Earnings Call Transcript - SSP Q1 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps' First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. The instructions will be provided at that time. And as a reminder, the call is being recorded. I'd now like to turn the call over to our host, Ms. Carolyn Micheli. Please go ahead.

Carolyn Micheli, Host

Thanks, Brad. Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements and actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included in this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other company's uses or formulations. Included in our earnings release are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements. We'll hear this morning from Scripps' President and CEO, Adam Symson; Chief Financial Officer, Jason Combs; and then, Scripps' Chief Operating Officer, Lisa Knutson. Here is Adam.

Adam Symson, CEO

Thanks, Carolyn. Good morning, everybody. I'll start this morning with some of the news we've broken over the last few weeks in sports. Less than six months ago, we launched Scripps Sports, because we saw the opportunity to leverage our unparalleled national reach and local market depth, free over-the-air broadcast, and all that comes with it is the most ubiquitous and fan-friendly of distribution platforms. Since then, we've been exceptionally busy. Two of the deals we've been working on are now public. The announcement we made yesterday with the Vegas Golden Knights, a thriving National Hockey League franchise, and of course, our partnership with the WNBA. We're very pleased to be launching our first Scripps Sports programming this month. The WNBA Friday Night Spotlight on ION begins on May 26. What the WNBA gets from us is full nationwide reach through free over-the-air connected TV services and cable and satellites. Next week we expect to announce a high-profile title sponsor for our WNBA Friday Night franchise, a blue-chip advertiser that believes as we do, it's high time women's sports like the WNBA are given the same visibility as men's sports, which these athletes, teams, and the fans deserve, the broadest of reach and appointment viewing consistency. We're thrilled to be providing these benefits to the WNBA at a time of burgeoning appreciation for and interest in women's sports. And why wouldn't there be great interest? WNBA games are a display of intense competition, while the players' athleticism and personalities make for the very best television. It's no wonder that last season WNBA viewership was up 22% and even with limited reach. Now, the vast distribution on ION will give the league maximum visibility, so fans everywhere on any television platform will gather together every Friday night for this franchise TV event. While the WNBA deal takes advantage of our national reach, yesterday's announcement with the Vegas Golden Knights is intensely local. Scripps Sports and our stations KTNV and KMCC in Las Vegas will, starting next season, be the exclusive local media partner for this incredibly popular NHL team, ending the RSN model in Nevada and bringing hockey to every television platform. A big win for NHL fans, the Golden Knights, and Scripps. It's important for investors to hear this. From the beginning, we pledged to be very financially disciplined in our approach to live sports, even willing to walk away if an opportunity doesn't pencil for us. Every one of our partnerships will enhance the value of our linear television business, be another catalyst for the continued growth of free over-the-air television, and create shareholder value while representing a new model for the way teams and leagues can grow their fan bases and continue to create immense value for their stakeholders. There is no argument that live sports is the biggest driver of linear viewing and commands the highest advertising rates in television. We see our expansion into live sports as not only a value creator with the actual games, but another important way to engage audiences with our TV stations and news brands. We launched Scripps Sports as part of a larger strategy to enhance the value of our core assets, our scale and distribution. We