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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 20202023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 000-26076
333-271072 (Sinclair, Inc.)
SINCLAIR BROADCAST GROUP, INC.000-26076(Sinclair Broadcast Group, LLC)
Sinclair, Inc.
Sinclair Broadcast Group, LLC
(Exact name of Registrant as specified in its charter)
| | | | | | | | |
| Maryland | | | | | | | | 92-1076143 (Sinclair, Inc.) |
| Maryland | | 52-1494660 (Sinclair Broadcast Group, LLC) |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
10706 Beaver Dam Road
Hunt Valley, MD 21030
(Address of principal executive offices)
(410) 568-1500
(Registrant’s telephone number, including area code)
Securities registered by Sinclair, Inc. pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Class A Common Stock, par value $ 0.01 per share | SBGI | The NASDAQ Stock Market LLC |
Securities registered by Sinclair Broadcast Group, LLC pursuant to Section 12(b) of the Act: None
Securities registered by Sinclair, Inc. pursuant to Section 12(g) of the Act: None
Securities registered by Sinclair Broadcast Group, LLC pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ☐
| | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Yes | ☐ | | No | ☒ |
| Sinclair Broadcast Group, LLC | Yes | ☐ | | No | ☒ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
| | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Yes | ☐ | | No | ☒ |
| Sinclair Broadcast Group, LLC | Yes | ☒ | | No | ☐ |
☐ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
| | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Yes | ☒ | | No | ☐ |
| Sinclair Broadcast Group, LLC | Yes | ☐ | | No | ☒ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐
| | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Yes | ☒ | | No | ☐ |
| Sinclair Broadcast Group, LLC | Yes | ☒ | | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Large accelerated filer | ☒☐ | Accelerated filer | ☐☒ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
| Sinclair Broadcast Group, LLC | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
| | | | | |
| Sinclair, Inc. | ☐ |
| Sinclair Broadcast Group, LLC | ☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
| | | | | |
| Sinclair, Inc. | ☒ |
| Sinclair Broadcast Group, LLC | ☒ |
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
| | | | | |
| Sinclair, Inc. | ☐ |
| Sinclair Broadcast Group, LLC | ☐ |
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
| | | | | |
| Sinclair, Inc. | ☐ |
| Sinclair Broadcast Group, LLC | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
| | | | | | | | | | | | | | | | | |
| Sinclair, Inc. | Yes | ☐ | | No | ☒ |
| Sinclair Broadcast Group, LLC | Yes | ☐ | | No | ☒ |
At June 30, 2020,2023, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $951$518 million based on the closing sales price of $18.46$13.82 on the NASDAQ stock market on June 30, 2020,2023, the last business day of the registrant’s most recently completed second fiscal quarter. The determination of affiliate status is solely for the purposes of this report and shall not be construed as an admission for the purposes of determining affiliate status.
IndicateAs of February 26, 2024, there were 39,826,747 shares of Sinclair, Inc. Class A Common Stock outstanding and 23,775,056 shares of Sinclair, Inc. Class B Common Stock outstanding.
OMISSION OF CERTAIN INFORMATION:
Sinclair Broadcast Group, LLC meets the numberconditions set forth in General Instruction I(1)(a) and (b) of shares outstandingForm 10-K and has therefore (i) omitted certain information called for by Item 7 and included certain other information as allowed under General Instruction I(2)(a), (ii) omitted the information otherwise called for by Items 10-13 of each of the registrant’s classes of common stock,Form 10-K as of the latest practicable date.allowed under General Instruction I(2)(c) and (iii) provided brief descriptions under Item 1 and Item 2 as allowed under General Instruction I(2)(d).
| | | | | | | | |
| | Number of shares outstanding as of
|
Title of each class | | February 25, 2020 |
Class A Common Stock | | 49,331,103 |
Class B Common Stock | | 24,727,682 |
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of our definitivethe Proxy Statement relating to our 2021Sinclair, Inc's 2024 Annual Meeting of Shareholders are incorporated by reference into Part III (Items 10,11,12,13, and 14) of this Annual Report on Form 10-K. We anticipate that ourSinclair, Inc.'s Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2020.2023.
SINCLAIR, INC.
SINCLAIR BROADCAST GROUP, INC.LLC
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2020
2023
TABLE OF CONTENTS
GENERAL
This combined report on Form 10-K is filed by both Sinclair, Inc. ("Sinclair") and Sinclair Broadcast Group, LLC ("SBG"). Certain information contained in this document relating to SBG is filed by Sinclair and separately by SBG. SBG makes no representation as to information relating to Sinclair or its subsidiaries, except as it may relate to SBG and its subsidiaries. References in this report to "we," "us," "our," the "Company" and similar terms refer to Sinclair and its consolidated subsidiaries, including SBG, unless context indicates otherwise. As described under Company Reorganization in Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements below, upon consummation of the Reorganization (as defined therein) on June 1, 2023, Sinclair became the successor issuer to Sinclair Broadcast Group, Inc. ("Old Sinclair"), which, immediately following the Reorganization was converted into a limited liability company. SBG files reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") solely to comply with Section 1018(a) of the indenture governing the 5.125% Senior Notes due 2027 of Sinclair Television Group, Inc. ("STG"), a wholly-owned subsidiary of SBG. References to SBG herein may also include its predecessor, Old Sinclair, as context indicates.
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, of 1934, as amended (the Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, contingencies, our dividend policy, and other non-historical statements. When we use words such as "“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates”" "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or similar expressions, we are making forward-looking statements. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements including, but not limited to, those listed below in summary form and as more fully described under Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (SEC)("SEC"), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings with the SEC. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
SUMMARY OF RISK FACTORS
Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A. Risk Factors, before deciding whether to invest in our securities.
The following is a summary of the material risks relating to our operations, our broadcastlocal media and local sportstennis segments, and our debt.
•The COVID-19 pandemic or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations and cash flows, the economy, our advertisers, our leagues and teams, viewership, Distributors, and their subscribers.
•Our strategic acquisitions and investments could pose various risks and increase our financial leverage.
•If the rate of decline in the number of subscribers to Distributormulti-channel video programming distributors ("MVPD") and virtual MVPDs ("vMVPD," and together with MVPDs, "Distributors") services increases or these subscribers shift to other services or bundles that do not include our stations or programming networks, there may be a material adverse effect on our revenues.
•We may not be able to renegotiate distribution agreements at terms comparable to or more favorable than our current agreements and networks with which we are affiliated currently, or in the future, may require us to share revenue from distribution agreements with them.
•Any changes in the current retransmission consent regulations could have an adverse effect on our business, financial condition, and results of operations.
•We face intense, wide-ranging competition for viewers and advertisers.
•CompetitionOur ability to adapt to competition from other broadcasters, or other content providers and changes in consumer behavior and technology may cause a reduction inadversely affect our advertising revenues and/or an increase in our operating costs.business.
•We depend on the appeal of our programming, which may be unpredictable, and increased programming costs may have a material negative effect on our business and our results of operations.
•Further change in the current retransmission consent regulations could have an adverse effect on our business, financial condition and results of operations.
•Theft of our intellectual property may have a material negative effect on us and our results of operations, and we may become subject to infringement or other claims relating to our consentcontent or technology.
•Cybersecurity risks,We have experienced a cyber incidents,security breach in the past and may be vulnerable to future security breaches, data privacy, and other information technology failures that could adversely affect ushave a material adverse effect on our financial performance and operating results and disrupt our operations.
•Data privacy, data protection, and information security may require significant resources and present certain risks, including risks related to compliance with domestic and international privacy and data protection laws.
•We rely upon cloud computing services to operate certain significant aspects of our business and any disruption could have an adverse effect on our financial condition and results of operations.
•The loss of key personnel, including talent, could disrupt the management or operations of our business and could have an adverse effect on our financial condition and results of operations.
•We could be adversely affected by labor disputes, and legislation and other union activity.
•The effects of the economic environment could require us to record an asset impairment of goodwillactivity and indefinite-lived intangible assets.related legislation.
•Unrelated third parties may bring claims against us based on the nature and content of information posted on our linear programming, social platforms, and websites maintained by us.
•The Smiths exercise control over most matters submitted to a shareholder vote and may have interests that differ from other security holders. They may, therefore, take actions that are not in the interests of other security holders.
•Our advertising revenue can vary substantially from period to period based on many factors beyond our control. This volatility affects our operating results and may reduce our ability to repay debt or service our debt, or reduce the market value of our securities.
•We internally originate and purchase television programming in advance based on expectations about future revenues. Actual revenues may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
•We internally originate television programming in advance based on expectations about future revenues. Actual revenues could fluctuate and may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
•We may lose a large amount of programming if a network terminates its affiliation or program service arrangement with us, we are not able to negotiate arrangements at terms comparable to or more favorable than our current agreements, or if networks make programming available through services other than our local affiliates, which could increase our costs and/or reduce our revenue.
•We may be subject to investigations or fines from governmental authorities, such as, but not limited to penalties related to violations of the Federal CommunicationsCommunication Commission's (FCC)("FCC") indecency, children's programming, sponsorship identification, closed captioning and other FCC rules and policies, the enforcement of which has increased in recent years, and complaints related to such violations may delay our FCC license renewal applications with the FCC.
•Federal regulation of the broadcasting industry limits our operating flexibility, which may affect our ability to generate revenue or reduce our costs.
•The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets.
•We have invested and will continue to invest in new technology initiatives which may not result in usable technology or intellectual property.
•Our media rights agreements with various professional sports teamsWe have varying durations and terms and we may be unable to renew those agreements on acceptable termslimited experience in operating or such rights may be lost for other reasons.investing in non-broadcast related businesses.
•Our local sports segment’s success depends on distribution revenue we receive,operations and business have in the loss of whichpast been, and could in the future be, materially adversely impacted by a pandemic or renewal of which on less favorable terms may have a material negative effect on us and our results of operations.other health emergency.
•Our joint venture arrangements are subject to a number of operational risks that could have a material adverse effect onEnvironmental, social and governance laws and regulations, including compliance thereof, may adversely impact our business, results of operations and financial condition.business.
•Our local sports segment is substantially dependent on the popularityThe effects of the Major League Baseball (MLB), National Basketball Association (NBA),economic environment could require us to record an asset impairment of goodwill, indefinite-lived and National Hockey League (NHL) teams whose media rights we control.
•Our advertising revenue can vary substantially from period to period based on many factors beyonddefinite-lived intangible assets or our control, which volatility may adversely affect our results of operations.investments.
•We may be obligatedare subject to make certain paymentsrisks related to local teams during labor disputes.our use of Generative Artificial Intelligence (GAI), a new and emerging technology, which is in the early stages of commercial use.
•WeThe Smiths exercise control over most matters submitted to a stockholder vote and may need to obtain FCC-regulated licenses for regional sports network video distribution.have interests that differ from other security holders. They may, therefore, take actions that are not in the interests of other security holders.
•Our substantial debt could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
•We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
•Despite our current level of debt, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described herein.
•Our variable rate debt subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
•Our use of derivative financial instruments to reduce interest rate risk may result in added volatility in our operating results.
•Commitments we have made to our lenders limit our ability to take actions that could increase the value of our securities and business or may require us to take actions that decrease the value of our securities and business.
•A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt, and loss of assets securing our loans.
•The total assets, net income and attributable EBITDA of our subsidiary guarantors of the Diamond Sports Group, LLC (DSG) notes may decrease substantially if our existing subsidiary guarantors cease to be wholly-ownedGroup's bankruptcy proceedings, which include litigation against SBG, STG and other subsidiaries of Sinclair as well as certain directors and officers of Sinclair, could have a resultmaterial adverse effect on Sinclair and SBG's financial condition and results of the issuance of equity of the subsidiaries to third parties.
•Our joint venture agreements contain provisions which may result in cash payments that would reduce our ability to repay our obligations under our debt.operations.
•Financial and economic conditions, including inflation, may have an adverse impact on our industry, business, and results of operations or financial condition.
PART I
ITEM 1. BUSINESS
We areSinclair, Inc. ("Sinclair"), a Maryland corporation formed in 2022, is the parent company of Sinclair Broadcast Group, LLC ("SBG"), a Maryland limited liability company, which formed from the conversion of Sinclair Broadcast Group, Inc. ("Old Sinclair"), a Maryland corporation founded in 1986, to a Maryland limited liability company in 2023. Refer to Company Reorganization in this Item 1. Sinclair is a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, digital platform, and, prior to the Deconsolidation (as defined below under Local Sports in this Item 1), regional and national sports networks, and digital platforms.networks. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us.us and our owned networks, and professional sports. Additionally, we ownSinclair owns digital media productscompanies that are complementary to our extensive portfolio of television station and regional sports network related digital properties. Outside of our media related businesses, we operateproperties and has interests in, owns, manages, and/or operates technical and software services companies, focused on supply and maintenance of broadcast transmission systems as well as research and development companies for the advancement of broadcast technology, and we manage other media and non-media related businesses and assets, including real estate, venture capital, private equity, and direct investments.
We are a Maryland corporation founded in 1986. OurSinclair and SBG's principal executive offices are located at 10706 Beaver Dam Road, Hunt Valley, Maryland 21030. Our21030, their telephone number is (410) 568-1500, and ourSinclair's website address is www.sbgi.net. The information contained on, or accessible through, ourSinclair's website is not part of this annual reportAnnual Report on Form 10-K and is not incorporated herein by reference.
SegmentsCompany Reorganization
On April 3, 2023, Old Sinclair, entered into an Agreement of Share Exchange and Plan of Reorganization (the "Share Exchange Agreement") with Sinclair, and Sinclair Holdings, LLC, a Maryland limited liability company ("Sinclair Holdings"). The purpose of the transactions contemplated by the Share Exchange Agreement was to effect a holding company reorganization in which Sinclair would become the publicly-traded parent company of Old Sinclair.
Effective at 12:00 am Eastern U.S. time on June 1, 2023 (the "Share Exchange Effective Time"), pursuant to the Share Exchange Agreement and Articles of Share Exchange filed with the Maryland State Department of Assessments and Taxation, the share exchange between Sinclair and Old Sinclair was completed (the "Share Exchange"). In the Share Exchange, (i) each share or fraction of a share of Old Sinclair's Class A common stock, par value $0.01 per share ("Old Sinclair Class A Common Shares"), outstanding immediately prior to the Share Exchange Effective Time was exchanged on a one-for-one basis for an equivalent share of Sinclair's Class A common stock, par value $0.01 per share ("Sinclair Class A Common Shares"), and (ii) each share or fraction of a share of Old Sinclair's Class B common stock, par value $0.01 per share ("Old Sinclair Class B Common Shares"), outstanding immediately prior to the Share Exchange Effective Time was exchanged on a one-for-one basis for an equivalent share of Sinclair’s Class B common stock, par value $0.01 per share ("Sinclair Class B Common Shares").
Immediately following the Share Exchange Effective Time, Old Sinclair converted from a Maryland corporation to SBG, a Maryland limited liability company. On the day following the Share Exchange Effective Time (June 2, 2023), Sinclair Holdings became the intermediate holding company between Sinclair and SBG, and SBG transferred certain of its assets (the "Transferred Assets") to Sinclair Ventures, LLC, a new indirect wholly-owned subsidiary of Sinclair ("Ventures"). We refer to the Share Exchange and the related steps described above collectively as the "Reorganization." The Transferred Assets included technical and software services companies, intellectual property for the advancement of broadcast technology, and other media and non-media related businesses and assets including real estate, venture capital, private equity, and direct investments, as well as Compulse, a marketing technology and managed services company, and Tennis Channel and related assets. As a result of the Reorganization, the local media segment assets are owned and operated by SBG and the assets of the tennis segment and the remaining Transferred Assets are owned and operated by Ventures.
At the Share Exchange Effective Time, Sinclair's articles of incorporation and bylaws were amended and restated to be the same in all material respects as the existing articles of incorporation and bylaws of Old Sinclair immediately prior to the Share Exchange. As a result, the Sinclair Class A Common Shares confer upon the holders thereof the same rights with respect to Sinclair that the holders of the Old Sinclair Class A Common Shares had with respect to Old Sinclair, and the Sinclair Class B Common Shares confer upon the holders thereof the same rights with respect to Sinclair that the holders of the Old Sinclair Class B Common Shares had with respect to Old Sinclair. Sinclair's Board of Directors (the "Board"), including its committees, and senior management team immediately after the Share Exchange were the same as Old Sinclair's immediately before the Share Exchange.
SEGMENTS
As of December 31, 2020, we have2023, Sinclair had two reportable segments: broadcastsegments, local media and tennis, and SBG had one reportable segment, local media. Prior to the Deconsolidation,Sinclair and SBG had one additional reportable segment, local sports. Our broadcastSee Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. Sinclair and SBG's local media segment is comprised of all of our television stations, which are owned and/or operated by ourSBG's wholly-owned subsidiary, Sinclair Television Group, Inc. (STG)("STG") and its direct and indirect subsidiaries. Oursubsidiaries, original networks and content.Sinclair's tennis segment primarily consists of Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sports and tennis lifestyle shows. Sinclair's and SBG's local sports segment iswas comprised of our regional sports networks, which are owned and operated by our subsidiary, Diamond Sports Group, LLC (DSG)("DSG") and its direct and indirect subsidiaries. WeSinclair also earnearns revenues from our owned networks, original content, digital and internet services, technical services, and non-media investments. These businesses areinvestments, included within the other segment."other". Other is not a reportable segment for either Sinclair or SBG, but is included for reconciliation purposes.
BroadcastLocal Media
As of December 31, 2020, our broadcast2023, Sinclair's and SBG's local media segment consists primarily consisted of our broadcast television stations.stations, original networks, and content. We own, provide programming and operating services pursuant to local marketing agreements (LMAs)("LMA"), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements (JSAs)("JSA") and shared services agreements (SSAs)("SSA")) to 188185 stations in 8886 markets. These stations broadcast 628640 channels, including 240236 channels affiliated with primary networks or program service providers comprised of: FOX (57)(55), ABC (40), CBS (31)(30), NBC (25), CW (48)(47), and MyNetworkTV (MNT)("MNT") (39). The other 388 channels broadcast programming from programming services including Antenna TV, Azteca, Bounce Network, CHARGE!, Comet, Dabl, Decades, Estrella TV, Get TV, Grit, Me TV, Stadium, TBD, Telemundo, This TV, UniMas, Univision, Weather, and two channels broadcasting independent programming. Solely for the purpose of this report, these 188185 stations and 628640 channels are referred to as “our”"our" stations and channels, and the use of such term shall not be construed as an admission that we control such stations or channels. Refer to our Television Markets and Stations table later in this Item 1. for more information.
Our broadcastlocal media segment provides free over-the-air programming to television viewing audiences for stations in markets located throughout the communities we serve through our local television stations.continental United States, as well as distributes the content of these stations to MVPDs for distribution to their customers in exchange for contractual fees. The programming that we provide on our primary channels consists of network provided programs, locally-produced news, local sporting events, programming from program service arrangements, syndicated entertainment programs, and internally originated programming. We provide live, local sporting events on many of our stations by acquiring the local television broadcast rights for these events or through our relationship with national networks.
We are one of the nation's largest producers of local news. We produce more than 2,5002,400 hours of news per week at 130115 stations in 8273 markets. During 2020,For the year ended December 31, 2023, our stations were awarded with 356276 journalism awards, including 24 regional and one National RTDNA Edward R. Murrow award.awards, and 67 regional Emmy awards.
We also own and operate various networks carried on distribution platforms owned by us or others, including: The Nest, our new, free over-the-air national broadcast TV network, launched in October 2023, comprised of home-improvement, true-crime, factual reality series, and celebrity driven family shows; Comet, our science fiction network; CHARGE!, our adventure and action-based network; and TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America.
Our internally developed content, in addition to our local news, includes our original news program, The National Desk ("The National Desk"), and Full Measure with Sharyl Attkisson ("Full Measure"), our national Sunday morning investigative and political analysis program.
Our broadcastlocal media segment derives revenue primarily from the sale of advertising inventory on our television stations and fees received from traditional multi-channel video programmingDistributors, which includes distributors (MVPDs), such as cable and satellite providers; virtual MVPDs (vMVPDs, and together with MVPDs, "Distributors"), whichthat distribute multiple television channels through the internet without supplying their own data transport infrastructure; andinfrastructure, as well as other over-the-top (OTT)("OTT") distributors that deliver live and on-demand programming, over the internet, for the right to distribute our channels on their distribution platforms without a subscription with a Distributor.platforms. We also earn revenues by selling digital advertisements on third-party platforms, and providing digital content to non-linear devices via websites, mobile, and social media advertisements.advertisements, and providing digital marketing services. Our objective is to meet the needs of our advertising customers by delivering significant audiences in key demographics. Our strategy is to achieve this objective by providing quality local news programming, popular network, syndicated and live sports programs, and other original content to our viewing audience. We attract most of our national television advertisers through national marketing representation firms which have offices in New York City, Los Angeles, Chicago, Atlanta, and Dallas.firms. Our local television advertisers are primarily attracted through the use of a local sales force at each of our television stations, which is comprised of approximately 600 marketing consultants and 90 local sales managers company-wide.stations.
Our local media operating results are subject to cyclical fluctuations from political advertising. Political spending has been significantly higher in the even-number years due to the cyclicality of political elections. In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election. Because of the political election cyclicality, there has been a significant difference in our operating results when comparing even-numbered years’ performance to the odd numbered years’ performance. Additionally, our operating results are impacted by the number and importance of individual political races and issues discussed on a national level as well as those within the local communities we serve. We believe political advertising will continue to be an important advertising category in our industry. Political advertising levels may increase further as political-activism, around social, political, economic, and environmental causes continuescontinue to draw attention and Political Action Committees (PACs)("PACs"), including so-called Super PACs, continue to increase spending.
