Earnings Call Transcript - SBGI Q3 2021

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Sinclair Broadcast Group’s Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we’ll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Lucy Rutishauser, Executive Vice President and Chief Financial Officer. Ma’am, the floor is yours.

Lucy Rutishauser, CFO

Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Advertising Revenue Officer; and Steve Zenker, Vice President, Investor Relations. Before we begin, Billie-Jo McIntire will make our forward-looking statement disclaimer.

Billie-Jo McIntire, Forward-looking Statements Presenter

Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company’s most recent reports as filed with the SEC and included in our third quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with regulation FD, this call is being made available to the public. A webcast replay will be available on our website and will remain available until our next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures specifically adjusted EBITDA, adjusted free cash flow and leverage. The company considers adjusted EBITDA to be an indicator of the operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors, and lenders as a measure of valuation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other company’s uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the company’s non-GAAP financial measures to comparable GAAP financial measures can be found on its website, www.sbgi.net. Chris Ripley will now take you through our operating highlights.

Chris Ripley, CEO

Good morning, and thank you for joining us today. Before I go over the quarter’s results and other developments since our last earnings call, I want to address the recent ransomware attack on our company. On Sunday, October 17, 2021, the company identified that certain servers and workstations in its environment were encrypted with ransomware, leading to a disruption of certain office and operational networks due to the encryption, along with indications that data was taken from our network. Promptly upon detection of the security event, senior management was informed, and we began to implement incident response measures to contain the incident, conduct an investigation, and plan for restoration operations. Legal counsel and a cybersecurity forensic firm, along with other incident response professionals, were engaged, and law enforcement and other governmental agencies were notified. The investigation into the incident remains ongoing. Needless to say, we are ensuring that operations are back to where they need to be as quickly as possible. We are working with internal resources and outside forensic accountants to help determine the financial impact of the incident. While we maintain insurance to cover losses related to cybersecurity risks and business interruptions, such policies may not be sufficient to cover the losses. I want to thank our employees for their quick response and creative workarounds as we work through the recovery process. Their agility during this time is a testament to the ethos of our company, and we’re extremely proud of our team’s dedication to restoring our systems. Now I’ll turn to the quarter’s results. The combined company’s third quarter adjusted EBITDA and adjusted free cash flow were at the high end of our guidance range. While third quarter media revenues were within our range when adjusting for the one-time change in the distribution rebate of dollars tied to a shift in game counts in the calendar year by the leagues. Looking at recent trends, we are seeing a majority of ad categories recovering quickly. However, the auto sector and others associated with the supply chain continue to lag, impacted by lower inventories. While it’s difficult to ascertain when the inventory shortages will be alleviated, we are seeing continued strength in our largest category, services, coupled with significant growth from sports betting companies that have helped mitigate the weakness in the auto sector. We’re also starting to see early ad spending for the 2022 mid-term political cycle, with early indications from third-party research reports pointing to a robust 2022 political spending cycle. When combined with even a slow improvement from auto and continued growth in sports betting as more states legalize, we are optimistic heading into 2022. Speaking of the RSN business, we had a busy last couple of weeks regarding sports rights renewals. On the MLB front, we renewed our exclusive local rights agreement with the Detroit Tigers. The Tigers agreement includes direct-to-consumer and other digital rights, similar to the other three MLB teams we have renewed over the past 12 months. Regarding the NHL, we renewed our contract with the Detroit Red Wings, and with the NBA, we renewed our agreement with the Cleveland Cavaliers. I would like to address the recent chatter about our direct-to-consumer initiative that we continue to work on for the launch in the first half of next year. Discussions continue with the leagues regarding the structure and other specifics of the direct-to-consumer product. This is an important initiative for all parties, including our partners such as the teams and leagues. The evolution of viewer habits makes it imperative that our current product is extended so that it is attractive to all viewers in a team’s territory who can subscribe to it, whether traditionally through MVPDs or through direct-to-consumer. What’s important to note is that we have exclusive local rights for our teams. Those rights cannot be infringed upon by any other party in launching a direct-to-consumer product without significant ramifications. We continue to negotiate in good faith with all interested parties to make direct-to-consumer a reality. Additionally, we continue to engage in discussions with stakeholders around funding the direct-to-consumer product. Now I’d like to take a minute to talk about ATSC 3.0, also referred to as NEXTGEN Broadcast. For those who are unfamiliar with it, this is a groundbreaking technology expected to transform the broadcast industry significantly, moving it from a simple provider of video and audio to providing data for a multitude of industries. I've discussed its benefits in the past. The ability to transmit 4 to 5 times the video content through our existing spectrum, a higher quality immersive video and audio experience, targeted advertising capabilities, and a one-to-many platform that is more reliable, efficient, secured, and cheaper for customers than many of the technologies they’re currently utilizing. The NEXTGEN Broadcast platform will enable significant enhancements for communities around more robust emergency learning capabilities, not just the rudimentary warnings we see now for weather and similar events. It will also provide enhanced education opportunities for areas where the internet is either unaffordable, unavailable, or unreliable. Moreover, its technology attributes around mobility, portability, precision GPS positioning, and ultra-low latency make it ideal for connected automotive applications like mapping and self-driving capabilities, which depend on precise and