are positioning our company to capture opportunities in three principal ways. First, in the industry growth areas of news, sports, and entertainment. Second, with existing and emerging TV distribution platforms. And third, with data datacasting and other businesses enabled by ATSC 3.0. We are now in the midst of a company-wide reorganization of roles and responsibilities that centralizes management functions, so our executives have the broadest possible view of Scripps' opportunity in these three growth areas and are able to move quickly to create value. Scripps Sports is a good example. The WNBA makes use of ION's existing national reach while the Golden Knights partnership opens up the opportunity for us to launch a new independent station in the growth market of Las Vegas, with valuable live sports as an anchor tenant for programming. Both cases are examples of us seeking the best and highest use for our spectrum to increase yield. In Scripps News, you see another good example of our focus on a content genre critical to creating value in linear television. After centralizing operations, we've now deployed our national news resources as the foundation for a company-branded network. Scripps News reaches nearly every US household over-the-air and on connected TV. And it's designed to fully serve our local stations' news consumers with objective, fact-based reporting. Scripps News now becomes an important driver of high-quality journalism across the entire company, while helping us also avoid additional cost. In addition to building value with journalism in live sports, we continued to focus on both existing and emerging TV platforms. Our sports distribution and high-quality Scripps News content will bolster the use of free over-the-air television, and we continue to build our connected TV distribution as well and we're seeing significant gains in advertising revenue there. And as you'll hear in a moment, we continue to leverage our strong partnerships with cable, satellite, and virtual pay-TV service providers who, by the way, capture nearly two-thirds of America's 120 million TV households. Our third strategic focus is the use of our spectrum for alternative business opportunities through ATSC 3.0. We are well into a collaboration with Nexstar, HPE, and Sony. Together we built and are deploying a core network that leverages the new television standard to open up new datacasting business opportunities. Combined, Nexstar and Scripps represent the single largest broadcast spectrum platform, with unduplicated reach of nearly 90% of the US population. That includes significant contiguous spectrum along key transportation corridors, a major selling point for datacasting services. Now, this is not a case of a hollow press release, but it's also not yet something to put in your financial models. Now that we have a core network, we'll next develop out the marketplace, testing with the auto industry, energy, agriculture, and logistics, among other potential customer bases. In addition, we are encouraged by the FCC's new future of TV initiative. Several task forces created last month to accelerate the 3.0 transition and ensure that every American will continue to have access to free over-the-air television. While there's still much work to be done to create what BIA Kelsey says could be a $10 billion to $15 billion marketplace for broadcasters, I am increasingly bullish about this new industry catalyst and we'll make sure investors know when we have the first customers onboard as a signal of the potential to accelerate the opportunity. Scripps' recent sports distribution announcements, the scale of our national news brand, Scripps News, and the opportunity we see ahead with our spectrum should catch investors' attention. The company is doing what it has done so well time and time again over its 145-year history: creating shareholder value. Economic cycles are short-term hurdles, but our strategic focus is long-term and we will move into the next economic upturn, as we have in the past, as a stronger company with a better operating profile, stronger margins, and greater growth ahead. Now here is Jason.