Television Markets and Stations. As of December 31, 2020,2023, our broadcastlocal media segment owns and operates or provides programming and/or sales and other shared services to television stations in the following 8886 markets:
| | Market | Market | | Market Rank (a) | | Number of Channels | | Stations | | Network
Affiliation (b) | Market | | Market Rank (a) | | Number of Channels | | Stations | | Network
Affiliation (b) |
| Washington, D.C. | Washington, D.C. | | 9 | | 6 | | WJLA, WDCO-CD, WIAV-CD | | ABC | Washington, D.C. | | 9 | | 6 | | WJLA, WDCO-CD, WIAV-CD | | ABC |
| Seattle / Tacoma, WA | Seattle / Tacoma, WA | | 12 | | 6 | | KOMO, KUNS | | ABC | Seattle / Tacoma, WA | | 13 | | 6 | | KOMO, KUNS | | ABC, CW |
| Minneapolis / St. Paul, MN | Minneapolis / St. Paul, MN | | 14 | | 4 | | WUCW | | CW | Minneapolis / St. Paul, MN | | 15 | | 6 | | WUCW | | CW |
| Raleigh / Durham, NC | | Raleigh / Durham, NC | | 22 | | 7 | | WLFL, WRDC | | CW, MNT |
| Portland, OR | Portland, OR | | 21 | | 7 | | KATU, KUNP | | ABC | Portland, OR | | 23 | | 7 | | KATU, KUNP | | ABC |
| St. Louis, MO | St. Louis, MO | | 23 | | 4 | | KDNL | | ABC | St. Louis, MO | | 24 | | 4 | | KDNL | | ABC |
| Raleigh / Durham, NC | | 24 | | 7 | | WLFL, WRDC | | CW, MNT |
| Nashville, TN | | Nashville, TN | | 26 | | 10 | | WZTV, WUXP, WNAB(d) | | FOX, MNT, CW |
| Salt Lake City, UT | | Salt Lake City, UT | | 27 | | 10 | | KUTV, KMYU, KJZZ, KENV(d) | | CBS, MNT, IND |
| Pittsburgh, PA | Pittsburgh, PA | | 26 | | 7 | | WPGH, WPNT | | FOX, MNT | Pittsburgh, PA | | 28 | | 7 | | WPGH, WPNT | | FOX, CW, MNT |
| Baltimore, MD | Baltimore, MD | | 28 | | 8 | | WBFF, WNUV(c), WUTB(d) | | FOX, CW, MNT | Baltimore, MD | | 29 | | 8 | | WBFF, WNUV(c), WUTB(d) | | FOX, CW, MNT |
| Nashville, TN | | 29 | | 10 | | WZTV, WNAB(d), WUXP | | FOX, CW, MNT |
| Salt Lake City, UT | | 30 | | 10 | | KUTV, KMYU, KJZZ, KENV(d) | | CBS, MNT, IND |
| San Antonio, TX | San Antonio, TX | | 31 | | 9 | | KABB, WOAI, KMYS(d) | | FOX, NBC, CW | San Antonio, TX | | 31 | | 10 | | KABB, WOAI, KMYS(d) | | FOX, NBC, CW |
| Columbus, OH | Columbus, OH | | 33 | | 11 | | WSYX, WTTE(c), WWHO(d) | | ABC, CW, MNT, FOX | Columbus, OH | | 33 | | 9 | | WSYX, WWHO(d), WTTE(c) | | ABC, CW, MNT, FOX |
| Austin, TX | | Austin, TX | | 35 | | 2 | | KEYE | | CBS |
| Asheville, NC / Greenville, SC | Asheville, NC / Greenville, SC | | 35 | | 9 | | WLOS, WMYA(c) | | ABC, MNT | Asheville, NC / Greenville, SC | | 36 | | 8 | | WLOS, WMYA(c) | | ABC, MNT |
| Cincinnati, OH | Cincinnati, OH | | 36 | | 8 | | WKRC, WSTR(d) | | CBS, CW, MNT | Cincinnati, OH | | 37 | | 8 | | WKRC, WSTR(d) | | CBS, MNT, CW |
| Milwaukee, WI | Milwaukee, WI | | 37 | | 3 | | WVTV | | CW, MNT | Milwaukee, WI | | 38 | | 4 | | WVTV | | CW, MNT |
| Austin, TX | | 38 | | 2 | | KEYE | | CBS |
| West Palm Beach / Ft Pierce, FL | West Palm Beach / Ft Pierce, FL | | 39 | | 13 | | WPEC, WTVX, WTCN-CD, WWHB-CD | | CBS, CW, MNT | West Palm Beach / Ft Pierce, FL | | 39 | | 16 | | WPEC, WTVX, WTCN-CD, WWHB-CD | | CBS, CW, MNT |
| Las Vegas, NV | Las Vegas, NV | | 40 | | 9 | | KSNV, KVCW | | NBC, CW, MNT | Las Vegas, NV | | 40 | | 9 | | KSNV, KVCW | | NBC, CW, MNT |
| Grand Rapids / Kalamazoo / Battle Creek, MI | Grand Rapids / Kalamazoo / Battle Creek, MI | | 41 | | 3 | | WWMT | | CBS, CW | Grand Rapids / Kalamazoo / Battle Creek, MI | | 42 | | 3 | | WWMT | | CBS, CW |
| Norfolk, VA | | Norfolk, VA | | 43 | | 4 | | WTVZ | | MNT |
| Harrisburg / Lancaster / Lebanon / York, PA | Harrisburg / Lancaster / Lebanon / York, PA | | 42 | | 4 | | WHP | | CBS, CW, MNT | Harrisburg / Lancaster / Lebanon / York, PA | | 44 | | 3 | | WHP | | CBS, MNT, CW |
| Greensboro / High Point / Winston-Salem, NC | | Greensboro / High Point / Winston-Salem, NC | | 45 | | 7 | | WXLV, WMYV | | ABC, MNT |
| Birmingham / Tuscaloosa, AL | | Birmingham / Tuscaloosa, AL | | 46 | | 15 | | WBMA-LD, WTTO, WDBB(c), WABM | | ABC, CW, MNT |
| Oklahoma City, OK | Oklahoma City, OK | | 44 | | 7 | | KOKH, KOCB | | FOX, CW | Oklahoma City, OK | | 47 | | 7 | | KOKH, KOCB | | FOX, IND |
| Birmingham / Tuscaloosa, AL | | 45 | | 15 | | WBMA-LD, WDBB(c), WTTO, WABM | | ABC, CW, MNT |
| Norfolk, VA | | 46 | | 4 | | WTVZ | | MNT |
| Greensboro / High Point / Winston-Salem, NC | | 47 | | 7 | | WXLV, WMYV | | ABC, MNT |
| Fresno / Visalia, CA | | Fresno / Visalia, CA | | 52 | | 11 | | KMPH, KMPH-CD, KFRE | | FOX, CW |
| Providence, RI / New Bedford, MA | Providence, RI / New Bedford, MA | | 52 | | 4 | | WJAR | | NBC | Providence, RI / New Bedford, MA | | 53 | | 4 | | WJAR | | NBC |
| Buffalo, NY | Buffalo, NY | | 53 | | 7 | | WUTV, WNYO | | FOX, MNT | Buffalo, NY | | 54 | | 7 | | WUTV, WNYO | | FOX, MNT |
| Fresno / Visalia, CA | | 55 | | 12 | | KMPH, KMPH-CD, KFRE | | FOX, CW |
| Richmond, VA | Richmond, VA | | 56 | | 5 | | WRLH | | FOX, MNT | Richmond, VA | | 56 | | 5 | | WRLH | | FOX, MNT |
| Mobile, AL / Pensacola, FL | Mobile, AL / Pensacola, FL | | 57 | | 12 | | WEAR, WPMI(d), WJTC(d), WFGX | | ABC, NBC, IND, MNT | Mobile, AL / Pensacola, FL | | 57 | | 12 | | WEAR, WPMI(d), WFGX, WJTC(d) | | ABC, NBC, MNT, IND |
| Wilkes Barre / Scranton, PA | | 58 | | 10 | | WOLF(c), WSWB(d), WQMY(c) | | FOX, CW, MNT |
| Wilkes-Barre / Scranton, PA | | Wilkes-Barre / Scranton, PA | | 58 | | 11 | | WOLF(c), WSWB(d), WQMY(c) | | FOX, CW, MNT |
| Little Rock / Pine Bluff, AR | Little Rock / Pine Bluff, AR | | 59 | | 4 | | KATV | | ABC | Little Rock / Pine Bluff, AR | | 59 | | 5 | | KATV | | ABC |
| Albany, NY | Albany, NY | | 60 | | 7 | | WRGB, WCWN | | CBS, CW | Albany, NY | | 60 | | 6 | | WRGB, WCWN | | CBS, CW |
| Tulsa, OK | Tulsa, OK | | 61 | | 4 | | KTUL | | ABC | Tulsa, OK | | 62 | | 5 | | KTUL | | ABC |
| Spokane, WA | | Spokane, WA | | 64 | | 4 | | KLEW | | CBS |
| Dayton, OH | Dayton, OH | | 65 | | 8 | | WKEF, WRGT(d) | | ABC, FOX, MNT | Dayton, OH | | 66 | | 8 | | WKEF, WRGT(d) | | ABC, FOX, MNT |
| Spokane, WA | | 66 | | 3 | | KLEW | | CBS |
| Des Moines, IA | Des Moines, IA | | 68 | | 4 | | KDSM | | FOX | Des Moines, IA | | 67 | | 4 | | KDSM | | FOX |
| Green Bay / Appleton, WI | Green Bay / Appleton, WI | | 69 | | 8 | | WLUK, WCWF | | FOX, CW | Green Bay / Appleton, WI | | 69 | | 8 | | WLUK, WCWF | | FOX, CW |
| Wichita, KS | | 70 | | 19 | | KSAS, KOCW, KAAS, KAAS-LP, KSAS-LP, KMTW(c) | | FOX, MNT |
| Roanoke / Lynchburg, VA | Roanoke / Lynchburg, VA | | 71 | | 4 | | WSET | | ABC | Roanoke / Lynchburg, VA | | 70 | | 4 | | WSET | | ABC |
| Omaha, NE | Omaha, NE | | 72 | | 7 | | KPTM, KXVO(c) | | FOX, CW, MNT | Omaha, NE | | 71 | | 7 | | KPTM, KXVO(c) | | FOX , MNT, CW |
| Wichita, KS | | Wichita, KS | | 72 | | 19 | | KSAS, KOCW, KAAS, KAAS-LD, KSAS-LD, KMTW(c) | | FOX, MNT |
| Flint / Saginaw / Bay City, MI | Flint / Saginaw / Bay City, MI | | 73 | | 11 | | WSMH, WEYI(d), WBSF(d) | | FOX, NBC, CW | Flint / Saginaw / Bay City, MI | | 74 | | 11 | | WSMH, WEYI(d), WBSF(d) | | FOX, NBC, CW |
| Charleston / Huntington, WV | | 75 | | 8 | | WCHS, WVAH(d) | | ABC, FOX |
| Columbia, SC | Columbia, SC | | 76 | | 4 | | WACH | | FOX | Columbia, SC | | 75 | | 4 | | WACH | | FOX |
| Rochester, NY | Rochester, NY | | 77 | | 7 | | WHAM(d), WUHF | | ABC, FOX, CW | Rochester, NY | | 76 | | 7 | | WHAM(d), WUHF | | ABC, FOX, CW |
| Madison, WI | | Madison, WI | | 77 | | 4 | | WMSN | | FOX |
| Portland, ME | Portland, ME | | 78 | | 7 | | WPFO(d), WGME | | FOX, CBS | Portland, ME | | 78 | | 7 | | WPFO(d), WGME | | FOX, CBS |
| Charleston / Huntington, WV | | Charleston / Huntington, WV | | 79 | | 8 | | WCHS, WVAH(d) | | ABC, FOX |
| Toledo, OH | Toledo, OH | | 80 | | 4 | | WNWO | | NBC | Toledo, OH | | 80 | | 4 | | WNWO | | NBC |
| | Market | Market | | Market Rank (a) | | Number of Channels | | Stations | | Network
Affiliation (b) | Market | | Market Rank (a) | | Number of Channels | | Stations | | Network
Affiliation (b) |
| Madison, WI | | 81 | | 4 | | WMSN | | FOX |
| Paducah, KY / Cape Girardeau, MO | | 84 | | 8 | | KBSI, WDKA | | FOX, MNT |
| Harlingen / Weslaco / Brownsville / McAllen, TX | | 85 | | 2 | | KGBT | | TBD |
| Chattanooga, TN | | Chattanooga, TN | | 84 | | 7 | | WTVC, WFLI(d) | | ABC, CW, FOX, MNT |
| Savannah, GA | | Savannah, GA | | 85 | | 5 | | WTGS | | FOX |
| Syracuse, NY | Syracuse, NY | | 87 | | 6 | | WTVH(d), WSTM | | CBS, NBC, CW | Syracuse, NY | | 87 | | 6 | | WTVH(d), WSTM | | CBS, NBC, CW |
| Chattanooga, TN | | 88 | | 7 | | WTVC, WFLI(d) | | ABC, FOX, CW, MNT |
| Charleston, SC | Charleston, SC | | 89 | | 3 | | WCIV | | ABC, MNT | Charleston, SC | | 88 | | 3 | | WCIV | | MNT, ABC |
| El Paso, TX | | El Paso, TX | | 89 | | 8 | | KFOX, KDBC | | FOX, CBS, MNT |
| Champaign / Springfield / Decatur, IL | Champaign / Springfield / Decatur, IL | | 90 | | 17 | | WICS, WICD, WRSP(d), WCCU(d), WBUI(d) | | ABC, FOX, CW | Champaign / Springfield / Decatur, IL | | 91 | | 18 | | WICS, WICD, WRSP(d), WCCU(d), WBUI(d) | | ABC, FOX, CW |
| Savannah, GA | | 91 | | 4 | | WTGS | | FOX |
| Cedar Rapids, IA | Cedar Rapids, IA | | 92 | | 8 | | KGAN, KFXA(d) | | CBS, FOX | Cedar Rapids, IA | | 94 | | 8 | | KGAN, KFXA(d) | | CBS, FOX |
| El Paso, TX | | 93 | | 8 | | KFOX, KDBC | | FOX, CBS, MNT |
| Boise, ID | | Boise, ID | | 97 | | 8 | | KBOI, KYUU-LD | | CBS, CW Plus |
| Myrtle Beach / Florence, SC | | Myrtle Beach / Florence, SC | | 99 | | 8 | | WPDE, WWMB(c) | | ABC, CW |
| South Bend-Elkhart, IN | South Bend-Elkhart, IN | | 98 | | 2 | | WSBT | | CBS, FOX | South Bend-Elkhart, IN | | 100 | | 3 | | WSBT | | CBS, FOX |
| Myrtle Beach / Florence, SC | | 99 | | 9 | | WPDE, WWMB(c) | | ABC, CW |
| Tri-Cities, TN-VA | Tri-Cities, TN-VA | | 100 | | 7 | | WEMT(d), WCYB | | FOX, NBC, CW | Tri-Cities, TN-VA | | 101 | | 8 | | WEMT(d), WCYB | | FOX, NBC, CW |
| Boise, ID | | 101 | | 8 | | KBOI, KYUU-LD | | CBS, CW Plus |
| Greenville / New Bern / Washington, NC | Greenville / New Bern / Washington, NC | | 102 | | 8 | | WCTI-TV, WYDO(d) | | ABC, FOX | Greenville / New Bern / Washington, NC | | 102 | | 8 | | WCTI, WYDO(d) | | ABC, FOX |
| Reno, NV | Reno, NV | | 104 | | 9 | | KRXI, KRNV(d), KNSN(c) | | FOX, NBC, MNT | Reno, NV | | 103 | | 10 | | KRXI, KRNV(d), KNSN(c) | | FOX, NBC, MNT |
| Tallahassee, FL | | Tallahassee, FL | | 105 | | 8 | | WTWC, WTLF(d) | | NBC, CW Plus, FOX |
| Lincoln and Hastings-Kearney, NE | Lincoln and Hastings-Kearney, NE | | 105 | | 9 | | KHGI, KWNB, KWNB-LD, KHGI-CD, KFXL | | ABC, FOX | Lincoln and Hastings-Kearney, NE | | 106 | | 9 | | KHGI, KWNB, KWNB-LD, KHGI-CD, KFXL | | ABC, FOX |
| Johnstown / Altoona, PA | Johnstown / Altoona, PA | | 107 | | 4 | | WJAC | | NBC, CW Plus | Johnstown / Altoona, PA | | 112 | | 4 | | WJAC | | NBC, CW Plus |
| Tallahassee, FL | | 108 | | 8 | | WTWC, WTLF(d) | | NBC, FOX, CW Plus |
| Eugene, OR | | 113 | | 18 | | KVAL, KCBY, KPIC(e), KMTR(d), KMCB(d), KTCW(d) | | CBS, NBC, CW Plus |
| Yakima / Pasco / Richland / Kennewick, WA | Yakima / Pasco / Richland / Kennewick, WA | | 117 | | 18 | | KIMA, KEPR, KUNW-CD, KVVK-CD, KORX-CD | | CBS, CW Plus | Yakima / Pasco / Richland / Kennewick, WA | | 116 | | 18 | | KIMA, KEPR, KUNW-CD, KVVK-CD, KORX-CD | | CBS, CW Plus |
| Traverse City / Cadillac, MI | Traverse City / Cadillac, MI | | 118 | | 11 | | WGTU(d), WGTQ(d), WPBN, WTOM | | ABC, NBC | Traverse City / Cadillac, MI | | 118 | | 12 | | WGTU(d), WGTQ(d), WPBN, WTOM | | ABC, NBC |
| Eugene, OR | | Eugene, OR | | 119 | | 18 | | KVAL, KCBY, KPIC(e), KMTR(d), KMCB(d), KTCW(d) | | CBS, NBC, CW Plus |
| Macon, GA | Macon, GA | | 120 | | 3 | | WGXA | | FOX, ABC | Macon, GA | | 120 | | 3 | | WGXA | | FOX, ABC |
| Peoria / Bloomington, IL | Peoria / Bloomington, IL | | 123 | | 1 | | WHOI | | TBD | Peoria / Bloomington, IL | | 123 | | 3 | | WHOI | | TBD |
| Bakersfield, CA | Bakersfield, CA | | 125 | | 8 | | KBFX-CD, KBAK | | FOX, CBS | Bakersfield, CA | | 124 | | 8 | | KBFX-CD, KBAK | | FOX, CBS |
| Corpus Christi, TX | Corpus Christi, TX | | 130 | | 3 | | KSCC | | FOX, MNT | Corpus Christi, TX | | 130 | | 4 | | KSCC | | FOX, MNT |
| Amarillo, TX | Amarillo, TX | | 131 | | 8 | | KVII, KVIH | | ABC, CW Plus | Amarillo, TX | | 131 | | 10 | | KVII, KVIH | | ABC, CW Plus |
| Chico-Redding, CA | Chico-Redding, CA | | 132 | | 15 | | KRCR-TV, KCVU(d), KRVU-LD, KKTF-LD, KUCO-LD | | ABC, FOX, MNT | Chico-Redding, CA | | 134 | | 18 | | KRCR, KCVU(d), KRVU-LD, KKTF-LD, KUCO-LD | | ABC, FOX, MNT |
| Columbia / Jefferson City, MO | | Columbia / Jefferson City, MO | | 136 | | 4 | | KRCG | | CBS |
| Medford / Klamath Falls, OR | Medford / Klamath Falls, OR | | 134 | | 4 | | KTVL | | CBS, CW Plus | Medford / Klamath Falls, OR | | 138 | | 5 | | KTVL | | CBS, CW Plus |
| Columbia / Jefferson City, MO | | 135 | | 4 | | KRCG | | CBS |
| Beaumont / Port Arthur / Orange, TX | Beaumont / Port Arthur / Orange, TX | | 144 | | 8 | | KFDM, KBTV(d) | | CBS, CW Plus, FOX | Beaumont / Port Arthur / Orange, TX | | 144 | | 8 | | KFDM, KBTV(d) | | CBS, CW Plus, FOX |
| Sioux City, IA | Sioux City, IA | | 148 | | 14 | | KPTH, KPTP-LD, KBVK-LP, KMEG(d) | | FOX, MNT, CBS | Sioux City, IA | | 150 | | 13 | | KPTH, KPTP-LD, KBVK-LP, KMEG(d) | | FOX, MNT, CBS |
| Albany, GA | Albany, GA | | 154 | | 4 | | WFXL | | FOX | Albany, GA | | 154 | | 4 | | WFXL | | FOX |
| Gainesville, FL | Gainesville, FL | | 160 | | 8 | | WGFL(c), WNBW(c), WYME-CD(c) | | CBS, NBC, MNT | Gainesville, FL | | 158 | | 8 | | WGFL(c), WNBW(c), WYME-CD(c) | | CBS, NBC, MNT |
| Missoula, MT | Missoula, MT | | 161 | | 6 | | KECI-TV, KCFW | | NBC | Missoula, MT | | 161 | | 8 | | KECI, KCFW | | NBC |
| Wheeling, WV / Steubenville, OH | Wheeling, WV / Steubenville, OH | | 163 | | 3 | | WTOV | | NBC, FOX | Wheeling, WV / Steubenville, OH | | 163 | | 3 | | WTOV | | NBC, FOX |
| Abilene / Sweetwater, TX | Abilene / Sweetwater, TX | | 165 | | 4 | | KTXS-TV, KTES-LD | | ABC, CW Plus | Abilene / Sweetwater, TX | | 167 | | 4 | | KTXS, KTES-LD | | ABC, CW Plus |
| Quincy, IL / Hannibal, MO / Keokuk, IA | Quincy, IL / Hannibal, MO / Keokuk, IA | | 174 | | 3 | | KHQA | | CBS, ABC | Quincy, IL / Hannibal, MO / Keokuk, IA | | 176 | | 4 | | KHQA | | CBS, ABC |
| Butte / Bozeman, MT | | 185 | | 6 | | KTVM-TV, KDBZ-CD | | NBC |
| Butte-Bozeman, MT | | Butte-Bozeman, MT | | 184 | | 8 | | KTVM, KDBZ-CD | | NBC |
| Eureka, CA | Eureka, CA | | 193 | | 10 | | KAEF-TV, KBVU(d), KECA-LD, KEUV-LP | | ABC, FOX, CW Plus, MNT | Eureka, CA | | 195 | | 10 | | KAEF, KBVU(d), KECA-LD, KEUV-LP | | ABC, FOX, CW Plus, MNT |
| San Angelo, TX | San Angelo, TX | | 197 | | 3 | | KTXE-LD | | ABC, CW Plus | San Angelo, TX | | 197 | | 2 | | KTXE-LD | | ABC, CW Plus |
| Ottumwa, IA / Kirksville, MO | Ottumwa, IA / Kirksville, MO | | 200 | | 3 | | KTVO | | ABC, CBS | Ottumwa, IA / Kirksville, MO | | 200 | | 3 | | KTVO | | ABC, CBS |
| Total Television Channels | Total Television Channels | | | | 628 | | | | | Total Television Channels | | | | 640 | | |
(a)Rankings are based on the relative size of a station’s Designated Market Area (DMA)("DMA") among the 210 generally recognized DMAs in the United States as estimated by Nielsen Media Research (Nielsen)("Nielsen") as of September 2020.October 2023.
(b)We broadcast programming from the following providers on our channels and the channels of our JSA/LMA partners:
| | | | | | | | | | | | | | | | | | | | |
| Affiliation | | Number of
Channels | | Number of
Markets | | Expiration Dates |
| ABC | | 40 | | 30 | | August 31, 2026 |
| FOX | | 55 | | 41 | | December 31, 2026 |
| CBS | | 30 | | 24 | | October 31, 2026 |
| NBC | | 25 | | 17 | | December 31, 2024 |
| CW | | 47 | | 38 | | August 31, 2026 |
| MNT | | 39 | | 31 | | August 31, 2025 |
| Total Major Network Affiliates | | 236 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Affiliation | | Number of
Channels | | Number of
Markets | | Expiration Dates (1) |
| ABC | | 40 | | 30 | | August 31, 2022 |
| FOX | | 57 | | 42 | | December 31, 2023 |
| CBS | | 31 | | 24 | | October 31, 2023 through December 31, 2024 |
| NBC | | 25 | | 17 | | December 31, 2021 |
| CW | | 48 | | 37 | | August 31, 2021 through August 31, 2024 |
| MNT | | 39 | | 32 | | August 31, 2021 |
| Total Major Network Affiliates | | 240 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Affiliation | | Number of
Channels | | Number of
Markets | | Expiration Dates (1) |
| Antenna TV | | 23 | | 21 | | December 31, 2019 through January 1, 2024 |
| Azteca | | 2 | | 1 | | August 31, 2020 |
| Bounce | | 1 | | 1 | | August 31, 2019 |
| Charge | | 67 | | 59 | | (2) |
| Comet | | 90 | | 74 | | (2) |
| DABL | | 30 | | 29 | | October 31, 2022 |
| Decades | | 1 | | 1 | | January 31, 2022 |
| Estrella | | 1 | | 1 | | September 30, 2022 |
| GetTV | | 5 | | 5 | | June 30, 2017 |
| Grit | | 1 | | 1 | | December 31, 2019 |
| IND | | 2 | | 2 | | N/A |
| MeTV | | 19 | | 15 | | August 31, 2022 through August 1, 2024 |
| Stadium | | 52 | | 48 | | (2) |
| TBD | | 77 | | 65 | | (2) |
| Telemundo | | 1 | | 1 | | December 31, 2022 |
| This TV | | 1 | | 1 | | November 1, 2014 |
| UniMas | | 1 | | 1 | | December 31, 2021 |
| Univision | | 8 | | 5 | | December 31, 2021 through November 30, 2022 |
| Weather | | 6 | | 4 | | December 31, 2017 |
| Total Other Affiliates | | 388 | | | | |
| | | | | | |
| Total Television Channels | | 628 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Affiliation | | Number of
Channels | | Number of
Markets | | Expiration Dates |
| Antenna TV | | 24 | | 22 | | December 31, 2024 through December 31, 2026 |
| | | | | | |
| | | | | | |
| CHARGE! | | 85 | | 74 | | (1) |
| Comet | | 91 | | 74 | | (1) |
| Dabl | | 30 | | 29 | | July 31, 2025 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| The Nest | | 47 | | 43 | | (1) |
| | | | | | |
| | | | | | |
| | | | | | |
| TBD | | 85 | | 72 | | (1) |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Univision | | 8 | | 5 | | December 31, 2024 |
| | | | | | |
| Other | | 34 | | | | Various |
| Total Other Affiliates | | 404 | | | | |
| Total Television Channels | | 640 | | | | |
(1)When we negotiate the terms of our network affiliations or program service arrangements, we generally negotiate on behalf of our owned stations affiliated with that entity simultaneously, except in certain circumstances. This results in substantially similar terms for our stations, including the expiration date of the network affiliations or program service arrangements. If the affiliation agreement expires, we may continue to operate under the existing affiliation agreement on the same terms and conditions until a new affiliation agreement is entered into.
(2)An owned and operated network, which is carried on our multicast distribution platform or the platform of our JSA/LMA partners. Thus, there is no expiration date.
(c)The license assets for these stations are currently owned by third parties. We provide programming, sales, operational, and administrative services to these stations pursuant to certain service agreements, such as LMAs.
(d)The license and programming assets for these stations are currently owned by third parties. We provide certain non-programming related sales, operational, and administrative services to these stations pursuant to service agreements, such as JSAs and SSAs.
(e)We provide programming, sales, operational, and administrative services to this station, of which 50% is owned by a third party.
Local sports
On August 23, 2019, we completed the acquisition of the controlling interests in certain regional sports network brands and Fox College Sports (collectively, the Acquired RSNs) from The Walt Disney Company (Disney). See Note 2. Acquisitions and Dispositions of Assets within the Consolidated Financial Statements for further discussion. In February 2019, we announced a joint venture with the Chicago Cubs (Cubs) that owns and operates Marquee Sports Network (Marquee, and, collectively with the Acquired RSNs, the RSNs), a regional sports network based in Chicago, Illinois. Marquee debuted February 22, 2020 with the airing of the Cubs’ first Spring Training game and is the Chicago-region’s exclusive network for fans to view live Cubs games, exclusive Cubs content, and other local sports programming. On August 29, 2019 we acquired a minority equity interest in the Yankee Entertainment and Sports Network (the YES Network), a regional sports network based in New York, New York.
Through our RSNs and the YES Network, we own equity interests in the largest collection of regional sports networks in the United States, broadcasting approximately 4,800 professional sports games and producing approximately 24,800 hours of new content each year. As a result of the modified sports seasons due to the COVID-19 pandemic, during the year ended December 31, 2020, our RSNs and the YES Network broadcast approximately 2,270 professional sports games and produced approximately 12,200 hours of new content. Our RSNs and the YES Network are located in attractive, highly-populated geographic areas of the United States with significant local viewership and 45 of the most exciting professional sports teams. Our RSNs are a premier destination for local sports viewership, with premium live sports content reaching approximately 52 million subscribers nationally, excluding YES Network subscribers. Our RSNs and the YES Network have an extensive footprint that includes exclusive long-term agreements with 16 Major League Baseball (MLB) teams, 17 National Basketball Association (NBA) teams and 12 National Hockey League (NHL) teams. Within our sports network portfolio are 21 regional sports network brands (to be rebranded as 19 Bally Sports network brands), Marquee, and a minority equity interest in the YES Network. We generate revenues by distributing our networks to Distributors, and from the sale of advertising inventory.
In connection with our agreement with Bally's Corporation (Bally's), our RSNs will be rebranded with the Bally Sports name. See Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 6. Other Assets within the Consolidated Financial Statements for further discussion. As of December 31, 2020, our RSNs have relationships with the following professional teams.
| | | | | | | | | | | | | | |
MLB Teams | | NBA Teams | | NHL Teams |
Arizona Diamondbacks | | Atlanta Hawks | | Anaheim Ducks |
Atlanta Braves | | Charlotte Hornets | | Arizona Coyotes |
Chicago Cubs | | Cleveland Cavaliers | | Carolina Hurricanes |
Cincinnati Reds | | Dallas Mavericks | | Columbus Blue Jackets |
Cleveland Indians | | Detroit Pistons | | Dallas Stars |
Detroit Tigers | | Indiana Pacers | | Detroit Red Wings |
Kansas City Royals | | Los Angeles Clippers | | Florida Panthers |
Los Angeles Angels | | Memphis Grizzlies | | Los Angeles Kings |
Miami Marlins | | Miami Heat | | Minnesota Wild |
Milwaukee Brewers | | Milwaukee Bucks | | Nashville Predators |
Minnesota Twins | | Minnesota Timberwolves | | St. Louis Blues |
San Diego Padres | | New Orleans Pelicans | | Tampa Bay Lightning |
St. Louis Cardinals | | Oklahoma City Thunder | | |
Tampa Bay Rays | | Orlando Magic | | |
Texas Rangers | | Phoenix Suns | | |
| | San Antonio Spurs | | |
Tennis
As of December 31, 2020, we also hold a minority interest in the YES Network, which has long term agreements with the New York Yankees and Brooklyn Nets. We also own Fox College Sports which offers collegiate programming throughout the country.
Other
Owned Networks and Content
We own and operate Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sportsports and tennis lifestyle shows; Tennis Magazine, the sport’s largest print publication;Channel International streaming service; Tennis Channel Plus streaming service; T2 FAST, a 24-hours a day free ad-supported streaming television channel; Tennis.com; and Tennis.com (collectively, Tennis), the most visited online tennis platform in the world.Pickleballtv (PBTV).
We alsoSinclair's tennis segment derives revenue primarily from fees received from Distributors, including those that distribute multiple video channels through the internet without supplying their own data transport infrastructure, as well as other OTT distributors that deliver live and operate various networks carriedon-demand programming, for the right to distribute Tennis Channel on their distribution platforms, ownedand advertising revenue generated by us or others, including: Comet, our science fiction network; CHARGE!, our adventure and action-based network; TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America; and Stadium, a network that brings together professional sports highlights and college games.sales of commercial time within Tennis Channel programming.