timely data delivery that cellular and Wi-Fi have difficulties delivering economically. There are many other uses for the technology as well, including mass software updates, meter readings, remote monitoring, and maintenance of buildings, along with countless other applications. I want to dig a little bit deeper to give you better insight into our current priorities for NEXTGEN Broadcast and the applications we and the industry are working on. One important priority is driving the enablement and adoption of NEXTGEN Broadcast by demonstrating the viability of data delivery as a service to potential customers. Currently, testing is taking place in numerous markets to confirm expectations around quality and versatility of NEXTGEN Broadcast services. Initiatives in this area include encouraging trials of data delivery to automobiles, testing the precision GPS capabilities through the use of drones, testing of NEXTGEN Broadcast reception with phones developed by our partner Saankhya Labs, and infrastructure improvements developed by our joint venture with SK Telecom for distance learning initiatives utilizing the new technology. Meaningful progress is being made in testing all of these areas, reinforcing our belief that NEXTGEN Broadcasting is a game-changing technology that is the future of the broadcast spectrum and industry. So the question I’m sure everyone wants to ask is how far out before we begin to monetize the opportunity? The answer is that while the timeline is not set just yet, opportunities are starting to come together. The timeline is approaching for broadcasters to begin utilizing this technology in the mass market. As I stated earlier, the enablement and adoption of the technology on a large scale are key factors in achieving monetization. The NEXTGEN Broadcast signal is currently expected to be available in approximately half of the TV viewing households by the end of 2021 and at least 75% by the end of 2022. There are already 70 NEXTGEN TV models capable of receiving the new signal, including all Sony TVs with an expected 2 million NEXTGEN capable TVs to be sold this year according to CTA. Meanwhile, testing continues on phones, and business-to-business use cases are expected to follow soon thereafter. I've previously spoken about the value of this additional usage of our spectrum, estimating it at $1.7 billion based on recent auction pricing. Other ways we can monetize the spectrum include utilizing it for our business use cases or wholesaling it to third parties looking to transmit data to mass users. It's clear that NEXTGEN Broadcast will be a game-changing technology for the broadcasting industry and for Sinclair, and we’re very excited that this technology is closer to being ready for monetization. I would also like to address some of the new programming we are developing. At the end of September, we launched an evening edition of our successful news program, The National Desk. We have been very pleased with the performance of the morning edition, which has added an engaging news program with a distinctive style and tone on stations that were previously running syndicated programming that garnered relatively low ratings in that time period. Since the launch of the morning edition of The National Desk, we have seen its ratings and impressions trend upward meaningfully. We have similar expectations for the evening edition, which will feature new content developed for the show, including a fact-checking team that will work on air with the TND anchor team to fact-check an issue of the day. These segments will delve into the details of an issue, a bill, or other hot-button political topics and explain in real-time how it affects the American people. Another new feature being added to The National Desk will be a rapid response team, a dedicated staff of digital writers exclusively covering breaking news. This team's posts will live on the TND social channels and site branded on The National Desk and syndicated across all Sinclair television station sites. The ability to share content across our business and platforms is a key synergy beneficial to our company. For example, we have a new show under development that is expected to launch at the beginning of next year, titled The Rally. This fast-paced 90-minute sports program will cover all sports topics and engage with social influencers, interactivity, and the voice of the fan. The show will utilize Sinclair’s sports talent from all of our platforms across the country, providing national coverage with local authority and encouraging viewer interaction through contests, giveaways, and commentary. I would also be remiss if I did not highlight the growth of our Tennis Channel international platform, which has expanded into the UK, India, and Greece this year, with more countries coming soon. The platform was recently nominated for Platform of the Year for best original content and best digital-first production. We’re very proud of our achievements in the tennis arena, where our content and reach truly sets us apart. Finally, we’ve received several calls from investors regarding the sum of the parts analysis we did in our last earnings call. I wanted to clarify the pieces that contribute to that valuation. I think the Bally’s investment is well understood, with warrants and options to purchase up to 12.8 million shares, which at today’s price equates to approximately $600 million. The NPV of the tax yield resulting from the purchase of the RSNs is also fairly straightforward, estimated to be worth $1.2 billion over the remaining 13 years. The other two significant pieces are the 3.0 opportunity I discussed earlier, valued at a minimum of $1.7 billion based on previous spectrum auctions, and the non-core assets, which I will clarify. We have made several investments, including real estate, venture capital and private equity funds, as well as direct investments in companies focused on technology, content, and advertising. Notably, these investments include a minority stake in Playfly Holdings and Saankhya Labs. Playfly is a marketing and multimedia rights holder for several prestigious collegiate teams and sports ventures across the country, also leading in collegiate esports. Saankhya Labs is a key partner in developing ATSC 3.0 and market-leading 5G products, including transmission hardware, receiver chip sets, and mobile phones. Our investments in venture capital and private equity funds allow us to capitalize on businesses operating in new technologies, TMT adjacencies, and sectors complementary to our core business. Altogether, these outlined assets collectively exceed our current market price, indicating a value well over double what we trade at today when considering our 185 TV stations, Tennis Channel, news on STIRR, as well as the RSNs, minus our debt. I hope I’ve given you insight into the opportunities that lie ahead for Sinclair. While the broadcast industry continues to evolve, so do we, as we seek ways to grow organically in our television and sports businesses through content creation, partnerships with like-minded entities, and engaging our viewers. With that, I’ll turn it over to Lucy for deeper commentary on the financials.