Jason Combs, CFO

Good morning, everyone. We're pleased to be reporting Q1 results that met or outperformed the guidance we gave back in February, despite the challenging economic climate. In our Local Media division, revenue was down 4.5% and core advertising revenue was down 10% as local and national businesses continued to deal with ongoing inflationary pressures on consumer spending. However, excluding the impact of the Olympics and the Super Bowl in Q1 of last year, core revenue was down only 6%. Distribution revenue was up 2.4% to $163 million, fueled by growth in virtual pay-TV households and contractual step-ups. As of April, we've renewed a third of the pay-TV households we are resetting this year. Local Media expenses declined by about 2%, aided by moderated network programming costs through our move to Comscore and by tight expense management in this economic environment. Local Media segment profit was $46 million. Turning to the Scripps Networks division, revenue for the first quarter was $216 million, down 9.5% from the prior-year quarter when we reported industry-leading revenue growth. Networks segment expenses were $165 million, a 7% increase, tied to higher costs for distributing the networks. Segment profit for the networks was $52 million. In Other, we reported a loss of $1.5 million. Shared services and corporate expenses were $23.4 million. The loss attributable to shareholders of Scripps was $31 million or $0.37 per share. Restructuring costs for the quarter increased that loss by $0.15 per share. We announced in January that we are undergoing a companywide reorganization and the restructuring costs are related to that work. It also includes a write-down of some programming we were using for our former network TrueReal. We are now leasing the spectrum to Jewelry Television. As of quarter end, cash and cash equivalents totaled $16.5 million. Our net debt at quarter end was $2.9 billion and our net leverage was 5.1 times per the calculations in our credit agreements. That's a bit higher than the end of the fourth quarter because in our trailing eight-quarter calculation, we've begun to lose the benefit of several quarters where the economy was bouncing back after the pandemic. In the two years since we acquired the ION network, we've paid down nearly $900 million in debt. Looking ahead to the second quarter of 2023, we expect total Local Media revenue to be flat to up in the low single-digit percent range. We expect Q2 local core ad revenue to be down mid-single digits. For the full year, we now expect Local Media distribution revenue to increase in the mid-teens percent range. That's a revision upward from February when we said we expected the full year to be up in the low-teens percent range. In addition, we now expect 2023 net distribution dollars to increase by more than 40%, up from the 30% we guided to last quarter. Also, for the full year, we are bringing down our guidance for CapEx as we shift some cash spend into next year. We now expect 2023 CapEx to come in between $65 million and $75 million. Turning back to the second quarter, we expect Local Media expenses to be up in the low single digits. In the Scripps Networks division, we expect Q2 revenue to be down high-single digits and expenses to be up mid-single digits, due to higher distribution costs and the start-up costs for the WNBA agreement. Second quarter shared services costs are expected to be about $25 million. That's higher than normal for the second quarter because we shifted stock compensation costs from the first quarter of this year due to the reorganization. We expect about a $6 million loss in other in Q2. For the full year, we expect our free cash flow to fall in the range of $50 million to $100 million. We continue to place our highest capital allocation priority on paying down debt. Finally, we're on track with our expectations of realizing at least $40 million in annual savings from our company reorganization. We expect those savings to be mostly operationalized by the middle of next year and we expect to reach a year-end 2023 run rate of around $20 million in savings. Excluding the programming amortization write-down, we expect to take about $15 million in restructuring charges this year. This includes $2.9 million in restructuring recognized in Q1 and the expectation that Q2 and Q3 have the largest charges of the year. Now here's Lisa to share highlights from both the local Media and the Scripps Networks operations.