Our internally developed content,Sinclair's tennis segment operating results are usually subject to cyclical fluctuations due to the amount and significance of tournaments that take place in addition to our local news, includes Ringthe respective quarters during the year. The first and fourth quarter operating results are usually higher than the second and third quarters' because of Honor (ROH), our professional wrestling promotion; The National Desk hosted by Jan Jeffcoat (The National Desk);the amount and Full Measure with Sharyl Attkisson (Full Measure), our national Sunday morning investigative and political analysis program.significance of tournaments that are played during those periods.
Local Sports
Deconsolidation of Diamond Sports Intermediate Holdings LLC. On March 1, 2022, SBG's subsidiary Diamond Sports Intermediate Holdings, LLC, and certain of its subsidiaries (collectively "DSIH") completed a series of transactions (the "Transaction"). As part of the Transaction, the governance structure of DSIH was modified including changes to the composition of its Board of Managers, resulting in the Company's loss of voting control. As a result, DSIH, whose operations represented the entirety of our local sports segment, was deconsolidated from our consolidated financial statements effective as of March 1, 2022 (the "Deconsolidation"). The consolidated statement of operations for the year ended December 31, 2022 therefore includes two months of activity related to DSIH prior to the Deconsolidation. Subsequent to February 28, 2022, the assets and liabilities of DSIH are no longer included within our consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with DSIH refer to the periods prior to the Deconsolidation.
Prior to the Deconsolidation, the local sports segment consisted primarily of our Bally Sports network brands ("Bally RSNs"), the Marquee Sports Network ("Marquee") joint venture, and our investment in the Yankee Entertainment and Sports Network, LLC ("YES Network") through February 28, 2022. On March 1, 2022, the Bally RSNs, Marquee, and YES Network were deconsolidated from our financial statements. Through February 28, 2022, we refer to the Bally RSNs and Marquee as "the RSNs." The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams in designated local viewing areas.
OTHER
Digital and Internet
In January 2019, we launched STIRR, a national free, ad-supported direct-to-consumer (DTC) streaming app, which offers live and on-demand content spanning entertainment, sports, and news. With more than 6 million app downloads to date, STIRR had a break-out year and exceeded expectations with viewership up significantly, doubling the number of average monthly users and minutes viewed for the full year compared to a year ago. Driving this growth is STIRR’s local news channel, STIRR City, the addition of exclusive local on-demand rights, over 120 free TV channels, and two commercial free channels that cover both local and national elections and Covid-19 live press conferences from across the country. STIRR’s growth throughout the year enabled it to reach critical mass for national and local advertisers.
We earnSinclair earns revenues from Compulse, Integrated Marketing (Compulse), a full-service digital agency which uses our digital expertise, including our OTT advertisingmarketing technology and managed services company, by licensing the platform CompulseOTT, to help businesses run social media, search, advertising, email marketing, web design, mobile marketing and creative services, audience extension, and navigate and compete in a world of constant innovation and changes in consumer behavior.
DataSphere Technologies, provides marketing services to small businesses across the country and works in partnership with multipleother local media companies including Sinclair. NewsON is a free, ad-supported app that provides instant access to live or on-demand local news broadcasts, including non-Sinclair affiliate partners. Sinclair Digital Ventures focuses on investment in emergingand agencies, as well as executing their digital technologies, ad tech,media initiatives across search, social, programmatic, email, and digital content companies that support, complement, or expand the Company's businesses.
In November 2020, we entered into agreements for a long-term, enterprise-wide strategic partnership with Bally's Corporation (Bally's) to combine Bally's vertically integrated, proprietary sports betting technology and expansive market access footprint with our premier portfolio of local broadcast stations, RSNs, Tennis Channel, STIRR and digital and over-the-air television network Stadium. This partnership is expected to enhance the gamification of live sports to provide audiences a first-of-its-kind interactive viewing experience and drive legalized sports betting monetization. In connection with the agreement, we also received various equity interests in Bally's. See Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 6. Other Assetswithin the Consolidated Financial Statements for further information.more.
Technical Services
We ownSinclair owns subsidiaries which are dedicated to providing technical services to the broadcast industry, including: Acrodyne Technical Services, a provider of service and support for broadcast transmitters throughout the world; Dielectric, a designer and manufacturer of broadcast systems including all components from transmitter output to antenna;antenna, and ONE Media 3.0, whose purpose is to develop business opportunities, products, and services associated with the NEXTGENNextGen TV broadcast transmission standard and TV platform. We haveSinclair has also partnered with several other companies in the design and deployment of NEXTGENNextGen TV services including: Saankhya Labs, to develop NEXTGENNextGen TV technologies to be used in consumer devices; Cast.era,CAST.ERA, a joint venture with South Korea’s leading mobile operator, SK Telecom, to develop wireless, cloud infrastructure and artificial intelligence technologies; and BitPath, a joint venture with Nexstar Media Group,another broadcaster, to deploy and exploit datacasting models using NEXTGENNextGen capabilities.
Non-mediaNon-Media Investments
We ownSinclair owns various non-media related investments across multiple asset classes including real estate, venture capital, private equity, mezzanine financing, and direct investments in market-defining companies. Sinclair's investments in real estate investments. Someprimarily consists of the largest investments include: Triangle Signapartment complexes and Service (Triangle), a sign designer and fabricator; Jefferson Park, a mixed-use land development project in Frederick, MD;projects. Sinclair's investments in sustainability initiatives;venture capital and a portfolio of apartment complexes.private equity funds include capital for the advertising, marketing, and media technology sectors, sports betting, e-sports, and sports tech, as well as funeral homes, cemeteries, and pet cremation facilities. Sinclair holds direct investments in technology driven companies, including wireless communication and semiconductor solutions, next-gen communication solutions, advertising intelligence and data security.
CustomersCUSTOMERS
In 2020, the broadcast2023, Sinclair's local media and local sportstennis segments had threetwo customers AT&T, Charter Communications, and Comcast, that individually exceededaccounted for 10% of Sinclair's consolidated revenue. Any disruption in our relationship with these customers could have a material adverse effect on the broadcast segment, theSinclair's local sports segment,media and ourtennis segments and Sinclair's results of operations.
In 2023, SBG's local media segment had two customers that individually accounted for 10% of SBG's consolidated revenue. Any disruption in SBG's relationship with these customers could have a material adverse effect on SBG's local media segment and SBG's results of operations.
Operating Strategy
OPERATING STRATEGY
Programming to Attract Viewership. We seek to target our programming offerings to attract viewership, to meet the needs of the communities in which we serve, and to meet the needs of our advertising customers. customers by entering into network affiliation agreements that provide us the right to broadcast general entertainment network programming, national news, and sports programming.
Our stations seek to broadcast live, local, and national sporting events that would appeal to a large segment of the local community. Moreover, our stations produce local news at 130115 stations in 8273 markets. See News below for further discussion. Our stations also seek to develop original programming or obtain, at attractive prices, popular syndicated programming that is complementary to each station’s network programming.
Television advertising prices are based on ratings information measured and distributed by Nielsen and Comscore. Ratings methodologies have been changing rapidly due to advancements in technology and changes in the manners in which viewers consume news, sports, and entertainment. Certain new methodologies are currently not accredited by the Media Rating Council (MRC)("MRC"), an independent organization that monitors rating services, and may not reflect actual viewership levels.
Our RSNs intend to continue to invest in producing popular sports programming, and measure audience engagement and needs to determine what our sports fans value most and to continue to work to deliver premier sports content in the markets in which we operate.
Our RSNs intend to continue investing in technologies that improve the viewer experience of our loyal sports fans and that will help tell the "story" of a sports game and make our offering more appealing to the viewer. These technologies could allow the viewer to control the camera angle, add customized audio tracks to the broadcast, integrate social media, overlay statistics, gaming or otherwise customize his or her experience. Additionally, our broad rights position us to benefit from new viewing technologies as they are developed, such as virtual, augmented and mixed reality. As these technological capabilities develop, we will invest in bringing them to our premium live sports content.
News. Through local news, our mission is to serve our communities by sharing relevant information to alert, protect, and empower our audiences. We believe that the production and broadcasting of local news is an important link to the community and an aid to a station’s efforts to expand its viewership. In addition, local news programming can provide access to advertising sources targeted specifically to local news viewers. Our news stations also produce content on digital platforms such as websites, mobile applications, OTT distributors, social media, digital newsletters, and social media. During the year ended December 31, 2020, 34% of our stations' net time sales were earned during the local news we produce each week.podcasts.
Our local news initiatives are an important part of our strategy. We have entered into local news sharing arrangements in which we receive news in ninefive markets from other in-market broadcasters. We believe that, in the markets where we have news share arrangements, such arrangements generally provide both higher viewer ratings and revenues for the station receiving the news and generate a profit for the news share provider. Generally, both parties and the local community are beneficiaries of these arrangements.
In addition to our traditional local news stories, we have utilized our national reach and physical presence in the nation's capital to provide our local viewers with broader national news stories which are relevant to our local viewers.
Our local news coverage is supported by our national news desk and Capitol Hill bureau.desk. These teams focus on providing context and perspective to important stories in the daily news cycle. This content provides a significant point of difference with a focus on accountability reporting. Available on-air and online, the bureau not only expands our news presence, but gives our local station viewers an opportunity to hear the views of their members of Congress through programs such as "Connect to Congress," our weekly on-air and digital feature which provides an electronic video pathway for lawmakers to speak to their constituents. Our weekly investigative news program, Full Measure with Sharyl Attkisson, reinforces our mission to provide our fearless storytelling on significant topics of public importance.
In January 2021, we launched ourOur original news program, The National Desk, on 68 ofprovides viewers with a comprehensive, commentary-free look at the most impactful national news and regional stories throughout the day. Leveraging our stations, including MNT and CW, on STIRR, and across all of our news websites. The National Desk is hosted by award-winning anchor Jan Jeffcoat, who provides audiences with commentary-free news coverage from both a local and national perspective. Leveraging Sinclair’s expansive local news footprint, The National Desk elevates some of the most important stories occurring in cities and towns across the country. With reporters residing in the communities they cover, The National Desk has access to real stories from the perspectives of those they affect directly. The goal of The National Desk is to leverage these assets into a single news program for a national audience. The program also supplements expansive local coverage by bringing the most important national headlines to audiences.
The National Desk weekday and/or weekend editions together air on 83 of our markets and across all of our news websites. We have a national investigative team of 15 journalists, plus more than 30 local investigative reporters. We plan to continue to grow our investigative footprint, and to provide in-depth stories not covered elsewhere.
We provideIn our 12-year history of producing "Your Voice Your Future" Town Halls, we’ve produced over 1,350 productions. This distinctive series recognizes the importance of producing disruptive programming, with disciplined discussions and solutions for the communities we serve. Our goal from the beginning has been to inform, educate and protect our viewers. Our Town Halls are produced in local markets and give our viewers with "Town Halls," which bring together our viewersan opportunity to discuss majorhave a voice and ask their elected leaders questions on important local and national topics. In 2018 we began producing the "Your Voice Your Future Opioid Town Hall"2023 and in 20192022 we produced 25188 and 198 Town Halls, onrespectively, throughout the opioids crisis. The year 2020 wascountry, covering a unique year, yet productive. Overall, we produced 143 Town Halls. Our stations produced 53 debates, 16 hour long discussions on race relations,variety of topics including education, mental health, artificial intelligence, distrust of police, antisemitism, Black History Month, LGBTQ+ legislation, and 18 "COVID Town Halls", helping our viewers cope and decipher information to help their families through very difficult times. Since launching our commitment to give a voice to our viewers, our Town Halls have produced over 835 hours to address the needs of and educate our audience.
With more than 6 million app downloads to date, STIRR had a break-out year and exceeded expectations with viewership up significantly, doubling the number of average monthly users and minutes viewed for the full year compared to a year ago. Driving this growth is STIRR’s local news channel, STIRR City, the addition of exclusive local on-demand rights, over 120 free TV channels, and two commercial free channels that cover both local and national elections and Covid-19 live press conferences from across the country.veterans. We also own NewsOn,produced several debates in 2023, a single app to watch live, local news on mobilenon-election year, including several mayoral, city council, and OTT devices.school board debates, a Wisconsin Supreme Court debate, a congressional debate, and a gubernatorial debate.
Sports. Live sports have remained highly popular with fans and advertisers. Sports programming generally elicits strong emotional responses and attracts a loyal and passionate following among fans. Our premium live sports programming typically attracts viewership demographics that are highly desirable to advertisers. Sports viewership among the key 25 to 54 year-old demographic continues to outperform all other content. Every sports season is a new chapter in a story that has continued for decades and is popular acrosswith fans from multiple generations. As media has continued to trend toward on-demand consumption, sports events have remained an ‘‘appointment viewing’’"appointment viewing" event. As such, live sports content is frequently the most watched programming in a local market on most nights.
Through our RSNsTennis Channel and the YES Network, we own equity interests in the largest collection of regional sports networksT2, Tennis Channel's first FAST offering in the United States, locatedare the only television-based multiplatform destinations dedicated to both the professional sport and tennis lifestyle. Tennis Channel and T2 have the most concentrated single-sport coverage in attractive, highly-populated geographic areas with significant local viewership and 45television in one of the world’s most exciting professionalvoluminous sports, teams. Our RSNs are a premier destination for local sports viewership, with premium live sports content reaching approximately 52 million subscribers nationally, excluding YES Network subscribers. Our RSNsmultiple men’s and women’s tournaments and singles, doubles and mixed competition throughout the YES Networkyear. Tennis Channel and T2 have an extensive footprint that includes exclusive long-term agreements with 16 Major League Baseball (MLB) teams, 17 National Basketball Association (NBA) teams and 12 National Hockey League (NHL) teams.
Tennis has certain telecast rights toat the four majors – US Open, Wimbledon, Roland Garros (French Open), and Australian Open – and are the exclusive U.S. homes of all men’s ATP World Tour events,and women’s WTA Tour competitions, FedDavis Cup, LaverBillie Jean King Cup, United Cup, and the ATP Cup; and College and Junior events and exhibitions.Laver Cup. Our stations also broadcast programming and other content provided by Tennis, and we provide access to certain events through our premium OTT offering,DTC streaming service, Tennis Channel Plus. Tennis also includes Tennis.com, the most visited online tennis platformPlus, which is available to everyone in the world. Tennis' complementary offerings allow usUnited States and allows subscribers to provide greaterselect from another 4,500 live and more in depthon-demand matches and award-winning content from short-form to films throughout the tennis season. Tennis Channel International brings live competition and network content to consumers on TV, internet,markets in Europe and print.Asia via digital subscription and FAST channels. Our www.tennis.com platform is the largest digital outlet dedicated to the sport. Tennis Channel also manages a network of close to 20 podcasts and FAST channel Pickleballtv ("PBTV"), a partnership with the Carvana Professional Pickleball Association ("PPA Tour").
Additionally, some of our television stations have the local television broadcast rights for certain sporting events, including MLB, NBA, NHL,Major League Baseball ("MLB"), National Basketball Association ("NBA"), National Hockey League ("NHL"), National Football League (NFL)("NFL") preseason, and certain other college and high school sports. Our CW and MNT stations generally face fewer preemption restrictions on broadcasting live local sporting events compared with our FOX, ABC, CBS, and NBC stations, which are required to broadcast a greater number of hours of programming supplied by the networks. In addition, our stations that are affiliated with FOX, ABC, CBS, and NBC have network arrangements to broadcast certain MLB, NBA, NHL, NFL, and Professional Golf Association (PGA) events, as well as other popular sporting events.
Control of Operating and Programming Costs. By employing a disciplined approach to managing programming acquisition and other costs, our stations have been able to achieve operating margins that we believe are very competitive within the television broadcast industry. We believe our national reach as of December 31, 20202023 of approximately 39% of the country provides us with a strong position to negotiate with programming providers and, as a result, the opportunity to purchase high quality programming at more favorable prices. Moreover, we emphasize control of each of our station’s programming and operating costs through program-specific profit analysis, detailed budgeting, regionalization of staff, and detailed long-term planning models. We also control our programming costcosts by creating original high-quality programming that is distributed on our broadcast platform.
Our RSNs manage our programming rights costs to improve margins and increase our cash flow. We intend to balance our portfolio to ensure that losing one team’s rights will not materially harm the overall product offering. We intend to maintain our disciplined approach to non-programming expense management by seeking opportunities to increase our efficiency without jeopardizing our commitment to provide high quality sports content to our customers. We will seek to emphasize high quality production at low cost with a continuous focus on technological advancements and managing the cost of on-air talent retention, overhead, and salaries and compensation.
Developing Local Franchises. We believe the greatest opportunity for a sustainable and growing customer base lies within our local communities. Therefore, we have focused on developing a strong local sales force, which is comprised of approximately 600530 marketing consultants and 9055 local sales managers company-wide. Excluding political advertising revenue, distribution revenues, and other local revenues, 45%61% and 62%60% of Sinclair's net time sales were local for the years ended December 31, 20202023 and 2019,2022, respectively, and 62% and 60% of SBG's net time sales were local for the years ended December 31, 2023 and 2022, respectively. Our goal is to grow our local revenues by increasing our market share, developing new business opportunities, and offering marketing solutions across our platforms.
Attract and Retain High Quality Management. We believe that much of our success is due to our ability to attract and retain highly-skilled and motivated managers at corporate, stations, RSNs, and other businesses. We provide a combination of base salary, long-term incentive compensation including equity awards and, where appropriate, cash bonus pay designed to be competitive with comparable employers in our industry.industry, competitive health benefits, and learning and development opportunities. A significant portion of the compensation available to certain members of our senior management and our sales force is based on their achievement of certain performance goals. We also encourage station and network managers and employees to utilize our diverse business to grow in their careers while remaining in the Sinclair familyorganization via internal promotion and relocation.
Multi-Channel Broadcasting. FCC rules allow television broadcasters to transmit additional digital channels within the spectrum allocated to each FCC license holder. This provides our stations' viewers with additional programming alternatives at no additional cost to them. We may consider other alternative programming formats that we could air using our multi-channel digital spectrum space with the goal towards achieving higher profits and community service. As of December 31, 2020,2023, our stations have 441approximately 455 multi-channels inon our digital spectrum.
Distribution Agreements. We have distribution agreements with Distributors and other OTT distributors who compensate us for the right to retransmit our stations RSNs, and other offerings on their respective distribution platforms. Our successful negotiations with Distributors and other OTT distributors have created agreements that produce meaningful sustainable revenue streams. We intend to maintain the strong relationships with our Distributors and other OTT distributors and believe our local news, sports, and entertainment content positions us to continue to expandextend our agreements within all of these distribution platforms. However, we cannot guarantee that some Distributors and other OTT distributors will not drop carriage of our channels. Many of our existing sports programming rights agreements include springing rights that automatically provide our RSNs with the rights to additional forms of distribution if the leagues permit their teams to exploit those distribution rights, enabling us to continue to adapt to changing consumption habits.
Improvement and Maintenance of Our Distribution PlatformsBroadcast Infrastructure. Our Acrodyne and Dielectric subsidiaries are leaderssubsidiary is a leader in servicing and manufacturing broadcast infrastructure. As a result, we maintain a strong infrastructure through which we provide high quality uninterrupted content on our stations. These subsidiaries areThis subsidiary is critical in the buildoutbuild-out of the infrastructure behind the NEXTGENNextGen TV for both our stations and other broadcasters.
Developing New Business. We strive to develop new business models to complement or enhance our traditional television broadcast business. We have developed new ways to sell online, on mobile text messaging, social media advertising, and through audience extension services along with our traditional commercial broadcasting model. Additionally, we continue to leverage our national reach to provide new high-quality content to our local communities.
We continue to expand our digital distribution platforms through initiatives such as our video management system, which simplifies and automates our broadcast-to-digital streaming workflow and allows for dynamic replacement of broadcast ads with digital ads targeted to each individual viewer and allows us to ingest and redistribute content across our platform so that we can break news first. By using a single ad-serving system across all of our web sites, mobile apps, and other digital assets, we are able to streamline our sales workflow, optimize yield, and deliver comprehensive sales opportunities across our digital footprint. Additionally, we are deploying DTC and OTT initiatives, such as STIRR,cloud technologies, as well as our own content applications.
Additionally, we have continuedcontinue to develop business opportunities, products, and services associated with NEXTGENNextGen TV (also known as ATSC 3.0) as discussed under Development of Next Generation Wireless Platform below.
Our RSNs seek to maximize growth in our advertising revenue. We believe that through higher quality non-game programming and multiplatform offerings, we will be able to drive incremental improvements in our RSN advertising revenues. We believe political advertising, which historically has been a relatively small portion of our RSN advertising revenue, could be an avenue to grow advertising dollars given our RSNs’ large viewing audiences. Our live sports content is appealing to both national and local advertisers and is diverse across industries. In addition, we believe that the legalization of sports betting provides incremental opportunities for the business to generate higher advertising revenue due to increased advertising spend from certain customers, increased viewer engagement ratings, creation of the RSNs' digital app and optimization of digital impressions.
Many of our existing sports programming rights agreements include springing rights that automatically provide our RSNs with the rights to additional forms of distribution as soon as the leagues permit their teams to exploit those distribution rights. As more of our RSNs are permitted to expand into digital streaming, we expect to monetize our viewership by selling targeted advertising on our digital feeds and by introducing our digital agency services to our RSN advertisers. We believe that our RSN portfolio is well-positioned to capitalize on the ongoing transition of the media world to digital and mobile viewing.
We believe that the legalization of sports betting provides incremental opportunities for the business to generate higher advertising revenue due to increased advertising spend from certain customers and from increased viewer engagement and ratings. In November 2020, we entered into agreements for a long-term strategic partnership with Bally's to combine Bally's vertically integrated, proprietary sports betting technology and expansive market access footprint with our premier portfolio of local broadcast stations and RSNs, STIRR, Tennis Channel and digital and over-the-air television network Stadium. This will create further gamification of live sports that will provide audiences a first-of-its-kind personalized and interactive viewing experience.
Strategic Realignment of Local Media Portfolio. We routinely review potential media acquisitions, dispositions, and swaps, or develop original networks and content.content in order to optimize our portfolio. We expect to continue to assess acquisition and investment opportunities to complement our existing stations RSNs, and other businesses. As we evaluate potential acquisitions and investments, we intend to focus on making disciplined, accretive acquisitions and investments that will complement our existing portfolio of television stations and RSNs while providing increased scale. At any given time, we may be in discussions with one or more media owners.
Digital and Internet.Internet Expansion of Local Media Segment. Our digital properties Compulse, STIRR, Datasphere, and NewsOn are innovative products and extensions of our core broadcast business that allow us to compete for digital, internet, network, and print impressions and revenues. We continue to seek additional opportunities to invest in emerging digital technologies, ad tech, and digital content companies that support and expand our digital capabilities and non-linear footprint.
Development of Next Generation Wireless Platform. In 2017, the FCC approved the use of NEXTGENNextGen TV, a next generation broadcast transmission standard. NEXTGENNextGen TV is capable of merging broadcast and broadband content and data services using over-the-air spectrum and Internet-provided data connectivity, allowing a mature broadcast industry to reinvent itself due to its mobility, addressability, capacity, IPInternet Protocol ("IP") connectivity, and conditional access. In 2023, the FCC announced a public-private partnership, the Future of Television Initiative, to establish a roadmap for the transition to ATSC 3.0.
NEXTGENNextGen TV will allow us to use our spectrum for more than just video-formatted data as we do today. As a data-agnostic Internet Protocol (IP)IP based pipe, we also will be able to distribute data including text, audio, video, and software. While our one-to-many architecture will remain a strength, we will be able to deliver “the"the last mile”mile" from program/data origination to the consumer's receiver device across a more robust system, connect legacy ATSC 1.0 televisions to NEXTGENNextGen TV using broadcast hot spots and wi-fi functionality, and provide compatible data-offload service offerings in conjunction with certain 5G platforms. Among the many emerging opportunities are hyper-local news, weather, and traffic; dynamic ad insertion; geographic and demographic-targeted advertising; customizable content; better measurement and analytics; the ability to interface with devices connected to the Internet; flexibility to add streams as needed; substantially enhanced picture quality with immersive audio; connectivity to automobiles, including 3D mapping, telematics and infotainment; geo-location services; enhanced GPS; distance e-learning; data wholesale models; and other content delivery networks. Conditional access capabilities also permit broadcasters to offer secure “skinny-bundle”"skinny-bundle" pay services as well as various video-on-demand type offerings. In addition, NEXTGENNextGen TV provides new emergency and information capabilities, including advanced alerting functions which can provide crucial rich media including evacuation routes and device wake-up features. All of these features will be available to mobile and portable devices, allowing us to reach viewers virtually anywhere. In January 2020, we announced the formation of Cast.era,CAST.ERA, a joint venture with SK Telecom, focused on cloud infrastructure for broadcasting, ultra-low latency OTT broadcasting, and targeted advertising.
In order to bring this technology to the market, we have partnered with technology leaders to develop broadcasting solutions and services in the U.S. and globally. We have also formed BitPath, a joint venture with other broadcasters, BitPath,another broadcaster, to promote spectrum efficiency and innovation, aggregate and monetize underutilized spectrum capacity over which to deliver national services and create opportunities such as robust video and data exchange. We continue to work with other NEXTGENNextGen TV stakeholders to build and test the single frequency network tower infrastructure, develop systems to allow the convergence of NEXTGENNextGen TV and 5G data delivery, and design NEXTGENNextGen TV receiver chips for mobile, portable and fixed devices. We expect the implementation and adoption of NEXTGENNextGen TV to occur over the next threetwo years. In 2020, we and the industry began deployment of NEXTGENNextGen TV capabilities on some of our own television facilities and in conjunction with other station operators in our markets, as well as non-Sinclair markets. As of the end of January 2021, NEXTGENTo date, NextGen TV had been launchedis broadcasting in 12more than 60 markets, including 43 of our markets. When completed, the country will have a lower-cost, world class wireless IP data distribution network capable of supporting multiple business models.
Monetization of Certain Intellectual Property Rights. We have developed, on our own and through our ONE Media, LLC joint venture,subsidiary, several NEXTGEN TV-relatedNextGen Broadcast-related patents that we intend to monetize directly, through third-party agents, or through a patent pool designed to consolidate similar patents owned by independent licensors for licensing to equipment manufacturers.
New Non-Media Investments. Through Ventures, we expect to make both controlling and minority investments in non-media related businesses where management expects long-term growth.
FEDERAL REGULATION OF TELEVISION BROADCASTING
The ownership, operation, and sale of television stations are subject to the jurisdiction of the FCC, which acts under the authority granted by the Communications Act of 1934, as amended (the("the Communications Act)Act"). Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations, and operating power of stations; issues, renews, revokes, and modifies station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, and employment practices of stations; and has the power to impose penalties for violations of its rules and regulations of the Communications Act.
The following is a summary of certain provisions of the Communications Act and specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules, and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.
License Grant and Renewal
Television stations operate pursuant to broadcasting licenses that are granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC. During certain periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public.
Although historically renewal of a license is granted in the vast majority of cases, even when petitions to deny are filed, there can be no assurance that the license of any station will be renewed or, if renewed, that the renewal terms will be for the maximum term permitted.