Lucy Rutishauser, CFO

Thank you, Chris. Good morning, everyone. For the third quarter results for broadcast and corporate and other segments, adjusted EBITDA for the quarter was better than we guided, driven by lower than expected media expenses. With 2020 being a presidential election year, results versus last year were down, as expected, due to lower political ad revenues. Media revenues for the quarter were within our guidance range and down 3% versus the same period a year ago. Excluding the political ad impact, media revenues increased by 10% on higher core advertising and distribution revenues. For broadcast and other core advertising revenues in the third quarter increased 17% compared to the same period a year ago and were down 2% versus 2019 pro forma. While the automotive category continued to be weak, strength in the services and sports betting categories helped to offset the auto weakness. Distribution revenues for broadcast and other increased 3% versus last year and were at the high end of our guidance range. Media expenses were 9% higher in this year’s third quarter compared to last year due to higher network programming fees and production expenses, particularly related to additional tennis tournaments. Media expenses, however, were favorable to our guidance on both continued cost management efforts across multiple areas and the timing of expenses. Turning to the Local Sports segment, as discussed in previous earnings calls, distribution revenues and sports rights payments in the Local Sports segment can be influenced by the actual number of games delivered versus minimum game guarantees, which can result in rebates payable to distributors or received from the teams. As a result, our prior estimate of rebates due to our distributors was increased by $14 million this quarter, as the number of local games expected to be delivered decreased for the NHL. This rebate results in a reduction of distribution revenues for the third quarter. From a cash payment standpoint, there remains $201 million of distribution rebates to be paid, of which $15 million is expected to be paid in the fourth quarter of 2021 and $186 million expected to be paid in the first half of 2022. Local Sports adjusted EBITDA for the quarter was within our guidance range, despite the distributor rebate accrual taken during the quarter and fewer games provided by the teams than expected. Adjusted EBITDA versus the third quarter last year was down due to the net benefits of team and distributor rebates that favorably impacted last year’s third quarter. Media revenues for the Local Sports segment increased 4% to $759 million, resulting from higher distribution revenues, partially offset by the $14 million distributor rebate accrual taken this quarter. Ad revenues declined from a year ago due in part to the weakness in the auto category, as well as pent-up advertiser demand last year resulting from the absence of live sports for several months prior to their resumption in the third quarter of 2020. Distribution revenues were higher compared to Q3 last year as the third quarter of 2020 included $128 million of distributor rebate accruals, offset by carriage drops and continued subscriber churn. Excluding this quarter’s distributor rebate accrual, media revenues would have been within our guidance range. Local Sports media expenses for the third quarter were down 10% from a year ago due to lower sports rights amortization resulting from the number and timing of games last year. Media expenses, excluding sports rights amortization, increased by $17 million, mainly driven by costs associated with transitional services and production expenses. Media expenses were favorable to our guidance due to timing and expense control initiatives. Our Local Sports adjusted EBITDA for the third quarter, excluding the $20 million of non-recurring items, was $264 million, down from the prior year but within our guidance range. For the consolidated companies, Sinclair’s total media revenues for the third quarter were $1,526 million, up slightly from the third quarter of last year. Adjusted EBITDA, which excludes $27 million of one-time expenses, increased to $451 million. Compared to our expectations, revenues were slightly below our guidance due to the rebate approval, while adjusted EBITDA was within our guidance range. Third