Lisa Knutson, COO

Thanks, Jason, and good morning, everyone. Work at Scripps continued diligently through the first quarter on the company's restructuring plan. As Jason said, we are on track to realize the $40 million plus in savings we previously outlined. We are focused on both aggressively tackling the near-term challenges in the media marketplace and creating a more efficient, cost-effective, and high-performing business, one that is well-positioned for long-term value creation. While this has been a time of uncertainty for our employees, we are very proud that our teams have remained focused on the work at hand to serve our audiences and communities and to deliver strong financial results. The country's economic malaise continues to put pressure on our businesses. Local advertising remains relatively stronger than national, largely due to the return of automotive spending, but we do feel pressure across the whole advertising marketplace. In Local Media, we continue to see softness in our largest core advertising category, services. Services were down 14% in the quarter, with banks and insurance companies showing the largest declines. Our two strongest performing categories were home improvement and automotive. Auto hit its third consecutive quarter of year-over-year growth, driven by local dealers and domestic dealer groups who finally need to move inventory off their lots. We see local dealers as the best opportunity for continued growth in auto this year. In addition, the chip shortage is about half of what it was at this time last year, which is another good sign of spending to come. Another highlight of the quarter was the NCAA basketball tournament, which brought in nearly $2 million for local core, up 13% from 2022. Now we are looking ahead enthusiastically to the NBA finals in June and the promotional dollars we expect ahead of that big linear television event. These two examples highlight the power and value of live sports. Local Media distribution revenue will continue to build this year as we move through the renewal of three-quarters of our subscriber households. We've already completed a third of those renewing this year and we're well underway with other big contracts. We continue to maintain strong partnerships with both legacy and virtual pay-TV services as they recognize the value created for them by local stations. Turning to Scripps Networks, we once again are outperforming our peer group in terms of ad revenue. Across the portfolio, we saw increases in top general market categories, including pharma and restaurants, and declines in CPG, retail, and media, as well as a 20% decline in direct response advertising. Direct response is very sensitive to inflationary pressures as consumers tighten their spending. However, our hope is that the easing of inflation will bring back that important category quickly. And in the scatter market, we are seeing sequential increases in dollars from Q4 to Q1 and again, as we move through Q2. Bright spots in the quarter included a 33% increase in year-over-year revenue for core TV, which continues to benefit from high-profile trials. And for the full portfolio, connected TV revenue grew nearly 46% from Q1 of last year due to the growth in audience numbers and hours watched and the timing of our network launches. Another Q1 highlight comes from Bounce, where our original series Act Your Age launched March 4 as the most-watched new half-hour series in the network's history. We continued to draw more than 1 million viewers a week for the terrific sitcom. Another recent bright spot for the network is our agreement with the WNBA. Our teams are now preparing to air WNBA games on ION beginning on May 26. This includes marketing the WNBA Friday Night Spotlight on ION Franchise night, selling advertising and sponsorships for the game and ramping up our distribution network. We see this arrangement as similar to the way cable networks integrated sports into their entertainment programs. Viewers have adapted easily. The difference here is that audiences can get these games free over-the-air from us, which will go through our new eyeballs to ION and allow the WNBA tremendous new reach to its growing fan base. Another big event coming for ION is the Scripps National Spelling Bee. Please tune into the finals on Thursday, June 1 at that 8 PM Eastern to be wowed by some amazing young spellers. As you know, Scripps brought production of the Spelling Bee in-house last year and we've built a high-quality production of the national competition, which reached more than 7 million viewers in 2022. That was up 150% from the year before. For this year, we've secured premium blue-chip sponsors including Tyson, Sonic, P&G, and Bristol-Myers Squibb. Scripps is proud to be the steward of this iconic American educational program, which is nearly 100 years old. A final business highlight comes from our local newsrooms. We have been working on a number of initiatives over the last few years to get new consumer insights. We are learning what we are learning is informing our efforts to reinvent the way local news is created and delivered. We know our audiences want deeper, more contextual news, and they want us to engage them authentically. We also are using technology to plan and produce the news more efficiently and to get more reporters into the field. In addition, we're fostering greater collaboration between our local newsrooms and Scripps News to provide our communities with objective, fact-based, and high-quality local and national news and information. All of this work supports our commitment to creating a better-informed world and raising shareholder value. And now, operator, we're ready for questions.

Operator, Operator

Thank you. We can first go to Steven Cahall with Wells Fargo. Please go ahead.

Steven Cahall, Analyst

Yeah. Thanks. Good morning. Maybe first, Jason, so it sounds like net retrans is going to be better for the year and then definitely an improvement in your free cash flow expectations. And it sounds like maybe a little bit of an improvement in your EBITDA expectations in the first half of the year. So I can't do all the math this quickly, do you expect to get any net deleveraging by the end of the year or as you swap out those stronger '21 quarters for '23, is it still like it will sort of stay in this low 5s? And then secondly for Adam. So you've got a couple of those sports deals now done, which look really solid. We've seen one of your peers do a deal with the team that was on Diamond Sports Group and they've also said that there could be some litigation associated with that. How do you look at the Diamond Sports portfolio? Do you think it creates opportunities or are you going to kind of wait and see how some of those things play out since those situations seem a little more complicated? Thank you.

Jason Combs, CFO

Thanks, Stephen. So, on the leverage question, the headwinds we're facing in FX rates are certainly putting pressure on our leverage. You saw that with the move from 4.7 at the end of last year to 5.1 at the end of this year. And as you referenced, that's going to create some challenges on our rolling two-year EBITDA. So given those headwinds, I would expect to see leverage move up a bit more in the back half of this year. But as you kind of fast forward to next year, you look towards the end of 2024, we will have the benefit of a really strong and robust political cycle. The full-year impact of all the distribution step-ups that we have cycling in this year and a rebounding economy, we'd expect to be at a much better leverage point next year in 2024 than we are right now.