The most recent license renewal applications have been granted for the maximum term permitted. The current television license renewal application filing cycle began on June 1, 2020.2020 and ended on April 3, 2023. On November 26, 2018, the American Cable Association (ACA) filed an informal request with the FCC seeking to require the early filing of renewal applications for the licenses of four of our stations, andSeptember 1, 2020, an individual filed a similar informal request on July 22, 2019 with respectpetition to deny the license renewal application of our Baltimore, MD station, WBFF(TV), and the renewal applications of two Baltimore stations with which we have a JSA or LMA, (WUTB(TV) and WNUV(TV)). The FCC dismissed both informal requests on April 29, 2020. The individual requestor filed an application for review of the FCC’s dismissal on May 22, 2020, which the FCC declined to act on prior to the ordinary June 1, 2020 renewal application filing deadline for the stations. On September 1, 2020, the same individual filed a petition to deny the license renewal applications of WBFF(TV), WUTB(TV), and WNUV(TV). We filed an opposition to the petition on October 1, 2020 with respect to WBFF(TV),. On January 18, 2024, a motion was filed to request substitution of the petitioner, who is deceased. On January 29, 2024, the Company filed (1) an opposition to the motion for substitution and (2) a motion to dismiss the petition to deny the renewal applications. An opposition was filed to the motion to dismiss on February 5, 2024, and the petitionCompany timely filed its reply on February 13, 2024, and the matter remains pending at this time.pending. We cannot predict when the FCC will take action on the petition or what the outcome of such action will be. To date, we have timely filedIn the prior completed license renewal cycle, all of our stations' license renewal applications duewere granted for our stations during this renewal application cycle.the maximum term permitted.
Ownership Matters
General. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to permit the assignment or transfer of control of, or the grant or renewal of, a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of media properties, the “character”"character" of the licensee and those persons holding “attributable”"attributable" interests in that licensee and compliance with the Communications Act’sAct's limitations on foreign ownership. The FCC has indicated that in order to approve an assignment or transfer of a broadcast license the FCC must make an affirmative determination that the proposed transaction serves the public interest, not merely that the transaction does not violate its rules or shares factual elements with other transactions previously approved by the FCC, and that it may deny a transaction if it determines that the transaction would not be in the public interest.
The FCC generally applies its ownership limits to “attributable”"attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable. In addition, pursuant to what is known as the equity-debt-plus rule, a major programming supplier or same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity. Further, the Communications Act generally prohibits foreign parties from having more than a 20% interest (voting or equity) in a broadcast licensee or more than a 25% interest in the parent of that licensee without receiving prior FCC approval to exceed these limits. Following a Declaratory Ruling in 2013 in which the FCC indicated that it was open to considering proposals for foreign investment in broadcast licenses that exceed the 25% benchmark on a case by case basis, on September 29, 2016, the FCC adopted a Report and Order which among other things, (i) simplified the foreign ownership approval process for broadcast licensees seeking to exceed the 25% benchmark and (ii) modified the methodology a licensee may use to determine compliance with the foreign ownership rules.
We and our subsidiaries are domestic entities, and the members of the Smith family (who, as of December 31, 2020,2023, together hold approximately 81.1%82.6% of the common voting rights of Sinclair) are all United States citizens. Our articles of incorporation contain limitations on alien ownership and control that are substantially similar to those contained in the Communications Act. Pursuant to the articles of incorporation, we have the right to repurchase alien-owned shares at their fair market value to the extent necessary, in the judgment of the Board, of Directors, to comply with the alien ownership restrictions.
Additional ownership rules as currently in effect are as follows:
Radio / Television Cross-Ownership Rule and Newspaper / Broadcast Cross-Ownership Rule. Until February 2018, the FCC’s rules (i) limited the combined number of television and radio stations a party could own in a market to up to two television stations and six radio stations, depending on the number of independent media voices in the market (radio/television cross ownership rule), and (ii) prohibited the common ownership of a radio or television broadcast station and a daily newspaper in the same market (newspaper/broadcast cross ownership rule). On November 20, 2017, the FCC released an Order on Reconsideration (Ownership Order on Reconsideration) that, among other changes, eliminated the radio/television cross-ownership rule and the newspaper/broadcast cross-ownership rule. The rule changes adopted in the Ownership Order on Reconsideration became effective on February 7, 2018. Petitions for Review of the Ownership Order on Reconsideration were filed before the U.S. Court of Appeals for the Third Circuit and we filed to intervene in the proceeding. On September 23, 2019, the court vacated and remanded the Ownership Order on Reconsideration. Petitions for rehearing en banc were filed with the Third Circuit by the FCC and industry intervenors (including the Company) on November 7, 2019. The Third Circuit denied the petitions for rehearing on November 20, 2019 and the court’s mandate issued on November 29, 2019. On April 17, 2020, the FCC and industry intervenors (including us) filed petitions for writ of certiorari with the U.S. Supreme Court, which petitions were granted on October 2, 2020. The briefing schedule concluded on January 12, 2021, and oral argument was heard on January 19, 2021. We cannot predict the outcome of the proceeding. While the proceeding remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 2018, remain in effect.
National Ownership Rule. The national television viewing audience reach cap is 39%. Under this rule, where an individual or entity has an attributable interest in more than one television station in a market, the percentage of the national television viewing audience encompassed within that market is only counted once. Additionally, because VHF stations (channels 2 through 13) historically covered a larger portion of the market than UHF stations (channels 14 through 51), only half of the households in the market area of any UHF station are included when calculating an entity’s national television viewing audience (commonly referred to as the UHF discount)"UHF discount"). On September 6, 2016, the FCC released a Report and Order eliminating the UHF discount (the UHF Discount Order), and on April 21, 2017, the FCC released an Order on Reconsideration (the UHF Discount Order on Reconsideration) to reinstate the UHF discount pending a future rulemaking to examine the UHF discount together with the national audience reach cap. The UHF discount was reinstated on June 15, 2017 and is currently in effect. A Petition for Review of the UHF Discount Order on Reconsideration was filed in the U.S. Court of Appeals for the D.C. Circuit on May 12, 2017, and was dismissed by the Court on July 25, 2018. On December 18, 2017, the FCC released a Notice of Proposed Rulemaking to examine the national audience reach cap,ownership rule, including the UHF discount. The rulemaking proceeding remains pending. We cannot predict the outcome of the rulemaking proceeding.
The majority of the stations we own and operate, or to which we provide programming services, are UHF. With the UHF discount, our current reach (for FCC purposes) is approximately 25%24% of U.S. households. See Item 1A. Risk Factors for further discussion of the risk related to the outcome of rules governing the UHF discount.
Local Television Ownership Rule. A party may own television stations in adjoining markets, even if there is a digital noise limited service contour overlap between the two stations’ broadcast signals, and generally may own two stations in the same market (local("local television ownership rule)rule") only (i) if there is no digital overlap between the stations; or (ii) not more than one station is among the top-four rated stations in the market (the top-four rule) and ("the market containing bothTop-Four Prohibition"). The FCC will, upon request, consider waiver of the stations would contain at least eight independently owned full-power television stations post-acquisition (the eight voices test). The Ownership Order on Reconsideration eliminated the eight voices test and also modified the top-four ruleTop-Four Prohibition to permitallow parties to own up to two top-four rated stations in the same market on a case-by-case basis. On September 23, 2019,December 22, 2023, the Third Circuit vacated and remandedFCC adopted the 2018 Ownership Order, extending the Top-Four Prohibition to prohibit, in certain circumstances, the placement of a second top-four rated programming affiliation on Reconsideration. On September 23, 2019,a multicast stream or low power television (LPTV) station and restricting the Third Circuit vacated and remandedcircumstances under which such existing top-four multicast streams or LPTV stations may be transferred or assigned in the future. The 2018 Ownership Order, on Reconsideration. The Third Circuit’s decision was appealed to the Supreme Court, which granted certiorari and heard oral argument on January 19, 2021. We cannot predict the outcomeincluding this extension of the proceeding. While the proceeding remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 2018, including the top-four rule and the eight voices test, remain in effect.Top-Four Prohibition, will become effective March 18, 2024.
Local Marketing and Outsourcing Agreements
Certain of our stations have entered into agreements with other stations in the same market, through which we provide programming and operating services pursuant to LMAs or provide sales services and other non-programming operating services pursuant to outsourcing agreements, such as JSAs and SSAs. LMAs are attributable where a licensee holds an attributable interest in a television station and (i) programs more than 15% of the weekly broadcast hours and/or (ii) sells more than 15% of the weekly advertising time on another television station in the same market. LMAs existing prior to November 5, 1996, which include all of our LMAs, are currently grandfatheredexempt from attribution until further FCC action. If the FCC were to eliminate the grandfathering ofexemption for these LMAs, we would have to terminate or modify these LMAs. JSAs and SSAs currently are not attributable.
In August 2016, the FCC completed bothamended its 2010 and 2014 Quadrennial Regulatory Reviews of its media ownership rules and issued an order (Ownership Order) which left most of the existing multiple ownership rules intact, but amended the rules to provide for the attribution of JSAs where two television stations are located in the same market, and a party with an attributable interest in one station sells more than 15% of the advertising time per week of the other station. JSAs existing as of March 31, 2014 were grandfathered until October 1, 2025, at which point they would have to be terminated, amended or otherwise come into compliance with the JSA attribution rule.under certain circumstances. The subsequent Ownership Order on Reconsideration eliminated the JSA attribution rule. The Third Circuit vacated and remandedIn the 2018 Ownership Order adopted on Reconsideration on appeal in September 2019, resulting inDecember 22, 2023 the reinstatement of the majority of the Ownership Order, including theFCC declined to reconsider JSA attribution rule. The Third Circuit’s decision was appealed to the Supreme Court, which granted certiorari and heard oral argument on January 19, 2021. While the proceeding remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 2018, including the JSA attribution rule, remain in effect. We cannot predict the outcome of the proceeding.attribution. If we are required to terminate or modify our LMAs or JSAs, our business could be adversely affected in several ways, including losses on investments and termination penalties. For more information on the risks, seeChanges in rules on local marketing agreements under "The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets."" within under Item 1A. Risk Factors and Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 13. Commitments and Contingencies within the Consolidated Financial Statements for further discussion.
Antitrust Regulation. The Department of Justice (DOJ)("DOJ") and the Federal Trade Commission have increased their scrutiny of the television industry and have reviewed matters related to the concentration of ownership within markets (including LMAs"LMAs" and outsourcing agreements)"outsourcing agreements") even when ownership or the LMA or other outsourcing agreement in question is permitted under the laws administered by the FCC or by FCC rules and regulations. The DOJ takes the position that an LMA or other outsourcing agreement entered into in anticipation of a station’s acquisition with the proposed buyer of the station constitutes a change in beneficial ownership of the station which, if subject to filing under the Hart-Scott-Rodino Antitrust Improvements Act, cannot be implemented until the waiting period required by that statute has ended or been terminated.
On January 4, 2019, the Company received three civil investigative demands (CIDs) from the Antitrust Division of the DOJ. We believe the DOJ has similar civil investigative demands to other companies in our industry. In each CID, the DOJ requested that the Company produce certain documents and materials relating to JSAs in a specific DMA. We are cooperating and are in discussions with the DOJ regarding our responses to the CIDs. At this time, we are unable to predict the outcome of the CID process, including whether it will result in any action or proceeding against us.
Satellite Carriage
The Satellite Home Viewer Act, (SHVA), as extended by The Satellite Home Viewer Improvement Act of 1999, (SHVIA), the Satellite Home Viewer Extension and Reauthorization Act, (SHVERA), the Satellite Television Extension and Localism Act of 2010 (STELA) and the Satellite Television Extension and Localism Act Reauthorization (STELAR)Act of 2014 ("STELAR") among other things, (i) allows satellite carriers to provide local television signals by satellite within a station market, and requires them to carry all local signals that asserted carriage rights in any market where they carry any local signals, (ii) requires all television stations to elect to exercise certain “must-carry”"must-carry" or “retransmission consent”"retransmission consent" rights in connection with their carriage by satellite carriers, and (iii) authorizes satellite delivery of distant network signals, significantly viewed signals and local low-power television station signals into local markets under defined circumstances. In adopting fiscal year 2020 appropriations legislation, Congress allowed STELAR to sunset on December 31, 2019 but made permanent STELAR’s (1) requirements that broadcasters and Distributors negotiate retransmission content in good faith and (2) distant signal satellite license provisions for recreational vehicles, truckers, tailgaters and short markets. To qualify for the permanent license, satellite operators were required to begin delivering local-into-local service in all currently “unserved” markets by the appropriations bill’s May 31, 2020 deadline.
Must-Carry / Retransmission Consent
Television broadcasters are required to make triennial elections to exercise either certain “must-carry”"must-carry" or “retransmission consent”"retransmission consent" rights in connection with their carriage by cable systems in each broadcaster’s local market. By electing to exercise must-carry rights, a broadcaster demands carriage and receives a specific channel on cable systems within its DMA. Must carry rights are not absolute and are dependent on a number of factors which may or may not be present in a particular case. Alternatively, if a broadcaster chooses to exercise retransmission consent rights, it can prohibit cable systems from carrying its signal or grant the appropriate cable system the authority to retransmit the broadcast signal for a fee or other consideration. We have elected to exercise our retransmission consent rights with respect to all of our stations. In February 2015, the FCC issued an order implementing certain statutorily required changes to its rules governing the duty to negotiate retransmission consent agreements in good faith. Under these rules, unless the stations are directly or indirectly under common de jure control as permitted under the FCC regulations, a station may not delegate authority to negotiate or approve a retransmission consent agreement to a station located in the same market or to a third party that negotiates together with another television station in the same market, nor may stations in the same market facilitate or agree to facilitate coordinated negotiation of retransmission consent terms for their stations in that market, including through the sharing of information. In May 2020, the FCC revised its good faith negotiation rules to specify that certain small MVPDs can meet the obligation to negotiate in good faith by negotiating with a large station group through a qualified MVPD buying group and that large station groups have an obligation to negotiate in good faith with such MVPD buying groups.
Further, in September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality"totality of the circumstances test”test" for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee"marquee sports or entertainment event,”" restrictions on online access to broadcast programming during negotiation impasses, broadcasters’broadcasters' ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. On July 14, 2016, the FCC's then-Chairman Wheeler announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations of retransmission consent. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the FCC will agree to terminate the Rulemaking withoutor take other action.
Network Non-Duplication / Syndicated Exclusivity / Territorial Exclusivity
The FCC’s syndicated exclusivity rules allow local broadcast television stations to demand that cable operators black out syndicated non-network programming carried on “distant signals”"distant signals" (i.e., signals of broadcast stations, including so-called “superstations,”"superstations," which serve areas substantially removed from the cable systems’ local community). The FCC’s network non-duplication rules allow local broadcast, network affiliated stations to require that cable operators black out duplicate network programming carried on distant signals. Both rules are subject to various exceptions and limitations. In a number of markets in which we own or program stations affiliated with a network, a station that is affiliated with the same network in a nearby market is carried on cable systems in our markets. Such significantly viewed signals are not subject to black out pursuant to the FCC’sFCC's network non-duplication rules. The carriage of two network stations on the same cable system could result in a decline of viewership, adversely affecting the revenues of our owned or programmed stations. In March 2014, the FCC issued a Report and Order and Further Notice of Proposed Rulemaking, requesting comments on whether it has authority to, and should, eliminate or modify its network non-duplication and/or syndicated exclusivity rules. This proceeding is pending and we cannot predict when or how the FCC will resolve that rulemaking. The FCC's syndicated exclusivity rules allow local broadcast television stations to demand that cable operators black out syndicated non-network programming carried on "distant signals" (i.e., signals of broadcast stations, including so-called "superstations," which serve areas substantially removed from the cable systems' local community). The FCC's network non-duplication rules allow local broadcast, network affiliated stations to require that cable operators black out duplicate network programming carried on distant signals. Both rules are subject to various exceptions and limitations. In a number of markets in which we own or program stations affiliated with a network, a station that is affiliated with the same network in a nearby market is carried on cable systems in our markets. Such significantly viewed signals are not subject to black out pursuant to the FCC's network non-duplication rules. The carriage of two network stations on the same cable system could result in a decline of viewership, adversely affecting the revenues of our owned or programmed stations. In March 2014, the FCC issued a Report and Order and Further Notice of Proposed Rulemaking, requesting comments on whether it has authority to, and should, eliminate or modify its network non-duplication and/or syndicated exclusivity rules. This proceeding is pending and we cannot predict when or how the FCC will resolve that rulemaking.
Digital Television
FCC rules provide that television broadcast licensees may use their digital television (DTV)("DTV") channels for a wide variety of services such as HD television, multiple standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard and further subject to the requirement that broadcasters pay a fee of 5% of gross revenues from any DTV ancillary or supplementary service for which there is a subscription fee or for which the licensee receives a fee from a third party. These rules could impact the profitability related to ancillary or supplementary services provided as discussed within Development of Next Generation Wireless Platform under Operating Strategy above. In addition, the recent extension of the Top-Four Prohibition to multicasting as discussed above and within Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Operating Strategy above.could impact the way we currently use our DTV channels and the services we are able to offer on those channels.
Programming and Operations
The Communications Act requires broadcasters to serve the “public"public interest.”" The FCC has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. FCC licensees continue to be required, however, to present programming that is responsive to the needs and interests of their communities and to maintain certain records demonstrating such responsiveness. Complaints from viewers concerning a station’s programming may be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, television licensees have obligations to create and follow employment outreach programs, provide a minimum amount of programming for children, comply with rules relating to the emergency alert system, (EAS), maintain an online public inspection file, and abide by regulations specifying requirements to provide closed captions for its programming. FCC licensees are, in general, responsible for the content of their broadcast programming, including that supplied by television networks. Accordingly, there is a risk of being fined as a result of our broadcast programming, including network programming.
Other Pending Matters
Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations, and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership, and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations, and affect our ability to acquire additional broadcast stations or finance such acquisitions.
On November 16, 2017, the FCC adopted a Report and Order and Further Notice of Proposed Rulemaking authorizing the voluntary deployment of NEXTGENNextGen TV and adopting rules to afford broadcasters flexibility to deploy NEXTGENNextGen TV based transmissions while minimizing impact on consumers and industry stakeholders and seeking comment on certain additional matters. The Report and Order took effect on March 5, 2018, except for certain rules that required approval from the Office of Management and Budget which became effective on July 17, 2018. On June 3, 2020, the CommissionFCC adopted the Second Report and Order and Order on Reconsideration, providing additional guidance to broadcasters deploying NEXTGENNextGen TV. Rule changes associated with the Second Report and Order and Order on Reconsideration became effective on August 17, 2020. On November 9, 2020, the National Association of Broadcasters filed a Petition for Declaratory Ruling and Petition for Rulemaking requesting that the FCC (1) clarify that its existing regulatory framework for the hosting of simulcast primary programming streams also applies to simulcast multicast streams, and (2) expand the application of these rules to cover the transmission of ATSC 1.0 multicast streams regardless of whether those streams are simulcast in ATSC 3.0. WeOn November 5, 2021, the FCC released a Second Further Notice of Proposed Rulemaking seeking comment on these multicast host station licensing issues, and on June 22, 2022, the FCC released a Third Further Notice of Proposed Rulemaking seeking comment on the state of the ATSC 3.0 transition and the scheduled sunsets of two rules adopted in the 2017 Report and Order. On June 20, 2023, the FCC adopted a Third Report and Order and Fourth Further Notice of Proposed Rulemaking that (1) generally adopted the proposals to allow a Next Gen TV station to seek modification of its license to include certain multicast streams that are aired on host stations; (2) extended the sunsets of the substantially similar rule for simulcast streams and the requirement to comply with the ATSC A/322 standard on primary ATSC 3.0 streams to July 17, 2027; and (3) sought comment on the current marketplace for ATSC 3.0 standard essential patents and the ability of third parties to develop products that rely upon them. The proceeding remains pending and we cannot predict whether the FCC will grant the petitions or what the outcome will be.
On December 22, 2022, the FCC released a Public Notice to initiate the 2022 Quadrennial Regulatory Review, seeking comment on the Local Radio Ownership Rule, the Local Television Ownership Rule, and the Dual Network Rule. The proceeding remains pending and we cannot predict what the outcome will be.
Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as DTC offerings, direct television broadcast satellite service, Class A television service, the continued establishment of wireless cable systems and low power television stations, digital television technologies, the internet and mobility, and portability of our broadcast signal to hand-held devices.
Congress authorized the FCC to conduct so-called “incentive auctions” to auction and re-purpose broadcast television spectrum for mobile broadband use. In the repacking process associated with the auction, the FCC reassigned some stations to new post-auction channels. Full-power and Class A stations were expected to complete the transition to their post-auction channels in one of ten phases between November 30, 2018 and July 3, 2020. As of December 31, 2020, all of our stations have transitioned to new channels, with two stations operating with special temporary authority at lower power. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. Congress allocated an additional $1 billion to the reimbursement fund in the FCC Reauthorization Act of 2018. See Broadcast Incentive Auction under Note 2. Acquisitions and Dispositions of Assets withinthe Consolidated Financial Statements for further discussion of our participation, results, and post-auction process.
On December 13, 2018, the FCC released a Notice of Proposed Rulemaking to initiate the 2018 Quadrennial Regulatory Review of the FCC’s broadcast ownership rules, pursuant to the statutory requirement that the FCC review its media ownership rules every four years to determine whether they remain “necessary in the public interest as the result of competition.” The proposed rulemaking generally seeks comment on, among other things, whether the, the local television ownership rules (including the top-four rule and the eight voices test), should be retained, modified, or eliminated. With respect to the local television ownership rule specifically, among other things, the proposed rulemaking seeks comment on possible modifications to the rule’s operation, including the relevant product market, the numerical limit, the top-four prohibition; and the implications of multicasting, satellite stations, low power stations and the next generation standard. In addition, the proposed rulemaking examines further several diversity related proposals raised in the 2014 Quadrennial Regulatory Review. The public comment period closed on May 29, 2019, and the rulemaking remains pending.
Other Considerations
The preceding summary is not a complete discussion of all provisions of the Communications Act or other congressional acts or of the regulations and policies of the FCC, or in some cases, the DOJ. For further information, reference should be made to the Communications Act, other congressional acts and regulations, and public notices circulated from time to time by the FCC, or in some cases, the DOJ. There are additional regulations and policies of the FCC and other federal agencies that govern political broadcasts, advertising, equal employment opportunity, and other matters affecting our business and operations.
ENVIRONMENTAL REGULATION
Prior to our ownership or operation of our facilities, substances or waste that are, or might be considered, hazardous under applicable environmental laws may have been generated, used, stored, or disposed of at certain of those facilities. In addition, environmental conditions relating to the soil and groundwater at or under our facilities may be affected by the proximity of nearby properties that have generated, used, stored, or disposed of hazardous substances. As a result, it is possible that we could become subject to environmental liabilities in the future in connection with these facilities under applicable environmental laws and regulations. Although we believe that we are in substantial compliance with such environmental requirements and have not in the past been required to incur significant costs in connection therewith, there can be no assurance that our costs to comply with such requirements will not increase in the future or that we will not become subject to new governmental regulations, including those pertaining to potential climate change legislation, that may impose additional restrictions or costs on us. We presently believe that none of our properties have any condition that is likely to have a material adverse effect on our consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.
COMPETITION
Our stations and RSNsnetworks compete for audience share and advertising revenue with other television stations and cable networks in their markets, as well as with other advertising media such as Distributors, other OTT distributors, cable networks, video on-demand, radio, newspapers, magazines, outdoor advertising, transit advertising, telecommunications providers, direct mail, internet, andpodcasts, other digital media.media, and 'Big Tech'.
StationsOur stations and RSNsnetworks compete for television audience share primarily on the basis of program popularity, digital advertising impressions compete for audience share primarily based on content and reach, and podcast listeners compete for audience share based upon content subject matter, all of which has a direct effect on advertising rates. rates within each of these platforms.
Our network affiliated stations are largely dependent upon the performance of network provided programs in order to attract viewers. Non-network time periods are programmed by the station primarily with syndicated programs purchased for cash, cash and barter, or barter-only, as well as through self-produced news, public affairs programs, live local sporting events, paid-programming, and other lifestyle and entertainment programming. We also compete for programming which involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Our stations and networks compete for access to those programs against in-market broadcast station competitors for syndicated products and with national cable networks. Public broadcasting stations generally compete with commercial broadcasters for viewers, but not for advertising dollars.
Competition in the television broadcasting industry occurs primarily in individual DMAs. Generally, a television broadcasting station in one DMA does not compete with stations in other DMAs. Our stations are located in highly competitive DMAs. Distributors can increase competition for viewership and broadcast television advertising inventory by carrying additional cable network channels within the same DMA as the broadcast television stations. Distributors sell advertising on these cable networks to local advertisers. These narrow cable network channels are typically low rated, and, as a result, advertisements are inexpensive to the local advertisers. Distributors may also connect two or more cable systems together, also called an interconnect, which gives advertisers the option to reach more households in a market with a single buy. In addition, certain of our DMAs are overlapped by over-the-air stations from adjacent DMAs and Distributors of stations from other DMAs, which tends to spread viewership and advertising expenditures over a larger number of television stations. In addition, there is significant increased competition with Google, Facebook, social media, OTT offerings, and the multitude of other digital offerings that air video advertisements and sell programmatically to agencies and advertisers. Distributor and OTT offerings have thean ability to either blanket the market or target their advertising which broadcast stations do not.
Because the loyalty of the sports viewing audience to a sports programming network is primarily driven by loyalty to a particular team or teams, access to adequate sources of sports programming is critical to the RSNs. The RSNs compete for telecast rights for teams or events with national or regional cable networks that specialize in or carry sports programming; television ‘‘superstations’’ which distribute sports and other programming by satellite; local and national commercial broadcast television networks; independent syndicators that acquire and resell such rights nationally, regionally and locally; mobile internet providers; and other OTT distributors. Some of these competitors may own or control, or are owned or controlled by, sports teams, leagues or sports promoters, which gives them an advantage in obtaining telecast rights for such teams or sports. Distributors may also contract directly with the sports teams in their local service areas for the right to distribute games on their systems. The RSNs may also compete with Internet-based distributors of sports programming. The increasing amount of sports programming available on a national basis, including pursuant to national rights arrangements, as part of league-controlled sports networks (e.g., NBA TV and NHL Network), and in out-of-market packages (e.g., NBA’s League Pass and NHL Center Ice), may have an adverse impact on the RSNs' competitive position as they compete for distribution and for viewers.
The RSNs also compete with other programming networks to secure desired programming, although some of the RSN programming is generated internally through their efforts in original programming. Competition for programming will increase as the number of programming networks increases. Other programming networks that are affiliated with programming sources such as movie or television studios, film libraries or sports teams may have a competitive advantage over the RSNs in this area.
Advertising rates are based upon factors which include the size of the market in which the station and RSNstations operate; a program or team'sprogram's popularity among the viewers that an advertiser wishes to attract; the number of advertisers competing for the available time; the demographic makeup of the market served by the station and RSN;stations; the availability of alternative advertising media in the DMA; the aggressiveness and knowledge of the sales forces in the market to call on and understand their client’s need; and development of projects, features, and programs that tie advertiser messages to programming. We believe that our sales and programming strategies allow us to compete effectively for advertising revenues within the stations' and RSNs' markets.
