Sinclair Ends Challenging 2022 With Mixed Q4

Sinclair SBGI ended a taxing 2022 on a mixed note as fourth-quarter revenue missed and adjusted EBITDA beat FactSet consensus. While the firm benefited from strong political ad spending, retransmission revenue continues to disappoint, down 2% excluding Diamond Sports Group (DSG) due to higher subscriber churn. Management expects retrans revenue from the major broadcasters to decline again in 2023 due to 50% of big four coverage renewing in second-half 2023. Another 40% is up for renewal in first-half 2024. As a result, retrans growth will rebound in 2024 and 2025, leading to a three-year CAGR in the low single digits, slightly below the previous guidance of mid- to low-single-digit expansion. We plan to slightly lower our $26 fair value estimate after updating our model to account for lower retrans revenue expectations.

Due to the deconsolidation of DSG in March 2022, Sinclair avoided questions about the troubled regional sports network company. Because of its decision to opt out of making a $140 million interest payment, DSG is trying to negotiate with its creditors to get further liquidity. If the firm emerges as a viable operating company, management expects that DSG will rely less on Sinclair and its services, lowering the potential contribution from DSG payments.

Media revenue grew by 10% on a pro forma basis from the prior year to $865 million, excluding DSG and a cybersecurity ransomware event last year. Total advertising revenue jumped 31% from the prior year, with core advertising (excluding political advertising) down by single digits due to political ads monopolizing slots. Political advertising expanded to $172 million, up 3% versus the 2018 midterm elections as Sinclair benefited from excitement around several highly contested federal and statewide elections. As we expect political spending to drop precipitously in 2023 considering it’s an off-cycle year, the actual core advertising weakness will become more evident, particularly on the national side.