quarter consolidated adjusted free cash flow, which excludes adjustments for one-time items, was $277 million, at the high end of our guidance range. For the quarter, we had $0.25 diluted earnings per share based on $76 million weighted average common shares compared to a $43.53 diluted loss per share a year ago, which included an impairment charge. Adjusted for non-recurring items and the impairment, income per share was $0.52 for the quarter compared to $2.13 a year ago. Now turning to the consolidated company balance sheet, consolidated cash at the end of the quarter totaled $1,051 million, including $558 million at Sinclair Television Group and $476 million at Diamond. Neither credit silo’s revolver was drawn during the quarter, and as of the end of the quarter, the balance drawn under the accounts receivable facility was $183 million. Total debt at the end of the third quarter was $12,530 million. The net leverage ratio for consolidated Sinclair at quarter-end was 6.9 times. Sinclair Television Group’s first lien indebtedness ratio on a trailing eight quarters was 2.7 times on a covenant of 4.5, and 3.9 times on a net leverage basis through the bonds, which falls within our target range. Diamond’s first lien indebtedness ratio on a trailing twelve months basis was 8.8 times on a covenant of 6.25 times, which only springs if the revolver is drawn over 35%. Diamond’s net leverage stood at 11.4 times. During the quarter, we paid down $15 million of debt and distributed $16 million in dividends on common stock. Before I turn to our fourth quarter and full-year guidance, I want to clarify that our expectations exclude the impact of the cyber incident and therefore guidance does not account for any cost or potential lost revenue from the event, as the investigation is still ongoing and the financial impact has not yet been determined. As Chris mentioned, we maintain insurance to cover losses related to cybersecurity risks and business interruptions, but such policies may not be sufficient to cover all losses. For our broadcast and other segments, fourth quarter guidance reflects the absence of political, which is the main driver for media revenues, expected to be down approximately 11% to 13%, or $861 million to $880 million compared to the fourth quarter of last year. Compared to pro forma fourth quarter of 2019, media revenues would be projected to increase by 7% to 9%. Excluding the impact of political ad revenue, fourth quarter core advertising is expected to grow in the low double digits compared to last year and in the low single digits versus Q4 of 2019. For the full year, media revenues are expected to decrease by 1% to 2% or increase by 10% excluding political ad revenues. Fourth quarter adjusted EBITDA is projected to range between $240 million and $256 million, compared to $408 million last year, primarily without the political revenue. Full year adjusted EBITDA is expected to be $792 million. For the Local Sports segment, fourth quarter media revenue is anticipated to increase by 33% to 34%, reaching $703 million to $712 million compared to Q4 of 2020, remembering that last year’s fourth quarter included a distribution revenue rebate accrual of $168 million. For the full year, media revenues are forecasted to rise by 14% to 15%. Fourth quarter adjusted EBITDA is expected to range from negative $8 million to positive $1 million, mainly due to the timing of sports rights payments associated with the beginning of the NBA and NHL seasons and ongoing subscriber churn. Compared to last year’s fourth quarter, the decline is mainly driven by $120 million of net rebate benefits booked in Q4 of 2020, continued subscriber churn, as well as distributor carriage dropped during last year’s fourth quarter. For the consolidated company, fourth quarter media revenues are expected to fall between 2% to 7%, reaching $1,544 million to $1,572 million. Fourth quarter adjusted EBITDA is expected to be between $232 million and $257 million, with adjusted free cash flow projecting at $33 million to $58 million in the fourth quarter. Full-year media revenues are expected to fall between $6,159 million to $6,187 million, adjusted EBITDA between $1,298 million to $1,322 million, and adjusted free cash flow from $8.08 to $8.41 per share. Now with that, I would like to open it up to questions.