Adam Symson, CEO

Thanks for the question, Steve. Yes, I think we are off to a fast start. I think we've told investors from the beginning, we expect to do deals that are accretive for Scripps and that create additional profit for the company and thus far, all things look exactly as we promised. I don't want to comment on anybody else's deal. I would say, Diamond Sports in general and the collapse of the RSN model does open up significant opportunity for us and broadcasters. And I think there are a number of opportunities continuing to present themselves, whether they be because the RSN is not going to be in a position to continue to carry a team's sports or because a league is looking for an alternative vehicle to reach more Americans. You saw that with the WNBA. The WNBA was looking to expand reach. I would tell you that, certainly, the Golden Knights wanted to talk to us about the breadth of our reach because they recognized that engaging more fans both in their core market as well as in their sphere of influence is essential for the growth of their sport. So we bring that beyond just the collapse of the RSN. If you continue on with an RSN or with cable, you're essentially looking at a declining audience on that platform regardless, because of cord-cutting. We would continue to look at opportunities to expand Scripps Sports locally and nationally. And I expect we'll have more to say about that to come.

Steven Cahall, Analyst

Thanks. If I could just follow up with one for Lisa. Lisa, on the connected TV revenue growth and the guidance for the year, as you then think about what the company is doing in sports, it seems like the sports audience is a very kind of connected TV first type of audience. So is there anything that you are doing to have that content sort of front and center for the connected TV world, whether it's app launches or branding or marketing on connected TV platforms?

Adam Symson, CEO

Hey, Steve. It's Adam. I'll take it. First of all, I think you're spot on. I mean, the opportunity for us to bring sports to ION or to any of our local stations is not just about bolstering OTA, it's about bolstering linear television. And we see our distribution in the connected TV marketplace as linear television. It's not on-demand, it's live, it's linear, it's just being delivered over a digital platform versus OTA versus pay-TV. And you know we execute that all of the above strategy. We are definitely working with our CTV partners to ensure that they recognize the opportunity we bring to the table when we're bringing this live sports because, as you know, live sports is not something that has historically been available on the fast platforms. Well, now it will be on ION and now it will be with any local sports deals that we do. So we're really ambitious and really excited about the opportunity. We'll certainly be doing some marketing of the WNBA on all of the platforms where the WNBA's existing fan base, as well as the ION and WNBA fan bases that we want to expand into are, whether it'd be on social, on linear television, or in the connected TV marketplace.

Steven Cahall, Analyst

Thank you.

Operator, Operator

And next we'll move on to Dan Kurnos with Benchmark. Please go ahead.

Dan Kurnos, Analyst

Thanks, good morning everyone. I have several questions, but I'll keep it to a few. Adam, regarding sports, could you discuss your potential to enhance programming surrounding major wins to fill additional hours with original sports betting content and other offerings we've seen previously? Also, I understand that leagues usually handle direct-to-consumer responsibilities, but is there a possibility for you to share in the revenue if any direct-to-consumer initiatives are launched?

Adam Symson, CEO

Sure, I'll begin by addressing the second question. Every deal is unique. For instance, with the recent announcement involving the Golden Knights, we revealed our partnership on the direct-to-consumer opportunity with them. This will vary by market and league. However, you can expect us to keep engaging in direct-to-consumer efforts in one form or another. Our partnership with leagues and teams is based on the understanding that traditional broadcast brings the largest audience. We see a chance for leagues and teams to generate more value down the marketing funnel through avenues like sports betting, direct-to-consumer initiatives, ticket sales, and merchandise. We anticipate being involved in these areas moving forward.

Dan Kurnos, Analyst

And your thoughts, Adam, around incremental programming around those?

Adam Symson, CEO

Yeah. Did you mean adjacent programming or did you mean...?

Dan Kurnos, Analyst

Yeah, exactly. So like pre-game policies, but like even beyond like additional half hours or something just dedicated to that stuff that might replace ION program. Is that a thought or are you just not yet?

