Sinclair Broadcasting seeks redemption in its bid for Fox’s regional sports networks

Sinclair Broadcasting, with its reputation in tatters over a failed attempt to take over Tribune Media this summer, is seeking redemption with an aggressive push to purchase all of Fox’s regional sports networks currently under auction, making it presently the leading bidder in the on-going sales process, FOX Business Network has learned.

The regional sports networks, also known as RSNs, must be sold as part of Disney’s $71 billion purchase of Fox’s entertainment assets to meet federal regulatory requirements since Disney already owns the giant cable sports network, ESPN. Allen & Company and JPMorgan Chase are conducting the auction, which is in its second round and scheduled to conclude by the end of the year or early next year.

Bankers are telling people they have as many as six interested parties for all the networks—and Disney initially sought as much as $20 billion for the entire package of RSNs, which includes the Yankees Entertainment Network, also known as YES. The RSNs were valued at $20 billion based on what Disney paid for the Fox assets, which includes all of 21st Century Fox, except Fox News, FOX Business, Fox Sports, Fox TV Network and its owned and operated affiliates.

But people with direct knowledge of the auction say most of the interest came from parties looking to snap up the RSNs at a low-ball price. Industry trends show declining cable profitability due to cord cutting and sports leagues maintaining ownership (rather than the networks), of the all-important digital rights for games to be viewed on wireless devices, all of which has driven the initial bids for all the networks to fall short of $20 billion.

Another disappointment for bankers: Amazon did not place a first-round bid for all the RSNs, and chose instead to begin by negotiating to purchase a piece of YES, which is considered more valuable than the other networks given the Yankees' national stature.

The Yankees are in process of buying back the portion of YES that is now in Disney’s hands based on a change in a control provision following the Fox deal. Amazon will likely be part of a larger group of owners but will have the ability to stream Yankee games if the deal is reached.

Amazon may also reconsider the entire RSN package particularly if the price of the properties fall as the bidding proceeds but its tepid interest in all the RSNs has depressed the price of the networks, these people add. Major League Baseball considered a bid for all the RSNs primarily because it worried highly-leveraged private equity companies could ultimately own the RSNs and smaller market teams will not receive enough promotion and marketing as PE firms look to turn a profit.

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DIS THE WALT DISNEY CO. 97.13 +0.53 +0.55%
FOXA FOX CORP. 35.73 +0.09 +0.25%
JPM JPMORGAN CHASE & CO. 204.94 -2.48 -1.20%
SBGI SINCLAIR 14.95 +0.46 +3.17%
TRCO n.a. n.a. n.a. n.a.

But people close to the league tell FOX Business that MLB may now be having second-thoughts about a bid on all the RSNs, and with that, Sinclair, at least as of now, appears to be in the lead position to purchase all of the networks, according to people with direct knowledge of the matter.

Sinclair is also negotiating to buy a minority stake in YES, which is being conducted under a separate process, these people add. Sinclair isn’t expected to pay up for the RSNs, and the company’s initial bid for all 21 RSNs was significantly less than the $20 billion valuation, a price tag that includes a piece of YES, these people add.

A spokesman for Sinclair, Disney and the MLB declined comment.

“At least, as of now, no one is really looking aggressively at buying all the RSNs except Sinclair,” one person with knowledge of the bidding process said. “Unless that changes, there’s no way they’re getting $20 billion.”

If the Baltimore-based Sinclair does indeed win the bidding contest, it would help reverse the staggering loss to its growth plans that occurred this summer when the Federal Communications Commission (FCC) shocked the media industry by blocking its bid to purchase 42 local stations from Tribune Media.

Before the failed Tribune deal, Sinclair controlled more than 200 stations in over 100 local markets. The local media empire was built on snapping up these stations around the country and adding an extra element of right-wing commentary to its programming.

With the Tribune stations, Sinclair was on the verge of building an even larger media behemoth. The Trump administration’s approval of the deal appeared at time to be a foregone conclusion since the president indicated he is a fan of the network, often praising its supportive coverage on his widely-watched Twitter feed.

But the FCC in rejecting the $3.9 billion deal, admonished Sinclair for a lack of candor over its plan to divest from certain stations that the government required to gain regulatory approval.

Since then, Sinclair began scrambling to devise a new growth strategy that brought to the auction of the Fox RSNs that offer a variety of sports programming in various regional markets, mainly in the South and Midwest.

One major issue for Sinclair is how sports will fit into its business model of local news and conservative commentary. Sinclair will also need to clear regulatory hurdles, which given its recent track record involving Tribune, may prove to be difficult. Since the RSNs are cable properties, Sinclair doesn’t need FCC approval but it does need approval of the Justice Department’s anti-trust division.

"There are people in anti-trust who feel just as misled by Sinclair’s divesture plan regarding the Tribune deal as at the FCC,” one media executive with knowledge of the DOJ’s thinking said.