Operator, Operator

Certainly. Ladies and gentlemen, the floor is now open for questions.

Billie-Jo McIntire, Forward-looking Statements Presenter

Operator, just checking on the questions.

Operator, Operator

Certainly. Please stand by one moment. The next question is coming from Dan Kurnos from Benchmark. Dan, your line is live. Please ask your question.

Dan Kurnos, Analyst

Can you guys hear me?

Chris Ripley, CEO

We can. Can you hear us?

Dan Kurnos, Analyst

Great. Thanks. Yes, I can hear you back now, Chris. I don’t know what’s going on this morning. But anyway, certainly, I think you rightly called out the amount of noise in the media around what’s going on with the RSNs. I’d just love to hear from you rather than from them, you kind of laid out some options, I guess. So to the extent you certainly addressed your firm belief that they can’t circumvent you from a DTC perspective, I’d love to know what’s on the table in terms of – do you have sufficient rights to be the leader in this? Would it have to be a group effort? Just kind of help us think through how you’re trying to tackle this problem with the leagues? And attached to that, obviously, I think there’s a lot of speculation out there. And I have to take a shot, Chris, around the DISH negotiations being tied to some outcome around that. I don’t know if you care to comment on the factual nature of that statement or not, but anything kind of helpful is I think you’re still now going week-to-week, but this should be really helpful.

Chris Ripley, CEO

So I guess I’ll address DISH first. We are in very short-term renewals at this point, and we don’t comment on live negotiations. So that’s what I’ll say on that question. And then as it relates to the leagues that we have, for MLB, we have linear and authenticated streaming rights for all teams, and we have direct-to-consumer rights now for four teams, which are all the teams that we’ve renewed post-acquisition. Our expectation there is that we will accumulate more direct-to-consumer rights as teams renew. For NHL and NBA, we have always had linear authenticated streaming and DTC rights. Those are under current renewal discussions as part of a larger deal, which includes market expansion, authenticated streaming, and direct-to-consumer rights. So that’s where we stand from a rights perspective, and we do think we have critical mass to launch a product, and that’s what we intend to do.