Adam Symson, CEO

Well, no, I mean, we are definitely looking at working with the leagues on adjacent programming. They've been very, very open to recognizing the value that that adjacent programming can have with respect to promoting the products, promoting the live games, and their brands in Las Vegas. We will be producing several different additional shows both with the Golden Knights and through our news operation in order to support the Golden Knights brand and the ratings of the games. We expect to use our ABC Station as a massive promotional platform as we stand up that new independent in Las Vegas. The work we've done with the WNBA and the NBA also recognizes that there is an opportunity for additional partnership around other programming, but keep this in mind, we have a really good business in ION. And so when we model these deals, we model them understanding that we expect to beat our hurdle rate. And so likewise with adjacent programming, we have to make sure that the economics make sense to us. This is not a passion play for us. This is a business opportunity and we're always looking to identify programming that will draw in a bigger audience, a better audience, more valuable audience, not just put sports programming for the sake of sports programming. So we really want to make sure that anytime we transition from, for example, a very popular procedural to sports programming that it's going to benefit our platform.

Dan Kurnos, Analyst

Got it. No, that's fair and that's very helpful. Adam, thank you. Jason, just on the distribution side. Well, actually first housekeeping. What are your thoughts on the pace of political activity after you reported Q1? We've seen a bit of downside from some of the peer group. Can you provide some insight on the second quarter political assumptions?

Jason Combs, CFO

Q2 political assumptions.

Lisa Knutson, COO

Hey, Dan. It's Lisa. So I would say, our political forecast for '23 is on par with the last two years of off-cycle election years. So we expect to be in the $23 million to $25 million range for the year.

Dan Kurnos, Analyst

And 2Q is kind of similar to Q1, Lisa?

Lisa Knutson, COO

First quarter activity was a little bit ahead, I would say, and I would say, Q2, certainly there are some races in Kentucky and Colorado Springs that are helping us to potentially maybe continue to be a little bit ahead of Q1 '21, but the quarter is still building. And I think Kentucky's primary is next week. So that money is being billed as we speak.

Dan Kurnos, Analyst

Okay. No. That's helpful.

Jason Combs, CFO

If you're referring kind of Q1 of this year versus kind of Q2, I would say, generally, we would expect in the same ballpark.

Michael Kupinski, Analyst

Thank you. Just a couple of quick questions here. In terms of your guidance for your national media going into Q2, I was wondering if Katz and ION are performing equally or is one performing better or less than the guidance?

Lisa Knutson, COO

We definitely look at this as a portfolio and we sell as a portfolio. So I would say the malaise in the economy is certainly across all of our networks. I would tell you, because ION has more exposure to general market than scatter, I think in my prepared remarks I mentioned that scatter has improved sequentially from Q4 to Q1 and we're seeing that same trend in Q2. And those networks that are more dependent on the general on direct response advertising are probably a little bit more exposed than certainly ION is.

Michael Kupinski, Analyst

Got you. And then given your expansion into sports programming, I was just wondering, would the company consider owning or taking investments in sports teams?

Adam Symson, CEO

Look, right now, our top priority is delevering. So as we've said before, were an opportunity to come up that made sense for us, we would look at it, but that's not really part of our strategy. We are a media company. We'd certainly look at the opportunity. We do have a very modest investment in an e-sports team. That team or that series of teams is almost more like a media company itself, but I would say the most important thing to signal would be, look, we're really focused on paying down debt.

Michael Kupinski, Analyst

I understand. Other broadcasters have emphasized the importance of developing their core, but you have already established your core in several markets, which may allow for datacasting. What still needs to be completed in that area? I assume your strategy is to implement this gradually. Could you share your plans regarding the annual capital expenditures for expanding your core? Also, Adam, you seem quite optimistic about generating revenues from datacasting. Are you including that as a potential revenue source for 2024? If so, when do you anticipate seeing significant revenue from datacasting?