Further, the competitionprocess of obtaining distribution is highly competitive. Our stations and RSNsnetworks face competition from other television stations and cable networks for the right to be carried by a particular distributor,Distributor, and for the right to be carried on the service tier that will attract the most subscribers. Once one of our stations or RSNsand networks obtains distribution, that networkit competes for viewers not only with the other channels available through the distributor,Distributor, but also with over-the-air television, pay-per-view channels and video-on-demand channels, as well as online services, mobile services, radio, print, streaming services, and other sources of media and information, sporting events, and entertainment. Important to our success in each area of competition the station and RSNor network faces are the price the station or RSNnetwork charges for its carriage; the quantity, quality, and variety of programming offeredoffered; and the effectiveness of its marketing efforts.
Our stations' and RSNs'networks' ability to successfully compete with other television stations and cable networks for distribution may be hampered because the Distributors, through which distribution is sought, may be affiliated with other television stations, broadcast networks, or cable networks. Those Distributors may place their affiliated television station or cable network on a more desirable tier, thereby giving the affiliated television station or cable network a competitive advantage over our stations' or RSNs'and networks' own programming. Additionally, broadcast networks putting programming content on their own DTC platforms may also hinder our stations' and networks' ability to successfully compete within the broadcast market.
Moreover, technologytechnological advances and regulatory changes affecting programming delivery through fiber optic lines, video compression, and new wireless uses could lower entry barriers for new video channels and encourage the further development of increasingly specialized “niche”"niche" programming. TelephoneTelecommunication companies are permitted to provide video distribution services, on a common carrier basis, as “cable systems”"cable systems" or as “open"open video systems,”" each pursuant to different regulatory schemes. Additionally, OTT services allow consumers to consume programming on-demand through access to the Internet and without a subscription with a Distributor. We continue to compete with thethese OTT services for viewership.
DTV technology allows our stationsviewership, which has become increasingly difficult as OTT distributors have begun to provide viewers multiple channels of digital television over each of our existing standard digital channels, to provide certain programming in HD television format and to deliverbundle their products with other channels of information in the forms of data and programming to the internet, PCs, smart phones, tablet computers, and mobile and streaming devices. These additional capabilities may provide us with additional sources of revenue, as well as additional competition.OTT offerings.
The financial success of our stations'stations and RSNs'networks also depends in part upon unpredictable and volatile factors beyond our control, such as viewer preferences, the strength of the advertising market, the quality and appeal of competing programming, and the availability of other entertainment activities.
We believe we compete favorably against other television stations and cable networks because of our management skill and experience, our ability historically to generate revenue share greater than our audience share, our network affiliations and program service arrangements, and our local program acceptance. In addition, we believe that we benefit from the operation of multiple broadcast and network properties, affording us certain non-quantifiable economies of scale and competitive advantages in the purchase of programming.
HUMAN CAPITAL
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE ACTIVITIES AND PRACTICES
We believe thathave a long history of supporting environmental, social, and governance ("ESG") activities and, in the past few years, we have taken steps to better measure and quantify our abilityprogress in these areas. In addition to attractour ESG Committee, which is made up of executive leadership, we have also formed working groups in the areas of sustainability, employee experience, and retaindiversity and inclusion.
In May 2023, we published our 2022 ESG report, detailing our ESG achievements and underscoring our core strategies, which are the best employees is a cornerstonefoundation of our visionESG commitments, including:
•Identifying and implementing ways to reduce our impact on the environment through the education and engagement around sustainable solutions that can be adopted;
•Supporting employees by ensuring a fair, ethical, and safe workplace where our employees can grow, develop, and thrive;
•Supporting diversity at all levels;
•Providing news consumers with access to a broad range of ideas and perspectives, both on-air and online, and connecting people with important, informational content, everywhere.everywhere; and
•Providing transparency, accountability, and diverse thinking that seeks to minimize risk, while ensuring all stakeholders understand the direction, performance, and financial stability of the organization.
Human Capital
Our success is driven by our most important asset - our employees. It is their hard work and dedication that enables us to be a trusted partner to our viewers and a valuable resource to our communities. As of December 31, 2020,2023, we had approximately 11,6007,300 employees, including part-time and temporary employees. Approximately 2,000590 employees are represented by labor unions under certain collective bargaining agreements.
Corporate CultureWe support our employees by ensuring that we provide a fair, ethical, and safe workplace.
•We take pride in our practices to ensure the safety, health, and well-being of our employees. We maintain best practices for safety and health through policies and procedures and access to our employee assistance program.
•Our employment practices are rooted in our policies against discrimination, harassment, and retaliation to ensure a positive working environment for all.
•We are committed to an ethical workplace and provide our employees with guidance and reporting mechanisms to foster a culture of honesty and accountability.
•We provide our employees a comprehensive benefits package, recognition for their efforts, and resources to enable and enhance learning and development, and we have worked hard to ensure we provide a workplace where employees can feel that they belong.
Corporate Culture. We are committed to maintaining a safe, ethical, and harassment freeharassment-free workplace. We recognize that our success as a team, and in our communications with one another, is grounded in our ability to trust team members to be fully engaged and to do the right thing. We support trusting relationships by offering clear guidance, structure, resources, and accountability. To this end, we maintain governance policies that apply to all of our directors, officers, and employees, including a code of business conduct and ethics, employee safety program, and no harassment and open-door policies. These policies are intended to help identify, provide mechanisms for reporting, and provide a framework for solving potential issues. These policies are reviewed and updated by management, together with the Board, as our needs grow and change and upon stakeholder feedback and changes in applicable laws, regulations, and stock exchange requirements.
We value and support diversity and inclusion at all levels. Diversity and inclusion have been fundamental from our very beginning, and we take pride in being an equal opportunity employer. Diversity, inclusion, equal employment opportunity, and strong anti-discrimination policies go hand-in-hand and efforts related to one area complement other areas.hand-in-hand. Our Diversity and Inclusion Statement establishes clarity and alignment throughout our organization, at all levels, regarding how we connect with each other by embracing diversity and promoting inclusion among our employees, viewers, and customers. All employees are asked to honor the intent of our Diversity and Inclusion Statement in their daily activities and decisions and are required to take part in workplace diversity training.
Over several decades, our local television stations have built recruiting and outreach programs that encourage diversity in our workforce. Our activities are designed to ensure broad outreach to potential applicants by widely disseminating information concerning job vacancies, providing notification to community groups, attending diverse job fairs, participating in other various recruitment outreach activities, offering paid internships, and providing training to managers on equal employment opportunity and illegal discrimination.discrimination prevention.
Employee Engagement
Engagement.
We regularly gather feedback from employees to gain an understanding of and improve our employee experience and to foster an engaged workforce. This feedback is used to help create new, and refine existing, employee relatedemployee-related programs and processes. Most recently, we gathered results from
Sinclair takes a company-wide Remote Work Survey in orderstrategic approach to gain insights about our business during the COVID-19 pandemic. 90% of respondingtalent development. We provide on-the-job training and other learning opportunities to employees agreedso that they gain and develop necessary skills for optimal job performance and to foster a creative and collaborative work environment. We encourage employees to complete areas of professional development using our learning and development platform, Sinclair University, where employees have been well-supported during the COVID-19 pandemic.access to a vast collection of learning and development content. We also provide leadership development through targeted training programs. In addition, many of our leaders have their own employee development offerings, specific to their department and position, including mentoring programs.
We actively promote our internal job announcement program as a part of our efforts to support employee growth by taking on new career opportunities within Sinclair.
Our Innovationinnovation project is a strategic lever that drives revenue, reduces waste, and engages employees to serve our customers and shareholders as a pioneer in the industry. We believe that the "next big idea" could come from anyone or anywhere and so,with this in 2020 began an effort tomind, we gather innovation ideas from employees company-wide. AtOur dedicated Innovation & Strategy team builds on our third annual Innovation Summit in November 2020, we brought together over 120 innovatorsrich history of innovation to learn, expand our thinking, celebrate,accelerate efforts across content, technology, audience development, distribution, marketing services, and spark new and different ideas.business transformation.
Health, Safety, and Wellness
Wellness.
The health, safety, and wellness of our employees is vital to our success. Wesuccess, and we maintain and continuously enhance affordable health care and recently reduced the waiting periodoptions for benefits to begin for new employees, improved paid time off benefits, and expanded the use of sick leave to allow for when employees cannot work due to child or dependent care issues.them. We continuously work to improve our practices, policies, and benefits to make meaningful impacts on our employees personal and professional and personal lives. We also sponsorlives, sponsoring an employee assistance program aimed at enhancing thetheir physical, well-being, as well as the financial, and mental well-being of our employees.and sponsoring a program to provide employees and spouses discounted access to fitness facilities.
In response to the COVID-19 pandemic, we implemented safety protocols to protect our employees, including many of our employees continuing to work remotely while employees who cannot work remotely continue to follow strict Center for Disease Control protocols such as physical distancing, monitoring and daily reporting on the health and symptoms of employees and members of the employees’ households, wearing face coverings, limiting interaction, and limiting non-essential travel.
Compensation
Our employee compensation includes market-competitive pay,pay; a 401(k) plan,plan; an employee stock purchase plan,plan; healthcare benefits,benefits; three weeks minimum paid time off andoff; family leave, including six weeks of paid parental leave; and employer paid life and disability insurance. We continue to improve upon our compensation offerings. Recently,In 2023, we increasedagain offered our employees the number of hours of eligible vacationopportunity for additional time rollover, increased our 401(k) match for all employees, and increased our minimum hourly wage to $15 for all applicable employees, including all employees whose minimum wage was previously tied to state and federal mandates. In response tooff through the COVID-19 pandemic, we allowed eligible employees to cash out up to 40 vacation hours to assist with family hardships and we established a multimillion-dollar emergency fund to provide support to our RSN freelancers, as the cancellation of certain live sports deprived these freelancers of work.Vacation Exchange Program.
Social Responsibility
PROTECTION OF THE ENVIRONMENT
As a local news broadcaster, we believe it is our responsibility to raise issues of local importance, through deep investigative reporting at our stations, and provide critical and relevant information to our viewers, including crucial news updates during potentially life-threatening situations when our viewers need them most. We are committed to getting results for the people living in the communities we serve. Our journalists' ground-breaking reporting has prompted government investigations as well as changes in government policies and new state and federal laws. Our unique reporting in under-served arenas has sparked much-needed public engagement on topics of high local importance and concern. WBFF's "Project Baltimore," which is now heading into its eighth year in 2024, has produced nearly 700 stories since its inception, chronicling the struggles and issues facing Maryland public schools and the students that attend those schools. Project Baltimore's "Crisis in the Classroom" reporting philosophy has spread to our newsrooms across the country as our journalists unearth challenges facing students, parents, and teachers across the United States. Reporting by our journalists in 2023 on topics such as the issues facing public schools, the opioid, heroin, and fentanyl crises, homelessness, and civil rights, to name just a few, lead to resignations, FBI indictments, executive orders, additional government funding, and new legislation. Our journalists are committed to providing citizens with relentless, in-depth reporting that holds public officials accountable, tracks the spending of taxpayer dollars, and gives a voice to the voiceless in the communities we serve.
Connect to Congress is our multimedia initiative that enables Members of Congress from our news markets to speak directly to their constituents on a regular basis, through their local TV news stations. The initiative, which launched in 2015, offers our local market viewers new ways to get answers to questions about what matters most to them at home. Each Wednesday when Congress is in session, we set up cameras in the Capitol Rotunda, connected remotely to our local stations, with anchors and reporters conducting interviews with lawmakers about the key issues affecting constituents, connecting our local stations directly to Congress. This also offers the hundreds of Congressional Members in our news markets their own media voice in their home districts.
In our 12-year history of producing "Your Voice Your Future" Town Halls, we’ve produced over 1,350 productions. This distinctive series recognizes the importance of producing disruptive programming, with disciplined discussions and solutions for the communities we serve. Our goal from the beginning has been to inform, educate and protect our viewers. Our Town Halls are produced in local markets and give our viewers an opportunity to have a voice and ask their elected leaders questions on important local and national topics. In 2023 we produced 188 Town Halls throughout the country, covering a variety of topics including education, mental health, artificial intelligence, distrust of police, antisemitism, Black History Month, LGBTQ+ legislation, and veterans. We also produced several debates in 2023, a non-election year, including several mayoral, city council, and school board debates, a Wisconsin Supreme Court debate, a congressional debate, and a gubernatorial debate.
We have steadfast dedication to providing content that alerts, protects, and empowers our audience. Distinctive, Disruptive, and Disciplined; these three simple words carry a great deal of weight as we meet the demands of today’s news consumer.
We believe it is our responsibility to be involved in our local communities. Sinclair Cares is our Company-wide community service and relief campaign program, which utilizes the strength of our properties to uplift organizations and inspire our audiences and employees to make a positive impact in our communities. Sinclair Cares mobilizes Sinclair’s assets to support various community and charitable endeavors and responses to natural disasters through financial assistance, volunteerism, and raising awareness of important topics through our media platforms. Over the last six years, Sinclair Cares has spearheaded the Company’s efforts, including fund-raising and blood donations during weather and climate catastrophes, and raising funds and awareness for important social causes. Recent initiatives include:
•Sinclair Cares: Humanitarian Relief in Israel - a fundraising partnership with Magen David Adom, an affiliate of the International Federation of Red Cross and Red Crescent Societies, to help with their efforts providing humanitarian relief and emergency medical services for all people in Israel, regardless of religious creed or political belief.
•Sinclair Cares: Summer Diaper Drive - a partnership with the National Diaper Bank Network to create awareness, provide assistance, and build a community to reduce diaper need in the United States.
•Sinclair Cares: Mental Health Support + Hope - a partnership with the National Alliance on Mental Illness to encourage mental health awareness, with a focus on young adults.
In 2023, we announced a multi-year, national agreement with USC Shoah Foundation—The Institute for Visual History and Education (the "Institute") to assist with the recording of interviews with genocide survivors as part of the Institute’s Last Chance Testimony Collection Initiative, an effort to collect testimonies from the last living survivors and witnesses to the Holocaust and other genocides. Under the agreement, we will provide our production facilities to film testimonies via high-definition video and audio recordings taken with state-of-the-art equipment at our broadcast television stations around the United States.
Our business primarily relatesstations also sponsor countless philanthropic campaigns and events such as health expos, parades, and blood drives in their local markets and contribute to providing contentlocal charities. We encourage not only our stations, but also our employees to consumers digitally,engage in the communities in which has minimal environmentalwe serve and live. In 2023, Sinclair partnered with more than 400 nonprofit and civic organizations locally and across the country to help raise nearly $30 million for nonprofit organizations, schools, community agencies, and local disaster relief. In addition, Sinclair helped to collect over 2.3 million pounds of food, over 642,000 diapers, nearly 100,000 toys, and 3,700 units of blood for those in need, while donating over $9.5 million in promotional airtime to organizations.
In 2023, we began a program to match certain employee charitable cash donations in order to encourage our employees to make charitable contributions to support activities and efforts that are important to them, and we held our first annual Sinclair Day of Service whereby all employees were encouraged to volunteer that day for charitable causes. Thousands of employees eagerly turned out to help out in their communities.
Our Diversity Scholarship Fund provides support to college students demonstrating a promising future in the broadcast industry. In 2023, we awarded a total of $60,000 to 15 winning applicants from across the country. We have distributed more than $315,000 in tuition assistance since 2013, with a goal to invest in the future of the broadcast industry and to help students from diverse backgrounds, who reflect our audiences nationwide, complete their education and pursue careers in broadcast journalism, digital storytelling, and marketing.
In 2023, SBG announced the return of SBG's News Reporter and Producer Academies, a series of interactive, virtual workshops for college students interested in pursuing careers in journalism, including reporting, producing, and, beginning this year, weather.
Environmental Responsibility
Our mission is to identify and implement ways to reduce our impact buton the environment through the education and engagement of internal and external audiences around sustainable solutions that can be adopted. We have accelerated actions within our organization to lessen our use of electricity over time and to measure and eventually report on our electricity usage. Our sustainability group is tasked with finding ways to help lower our carbon footprint through lowering our electricity consumption, purchasing greener supplies, and recycling. Some of these initiatives are the efforts we recognizeare undertaking in proactively replacing our existing less efficient lighting with LED lighting, replacing HVAC equipment with higher efficiency models, and exploring electric vehicles as other ways our company can reduce its reliance on energy sources that we all have a roleresult in emissions of greenhouse gasses that are harmful to play in protecting the environment. WeSince 2017, we have installed 131 new, energy efficient television transmitters, which are typically 25% more energy efficient than the units that they replace and generate less waste heat, and are currently installing, or have plans to install, an additional 24 during 2024 and 2025. During 2023, we implemented a battery recycling operation across our station footprint in order to reduce the amount of waste moving to landfills. In conjunction with this, we have begun a company-wide transition to the use of rechargeable batteries for all studio operations at our stations, which we expect to be completed in the middle of 2024. Throughout the organization, we are seeking to reduce the use of paper products and, whenever possible, recycling paper, electronics, and other items.
In addition to our direct efforts to reduce our impact on the environment, we produce high quality news to increase our viewers' general awareness of environmental issues and programs by providing them information on how they can participate in improving environmental sustainability. Our
Governance
Sinclair takes corporate officesgovernance and stations participateresponsibilities to its stakeholders very seriously. We remain committed to finding the best representation to drive success in sustainability initiatives, such as proactively replacing lightsthe organization in the years ahead. Diversity of thought, skills, background, and experience are important elements the Company looks for in its leadership team. The Board includes a regulatory committee and a nominating and corporate governance committee. Sinclair's Chief Compliance Officer provides regular updates to Company management and meets quarterly with LED bulbs, reducing the useBoards' regulatory committee, with the audit committee jointly meeting with the regulatory committee twice each year. In October 2023, the Company updated its Code of paper products,Business Conduct and whenever possible, recycling paper productsEthics to further identify the ethical duties and using automation systemsresponsibilities of the Company's officers, directors and employees, and foster a culture of honesty, integrity, and accountability.
Managing and governing cybersecurity risk remains a high priority. We continue to better manage HVAC systems. Additionally,make investments to ensure continuous improvement of our cybersecurity control effectiveness and governance. We maintain a data protection policy and have invested in relationadditional cybersecurity solutions, professional services, and the growth of our information security department. We continue to work closely with our key partners and supporting agencies to mature our security posture and quickly adjust to today’s rapidly changing threat landscape. We continue to execute our plans to strengthen our existing cybersecurity defenses and intend to make further investments in the FCC's National Broadband Plan spectrum repack processupcoming year. We did not experience any material cybersecurity incidents during 2023. See Item 1C. Cybersecurity below for further discussion regarding our cybersecurity program. In addition, our comprehensive enterprise risk management program is designed to both identify risks across the Company and general updates, we have installed over 100 new, energy efficient television transmitters. These updated transmitters are typically 25% more energy efficient than the units that they replace and generate less waste heat, which allows for a reduction of air conditioning systems at the transmitter sites.to take actions to mitigate those risks.
AVAILABLE INFORMATION
We regularly use our website as a source of company information and it can be accessed at www.sbgi.net. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically submitted to the SEC, who also makes these reports available at http://www.sec.gov. We intend to comply with the requirements of Item 5.05 of Form 8-K regarding amendments to and waivers under the code of business conduct and ethics applicable to our Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer by providing such information on our website within four days after effecting any amendment to, or granting any waiver under, that code, and we will maintain such information on our website for at least twelve months. In addition, a replay of each of our quarterly earnings conference calls is available on our website until the subsequent quarter’s earnings call. The information contained on, or otherwise accessible through, our website is not a part of this annual reportAnnual Report on Form 10-K and is not incorporated herein by reference.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before investing in our securities. The risks described below, along with risks not currently known to us or that we currently believe are immaterial, may impair our business operations and our liquidity in an adverse way.
Risks relating to our operations
The COVID-19 pandemic or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations and cash flows, the economy, our advertisers, our leagues and teams, viewership, Distributors, and their subscribers.
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Over the course of 2020 and continuing into 2021, the COVID-19 pandemic and measures put in place to prevent the spread of the virushas had a significant negative impact on the global economy, including many industries in which our customers operate, curtailing advertising revenue. The pandemic has also resulted in disruptions to professional sports resulting in fewer games produced during the year, which negatively impacted advertising and distribution revenue.
The impact of COVID-19 on future periods will depend significantly on the duration and potential cyclicality of the health crisis, the related public policy actions taken by federal, state, and local governments to limit the length and severity of the global economic slowdown, and the timing for, and success of, the COVID-19 vaccination program. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations and cash flows due to, among other factors:
•the suspension, and possible cancellation, of some or all of the MLB, NBA and NHL seasons, and tennis tournaments;
•the requirement of our RSNs to pay professional sports team minimum rights fees, regardless of the number of games played in a season;
•the need to reimburse Distributor affiliation fees related to canceled professional sporting events;
•loss of advertising revenue due to postponement or cancellation of professional sporting events;
•loss of advertising revenue as advertisers may be more reluctant to purchase advertising spots/impressions due to reduced consumer spending as a result of shelter in place and stay at home orders;
•lack of liquidity and access to capital resources that may cause one or more Distributors or advertisers to be unable to meet their obligations to us or to otherwise seek modifications of such obligations;
•the significant disruption to the operations of the professional sports leagues and the macroeconomy caused by COVID-19 may result in the recognition of impairment charges on our goodwill and definite-lived intangible assets;
•we may be unable to access debt and equity capital on favorable terms, if at all, or a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions may affect our access to capital
necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt, and increase our future interest expense;
•the financial impact of COVID-19 could negatively affect our future ability to pay dividends, and comply with financial and other covenants of the term loans and revolving credit agreements of STG and DSG (individually, the STG Bank Credit Agreement and the DSG Bank Credit Agreement, and together, the Bank Credit Agreements), the indentures governing STG’s and DSG’s outstanding notes, and the accounts receivable securitization facility (A/R Facility), and the failure to comply with such covenants could result in a default that accelerates the payment of such debt; and
•the interruption to global supply chains caused by COVID-19 could impact our ability to migrate off of various transition services provided by the seller of acquired assets which we rely upon to conduct our business in the local sports segment; and
•the potential negative impact on the health of our executive officers, employees or Board of Directors, particularly if a significant number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting access to our headquarters located in Hunt Valley, Maryland, could result in a deterioration in our ability to ensure business continuity during a disruption.
The extent to which COVID-19 impacts our operations and those of our sports team partners, Distributors and advertisers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.
A prolonged imposition of mandated closures or other social-distancing guidelines may adversely impact the ability of our sports team partners, Distributors and advertisers to generate sufficient revenues, and could force them to default on their obligations to us or result in their bankruptcy or insolvency. The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate adverse impact on us. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.RISKS RELATING TO OUR OPERATIONS
Our strategic acquisitions and investments could pose various risks and increase our financial leverage.
We have pursued and intend to selectively continue to pursue strategic acquisitions and investments, subject to market conditions, our liquidity, and the availability of attractive acquisition and investment candidates, with the goal of improvingenhancing or expanding our business. Weexisting business and to acquire and develop new products and services. In the future, we may not be able to identify attractive acquisitions or investment targets, or we may not be able to fund additional acquisitions or investments in the future. investments.
Acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our results of operations and could strain our human resources. For example, as a result of our acquisition of the Acquired RSNs in August 2019, we borrowed approximately $8.2 billion, substantially increasing our leverage and debt service requirements. Additionally, we may not be able to successfully implement effective cost controls, achieve expected synergies, or increase revenues as a result of an acquisition. In addition, futureFuture acquisitions may result in our assumption of unexpected liabilities, may result in the diversion of management's attention from the operation of our core business and may limit our ability to generate higher returns elsewhere. Additionally, acquisitions and investments present numerous growth challenges, and our investments may not be favorably received by the market and may fail to grow.
Certain acquisitions, such as television stations, are subject to the approval of the FCC and potentially, other regulatory authorities, such as the DOJ. The need for FCC and other regulatory approvals could restrict our ability to consummate future transactions and potentially require us to divest certain television stations or businesses if the FCC or other regulatory authority believes that a proposed acquisition would result in excessive concentration in a market, even if the proposed combinations may otherwise comply with FCC ownership limitations or other regulations. There can be no assurance that future acquisitions will be approved by the FCC or other regulatory authorities, or that a requirement to divest existing stations or businesses will not have an adverse outcome on the transaction.
If the rate of decline in the number of subscribers to Distributor services increases or these subscribers shift to other services or bundles that do not include our stations or programming networks, there may be a material adverse effect on our revenues.
During the last few years, theThe number of subscribers to Distributor services in the United States has been declining and the rate accelerated in 2020, as technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume news, sports, and other entertainment, including through the so-called “cutting"cutting the cord”cord" and other consumption strategies. The Distributor subscriber decline has led to a decline in subscribers from some of our stations and networks. For example, subscribers of the Acquired RSNs fell by high single digits percent during the year ended December 31, 2020 on a same Distributor basis. In addition, Distributors have introduced, marketed, and/or modified tiers or bundles of programming that have impacted the number of subscribers that receive our programming networks, including tiers or bundles of programming that exclude our programming networks. Broadcast networks have also introduced DTC platforms that have impacted the number of subscribers to Distributor services.
If Distributor service offerings are not attractive to consumers for any reason (pricing, increased competition from OTT and DTC services, increased dissatisfaction with the quality of Distributor services, poor economic conditions or other factors), more consumers may (i) cancel their Distributor service subscriptions, (ii) elect to instead subscribe to OTT and DTC services, which in some cases may be offered at lower prices, or (iii) elect to subscribe to Distributors with smaller bundles of programming which may not include our programming networks.
If the rate of decline in the number of Distributor service subscribers increases or if subscribers shift to OTT services or smaller bundles of programming that do not include our programming networks, this may have a material adverse effect on our revenues.
If subscribers shift to DTC platforms, this may have a material adverse effect on our revenues.
We may not be able to renegotiate distribution agreements at terms comparable to or more favorable than our current agreements and networks with which we are affiliated currently, or in the future, and they may require us to share revenue from distribution agreements with them.
As distribution agreements expire, we may not be able to renegotiate such agreements at terms comparable to or more favorable than our current agreements. This may cause revenues and/or revenue growth from our distribution agreements to decrease under the renegotiated terms despite the fact that our current distribution agreements include automatic annual fee escalators. In addition, certain networks or program service providers with which our stations are affiliated are currently, or in the future are expected to, require us to share revenue from distribution agreements with them as part of renewing expiring affiliation agreements or pursuant to certain rights contained in existing affiliation agreements. Generally, our distribution agreements and agreements with networks or program service providers are for different lengths of time and expire in different periods. If we are unable to negotiate a distribution agreement or the revenue received as part of those agreements declines over time, then we may be exposed to a reduction in or loss from distribution revenue net of revenue shared with networks and program service providers. We cannot predict the outcome or provide assurances as to the outcome of any future negotiations relating to our distribution agreements or what impact, if any, they may have on our financial condition and results of operations. See Television Markets and Stations within Item 1. Business for a listing of current expirations of our affiliation agreements.