Dan Kurnos, Analyst

Do you think that – I mean the leagues – having critical mass, I mean, is there any pushback from the leagues in trying to have a unified product? Or obviously, you’re interested in the other RSNs before. But to the extent that it requires more of a joint effort or something of that nature, I mean, is that being contemplated? Or do you really believe that regardless of how that goes forward, you can get the product out in the front half of next year?

Chris Ripley, CEO

Well, if you’re alluding to bringing in other groups like the Comcast RSNs or the AT&T RSNs, I’ve always thought that consolidation of the rest of the industry makes sense. We’re in a much better position than anyone else to move forward on direct-to-consumer because we’ve been planning for this for quite some time. It’s not something you can just flip the switch on overnight! But I do think ultimately adding in rights from other groups like Comcast and AT&T makes sense. Whether you do that through transaction partnerships, contracts, or consortiums is all part of the things we are contemplating in the next stage.

Dan Kurnos, Analyst

Got it. That’s helpful. And then, obviously, I’m sure you’re aware of where the unsecureds are trading. Just any kind of incremental thoughts on restructuring within the artist and silo?

Chris Ripley, CEO

Yes. We continue to believe that a new money deal is possible, and discussions with credit advisers are continuing in earnest. We’re also simultaneously holding discussions with our various commercial partners around that financing.

Dan Kurnos, Analyst

Okay. Fair enough and good luck getting past the stuff that’s never pleasant.

Chris Ripley, CEO

Thanks, Dan.

Operator, Operator

Your next question is coming from Steven Cahall from Wells Fargo. Your line is live.

Steven Cahall, Analyst

Thank you. Maybe first, just a follow-up on Dan’s questions about restructuring the RSN silo. Could you maybe provide more color on the liquidity position of Diamond today? Is that anything you think is a cause for concern? And you mentioned those constructive discussions. Do you believe you’ll need to draw any more liquidity as you get done? Or do you feel pretty comfortable about where Diamond is from a liquidity standpoint? And then, Lucy, could you put some color around the implied retrans sequential growth in the fourth quarter? It looks pretty solid. I know we’ve talked a little about how net retrans has been negatively impacted by some of your renewal timing this year, but can we start to look at Q4 as accelerating net retrans profile into 2022? Thanks.

Chris Ripley, CEO

Great, Steve. I’ll address the liquidity side; there is ample liquidity at Diamond, and we’re well-prepared for the next 12 months, so we’re comfortable there.

Lucy Rutishauser, CFO

And Steve, on the retrans side. As we reported this morning, gross retrans revenue growth is expected in the low to mid-single digits this year. We've discussed for multiple calls the reasons why, which primarily relate to the renewal we have in the back half of this year. This also assumes mid-single-digit subscriber churn for broadcast. On the churn side, we saw a slight improvement in both the broadcast and RSN revenue figures, but not enough for us to adjust our full-year outlook, which again reflects mid-single-digit churn on broadcast and high single-digit churn on the RSN side. Regarding net retrans, again, we expect mid-single-digit declines this year, due to the modest increase in gross retrans and a mismatch in the timing of network and MVPD contracts.

Steven Cahall, Analyst

Great. Thank you.

Operator, Operator

Thank you. Your next question is coming from David Hamburger from Morgan Stanley. Your line is live.

David Hamburger, Analyst

Hi, thanks for the questions. I just wanted to clarify, you mentioned the direct-to-consumer product offering launching in the first half of next year. Just to clarify, is the plan to have a direct-to-consumer streaming product in the market for the baseball season next year, so by April?

Chris Ripley, CEO

Our launch expectations have not changed. If there were a change in our rights versus the status quo, we would make that adjustment, but it doesn’t look like that’s going to happen. So our plans regarding launch timing remain the same.

