. Also included in the acquisition is Fox College Sports.

Guggenheim Securities, LLC, Deutsche Bank Securities Inc., RBC Capital Markets, Pursuit Advisors, and Moelis & Company are acting as Sinclair’s financial advisors. Fried, Frank, Harris, Shriver & Jacobson LLP, Pillsbury Winthrop Shaw Pittman LLP, Latham & Watkins LLP and Thomas & Libowitz P.A. are acting as legal advisors to Sinclair in connection with this transaction. Allen & Company LLC and J.P. Morgan are acting as Disney’s financial advisors. Cravath, Swaine & Moore LLP and Covington & Burling LLP are acting as legal advisors to Disney in connection with this transaction. 

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