The deal has been in the works for some time. It helps fulfill Sinclair’s stated goal of expanding beyond its core broadcast TV station business into cable channels with the potential for larger national distribution and appeal to advertisers. Sinclair revealed during a conference call on the acquisition that it has already negotiated new MVPD carriage deals on Tennis Channel’s behalf that will grow the channel’s distribution base by 20 million subscribers.
Sinclair is one of the nation’s largest TV station owners with 171 stations serving 81 markets reaching nearly 40% of U.S. TV households. That means Sinclair has a lot of leverage with MVPDs, but that also means it will expend some of that clout on gaining distribution for Tennis rather than higher retransmission consent fees for its stations.
Sinclair president-CEO David Smith said in announcing the deal that the independent sports cabler is “vastly under-compensated and under-distributed relative to the value it brings to its viewers.” The acquisition will be financed by cash on hand and a draw on Sinclair’s revolving line of credit.
Tennis Channel comes with $200 million in operating losses, which means Sinclair pegs the present value of Tennis at about $65 million. Those losses will have the silver lining for Sinclair of offering tax benefits down the road.
However, CEO Ken Solomon said the company has been profitable for the past few years. Solomon will remain on board after the sale and the company’s headquarters will remain in Santa Monica, Calif.
“The additional subscriber base, which has already been contracted, equates to the creation of approximately $200 million of incremental value at closing,” Smith said. “Furthermore, we expect this combination to create additional linear and OTT viewership and advertising growth, and we have the added benefit of continued involvement of Ken Solomon, CEO of Tennis Channel, and a seasoned programming executive.”
Tennis Channel is owned by private equity firms Apollo Global Management, Bain Capital Ventures, Battery Ventures, CCMP Capital and Columbia Capital. DirecTV and Dish Network also have small stakes in the channel that launched in 2003.
The ties between Tennis and Sinclair stem from Solomon’s past as a syndication sales exec and as head of distribution for Fox network, where Sinclair has long been a major affiliate owner. “I can’t wait for what’s next” under Sinclair’s ownership, Solomon said.
Tennis Channel carries matches from most of the world’s top tennis tournaments, which gives it steady a year-round source of programming. It also has the digital SVOD Tennis Channel Plus that offers tennis buffs the ability to assemble their own menu of games.
Barry Faber, Sinclair’s exec VP and general counsel, said Sinclair considered other acquisition targets and the possibility of launching a channel from scratch. Tennis was attractive because it was already established and has a clear target audience. “Sports programming is some of the most important programming” for viewers and MVPDs, Faber said. Sinclair did a lot of due diligence “and eventually concluded that (buying) Tennis Channel made the most sense,” he said. He called it “an extremely well-run business with great assets.”
Although smaller niche channels are seen as vulnerable in a world of cord-cutting among consumers, Faber argued that Tennis still has upside to come because it is not at full distribution. “The only place many (channels) have to go is down. Here’s there’s huge room for growth even in a world of cord cutting,” he said.
Sinclair has been focused on extending its reach beyond local broadcasting for the past few years. It launched the Ring of Honor pro-wrestling league that airs on its stations as well as on the Discovery-owned Destination America cable channel. Sinclair also carries live high school and college football, basketball and hockey games that are syndicated to outside stations in various regions under the American Sports Network umbrella.
All of those moves are a sign of the times, even for a dyed-in-the-wool local broadcaster like Sinclair which has been on a station buying spree in recent years to consolidate market share. Faber said that while the company continues to be “bullish” on stations, “we are not blind to changes in the landscape,” hence the more assertive steps to diversify. “We think there is an advantage in certain areas to being more in control of our own destiny,” he said.
Tennis Channel, meanwhile, is known in the biz for waging a long legal and regulatory battle with Comcast over the cable giant’s decision to offer Tennis in a premium sports tier rather than giving it broad distribution alongside ESPN, Fox Sports and other sports outlets. Solomon said that litigation would be unaffected by the sale. Faber noted that Comcast is among the MVPDs on the schedule for retrans renegotiations soon.