David Hamburger, Analyst

Okay. And if I go back to your comments on the first quarter earnings call. You had mentioned specifically there that you had the streaming rights for the vast majority of our teams, and you did qualify that and maybe add that you were in discussions with the leagues and the teams on enhancing some of those rights to make the product even better. I was wondering, just to clarify your comments now, you’re saying that you have direct-to-consumer rights for four baseball teams. So are you essentially saying for the other 10 baseball teams, you do not have explicit direct-to-consumer streaming rights in place or an agreement in place with those 10 other teams? And then with the NBA and NHL last earnings call, you had highlighted that maybe the start of the NBA and NHL seasons this year would be a kind of finish line, if I can quote what you said, for negotiating those renewals. But just to clarify here, so essentially, it would seem you have explicit stream rights for only four of your teams at this juncture. Is that fair?

Chris Ripley, CEO

What I would add is that we expect to reach the finish line with NHL and NBA renewal discussions. That encompasses over 30 teams.

David Hamburger, Analyst

And then regarding baseball, since you’re launching for the baseball season, is there any clarity on the other 10 teams to the extent that you have those rights? I mean, it sounded like the statement from the MLB Commissioner recently indicated that you don’t have those sports rights.

Chris Ripley, CEO

On the 10 teams, that is correct. These rights have been rolling in as we have renewed the master agreement, and that is our current expectation.

David Hamburger, Analyst

Okay. And then quickly on the financing for this product offer, I believe on the last call, you mentioned you were looking for new money as part of this launch effort. It seems that at least to date, you haven’t been successful in getting new money from existing Diamond Sports creditors. I’m wondering what avenues you might pursue? Would Sinclair be willing to inject new money into this venture if needed? Or do you still hope that you’ll be successful in negotiating with Diamond Sports creditors? Or could there be another potential equity investor here?

Chris Ripley, CEO

I think that’s all possible; we believe that a new money deal is still attainable with the creditors, and we continue to have constructive discussions in that area. Regarding other sources of capital, either Sinclair or otherwise, we wouldn’t exclude any possible solution here, but each party would need to find mutual benefit in such investments.

David Hamburger, Analyst

And just so we have a sense of expectations here, when would we expect to hear developments? I mean, April is approaching, and we’re curious about how you’ll communicate to the market that you have sufficient financial flexibility, new money investment that provides enough runway to launch this product offering and sell it into the market.

Chris Ripley, CEO

What’s important to note is that we already have an app, and this is a product extension of what we’re already building. So on the technical side, there’s a lot of work and effort in enhancing that experience and making it available for purchase on a direct-to-consumer basis. So things are moving in tandem to meet our timing. As soon as we settle with the leagues, we will provide more specifics at that time.

David Hamburger, Analyst

Just one quick follow-up on this last question. Regarding your renewals with distributors such as Suddenlink and Optimum, I know you did one with Cox Communications earlier this year. Were there any parts of those renewal discussions? I assume they might be part of the conversations with DISH about the direct-to-consumer product offering and how that fits into the existing relationships you have with those distributors?

Chris Ripley, CEO

Yes. Where applicable, we have built in provisions on pricing protection for the distributors where they get to buy on a wholesale basis while the consumer purchases on a retail basis. There’s a significant margin there regarding price differentials implemented in every one of our recent renewals.

David Hamburger, Analyst

Okay. Thank you very much.

Operator, Operator

Thank you. Your next question is coming from Aaron Watts from Deutsche Bank. Your line is live.

Aaron Watts, Analyst

Everyone, thanks for having me on. Chris, is it fair to say that the takedown on the top end of guidance for Diamond for the full year in EBITDA mainly reflects DISH not coming back this year? And I guess, relatedly, as we’re now approaching the midpoint of the NFL season, which I view as the time when you probably have peak negotiating leverage with distributors. I’m trying to understand your willingness to provide extensions at this point in contrast to some of your peers right now, and what agreements or terms lay the groundwork that give you comfort to provide extensions this late into the NFL season with DISH.

Chris Ripley, CEO

Yes. Aaron, there’s not much I can say about DISH because it remains an active negotiation. We are currently at very short-term renewals for many of the dynamics you mentioned. Our guidance reflects our expected outcomes.