Adam Symson, CEO

Thanks, Mike. Yeah, we are live with our core network in four markets. But you're pointing to exactly why we want to really get right the marketplace's development before we do signal any additional significant capital investment. I think we're really along with Nexstar taking a prudent approach to building this out. We have the most important thing we have is the spectrum to reach 90% unduplicated population. And as I said, a lot of that spectrum lined up on transportation corridors. Check, we have that in hand. I think the next thing we're thinking about is, what's the marketplace look like for this, how do we work in collaboration with private 5G networks to create a more efficient data platform for industry looking to push a lot of data through in a secure way. As we develop that marketplace, we will definitely be sure to be reaching back out to investors and sharing more details on how that's going. I think it's probably early to tell you if this is something we're modeling into '24. I do think we're going to see revenue in '24, but do I think it's going to be the kind of material revenue that investors are going to get super excited about? Not quite yet. I think I would rather under-promise and over-deliver. So let us work on the marketplace, and then we'll definitely be back to investors with a high level of transparency as the business comes together.

Michael Kupinski, Analyst

Thanks, Adam. I appreciate it. That's all I have.

Operator, Operator

Next we can go to Nick Zangler with Stephens Please go ahead.

Unidentified Participant, Analyst

Hey, this is Dean on for Nick. We were just wondering if you could peel back the onion on the go-to-market for the Golden Knights and WNBA broadcast because we're under the impression that the shoulder programming is the most lucrative aspect of those partnerships, and just maybe if you could level set us there?

Adam Symson, CEO

Sure, Dean. Look, we really are working off of a different playbook. So whatever you sort of know about the sports business model from the past, it's very different today with us. So, for example, we put together a deal with the Golden Knights that allows us to acquire the rights to the Golden Knights, bring to them full distribution, both in-market and beyond, and monetize the Golden Knights live games. So for us, that means essentially a minimum of 69 regular season games and the potential for even first round playoff games. And we expect that to be an accretive opportunity for us. Whether they are shoulder programming around it, this is not a deal done on what I would refer to as halo economics. Let's overpay for sports and then try to make up some sort of cost around the sport. We're really looking at deals that are accretive to us with the P&L within the live sports window. And the same is true with the WNBA. Our deal with the WNBA brings them full distribution on multiple platforms through our over-the-air platform so that every Friday night we're able to deliver all of the WNBA games to fans across the country in the local markets, as well as nationally. And our deal has us creating profit for our company, thinking about the beginning of the game and the end of the game. Obviously, we expect to be able to retain a lot of the new audience we're bringing, but the economics that we've built these plans off of do not count on a, quote, halo effect from overpaying for live sports.

Unidentified Participant, Analyst

Okay. That's helpful. Thank you. And just a follow-up, if I can. We saw the CBS affiliate Fubo in the past come to a resolution, and we were just wondering if you could add any color on how that resolved and maybe does this uphold the sort of status quo for networks as intermediaries or you think the affiliates have gained some additional leverage in these VMVPD negotiations?

Adam Symson, CEO

Well, look, I think there's no question that what you saw happen there was the affiliates body step up and require fair compensation for the distribution of our signals. And I think what's clear is the virtual MVPDs recognized the value of the live feeds coming in from our local stations as a result of everything from local news to now the local sports we're talking about. So that value should be fairly compensated for us. I don't think it changed anything structurally or legally. I do think there are occasions where companies like Scripps, companies with other assets, not just local broadcast stations, are able to also do direct deals with virtual MVPDs. You're starting to see that as well in the marketplace. But at the end of the day, I think this is an affirmation of what we said to investors. There is tremendous value in the local distribution of these feeds. And the virtual MVPDs, they want that local feed, because otherwise they lose that which makes television inherently geographically local. Sitting in Cincinnati and watching WCBS is not a good experience for that virtual MVPD. And so there was a lot of pressure from across the industry to ensure that we were structured appropriately and that the local affiliates were fairly compensated by the networks.

Unidentified Participant, Analyst

Okay. Thank you.

Operator, Operator

And next, we can go to Craig Huber with Huber Research Partners. Please go ahead.

Craig Huber, Analyst

Thank you. I have a few questions. First, regarding the new sports program, how do you envision the timeline for achieving margins for the programming hours on your networks and local TV stations? Do you expect those margins to be positive after the first season, or do you anticipate achieving that almost immediately? What are you forecasting? I'm interested to hear your thoughts.