Any changes in the current retransmission consent regulations could have an adverse effect on our business, financial condition, and results of operations.
Distributors lobby to change the regulations under which retransmission consent is negotiated before both Congress and the FCC in order to increase their bargaining leverage with television stations.
In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the "totality of the circumstances test" for good-faith negotiations of retransmission consent. The proposed rulemaking seeks comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a "marquee sports or entertainment event," restrictions on online access to broadcast programming during negotiation impasses, broadcasters' ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters' ability to invoke the FCC's exclusivity rules during service interruptions. On July 14, 2016, the FCC’s Chairman at the time announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations of retransmission consent but did not formally terminate the rulemaking. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the FCC will terminate the rulemaking or take other action.
The FCC rules governing "good faith" retransmission consent negotiations provide that, among other things, it is a per se violation of the statutory duty to negotiate in good faith for a television broadcast station to negotiate retransmission consent jointly with another station in the same market if the stations are not commonly owned. In May 2020, the FCC revised its good faith negotiation rules to specify that certain small MVPDs can meet the obligation to negotiate in good faith by negotiating with a large station group through a qualified MVPD buying group and that large station groups have an obligation to negotiate in good faith with such MVPD buying groups.
As further described under Item 1. Business – Federal Regulation of Television Broadcasting, the FCC also has a Further Notice of Proposed Rulemaking pending which seeks additional comment on whether it has authority to, and should, eliminate or modify its network non-duplication and syndicated exclusivity rules.
The FCC's prohibition on certain joint retransmission consent negotiations and the possible elimination or modification of the network non-duplication and syndicated exclusivity protection rules may affect our ability to sustain our current level of
distribution revenues or grow such revenues in the future and could have an adverse effect on our business, financial condition and results of operations.
We face intense, wide-ranging competition for viewers and advertisers.
We compete, in certain respects and to varying degrees, for viewers and advertisers with other programming networks, pay-per-view, video on demand, online streaming services, and other content offered by distributors.Distributors. We also compete for viewers and advertisers with OTT and DTC, mobile media, radio, motion picture, home video, stadiums and arenas, podcasts, outdoor advertising and other sources of information and entertainment and advertising services. Important competitive factors are the prices we charge for our programming networks, the quantity, quality (in particular, the performance of the sports teams whose media rights we control) and variety of the programming offered and the effectiveness of marketing efforts.
With respect to advertising services, factors affecting the degree and extent of competition include prices, reach and audience demographics, among others. Some of our competitors are large companies that have greater financial resources available to them than we do, which could impact our viewership and the resulting advertising revenues.
Rivals that may have greater resources than we have include:
•other local free over-the-air broadcast television and radio stations;
•Distributors, such as telecommunication companies, cable providers and direct broadcast satellite providers;
•print media providers such as newspapers, direct mail and periodicals;
•internet search engines, internet service providers, social media platforms, websites, gaming platforms, and mobile applications;
•OTT technologies;
•Distributor "skinny" packages;
•mobile television; and
•other emerging technologies.
CompetitionOur ability to adapt to competition from other broadcasters, or other content providers and changes in consumer behavior and technology may cause a reductionadversely affect our business.
The ways in which consumers view content and technology and business models in our industry continue to rapidly evolve and new distribution platforms and increased competition from new entrants and emerging technologies have added to the complexity of maintaining predictable revenue streams. Technological advancements have driven changes in consumer behavior as consumers seek more control over when, where and how they consume content and have affected advertisers' options for reaching their target audiences. Consumer preferences have evolved towards subscription video on demand and free advertising revenues and/or ansupported video on demand services and other DTC offerings and there has been a substantial increase in the availability of content with reduced advertising or without advertising at all. Consumers are also increasingly using time-shifting and advertising-skipping technologies that enable them to fast-forward or circumvent advertisements. There has also been a proliferation of high-speed internet connections and expansion of 5G networks able to support high-quality streaming video within increasingly interactive and interconnected digital environments and on a wide variety of devices other than traditional televisions. Additionally, gaming and other consoles are establishing themselves as providers of video services. Substantial use of these technologies could impact the attractiveness of the Company's programming to advertisers and adversely affect our operating costs.
Newadvertising revenues. Our ability to meet consumer demands and expectations in today's evolving mobile, multi-screen and multi-platform environment and to successfully adapt to technological advances in our industry, including alternative distribution platforms and viewing technologies, may affect the attractiveness of our offerings. Ineffective technology and the subdivisionproduct integration, lack of marketsspecific features and functionalities, poor interface design or ease of use, or performance issues, among other factors, may cause viewers to favor alternative offerings. Failure to adapt or to remain competitive with these developing technologies could have an adverse effect on our business, financial condition and results of operations.
Distributors are developing or have developed new technology that allows them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television industry into ever more specialized niche markets. Competitors who target programming to such sharply defined markets may gain an advantage over us for television advertising revenues. The decreased cost of creating channels may also encourage new competitors to enter our markets and compete with us for advertising revenue. In addition,
Advertising revenues can be significantly impacted by new technologies, that allow viewerssince advertising sales are dependent on audience measurement provided by third parties, and the results of audience measurement techniques can vary independent of the size of the audience for a variety of reasons, including variations in, and difficulties related to, digitally record, store,the employed statistical sampling methods, new distribution platforms and play back television programming may decrease viewershipviewing technologies (such as digital recording and time-skipping technologies), and the shifting of commercials as recorded by mediathe marketplace to the use of measurement servicesof different viewer behaviors, such as Nielsen or Comscore and, as a result, lower our advertising revenues. The current ratings provided by Nielsen for use by broadcast stations for live viewing Digital Video Recording playback are limited to seven days pastdelayed viewing. Nielsen's statistical sampling method is the original air date. Additionally, in most markets, no credit is given for online viewing. The effects of new ratings data methodologies, many of which areprimary measurement technique used in our markets,television advertising sales; however, the industry is expected to adopt new measurement currencies in the near-future and Nielsen is making methodological changes to the abilityway it measures viewing by incorporating set top box and smart TV data. The emerging measurement currencies generally undercount over-the-air viewing and Nielsen has not prioritized over-the-air enhancements. If measurement evolves in a direction that is unfavorable to over-the-air viewing it could reduce the attractiveness of such methodologiesour audiences to beadvertisers. In addition to traditional measurement currencies, we also measure and monetize our campaign reach and frequency on and across digital platforms based on other third-party data using a reliable standard that can be used by advertisers is still under review for accreditation from The MRC. Local audience measurement has been severely impacted byvariety of methods including the COVID-19 pandemic. Nielsen relies heavilynumber of impressions served and demographics. These variations and changes could have a significant negative effect on in-person recruitment and maintenance, so social distancing guidelines have not allowed for proper sample maintenance. As a result, panels have become skewed, unbalanced, and less reliable. Due to this issue, MRC accreditation for certain data have been put on hiatus as Nielsen works to correct their local panels.advertising revenues.
Distributors may include over-the-air antennas within their set-top boxes allowing them to provide free over-the-air signals to their subscribers which could result in decreases in our distribution revenues received for our signal being carried on their channels.
We cannot provide any assurances that we will remain competitive with these developing technologies.
We depend on the appeal of our programming, which may be unpredictable, and increased programming costs may have a material negative effect on our business and on our results of operations.
We depend in part upon viewer preferences and audience acceptance of the programming on our stations and networks. These factors are often unpredictable and subject to influences that are beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment options. We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity. An increase in our costs associated with programming, including original programming, or a decrease in viewership of our programming, may materially negatively affect us and our results of operations.
In addition, we rely on third parties for broadcast, entertainment, news, sports and other programming for our stations and networks. We compete with other providers of programming to acquire the rights to distribute such programming. If we fail to continue to obtain broadcast, entertainment, news, sports and other programming for our stations and networks on reasonable terms for any reason, including as a result of competition, we could be forced to incur additional costs to acquire such programming or look for alternative programming, which may have a material negative effect on us and our results of operations.
Further change in the current retransmission consent regulations could have an adverse effect on our business, financial condition and results of operations.
Distributors lobby to change the regulations under which retransmission consent is negotiated before both Congress and the FCC in order to increase their bargaining leverage with television stations.
In September 2015, the FCC released a Notice of Proposed Rulemaking to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee sports or entertainment event,” restrictions on online access to broadcast programming during negotiation impasses, broadcasters’ ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. In July 2016, the FCC's then-Chairman Wheeler announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations, however, the proceeding remains open.
As further described under Item 1. Business – Federal Regulation of Television Broadcasting, the FCC also has pending a Further Notice of Proposed Rulemaking which seeks additional comment on whether it has authority to, and should, eliminate or modify its network non-duplication and syndicated exclusivity rules.
The FCC rules governing “good faith” retransmission consent negotiations provide that it is a per se violation of the statutory duty to negotiate in good faith for a television broadcast station to negotiate retransmission consent jointly with another station in the same market if the stations are not commonly owned. In May 2020, the FCC revised its good faith negotiation rules to specify that certain small MVPDs can meet the obligation to negotiate in good faith by negotiating with a large station group through a qualified MVPD buying group and that large station groups have an obligation to negotiate in good faith with such MVPD buying groups.
The FCC’s prohibition on the possible elimination or modification of the network non-duplication and syndicated exclusivity protection rules and certain joint retransmission consent negotiations may affect our ability to sustain our current level of distribution revenues or grow such revenues in the future and could have an adverse effect on our business, financial condition and results of operations.
Theft of our intellectual property may have a material negative effect on us and our results of operations, and we may become subject to infringement or other claims relating to our consentcontent or technology.
Our success depends in part on our ability to maintain and monetize the material intellectual property rights in our programming, technology, digital and other content. Our intellectual property rights may be infringed upon by unauthorized usage of original broadcast content RSN telecast feeds (including, without limitation, live and non-live content) and other content for which the RSNs and/or the applicable league/team hold copyright ownership or distribution rights.. Such unauthorized usage may occur on any and all distribution platforms, including, without limitation, linear and streaming services. Additionally, our intellectual property rights may be further infringed upon by third-party unauthorized distribution of original broadcast content, game content and/or highlights on social media platforms on a live or near live basis. Third-party licensors of content may infringe upon our intellectual property rights by not complying with content distribution rules, local territory blackout rules and RSN distribution exclusivity windows.rules.
Theft, misappropriation or the invalidity of our intellectual property or the intellectual property that is licensed to us by licensors (including sports teams) could have a material negative effect on us and our results of operations by potentially reducing the revenue that we are able to obtain from the legitimate sale and distribution of our content, undermining lawful and revenue-generating distribution channels, limiting our ability to control the marketing of our content and inhibiting our ability to recoup expenses or profit from the costs we incur creating our programming content. Litigation may be necessary to enforce our intellectual property rights or protect our trade secrets. Any litigation of this nature, regardless of outcome, could cause us to incur significant costs and could divert management's attention from the operation of our business. Any impairment of our intellectual property rights, including due to changes in U.S. or foreign intellectual property laws or the absence of effective legal protections or enforcement measures, could have a materially negative impact on our business and the results of our operations.
While our programming personnel regularly monitor third-party streaming platforms and social media pages in an effort to identify intellectual property infringement and work closely with content distributors and leagues to notify content protection representatives to take the necessary steps to protect our and their intellectual property rights, those protective measures cannot ensure that theft, misappropriation or the invalidity of our intellectual property or the intellectual property that is licensed to us by licensors will not occur.
In addition, from time to time, third parties may assert claims against us alleging intellectual property infringement or other claims relating to our programming, technology, digital or other content. If any such infringement claim results in the loss of certain of our intellectual property rights, it could have a materially negative impact on our business and the results of our operations.
Cybersecurity risks,We have experienced a cyber incidents,security breach in the past and may be vulnerable to future security breaches, data privacy, and other information technology failures that could adversely affect ushave a material adverse effect on our financial performance and operating results and disrupt our operations.
Our information technology systems are critically important to operating our business efficiently and effectively. We rely on our information technology systems to manage our data, communications, news, sports and advertising content, digital products, order entry, fulfillment, and other business processes.processes, including many third-party systems and software, which are subject to supply chain and other cyber attacks. Despite our security measures (including, employee training, multi-factor authentication, security information and event management, and firewalls and testing tools)tools, and backup and recovery systems), networkon October 17, 2021, we identified the following: (i) certain servers and workstations in our environment were encrypted with ransomware, (ii) disruption of certain office and operational networks as a result of the encryption, and (iii) indications that data was taken from our network. Promptly upon detection of the security event, senior management was notified and we began to implement incident response measures to contain the incident, conduct an investigation, and plan for restoring operations. Legal counsel, a cybersecurity forensic firm, and other incident response professionals were engaged, and law enforcement and other governmental agencies were notified.
The cybersecurity incident identified on October 17, 2021 resulted in the loss in the fourth quarter of 2021 of approximately $63 million of advertising revenue, primarily related to our local media segment, as well as approximately $7 million in costs and expenses related to mitigation efforts, our investigation and the security improvements resulting therefrom. However, we did not pay the ransom that was being sought as a result of the cybersecurity incident.
These amounts exceeded the limits under our insurance policies and thus, based on the known effects of the cyber incident, the Company estimates that the cyber incident has resulted in approximately $20 million of unrecoverable net loss through the date of filing of this Form 10-K. Although we have received $30 million in reimbursement proceeds from our insurance policies through the date of filing of this Form 10-K, there can be no assurance that the insurance policies will pay their full coverage or the timing of such additional reimbursements. In addition, the Company may incur additional cyber incident response costs, and the estimated unrecoverable net loss above does not include an estimate of any liability the Company may have in the event that litigation or regulatory proceedings result from the incident.
We recurringly identify cyber threats as well as vulnerabilities in our systems and work to address them. Despite our efforts and the efforts of our third-party vendors to ensure the integrity of our software, computers, systems and information, systems-related events, such as computer hackings,we may not be able to anticipate, detect or recognize threats to our systems and assets, or to implement effective preventive measures against all cyber threats, security breaches, virusesespecially because the techniques used are increasingly sophisticated, change frequently, are complex, and are often not recognized until launched. Cyber attacks can originate from a variety of sources, including external parties who are affiliated with foreign governments or are involved with organized crime or terrorist organizations. Third parties may also attempt to induce employees, customers or other destructiveusers of our systems to disclose sensitive information or disruptive software, process breakdowns,provide access to our systems or maliciousnetwork, or to our data or that of our counterparties, and these types of risks may be difficult to detect or prevent. We expect cyber attack and breach incidents to continue, and we are unable to predict the direct or indirect impact of future attacks or breaches on our business operations.
Investigations of cyber attacks are inherently unpredictable, and it takes time to complete an investigation and have full and reliable information. While we are investigating a cyber attack, we do not necessarily know the extent of the harm or how best to remediate it, and we can repeat or compound certain errors or actions before we discover and remediate them.
The occurrence of a cyber attack, breach, unauthorized access, misuse, ransomware, computer virus or other activitiesmalicious code or other cybersecurity event could jeopardize or result in a disruptionthe unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our servicescustomers, our counterparties, our employees, and operations. These eventsthird-party service providers that is processed and stored in, and transmitted through, our computer systems and networks. The occurrence of such an event could also result in but are not limiteddamage to our software, computers or systems, or otherwise cause
interruptions or malfunctions in our, our customers', our counterparties' or third parties' operations. This could result in significant financial losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines, penalties, significant intervention, reimbursement or other compensatory costs, significant costs to investigate the improper disclosureevent, remediate vulnerabilities and modify our protective measures, or otherwise adversely affect our business, financial condition or results of personal data or confidential information, including through third parties which receive any of such information on a confidential basis for business purposes and could be subject to any of these events, and damage our reputation or require us to expend significant resources to remedy. The occurrence of any of these events, and the additional regulations relating to this area and the costs related thereto, could have a material adverse effect on us.operations. While we maintain insurance to cover losses related to cybersecurity risks and business interruption, such policies, as was the case with respect to the October 2021 cybersecurity incident, may not be sufficient to cover all losses of this incident or any future incidents.
Data privacy, data protection, and information security may require significant resources and present certain risks, including risks related to compliance with domestic and international privacy and data protection laws.
We collect, store, have access to and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to privacy and security laws, regulations and/or customer-imposed controls. Despite our efforts to protect such data, we may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, or employee errors that could potentially lead to the compromising of such data, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, and operational disruptions.
We are also subject to domestic laws associated with the collection, storage, use and protection of personal, confidential or sensitive data, including under several comprehensive U.S. state privacy laws, including the California Consumer Privacy Act (CCPA) and the California Privacy Rights Act (CPRA), in addition to other laws and regulations. These laws and regulations are continually evolving and additional laws may be enacted in the future. These evolving privacy, security, and data protection laws may require us to expend significant resources to implement additional data protection measures. In addition, we operate in an environment in which there are different and potentially conflicting data privacy laws in effect in the various U.S. states in which we operate, and we must understand and comply with each law and standard in each of these jurisdictions while ensuring the data is secure. Our failure to comply with these laws and regulations, or to adequately secure the information we hold, could result in significant liability or reputational harm and may have a materially adverse effect on our financial condition and results of operations.
We rely upon cloud computing services to operate certain significant aspects of our business and any disruption could have an adverse effect on our financial condition and results of operations.
Our business depends upon cloud computing services provided by third-parties to provide a distributed computing infrastructure platform for certain of our business operations, including data processing, storage capabilities, and other services. Such third-party cloud computing services are vulnerable to damage or interruption from infrastructure changes, natural disasters, cybersecurity attacks, power outages, terrorist attacks, and other events or acts. In the future we could experience interruptions, delays and outages in service and availability from our third-party cloud computing providers from time to time due to a variety of factors, including, but not limited to, infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Because we cannot easily switch our cloud computing operations to other third-party providers without significant costs, any disruption of or interference with our use of third-party cloud computing service providers could have a materially negative impact on our business and the results of our operations.
The loss of key personnel, including talent, could disrupt the management or operations of our business and could have an adverse effect on our financial condition and results of operations.
Our business depends upon the continued efforts, abilities and expertise of our Executive Chairman, Chief Executive Officer and other key employees. We believe that the unique combination of skills and experience possessed by our Executive Chairman, Chief Executive Officer and executive officers would be difficult to replace, and that the loss of our executive officers could have a material adverse effect on us, including the impairment of our ability to execute our business strategy. While we do not maintain a written succession plan with respect to the Executive Chairman or Chief Executive Officer, in accordance with our Corporate Governance Guidelines, the Nominating and Corporate Governance Committee of the Board periodically reviews and reports to the Board regarding succession planning for all executive officers, including the Executive Chairman and Chief Executive Officer, and all directors.
We could be adversely affected by labor disputes, and legislation and other union activity.
activity and related legislation.
The cost of producing and distributing entertainment programming has increased substantially in recent years due to, among other things, the increasing demands of creative talent and industry-wide collective bargaining agreements. Although we generally purchase programming content from others rather than produce such content ourselves, our program suppliers engage the services of writers, directors, actors and on-air and other talent, trade employees, and others, some of whom are subject to these collective bargaining agreements. Approximately 2,000590 of our employees and freelance employees are represented by labor unions under collective bargaining agreements. If we or our program suppliers are unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages. Failure to renew these agreements, higher costs in connection with these agreements or a significant labor dispute could adversely affect our business by causing, among other things, delays in production that lead to declining viewers, a significant disruption of operations, and reductions in the profit margins of our programming and the amounts we can charge advertisers for time. Our stations and RSNs also broadcast certain professional sporting events, and our viewership may be adversely affected by player strikes or lockouts which could adversely affect our advertising revenues, and results of operations.operations and result in rebates to our Distributors for not meeting minimum event thresholds. The amounts paid under our sports rightslicensing agreements could be negatively impacted by rising professional player salaries and collective bargaining agreements or changes in the league mandated salary caps.agreements. Further, any changes in the existing labor laws, including the possible enactment of the Employee Free Choice Act, may further the realization of the foregoing risks.
The effects of the economic environment could require us to record an asset impairment of goodwill and indefinite-lived intangible assets.
We are required to analyze goodwill and certain other intangible assets for impairment. The accounting guidance establishes a method of testing goodwill and certain other intangible assets, such as broadcast licenses and customer relationships, for impairment on an annual basis, or on an interim basis if an event occurs that would reduce the fair value of a reporting unit or an indefinite-lived asset below its carrying value. For example, during the year ended December 31, 2020, with respect to our local sports segment, as a result of the loss of three Distributors, existing Distributors experiencing elevated levels of subscriber erosion which we believe was influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the then-current economic environment, the COVID-19 pandemic and related uncertainties, we recorded non-cash impairment charges of approximately $4,264 million. For additional information regarding impairments to our goodwill and intangible assets, see Valuation of Goodwill and Indefinite-Lived Intangible Assets under Critical Accounting Policies and Estimates within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets withinthe Consolidated Financial Statements.
Unrelated third parties may bring claims against us based on the nature and content of information posted on our linear programming, social platforms, and websites maintained by us.
We host internet services that enable individuals to exchange information, generate content, comment on our content, and engage in various online activities. The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally. Claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that may be posted online or generated by our users. Our defense of such actions could be costly and involve significant time and attention of our management and other resources.
Risks related to our concentrated voting stock ownership
The Smiths exercise control over most matters submitted to a stockholder vote and may have interests that differ from other security holders. They may, therefore, take actions that are not in the interests of other security holders.
As of December 31, 2020, David D. Smith, Frederick G. Smith, J. Duncan Smith, and Robert E. Smith hold shares representing approximately 81.1% of our common stock voting rights and, therefore, control the outcome of most matters submitted to a vote of our stockholders, including, but not limited to, electing directors, adopting amendments to our certificate of incorporation, and approving corporate transactions. The Smiths hold substantially all of the Class B Common Stock, which have ten votes per share. Our Class A Common Stock has only one vote per share. Future transfers by holders of Class B Common Stock will generally result in those shares converting to Class A Common Stock, subject to limited exceptions, such as transfers effected for estate planning purposes. The conversion of Class B Common Stock to Class A Common Stock will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Stock who retain their shares in the long term. In addition, the Smiths hold four of our board of directors' seats and, therefore, have the power to exert significant influence over our corporate management and policies. The Smiths have entered into a stockholders' agreement pursuant to which they have agreed to vote for each other as candidates for election to our board of directors until December 31, 2025.
Although in the past the Smiths have recused themselves from related person transactions, circumstances may occur in which the interests of the Smiths, as the controlling security holders, could be in conflict with the interests of other security holders and the Smiths would have the ability to cause us to take actions in their interest. In addition, the Smiths could pursue acquisitions, divestitures, or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our other security holders. Further, the concentration of ownership the Smiths possess may have the effect of discouraging, delaying, or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares.
(See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Item 13. Certain Relationships and Related Transactions, which will be included as part of our Proxy Statement for our 2021 Annual Meeting.)
Significant divestitures by the Smiths could cause them to own or control less than 51% of the voting power of our shares, which in turn (i) could, as discussed under A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt and loss of assets securing our loans within Item 1A. Risk Factors, under certain circumstances require us to offer to buy back some or all of our outstanding STG and DSG notes and could result in an event of default under each of the STG Bank Credit Agreement and the DSG Bank Credit Agreement and (ii) give Cunningham Broadcasting Corporation (Cunningham) the right to terminate the LMAs and other outsourcing agreements with Cunningham due to a "change in control." Any such termination of LMAs could have an adverse effect on our results of operations. The FCC's multiple ownership rules may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets. See the risk factor below regarding the FCC's multiple ownership rules.
Risks relating to our broadcast segment
Our advertising revenue can vary substantially from period to period based on many factors beyond our control. This volatility affects our operating results and may reduce our ability to repay debt or reduce the market value of our securities.
We rely on sales of advertising time for a significant portion of our broadcast segment revenues and, as a result, our operating results depend on the amount of advertising revenue we generate. If we generate less advertising revenue, it may be more difficult for us to repay debt and meet our debt service obligations, and the value of our business may decline. Our ability to sell advertising time depends on:
•the levels of automotive and services advertising, which historically have represented a large portion of our advertising revenue; for the year ended December 31, 2020 (a political year), services and automotive advertising represented 19% and 16%, respectively, of our advertising revenue and for the year ended December 31, 2019 (a non-political year), services and automotive advertising represented 22% and 25%, respectively, of our advertising revenue;
•the levels of political advertising, which are significantly higher in even-number years and elevated further every four years related to the presidential election (as was the case in 2020), historically have represented a large portion of our advertising revenue; for the year ended December 31, 2020,2023 (a non-political year), political advertising represented 27%4% of ourlocal media segment advertising revenue, and for the year ended December 31, 2022 (a political year), political advertising represented 22% of local media segment advertising revenue;
•the levels of political advertising and volume of ballot issues, which are affected by political beliefs, public opinion, campaign finance laws, and the ability of political candidates and political action committees to raise and spend funds which are subject to seasonal fluctuations;
•the health of the economy in the areas where our television stations are located and in the nation as a whole;
•the popularity of our programming and that of our competition;
•the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;
•the effects of new rating methodologies;
•changes in the makeup of the population in the areas where our stations are located;
•the financial health of our underlying advertisers' businesses and demand for their products;
•the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as other broadcast television stations, radio stations, Distributors, internet and broadband content providers and other print, outdoor, social media, and media outlets serving in the same markets;
•OTT, DTC and other emerging technologies and their potential impact on cord-cutting;
•the impact of Distributors and OTT distributors offering "skinny" programming or sports bundles that may not include all programming of television broadcast stations and/or cable channels, such as Tennis Channel;Tennis;
•changes in pricing and sellout levels;
•the financial health of our underlying customers' that we provide management services to;
•the effectiveness of our salespeople; and
•other factors that may be beyond our control.
There can be no assurance that our advertising revenue will not be volatile in the future or that such volatility will not have an adverse impact on our business, financial condition, or results of operations.
We internally originate and purchase television programming in advance based on expectations about future revenues. Actual revenues may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
One of our stations' most significant costs is network and syndicated programming. Our ability to generate revenue to cover this cost may affect the value of our securities. If a particular network or program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the cost.
We generally purchase syndicated programming content from others rather than producing such content ourselves, therefore, we have limited control over the costs of the programming. Often, we must purchase syndicated programming several years in advance and may have to commit to purchase more than one year's worth of programming. We may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred or before we have fully amortized the costs. We also receive programming from networks with which we have network affiliation agreements. Generally, the agreements are for several years. The popularity of networks can affect revenue earned on those channels. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. These factors are exacerbated during a weak advertising market.
We internally originate television programming in advance based on expectations about future revenues. Actual revenues could fluctuate and may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
The production of internally originated programming requires a large up-front investment and the revenues derived from the airing of internally originated programming primarily depends upon its acceptance by the public, which is difficult to predict. The commercial success of original content also depends upon the quality and acceptance of other competing content released into the marketplace at or near the same time, the availability of a growing number of alternative forms of entertainment, general economic conditions and their effects on consumer spending, and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. These factors are exacerbated during a weak advertising market.