Aaron Watts, Analyst

Alright. And one follow-up on the launch of a D2C platform in the first half of next year. Would it be your plan to launch that with just the four MLB teams you currently have the DTC rights to? Or do you expect that by launch, there would be additional traction on rights acquisition with the teams and/or the league?

Chris Ripley, CEO

That certainly is a possibility. But at this point, things are still fluid, so I wouldn’t want to commit in one direction or the other.

Aaron Watts, Analyst

And if I could just ask two others. On the station side, given some actions by your network partners to bolster their own streaming services, such as placing content on those services that used to be exclusive to broadcast, do you see opportunities in the next round of negotiations with the networks to push back on increases in reverse compensation? And relatedly, how should we think about the margins today on retransmission fees and where it might head over the next few years—especially in light of the new long-term NFL broadcast deal?

Chris Ripley, CEO

As we've stated many times, margin isn’t really our focus. We prioritize growing net dollars because we don't create EBITDA based on a percentage margin; we earn it through incremental dollars. We've had some challenging timing with net retrans, which we discussed extensively, so I won’t reiterate it. We believe we’ll be back on a growth trend after this adjustment year. Ultimately, that’s what matters in terms of how we grow our profitability. We see significant upside on retrans given the relative strength of broadcast compared to what’s happened to cable channels over the last few years.

Aaron Watts, Analyst

Okay. Got it. One last one, and I appreciate the time. Just around the capital allocation policy for the TV station group. There’s been a bit of an overhang at least on the STG credit side due to concerns about direct and/or implied support for Diamond encompassing cash distributions or retransmission fees. I’d appreciate your latest thoughts on how much direct or indirect support you see the TV station group providing Diamond going forward. Thanks again.

Chris Ripley, CEO

As we've stated many times, we view the two silos quite independently regarding their capital structure and funding their business operations going forward. If Sinclair or the TV station network were to support Diamond, there would need to be a strong financial rationale to do so. Think of it as two distinct entities, and if an investment makes sense, then it could happen. But if it doesn’t…

Operator, Operator

Thank you. Your next question is coming from Lance Vitanza from Cowen. Your line is live.

Lance Vitanza, Analyst

Thanks, guys. I wanted to return to the recent New York Post story, which suggested that MLB is considering moving ahead on direct-to-consumer potentially without Diamond or Sinclair. However, my interpretation differs. I would assume that MLB’s incentive is to ensure that consumers can access live games online, not just for those in Diamond RSN territories, but for all teams in its leagues. In other words, the league wouldn’t be satisfied with Bally Sports doing a great job if AT&T and NBC fail to promote their own apps. So, am I misguided in thinking that all parties could benefit from a national MLB app that could integrate each RSN's local content? The RSNs could still be compensated for providing the content while benefiting from MLB branding and promotion—unless the league aims to disintermediate the RSNs?

Chris Ripley, CEO

We are strong advocates for scale in general, particularly concerning direct-to-consumer. To achieve long-term success in direct-to-consumer, we believe that you need a broader scale than just one team or one league. That’s why the multi-sport offering is extremely logical. Our direct-to-consumer extension, which we plan to launch, is just the beginning of our ambitions. We expect this to lead us to market leadership in direct-to-consumer sports, and we view incorporating other RSN content and direct-to-consumer rights over time as essential.

Lance Vitanza, Analyst

Okay. Thanks. And then just a quick follow-up. To what extent do you think MLB's concerns stem from Diamond's overleveraged balance sheet? If the balance sheet were to be cleaned up, does that pave the way for a more collaborative relationship?

Chris Ripley, CEO

I think securing additional financing would certainly be beneficial for all parties involved, and your observation is quite accurate.

Operator, Operator

Thank you. There are no further questions in the queue. I will now hand the conference back to Chris Ripley, President and CEO for closing remarks. Please go ahead.

Chris Ripley, CEO

Thank you all for joining us today. If you should need more information or have additional questions, please don’t hesitate to give us a call.

Operator, Operator

Thank you, ladies and gentlemen. This concludes today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.