Jason Combs, CFO

Yeah. Hey, Craig, it's Jason. Yeah, we model these deals to be gross profit positive year one. And so take the WNBA deal, for example, we have a profitable programming lineup today on Friday nights. So we modeled the WNBA opportunity to clear our internal hurdle rates on the existing program profitability in that time slot. And we're taking that same approach on all the deals. Each deal needs to make sense from a financial perspective and be viewed as something that can be accretive to the enterprise. And I can tell you that we've already walked away from an opportunity where we were pretty far down the path on it because, at the end of the day, we could not make the deal economics get to a place that made sense for us.

Adam Symson, CEO

So just to reiterate what we've always said, we are focused on improving the near-term operating profile and economics of the company and long-term value creation. So we are not feeling like we need to sacrifice one for the other. We bring something very significant to these sports deals, and that's the reach that these leagues and teams really want.

Craig Huber, Analyst

Okay. Great. I asked you this question on the last call a couple of months ago. With the current state of the markets, especially considering your significant national platform, how do you feel about the US economy? Is your outlook the same as it was two or three months ago, or has it improved or worsened?

Lisa Knutson, COO

Hey, Craig. It's Lisa. Certainly, this downturn looks a little bit different than previous cycles. We've been getting some mixed signals. I think GDP is growing, albeit slowly, and the job market is resilient, but there's volatility in the financial markets, which is also, I think, putting pressure in the advertising marketplace. Thankfully, CTV continues to grow and as a growth driver certainly for us. And I think the growth in automotive that we've seen in that category, especially on the local side over the last few quarters is also pointing to some resiliency, I think, in the advertising marketplace. However, inflation and worries about looming recession, I think will continue to put some pressure on our advertising revenue.

Craig Huber, Analyst

Okay. And then you mentioned auto over the last three quarters, it's up, obviously off of a low base given the macro environment the last few years and stuff, et cetera. Can you give us some numbers around that? How much it was up year-over-year in the quarter? I think you said auto, you expected it to be up as a category for TV stations in the rest of the year. I just want to confirm that.

Adam Symson, CEO

Yeah. The first quarter auto was up 4% over Q1 of '22. It was a little bit lumpy through the quarter. I think, in January, it was up significantly. Looking at Q2, auto is continuing to improve. In fact, in April, it was up 16%. So I think we're still obviously booking the quarter and I would say, in some cases, bookings are coming in later. But we really see that as continuing to improve. Domestic dealer groups are up 12% year-over-year. Foreign dealer groups were up 1%. Local dealer groups, which is the largest dollars, were up 8%. And we see that as the best opportunity to grow auto in the coming months.

Craig Huber, Analyst

I think you guys said your core advertising outlook where things are pacing out so far this quarter for the TV stations are tracking down low single digits. Is that similar for all three months of the second quarter here?

Lisa Knutson, COO

I think there are some one-time anomalies certainly looking at Q2 in terms of where things play out with the NBA finals and things like that. So as I think, we had a relatively strong April because of the auto category and certainly some rebounds in home improvement. So a little early to tell. I think what we're finding is that advertisers are buying closer and closer to air dates. And so that's causing us to have a little bit of a lack of visibility. And certainly, advertisers are looking for flexibility with their spend.

Adam Symson, CEO

Hey, Craig, just one clarification. I think you said down low single digits. Our guidance was down mid-single digits.

Craig Huber, Analyst

Mid-single digits. Yes. Sorry if I misspoke then. That's all I had. Great. Thanks, guys.

Operator, Operator

And currently, no further questions in queue at this time.

Carolyn Micheli, Host

Thank you, Brad, and thanks to everyone for joining us today. Have a great day.

Operator, Operator

And ladies and gentlemen, that does conclude the call for today. This call will be available for replay after 11:30 AM today and running through June 5 at midnight. You can access the playback system at any time. That does conclude the call for today. You may now disconnect.