One of our stations' most significant costs is network and syndicated programming. We generally purchase syndicated programming content from others rather than producing such content ourselves, therefore, we have limited control over the costs of the programming. Often, we must purchase syndicated programming several years in advance and may have to commit to purchase more than one year's worth of programming. We may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred or before we have fully amortized the costs. We also receive programming from networks with which we have network affiliation agreements. The popularity of networks can affect revenue earned on those channels. If a particular network or program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the cost. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues and are likewise exacerbated during a weak advertising market.
We may lose a large amount of programming if a network terminates its affiliation or program service arrangement with us, we are not able to negotiate arrangements at terms comparable to or more favorable than our current agreements, or if networks make programming available through services other than our local affiliates, which could increase our costs and/or reduce our revenue.
The networks produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during programming and for cash fees. The amount and quality of programming provided by each network varies. See Television Markets and Stations within Item 1. Business for a detailed listing of our stations and channels as of December 31, 2020.2023.
As network affiliation agreements come up for renewal, we (or licensees of the stations we provide programming and/or sales services to), may not be able to negotiate terms comparable to or more favorable than our current agreements. The non-renewal or termination of any of our network affiliation agreements would prevent us from being able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences, resulting in reduced revenues. Upon the termination of any of our network affiliation agreements, we would be required to establish a new network affiliation agreement for the affected station with another network or operate as an independent station.
We cannot predict the outcome of any future negotiations relating to our affiliation agreements or what impact, if any, they may have on our financial condition and results of operations. Additionally, we cannot predict the future availability of network programming as broadcast networks continue to launch and expand their own DTC platforms. In addition, the impact of an increase in reverse network compensation payments, under which we compensate the network for programming pursuant to our affiliation agreements, may have a negative effect on our financial condition or results of operations. See Television Markets and Stations within Item 1. Business for a listing of current expirations of our affiliation agreements.
We may be subject to investigations or fines from governmental authorities, such as, but not limited to penalties related to violations of FCC indecency, children's programming, sponsorship identification, closed captioning and other FCC rules and policies, the enforcement of which has increased in recent years, and complaints related to such violations may delay our FCC license renewal applications with the FCC.
We provide a significant amount of live news reporting that is provided by the broadcast networks or is controlled by our on-air news talent. Although both broadcast network and our on-air talent have generally been professional and careful in whatabout the information they say,communicate, there is always the possibility that information may be reported that is inaccurate or even in violation of certain indecency rules promulgated by the FCC. In addition, entertainment and sports programming provided by broadcast syndicators and
networks may contain content that is in violation of the indecency rules promulgated by the FCC. Because the interpretation by the courts and the FCC of the indecency rules is not always clear, it is sometimes difficult for us to determine in advance what may be indecent programming. We have insurance to cover some of the liabilities that may occur, but the FCC has enhanced its enforcement efforts relating to the regulation of indecency. Also, the FCC has various rules governing children's television programming, including commercial matter limitations, closed captioning and sponsorship identification. We are subject to such rules regardless of whether the programming is produced by us or by third parties. Violation of the indecency, children's programming, closed captioning or sponsorship identification rules could potentially subject us to penalties, license revocation, or renewal or qualification proceedings.For example, as described under Litigation within FCC Litigation Matters under Note 13. Commitments and Contingencies within the Consolidated Financial Statements, on May 22, 2020, the FCC released an Order and Consent Decree pursuant to which we agreed to pay $48 million and implement a four year compliance plan to resolve various matters.matters and on September 21, 2022 issued a Notice of Apparent Liability (NAL) alleging violations of the FCC’s limits on commercial matter in children’s television programming and proposing a forfeiture of $2.7 million against the Company, and fines ranging from $20,000 to $26,000 per station for other licensees covered by the NAL (including certain stations with whom the Company has an LMA, JSA, and/or SSA), for a total of $3.4 million. There can be no assurance that future incidents that may lead to significant fines or other penalties by the FCC can be avoided.
From time to time, we may be the subject of an investigation fromby governmental authorities. For example, as described more fully under The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets below. Onbelow, on January 4, 2019, the Company received three CIDs from the Antitrust Division of the DOJ relating to JSAs in a certain DMAs. We believeAlthough, on July 1, 2021, the DOJ has issued similar civil investigative demandsDepartment of Justice Antitrust Division advised the Company that it had closed the JSA investigation with respect to other companies in our industry. Therethe Company without action, there can be no assurance that in the future an investigation for a similar matter will not lead to an action or proceeding against us. In the event an action or proceeding is commenced, we may be subject to fines, penalties and changes in our business that could have a negative effect on our financial condition and results of operations.
Federal regulation of the broadcasting industry limits our operating flexibility, which may affect our ability to generate revenue or reduce our costs.
The FCC regulates our broadcastlocal media segment, just as it does all other companies in the broadcasting industry. We must obtain the FCC's approval whenever we need a new license, seek to renew, assign or modify a license, purchase a new station, sell an existing station, or transfer the control of one of our subsidiaries that hold a license. Our FCC licenses are critical to our broadcastlocal media segment operations; we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the
future or approve new acquisitions in a timely manner, if at all. If licenses are not renewed or acquisitions are not approved, we may lose revenue that we otherwise could have earned.
In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including, but not limited to, technological changes in spectrum assigned to particular services) that could, directly or indirectly, materially and adversely affect the operation and ownership of our broadcast properties. (See Item 1. Business.)
The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets.
Television station ownership
As discussed in National Ownership Rule under Ownership Matters under Federal Regulation of Television Broadcasting within Item 1. Business, in December 2017, the FCC released a Notice of Proposed Rulemaking to examine the National Ownership Rule, including the UHF discount, which remains pending. Because we are near the 39% cap without application of the UHF discount, changes to the UHF discount or National Ownership Rule could limit our ability to acquire television stations in additional markets.
As discussed in Local TelevisionOwnership Rule under Ownership Matters under Federal Regulation of Television Broadcasting within Item 1. Business, in December 2023, the FCC adopted the 2018 Ownership Order, extending the Top-Four Prohibition to prohibit, in certain circumstances, the placement of a second top-four rated programming affiliation on a multicast stream or low power television (LPTV) station and restricting the circumstances under which such existing top-four multicast streams or LPTV stations may be transferred or assigned in the future, which may affect the Company’s ability to acquire programming or to sell or acquire stations due to the need to divest grandfathered affiliations.
As discussed in Local Marketing and Outsourcing Agreements under Federal Regulation of Television Broadcasting within Item 1. Business,certain of our stations have entered into outsourcing or joint sales agreements ("JSAs") pursuant to which we may sell more than 15% of advertising time on a separately owned television station in the same market. In August 2016, the FCC issued the Ownership Orderamended its ownership rules to provide for the attribution of JSAs where two television stations are located in the same market and a party withsuch JSAs. The FCC subsequently adopted an attributable interest in one station sells more than 15% of the advertising time per week of the other station. JSAs that existed prior to March 31, 2014, were allowed to remain in place until October 1, 2025, at which point they must be terminated, amended or otherwise come into compliance with the rules. These "grandfathered" JSAs could be transferred or assigned without losing grandfathering status. Subsequently, in its Ownership Order on Reconsideration the FCCin 2017 and eliminated the JSA attribution rule. Petitions for Review of the OwnershipThe Order on Reconsideration were filed before the Third Circuit, which vacated and remanded the Ownership Order on Reconsideration. That decision was appealed but ultimately appealed toupheld by the Supreme Court which granted certiori and heard
oral argument on January 19,became effective in June 2021. In December 2022, the FCC adopted the 2018 Quadrennial Ownership Order and declined to reconsider JSA attribution. The Supreme Court’s decision2022 Quadrennial Regulatory Review proceeding remains pending. We have entered into outsourcing agreements (such as JSAs)JSAs whereby 34 stations provide various non-programming related services such as sales, operational and managerial services to or by other stations within the same markets. For additional information, refer to Television Markets and Stations within Item 1. Business. See Note 14. Variable Interest Entities within the Consolidated Financial Statements for further discussion of our JSAs which we consolidate as variable interest entities.
Certain of our stations have entered into LMAs pursuant to which we may provide programming to and sell advertising on a separately owned television station serving the same market. The FCC attributes LMAs to the programmer if the programmer provides more than 15% of a station’s weekly broadcast programming; provided, that, LMAs entered into prior to November 5, 1996, including ours, are currently exempt from attribution. The FCC may review these grandfatheredexempted LMAs in the future and if it determines to terminate or modify the grandfatheredexempt period and make all LMAs fully attributable we will be required to terminate or modify our grandfatheredexempted LMAs unless the FCC’sFCC's local ownership rules would permit us to own both stations. As of December 31, 2020,2021, we provide services under grandfatheredexempted LMAs to eight television stations owned by third parties. See Note 14. Variable Interest Entities within the Consolidated Financial Statements for further discussion of our LMAs which we consolidate as variable interest entities.
As discussed in Other Pending Matters under Federal Regulation of Television Broadcasting within Item 1. Business, in December 2018, the FCC sought comment on whether certain of its ownership rules continue to be necessary in the public interest or whether they should be modified or eliminated. This proceeding remains open. Changes to these rules could result in the need to terminate or modify our LMAs, JSAs and other outsourcing agreements.
On January 4, 2019, the Company received three CIDs from the Antitrust Division of the DOJ. In each CID, the DOJ requested that the Company produce certain documents and materials relating to JSAs in a specific DMA. We believe the DOJ has issued similar civil investigative demands to other companies in our industry. We are cooperating and are in discussions with the DOJ regarding our response to the CID. At this time, we are unable to predict the outcome of the CID process, including whether it will result in any action or proceeding against us.
See Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 13. Commitments and Contingencies within the Consolidated Financial Statements.
If we are required to terminate or modify our LMAs, JSAs and other outsourcing agreements, our business could be affected in the following ways:
•Loss of revenues. If the FCC requires us to modify or terminate existing arrangements, we would lose some or all of the revenues generated from those arrangements. We would lose revenue because we will have fewer demographic options, a smaller audience distribution and lower revenue share to offer to advertisers.
•Increased costs. If the FCC requires us to modify or terminate existing arrangements, our cost structure would increase as we would potentially lose significant operating synergies and we may also need to add new employees. With termination of LMAs, we likely would incur increased programming costs because we will be competing with the separately owned station for syndicated programming.
•Losses on investments. As part of certain of our arrangements, we own the non-license assets used by the stations with which we have arrangements. If certain of these arrangements are no longer permitted, we would be forced to sell these assets, restructure our agreements or find another use for them. If this happens, the market for such assets may not be as good as when we purchased them and, therefore, we cannot be certain of a favorable return on our original investments.
•Termination penalties. If the FCC requires us to modify or terminate existing arrangements before the terms of the arrangements expire, or under certain circumstances, we elect not to extend the terms of the arrangements, we may be forced to pay termination penalties under the terms of certain of our arrangements. Any such termination penalties could be material.
•Alternative arrangements. If the FCC requires us to terminate the existing arrangements, we may enter into one or more alternative arrangements. Any such arrangements may be on terms that are less beneficial to us than the existing arrangements.
See Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 13. Commitments and Contingencies within the Consolidated Financial Statements.
Failure of owner / licensee to exercise control
The FCC requires the owner / licensee of a station to maintain independent control over the programming and operations of the station. As a result, the owners / licensees of those stations with which we have outsourcing agreements can exert their control in ways that may be counter to our interests, including the right to preempt or terminate programming in certain instances. The preemption and termination rights cause some uncertainty as to whether we will be able to air all of the programming that we have purchased under our LMAs and therefore, uncertainty about the advertising revenue that we will receive from such programming. In addition, if the FCC determines that the owner / licensee is not exercising sufficient control, it may penalize the owner licensee by a fine, revocation of the license for the station or a denial of the renewal of that license. Any one of these scenarios, especially the revocation of or denial of renewal of a license, might result in a reduction of our cash flow or margins and an increase in our operating costs. In addition, penalties might also affect our qualifications to hold FCC licenses, putting our own licenses at risk.
The pendency and indeterminacy of the outcome of these ownership rules and the CIDs, which may limit our ability to provide services to additional or existing stations pursuant to licenses, LMAs, outsourcing agreements or otherwise, expose us to a certain amount of volatility, particularly if the outcomes are adverse to us. Further, resolution of these ownership rules and the CIDs has been and will likely continue to be a cost burden and a distraction to our management and the continued absence of a resolution may have a negative effect on our business.
We have invested and will continue to invest in new technology initiatives which may not result in usable technology or intellectual property.
We have heavily invested in the development of the NEXTGENNextGen TV platforms as discussed in Development of Next Generation Wireless Platform under Operating Strategy within Item 1. Business. We do not know whether the outcome of our research and development will result in technology that will be usable on our distribution platform or available to license to third parties. Any failure to develop this technology could result in the loss of our investment. Our costcosts incurred related to the development of the NEXTGENNextGen TV platform is recorded within non-media expenses within our consolidated statements of operations. Additionally, we have developed, on our own and through joint ventures, several NEXTGENNextGen TV related patents that we will attempt to monetize directly, through third-party agents, or through a patent pool designed to consolidate similar patents owned by independent licensors for licensing to equipment manufacturers. We do not know whether our attempts at monetization will result in licensing arrangements that will be accepted by such equipment manufacturers or result in any royalty payments for our intellectual property rights.
RisksWe have also invested in, and will continue to invest in, the development of other technologies and products. Product development is a costly, complex and time-consuming process, and the investment in product development often involves a long wait until a return, if any, is achieved on such investment. We continue to make significant investments in research and development relating to our local sports segmenttechnologies and products. Investments in new technology and processes are inherently speculative. Technical obstacles and challenges we encounter in our research and development process may result in delays in or abandonment of product commercialization, substantially increase the costs of development and negatively affect our results of operations.
Our media rights agreements with various professional sports teamsWe have varying durations and terms and we may be unable to renew those agreements on acceptable termslimited experience in operating or such rights may be lost for other reasons.investing in non-broadcast related businesses.
We have invested in, and will continue to invest in, businesses that have a limited connection with our core business, including non-broadcast related businesses and international businesses. Our ability to generate revenues is dependent upon media rights agreements with professional sports teams. Asexecutive officers and employees have limited experience in the management of December 31, 2020, we had a weighted average remaining lifenon-broadcast businesses. Our management team may not successfully or effectively manage or operate our non-broadcast businesses and an increasing amount of 10 years under our exclusive media rights agreements. Upon expiration, we may seek renewal of these agreements and, if we do, wetheir time may be outbid by competing programming networks or others fordevoted to these agreements oractivities which would result in less time being devoted to the renewal costs could substantially exceed our costs under the current agreements. Even if we are to renew such agreements, our results of operations could be adversely affected if increases in sports programming rights costs outpace increases in distributionmanagement and advertising revenues. In addition, one or more of these sports teams may seek to establish their own programming network or join onegrowth of our competitor's networks or regional sports networkcore business. Our management team has goals to grow these non-broadcast related businesses through continued investment which may require us to receive external financing, as well as incur costs related to the acquisition of personnel with the appropriate level of knowledge, experience, and in certain circumstances, we may not have an opportunitytraining to bid for the media rights. Also, there is a risk that certain rights can be distributed via digital rights and the RSNs would not have the same monetization for such rights.
Moreover, the value ofoperate these agreements may also be affected by various league decisions and/or league agreements that wenon-core businesses to achieve these goals. These efforts may not be able to control, including a decision to alter the number of games played during a season. The governing bodies of the MLB, NBA and NHL have imposed,successful and may impose in the future, various rules, regulations, guidelines, bulletins, directives, policies and agreements (collectively, “League Rules”), which could have a material negative effect on our business
and results of operations. For example, the League Rules define the territories in which we may distribute games of the teams in the applicable league. Changes to the League Rules, or the adoption of new League Rules, could affect our media rights agreements with the various teams and as consequence have a material negative effect on our business and results of operations. For example, the leagues may give digital rights and/or may allocate more games for national feeds to other Distributors, and/or may incentivize team participation in league-controlled sports networks.
The value of these media rights can also be affected, or we could lose such rights entirely, if a team is liquidated, undergoes reorganization in bankruptcy or relocates to an area where it is not possible or commercially feasible for us to continue to distribute programming for such team. Any loss or diminution in the value of rights could impact the extent of the sports coverage offered by us and could materially negatively affect us and our results of operations. In addition, our affiliation agreements with Distributors typically include certain remedies in the event our networks fail to meet a minimum number of professional event telecasts, and, accordingly, any loss of rights could materially negatively affect our businessfinancial condition and our results of operations.
Our local sports segment’s success depends on distribution revenue we receive,operations and business have in the loss of whichpast been, and could in the future be, materially adversely impacted by a pandemic or renewal of which on less favorable terms may have a material negative effect on us and our results of operations.other health emergency.
Our local sports segment’s success is dependent uponPandemics, such as the existenceCOVID-19 pandemic, and termspublic health emergencies have affected and may, in the future, adversely affect our businesses. We experienced adverse business impacts relating to advertising sales, the suspension of content production, delays in the creation and availability of our agreements with Distributorsprogramming, and other OTT distributors. Our existing agreements fornegative effects on our programming networks expire at various dates. Givenbusiness due to the relatively short-term natureCOVID-19 pandemic. Additionally, if portions of our existing agreements, a number of agreements with Distributorsworkforce, including key personnel, are up for renewal and under negotiation at any given time. We cannot provide assurances that we will be able to renew these distribution agreements or obtain terms as attractive as our existing agreements in the event of a renewal. For example, in recent years, we have been unable to negotiate renewalswork effectively because of distribution agreementsillness, government actions or other restrictions in connections with a pandemic or other public health emergency, there may be significant adverse effects on satisfactory terms with three significant Distributors. Our affiliation agreements with Dish Network Corporation (Dish), YouTube TV, and Hulu expired on July 26, 2019, October 1, 2020 and October 23, 2020, respectively. Forour business. In addition to the twelve months ended June 30, 2019, revenue from Dish and its OTT service, Sling TV, accounted for 12% of the Acquired RSNs distribution revenue. For the twelve months ended September 30, 2020, revenue from YouTube TV and Hulu accounted forrisks described above, a combined 9% of the local sports segment’s distribution revenue. In addition, some of the affiliation agreements also include so-called "most favored nations" provisions which require that certain terms (including, potentially, the material terms) of such agreements are no less favorable than those provided to any similarly situated Distributors. If triggered, these most favored nations provisions could cause the amounts earned under these agreements to decrease, which could resultpandemic or other public health emergency may heighten other risks described in our inability to achieve the originally anticipated benefits of such agreements.this section.
Distribution revenue constitutes the substantial majority of our local sports segment revenues. For the year ended December 31, 2020, local sports segment distribution revenue constituted 92% of our local sports segment revenueEnvironmental, social and 42% of our consolidated total revenue. Changes in distribution revenue generally result from a combination of changes in ratesgovernance laws and subscriber counts. As described under If the rate of decline in the number of subscribers to Distributor services increases or these subscribers shift to other services or bundles that do not include our programming networks, there may be a material negative effect on our distribution revenue. during the last few years, the number of subscribers to Distributor services in the United States has been declining. We believe the decline has resulted from technological advancements that have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume sports,regulations, including through the so-called “cutting the cord” and other consumption strategies. Reductions in the license fees that we receive per subscriber or in the number of subscribers for which we are paid, including as a result of a loss of, or reduction in carriage of, our programming networks, would adversely affect our distribution revenue. For example, Distributors may introduce, market and/or modify tiers of programming networks that could impact the number of subscribers that receive our programming networks, including tiers of programming that may exclude our networks. Any loss or reduction in carriage would also decrease the potential audience for our programming, whichcompliance thereof, may adversely affectimpact our advertising revenues.business.
Our distribution agreements generallyState and federal regulators, investors, consumers and other stakeholders are increasingly focused on environmental, social, and governance ("ESG") considerations. For example, Nasdaq, the exchange where our stock is listed, has implemented board diversity disclosure requirements, the SEC has adopted regulations requiring disclosure related to our management of human capital resources, and the SEC has proposed rules to enhance and standardize climate-related disclosures. These increased disclosure obligations have required and may continue to require us to meet certain content criteria, such as minimum thresholds for professional event telecasts throughoutimplement new practices and reporting processes, and have created, and will continue to create, additional compliance risk. These increased disclosure obligations could also cause us to incur increased costs to track, measure and report on the year onresults of these practices and could impact our networks.operating results negatively. Moreover, our ESG programs may not achieve their intended outcomes. If we wereare unable to meet these criteria,our ESG goals or the expectations of stakeholders or if we could become subjectare perceived by consumers, stockholders, employees, or the public to remedies availablehave inadequately responded to the Distributors,growing concern for ESG issues, our reputation and results of operations may be negatively impacted. Providers of debt and equity financing may also consider our ESG performance and external ESG ratings (for which may include fee reductions, rebates or refunds and/or termination of these agreements. Our ability to meet these requirements is primarily driven by the delivery of games by the professional sports leagues. The COVID-19 pandemic has resulted in significant disruptions to the normal operations of the professional sports leagues resulting in delays and uncertainty with respect to regularly scheduled games. For example, decisions made by the leagues during the second quarter of 2020 regarding the timing and format of the revised 2020 seasons have resulted, in some cases, in our inability to meet these minimum requirements and the need to reduce revenue based upon estimated rebates due to our distribution customers.
In addition, under certain circumstances, an existing agreement may expire and we may have not finalized negotiations of either a renewal of that agreement or a new agreement for certain periods of time. While Distributors may continue to carry the
services in certain of these circumstances until the execution of definitive renewal or replacement agreements (or until we or the Distributor determine that carriage should cease), Distributors may instead electhave a limited ability to stop carrying, or "blackout," the services upon the expiration of an agreement. Whether Distributors continue to carry the services or not during the renegotiation of our agreement with them, an expiration of an existing agreement without a renewal or replacement thereof may materially adversely affect our business results of operations or financial condition.
Occasionally, we may have disputes with Distributors over the terms of our agreements. If not resolved through business discussions, such disputes could result in litigation or actual or threatened termination of an existing agreement.
In addition, the pay television industry is highly concentrated, with a relatively small number of Distributors serving a significant percentage of pay television subscribers that receive our programming networks, thereby affording the largest Distributors significant leverageinfluence) in their relationship with programming networks, including us. A substantial majority of our local sports segment distribution revenue comes from our top three Distributors. Further consolidation in the industry could reduce the number of Distributors available to distribute our programming networks and increase the negotiating leverage of certain Distributors,decisions involving us, which could adversely affectnegatively impact our revenue. In some cases, if a Distributor is acquired, the distribution agreement of the acquiring Distributor will govern following the acquisition. In those circumstances, the acquisition of a Distributor that is a party to one or more distribution agreements with us on terms that are more favorable to us than that of the acquirer could have a material negative impact on usfinancial condition and our results of operations.
Our joint venture arrangementsThe effects of the economic environment could require us to record an asset impairment of goodwill, indefinite-lived and definite-lived intangible assets or our investments.
We are required to evaluate our goodwill, indefinite-lived and definite-lived intangible assets for impairment. We evaluate our goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate an impairment may exist. During the year ended December 31, 2023, we did not identify any indicators that our definite-lived intangible assets may not be recoverable or that our goodwill or indefinite-lived assets were impaired. However, future losses of Distributors, continued elevated level of subscriber erosion, and any other factors that cause a deterioration in our financial results could result in future impairments charges. For additional information regarding impairments to our goodwill and intangible assets, see Valuation of Goodwill and Indefinite-Lived Intangible Assets under Critical Accounting Policies and Estimates within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets withinthe Consolidated Financial Statements.
We are subject to risks related to our use of Generative Artificial Intelligence (GAI), a new and emerging technology, which is in the early stages of commercial use.
We continually evaluate the use of GAI in our business processes. In recent years, the use of GAI has come under increased scrutiny. This technology, which is a new and emerging technology in early stages of commercial use, presents a number of operational risks thatinherent in its use, including ethical considerations, public perception and reputation concerns, intellectual property protection, regulatory compliance, privacy and data security concerns and reliability and accuracy of the information produced, all of which could have a material adverse effect on our business, results of operations and financial condition.position. Further, new laws, guidance and decisions in this area may limit our ability to use GAI or decrease its usefulness. As a result, we cannot predict future developments in GAI and related impacts to our business and our industry. If we are unable to successfully adapt to new developments related to, and risks and challenges associated with GAI, our business, results of operations and financial position could be negatively impacted.
We
RISKS RELATING TO OUR CONCENTRATED VOTING STOCK OWNERSHIP
The Smiths exercise control over most matters submitted to a stockholder vote and may have invested in a number of our RSNs through joint ventures with certain teams, and weinterests that differ from other security holders. They may, form additional joint venturestherefore, take actions that are not in the future. interests of other security holders.
As of December 31, 2020, we were joint venture partners with 6 teams2023, David D. Smith, Frederick G. Smith, J. Duncan Smith, and Robert E. Smith (collectively, the "Smiths") hold shares representing approximately 82.6% of our common stock voting rights and, therefore, control the outcome of most matters submitted to a vote of our stockholders, including, but not limited to, electing directors, adopting amendments to our certificate of incorporation, and approving corporate transactions. The Smiths hold substantially all of the Class B Common Stock, which have ten votes per share. Our Class A Common Stock has only one vote per share. Future transfers by holders of Class B Common Stock will generally result in those shares converting to Class A Common Stock, subject to limited exceptions, such as transfers effected for estate planning purposes. The conversion of Class B Common Stock to Class A Common Stock will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Stock who retain their shares in the RSNs that distribute contentlong term. In addition, the Smiths hold four of the Board's seats and, therefore, have the power to exert significant influence over our corporate management and policies. The Smiths have entered into a stockholders' agreement pursuant to which they have agreed to vote for each respective team. The nature ofother as candidates for election to the joint ventures requires us to consult with and share certain decision-making powers with unaffiliated third parties. Further, differencesBoard until December 31, 2025.
Although in economic or business interests or goals among joint venture participants could resultthe past the Smiths have recused themselves from related person transactions, circumstances may occur in delayed decisions, failures to agree on major issues and even litigation. If these differences causewhich the joint ventures to deviate from their business or strategic plans, or if our joint venture partners take actions contrary to our policies, objectives or the best interests of the joint venture, our resultsSmiths, as the controlling security holders, could be adversely affected.
Our participation in joint ventures is also subjectconflict with the interests of other security holders and the Smiths would have the ability to the risks that:
•we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes.
•we may not be able to maintain good relationships with our joint venture partners, which could limit our future growth potential and could have an adverse effect on our business strategies.
•our joint venture partners could have investment or operational goals that are not consistent with our corporate-wide objectives, including the timing, terms and strategies for investments or future growth opportunities.
•our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their other obligations as joint venture partners, which could cause us to decidetake actions in their interest. In addition, the Smiths could pursue acquisitions, divestitures, or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to infuse our own capital into any such venture on behalfother security holders. Further, the concentration of ownership the related joint venture partnerSmiths possess may have the effect of discouraging, delaying, or partners despite other competing usespreventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for such capital.
•sometheir shares as part of a sale of our existing joint ventures require mandatory capital expenditures forcompany and might reduce the benefit of the applicable joint venture, which could limit our ability to expend funds on other corporate opportunities.
•someprice of our joint venture partners have exit rights that require us to purchase their interests upon the occurrence of certain events or the passage of certain time periods, which could impact our financial condition by requiring us to incur additional debt in order to complete such transactions or otherwise use cash that could have been spent on alternative investments.
•our joint venture partners may have competing interests in our markets that could create conflict of interest issues.
•any sale or other disposition of our interest in a joint venture or underlying assets of the joint venture may require consents from our joint venture partners, which we may not be able to obtain.shares.
•(See certain corporate-wide or strategic transactions may also trigger other contractual rights held by a joint venture partner (including termination or liquidation rights) depending on how the transaction is structured,Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Item 13. Certain Relationships and Related Transactions, which could impact our ability to complete such transactions.
Our local sports segment is substantially dependent on the popularity of the MLB, NBA and NHL teams whose media rights we control.
Our local sports segment is dependent on the popularity of the MLB, NBA and NHL teams whose local media rights we control and, in varying degrees, those teams achieving on-field, on-court and on-ice success, which can generate fan enthusiasm, resulting in increased viewership and advertising revenues. Furthermore, success in the regular season may qualify a team for participation in the post-season, which generates increased interest in such team, thereby improving viewership and advertising revenues. Alternatively, if a team declines in popularity or fails to generate fan enthusiasm, this may negatively impact viewership and advertising revenues and the terms on which our affiliation agreements are renewed. There canwill be no assurance that any sports team will generate or maintain fan enthusiasm or compete in post-season play, and the failure to do so could result in a material negative effect on us and our results of operations.
Our advertising revenue can vary substantially from period to period based on many factors beyond our control, which volatility may adversely affect our results of operations.
We rely on sales of advertising time for a portionincluded as part of our local sports segment revenues and, as a result,Proxy Statement for our operating results depend on the amount of advertising revenue we generate. Our ability to sell advertising time depends on:
•the success of the automotive and service industries, which historically have provided a significant portion of our local sports segment advertising revenue;2024 Annual Meeting.)
•Significant divestitures by the healthSmiths could cause them to own or control less than 51% of the economyvoting power of our shares, which in turn (i) could, as discussed under A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt and loss of assets securing our loans within Item 1A. Risk Factors, under certain circumstances require us to offer to buy back some or all of our outstanding STG 5.125% unsecured notes due 2027, the areas whereSTG 5.500% unsecured notes due 2030, and the STG 4.125% secured notes due 2030 (the STG notes are collectively referred to as the "STG Notes") and could result in an event of default under our networks are locatedcredit agreement ("Bank Credit Agreement") and (ii) give Cunningham Broadcasting Corporation ("Cunningham") the right to terminate the LMAs and other outsourcing agreements with Cunningham due to a "change in control." Any such termination of LMAs could have an adverse effect on our results of operations. The FCC's multiple ownership rules may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets. See the nation as a whole;risk factor below regarding the FCC's multiple ownership rules.
•the popularity of our programming and that of our competition;
•the popularity of the sports teams with which we own rights;
•the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;
•the effects of new rating methodologies;
•changes in the makeup of the population in the areas where our networks are located;
•the financial health of our underlying advertisers' businesses and demand for their products;
•the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as radio stations, Distributors, internet and broadband content providers and other print, outdoor, social media, Internet and media outlets serving in the same markets;
•OTT and other emerging technologies and their potential impact on cord-cutting;
•the impact of Distributors and other OTT providers not offering our networks or offering "skinny" programming bundles that may not include all programming of our networks;
•changes in pricing and sellout levels;
•the effectiveness of our sales people;
•our ability to compete with Distributors that are selling the advertising time that we provide them, which they are able to bundle with other sports and other geographic locations;
•advertisers' desire to message to our viewer demographic;
•our ability to successfully implement a DTC and gamification strategy;
•our ability to successfully rebrand the RSNs;
•Bally's ability to pay for naming rights and advertising commitments, as well as successfully increase the value of their company;
•the effectiveness of the RSNs digital APP and ability to monetize impressions; and
•other factors that may be beyond our control.
There can be no assurance that our advertising revenue will not be volatile in the future or that such volatility will not have an adverse impact on us, our financial condition, or our results of operations.
We may be obligated to make certain payments to local teams during labor disputes.
We may be impacted by union relations of professional sports leagues. Each of the NBA, the NHL and MLB has experienced labor difficulties in the past and may have labor issues, such as players' strikes or management lockouts, in the future. For example, the NBA has experienced labor difficulties, including lockouts during the 1998-99 and 2011-12 seasons, resulting in a shortened regular season in each case. The NHL has also experienced labor difficulties, including lockouts during the 1994-95 and 2012-13 seasons, resulting in a shortened regular season in each case, and a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season. MLB has also experienced labor difficulties, including players' strikes during the 1972, 1981 and 1994 seasons, resulting in a shortened regular season in each case, and the loss of the entire post-season and the World Series in 1994.
Any labor disputes between professional sports leagues and players' unions may preclude us from airing or otherwise distributing scheduled games for which we have the rights to broadcast, resulting in decreased revenues, which would adversely affect our business, revenue and results of operations. In addition, any labor disputes between professional sports leagues and players' unions may result in us having to broadcast games with substitute players, which would adversely affect our business, revenue and results of operations. Although many of our current programming rights agreements with local teams account for labor disputes with certain pro rata reductions in the rights fees owed thereunder, we have a contractual obligation in some cases to continue paying a certain portion of such rights fees notwithstanding any labor dispute.
We may need to obtain FCC-regulated licenses for RSN video distribution.
Our RSNs require use of certain uplinks and downlink facilities for video distribution. Such facilities are licensed by the FCC and subject to FCC regulations. We do not currently own any such authorizations and have entered a transition services agreement whereby a third party, as the FCC-licensee of existing uplink and downlink licenses, provides services related to these authorizations. Upon termination or expiration of the transition services agreement, we may need to acquire such authorizations from the current licensee or obtain new authorizations. In either case, we would need to apply for and obtain prior FCC consent. From time to time, the FCC places limits or holds on applications related to such authorizations, and we cannot guarantee that the FCC will grant our applications.
Risks relating to our debtRISKS RELATING TO OUR DEBT
Our substantial debt could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
We have a high level of debt, totaling $12,551$4,175 million at December 31, 2020,2023, compared to the book value of shareholders' deficitequity of $1,185$221 million on the same date.
Our high level of debt poses risks, including the following risks, particularly in periods of declining revenues:
•we may be unable to service our debt obligations, especially during negative economic, financial credit and market industry conditions;
•we may require a significant portion of our cash flow to pay principal and interest on our outstanding debt, especially during negative economic and market industry conditions;
•the amount available for joint ventures, working capital, capital expenditures, dividends and other general corporate purposes may be limited because a significant portion of cash flow is used to pay principal and interest on outstanding debt;
•if our distribution and advertising revenues decline, we may not be able to service our debt;
•if we are unable to renew team sports media rights or renew on less favorable terms, we may not be able to service our debt;
•our lenders may not be as willing to lend additional amounts to us for future joint ventures, working capital needs, additional acquisitions or other purposes;
•our lenders may not be willing to refinance both our fixed and variable rate debt instruments as they come due or the rates the debt is refinanced at are not equal to or lower than the maturing rates;
•rating agencies may downgrade our corporate family rating and/or debt ratings which could impair our ability to raise funds, refinance debt, or incur a higher financing cost;
•the cost to borrow from lenders may increase or market rates may increase;
•our ability to access the capital markets may be limited, and we may be unable to issue securities with pricing or other terms that we find attractive, if at all;
•if our cash flow were inadequate to make interest and principal payments, we might have to restructure or refinance our debt or sell an equity interest in one or more of our RSNsbroadcast stations to reduce debt service obligations;
•our interest rate hedges incurring losses and causing us to make additional interest payments;
•we may be limited in our flexibility in planning for and reacting to changes in the industry in which we compete; and
•we may be more vulnerable to adverse economic and industry conditions than less leveraged competitors and thus, less able to withstand competitive pressures; and
•we may not be able to comply with debt service requirements or other financial and affirmative and negative covenants.pressures.
Any of these events could reduce our ability to generate cash available for debt service, investment, repay, restructure or refinance our debt, seek additional debt or equity capital, make capital improvements or to respond to events that would enhance profitability.
We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of equity interests in our RSNs,equity investments, other material assets or operations, seek additional debt or equity capital or restructure or refinance our debt. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The STG Bank Credit Agreement, the DSG Bank Credit Agreement, the A/R Facility, and each of the indentures that govern the STG and DSG notesNotes restrict our ability to dispose of assets and use the proceeds from such dispositions and restrict our ability to raise debt or equity capital to be used to repay other debt when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
If we cannot make scheduled payments on our debt, we will be in default and holders of our debt could declare all outstanding principal and interest to be due and payable, the lenders under the STG Bank Credit Agreement the DSG Bank Credit Agreement, and the A/R Facility could terminate their commitments to loan us money, the lenders could foreclose against the assets securing their obligations and we STG and/or DSGSTG could be forced into bankruptcy or liquidation.
Despite our current level of debt, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described herein.
We and our subsidiaries may be able to incur significant additional debtindebtedness in the future. Although the terms of the debt instruments to which we are subject contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions, and the additional debt incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute debt.indebtedness. If new debt is added to our current debt levels, the related risks that we and the guarantors now face could intensify.
Our variable rate debt subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Interest rates may increase in the future. As a result, interest rates on the obligations under the STG Bank Credit Agreement the DSG Bank Credit Agreement, the A/R Facility, or other variable rate debt offerings could be higher or lower than current levels. As of December 31, 2020,2023, approximately $5,839$2,676 million principal amount of our debt relates to the STG Bank Credit Agreement, the DSG Bank Credit Agreement and the A/R Facility, in each caseis subject to variable interest rates. If interest rates increase, our debt service obligations on our variable rate debt would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our debt, would correspondingly decrease. While we may in the future enter into interest rate hedging agreements with respect to our borrowings under certain credit agreements, such agreements are not expected to fully mitigate against interest rate risk.
In addition, our Bank Credit Agreement references the Secured Overnight Financing Rate ("SOFR") as the primary benchmark rate for our variable rate indebtedness. SOFR is a relatively new reference rate and with a limited history, and changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates. As a result, the amount of interest we may pay on our variable rate indebtedness is difficult to predict.
Our use of derivative financial instruments to reduce interest rate risk may result in added volatility in our operating results.
We do not hold or issue derivative financial instruments for trading purposes. However, we do utilize derivative financial instruments to reduce interest rate risk associated with our indebtedness. To manage variable interest rate risk, we entered into
an interest rate swap agreement in February 2023, which will effectively convert a portion of our variable rate indebtedness into a fixed rate loan. The associated impact on our operating results is directly related to changes in prevailing interest rates. Consequently, these swaps may introduce additional volatility into our operating results by either increasing or decreasing interest costs depending upon the position of the swap.
Commitments we have made to our lenders limit our ability to take actions that could increase the value of our securities and business or may require us to take actions that decrease the value of our securities and business.
Our existing financing agreements prevent us from taking certain actions and require us to meet certain tests. These restrictions and tests may require us to conduct our business in ways that make it more difficult to repay unsecured debt or decrease the value of our securities and business. These restrictions and tests include the following:
•restrictions on the incurrence, assumption or guaranteeing of additional debt, or the issuance of disqualified stock or preferred stock;
•restrictions on our ability to guarantee and pledge our assets as security for debt;the payment of dividends, other distributions or repurchases of equity;
•restrictions on our ability to prepay or redeem certain debt;investments and other restricted payments;
•restrictions on payment of dividends, the repurchase of stock and other payments relating to our capital stock;
•restrictions on some sales of certain assets and the use of proceeds from asset sales;
•restrictions on mergers and other acquisitions, satisfaction of conditions for acquisitions and a limit on the total amount of acquisitions without the consent of bank lenders;
•restrictions on permitted investments;transactions with affiliates;
•restrictions on the linescreation, incurrence, assumption, or suffering the existence of business weliens;
•restrictions on the sale and disposition of certain assets to third parties;
•restrictions on the issuance of guarantees of and pledges for indebtedness;
•restrictions on consolidation, merger or sale of all or substantially all of our assets;
•restrictions on the ability of certain subsidiaries may operate;to limit their ability to pay dividends and make other payments to the Issuers or the guarantors;
•restrictions on the ability to designate restricted subsidiaries as unrestricted subsidiaries and on transfers of assets to unrestricted subsidiaries and other non-guarantor subsidiaries; and
•financial ratio and condition tests including, the ratio of total debtrestrictions or costs to consolidated EBITDA, as adjusted, the ratio of first lien debt to consolidated EBITDA, as adjusted, and the ratio of consolidated EBITDA, as adjusted, to fixed charges.repay or refinance existing debt;
Future financing arrangements may contain additional restrictions, tests, and tests. In addition, the limited liability company agreement governing the terms of the preferred equity of Diamond Sports Holdings LLC (DSH), an indirect parent of DSG and one of our indirect wholly-owned subsidiaries, that we issued in connection with the acquisition of the Acquired RSNs (Redeemable Subsidiary Preferred Equity), restricts DSH’s and its subsidiaries' ability to pay dividends and make distributions relating to its capital stock, and future issuances of equity by DSH. All of these restrictive covenants that may limit our ability to pursue certain opportunities, limit our ability to raise additional debt or equity financing to operate during general economic or business strategies,downturns, and prevent us from taking action that could increase the value of our securities or may require actions that decrease the value of our securities.
In addition, we may fail to meet the tests and thereby default on one or more of our obligations (particularly if the economy weakens and thereby reduces our advertising revenues). If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happens, we could be forced to sell equity interests in our equity investments, TV stations or other assets or take other actions that could significantly reduce theour value of our securities and business and we may not have sufficient assets or funds to pay our debt obligations.
A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt, and loss of assets securing our loans.
Certain of our debt agreements will contain cross-default provisions with other debt, which means that a default under certain of our debt instruments may cause a default under such other debt. As of December 31, 2020, a default under the DSG notes or DSG Bank Credit Agreement would not trigger a cross-default under the STG Bank Credit Agreement or the STG notes, or vice versa. In addition, as of December 31, 2020, a default under the A/R Facility would not trigger a default under the terms of any of our other debt.
If we breach certain of our debt covenants, we will be unable to utilize the full borrowing capacity under our debt arrangements and our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately take possession of the property securing such debt. In addition, because certain of our debt agreements contain cross-default and cross-acceleration provisions with other debt, if any other debtholder of either STG or DSG were to declare its loan due and payable as a result of a default, the
holders of the respective debt of STG (STG ("Bank Credit AgreementAgreement" and STG notes) or DSG (DSG Bank Credit Agreement, DSG notes, and the A/R Facility)"STG Notes"), might be able to require us to pay those debts immediately.
As a result, any default under debt covenants could have a material adverse effect on our financial condition and our ability to meet our obligations.
The total assets, net incomeGENERAL RISK FACTORS
Diamond Sports Group's bankruptcy proceedings, which include litigation against SBG, STG and attributable EBITDAother subsidiaries of ourSinclair as well as certain directors and officers of Sinclair, could have a material adverse effect on Sinclair and SBG's financial condition and results of operations.
On March 14, 2023, DSG, Sinclair and SBG's independently managed and unconsolidated subsidiary, guarantorsfiled for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas. On July 19, 2023, as part of the ongoing bankruptcy proceedings, DSG notes may decrease substantially if our existingand its wholly-owned subsidiary, guarantors ceaseDiamond Sports Net, LLC, filed a complaint in the United States Bankruptcy Court for the Southern District of Texas naming certain subsidiaries of Sinclair, including SBG and STG, David D. Smith, Sinclair's Executive Chairman, Christopher S. Ripley, Sinclair's President and Chief Executive Officer, Lucy A. Rutishauser, Sinclair's Executive Vice President & Chief Financial Officer, and Scott Shapiro, Sinclair's Executive Vice President, Corporate Development and Strategy, as defendants.
In the complaint, plaintiffs challenge a series of transactions involving SBG and certain of its subsidiaries, on the one hand, and DSG and its subsidiaries, on the other hand, since SBG acquired the former Fox Sports regional sports networks from The Walt Disney Company in August 2019. The complaint alleges, among other things, that the management services agreement entered into by STG and DSG was not fair to be wholly-ownedDSG and was designed to benefit STG and SBG; that the Bally's transaction in November 2020 through which Bally's acquired naming rights to certain regional sports networks was not fair to DSG and was designed to benefit STG and SBG; and that certain distributions made by DSG that were used to pay down preferred equity of DSH were inappropriate and were conducted at a time when DSG was insolvent. The complaint alleges that SBG and its subsidiaries (other than DSG and its subsidiaries) received payments or indirect benefits of approximately $1.5 billion as a result of the issuancealleged misconduct. The complaint asserts a variety of equityclaims, including certain fraudulent transfers of assets, unlawful distributions and payments, breaches of contracts, unjust enrichment and breaches of fiduciary duties. The plaintiffs are seeking, among other relief, avoidance of fraudulent transfers and unlawful distributions, and unspecified monetary damages to be determined. The defendants believe the subsidiariesallegations in this lawsuit are without merit and intend to third parties.vigorously defend against plaintiffs' claims.
AsOn January 17, 2024 Sinclair announced that it has agreed, subject to definitive documentation and final court approval, to a global settlement and release of December 31, 2020, we are joint venture partnersall claims associated with six teamsthe complaint, which settlement includes an amendment to the management services agreement between STG and DSG. The settlement terms include, among other things, DSG’s dismissal with prejudice of the complaint against Sinclair, its subsidiaries and all other defendants, along with the full and final satisfaction and release of all claims in that complaint against all defendants, including Sinclair and its subsidiaries, in exchange for Sinclair’s cash payment to DSG of $495 million. The cash payment will be funded by cash on hand at Ventures, STG and/or a loan backed by Ventures. Under the terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity going forward. The settlement is subject to definitive documentation, including finalization of certain transition terms, and court approval. A motion for approval of the settlement was filed with the court on January 23, 2024. On February 26, 2024, the court indicated it would approve the settlement, subject to Sinclair and DSG completing definitive documentation. Sinclair has entered into the settlement, without admitting any fault or wrongdoing. If the settlement does not receive final court approval, Sinclair remains committed to vigorously defending against the claims asserted in the RSNs that distribute content for each respective team. In connection with our efforts to renew our existing media rights agreements, we may enter into new agreements that provide our joint venture partners or other investors a minority equity interest in the RSNs that are currently wholly-owned. Such RSNs would not be wholly-owned by us, and because the indentures that govern the DSG notes only requires wholly-owned subsidiaries to guarantee the DSG notes, such RSNs would no longer be required to guarantee the DSG notes. As a result, the total assets, net income and attributable EBITDA of our non-guarantor subsidiaries could increase substantially, which could have a materially adverse effect on our ability to meet our obligations under the DSG notes.litigation.
Our joint venture agreements contain provisions which mayThe cash payment in the settlement will have an adverse affect on Sinclair and SBG's financial and results of operations. In addition, if the court does not ultimately approve the settlement, Sinclair will incur additional legal fees and expenses and the eventual outcome of the litigation could result in cash payments that would reduce our abilitythe payment of monetary damages in excess of the settlement amount, which could materially and adversely affect Sinclair and SBG's financial and results of operations The ultimate court-approved structure and organization of DSG post-bankruptcy could also result in adverse tax consequences to repay our obligations under our debt.Sinclair and SBG. These potential consequences could materially and adversely affect Sinclair and SBG's financial condition and results of operations.
Our joint venture agreements contain certain provisions which may result in cash payments that would decrease our available cash and may reduce our ability to repay our obligations under our debt.
For example, as of December 31, 2020, our joint venture agreements with three teams contained provisions by which we were or may become contractually obligated, at the team's option, to purchase a portion of or all of the team's equity interest in the joint venture at a pre-determined price. If additional teams exercise their put rights pursuant to the joint venture agreements, it would require us to make cash payments that would decrease our available cash and may reduce our ability to repay our obligations under our debt, including the DSG notes.
General risk factors
Financial and economic conditions, including inflation, may have an adverse impact on our industry, business, and results of operations or financial condition.
Financial, economic and economicgeopolitical conditions are by their nature unpredictable and the deterioration or worsening of those conditions could have an adverse effect on the fundamentals of our business, results of operations, and/or financial condition. Poor economic and industry conditions, including inflation, could have a negative impact on our industry or the industry of those customers who advertise on our stations, including, among others, the automotive industry and service businesses, each of which is a significant source of our advertising revenue. Additionally, financial institutions, capital providers, or other consumers may be adversely affected. Potential consequences of any financial and economic decline include:
•the financial condition of those companies that advertise on our stations sports networks, and digital platforms, including, among others, the automobile manufacturers and dealers, may be adversely affected and could result in a significant decline in our advertising revenue;
•geopolitical conditions, including the war in Ukraine, conflicts in the Middle East and international trade sanctions, could negatively impact global supply prices and disrupt supply chain levels, which could negatively impact the operations of us, our customers', our vendors' and our Distributors';
•our ability to pursue the divestiture of certain assets at attractive values may be limited;
•the possibility that our business partners, such as counterparties to our outsourcing and news share arrangements, and parties to joint ventures with the RSNs, could be negatively impacted and our ability to maintain these business relationships could also be impaired;
•our ability to refinance our existing debt on terms and at interest rates we find attractive, if at all, may be impaired;
•our ability to make certain capital expenditures may be significantly impaired;
•our ability to pursue the acquisition of attractive assets may be limited if we are unable to obtain any necessary additional capital on favorable terms, if at all;
•content providers may cut back on the amount of content we can acquire to program the RSNs or stations; and
•the possibility of our distribution customers losing subscribers, thereby impacting our distribution revenues.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.CYBERSECURITY
Sinclair maintains a cyber risk management program designed to identify, assess, manage, mitigate, and respond to cybersecurity threats. This program is integrated within the Company’s enterprise risk management system and disclosure committee. The program addresses the corporate information technology environment, third-party service providers and customer-facing products and applications.
The Company’s Chief Information Security Officer is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Board, the audit committee and disclosure committee. Our Chief Information Security Officer has over a decade of experience leading cybersecurity oversight, and others on our IT security team have cybersecurity experience or certifications, such as the Certified Information Systems Security Professional certification.
We have continued to expand investments in IT security, including additional end-user training, using layered defenses, identifying and protecting critical assets, strengthening monitoring and alerting, and engaging experts. At the management level, our IT security team identifies risks by regularly monitoring alerts, meeting to discuss threat levels, trends, and remediation and immediately informs the Chief Information Security Officer, whom leads the IT security team, upon the occurrence of any material event. The processes used to assess the risk level include preparing a monthly cyber scorecard, regularly collecting data on cybersecurity threats and risk areas and conducting an annual risk assessment. To assure risks are reduced and maintained, we conduct periodic external penetration tests, red team testing, and maturity testing to assess our processes and procedures and the threat landscape. We regularly test defenses by performing simulations and drills at both a
technical level (including penetration tests) and by reviewing our operational policies and procedures with third-party experts. We view cybersecurity as a shared responsibility throughout the Company, and we periodically perform simulations and tabletop exercises at technical and management levels and incorporate external resources and advisors as needed. These tests and assessments are useful tools for maintaining a robust cybersecurity program to protect our investors, customers, employees, vendors, and intellectual property. All employees are required to complete cybersecurity training at least once a year and have access to more frequent cybersecurity online training. We also require employees in certain roles to complete additional role-based, specialized cybersecurity training. We utilize our Internal Audit team to assess the design and operating effectiveness of our internal controls, including those that relate to our IT security environment. Further, we maintain various cyber insurance policies and believe we are adequately covered in the event we experience a cybersecurity breach.
In addition to assessing our own cybersecurity preparedness, we also consider and evaluate cybersecurity risks associated with the use of third-party service providers. Our Internal Audit team conducts an annual review of third-party hosted applications with a specific focus on any sensitive data shared with third parties. The internal business owners of the hosted applications are required to document user access reviews at least annually and provide from the vendor a System and Organization Controls ("SOC") 1 or SOC 2 report. If a third-party vendor is not able to provide a SOC 1 or SOC 2 report, we take additional steps to assess their cybersecurity preparedness and assess our relationship on that basis. Our assessment of risks associated with the use of third-party providers is part of our overall cybersecurity risk management framework.
The Board oversees Sinclair’s cybersecurity risk exposures and the steps taken by management to monitor and mitigate cybersecurity risks. The Company's Chief Information Security Officer briefs the Board on the effectiveness of Sinclair’s cyber risk management program, typically on a quarterly basis. In addition, cybersecurity risks are reviewed by the Board, at least annually, as part of the Company’s corporate risk management process.
We face a number of cybersecurity risks in connection with our business. We have in the past experienced threats to and breaches of our data and systems, including ransomware, malware and computer virus attacks, including a ransomware attack in October 2021 which had a material adverse impact on our business strategy, results of operations or financial condition to date. For more information about the cybersecurity risks we face and have experienced, see the risk factor entitled “We have experienced a cyber security breach in the past and may be vulnerable to future security breaches, data privacy, and other information technology failures that could have a material adverse effect on our financial performance and operating results and disrupt our operations” within Item 1A- Risk Factors.
ITEM 2. PROPERTIES
We own and lease facilities consisting of offices, studios, sales offices, and tower and transmitter sites throughout the U.S. Our owned and leased transmitter and tower sites are located in areas to provide maximum signal coverage to our stations’stations' markets. We believe that all of our properties, both owned and leased, are generally in good operating condition, subject to normal wear and tear, and are suitable and adequate for our current business operations. We believe that no one property represents a material amount of the total properties owned or leased.
ITEM 3. LEGAL PROCEEDINGS
We are a party to lawsuits, claims, and regulatory matters from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
OurSINCLAIR, INC.
Sinclair's Class A Common Stock is listed for trading on the NASDAQ stock market under the symbol "SBGI". OurSinclair's Class B Common Stock is not traded on a public trading market or quotation system.
As of February 25, 2021,26, 2024, there are approximately 4036 shareholders of record of ourSinclair's Class A Common Stock. Many of ourSinclair's shares of Class A Common Stock are held by brokers and institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We intend to pay regular quarterly dividends to our stockholders, although all future dividends on our Common Stock, if any, will be at the discretion of ourthe Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions, and other factors that the Board of Directors may deem relevant.
In February 2021, we2024, Sinclair declared a quarterly cash dividend of $0.20$0.25 per share.
See Note 3. Stock-Based Compensation Plans within the Sinclair's Consolidated Financial Statements for discussion of our stock-based compensation plans.
Comparative Stock Performance
The following line graph compares the yearly percentage change in thebelow matches Sinclair, Inc.'s cumulative 5-Year total shareholder return on our Class A Common Stockcommon stock with the cumulative total returnreturns of the NASDAQ Composite Indexindex and the cumulative total return of the NASDAQ Telecommunications Index (anindex. The graph tracks the performance of a $100 investment in our common stock and in each index containing performance data(with the reinvestment of radio and television broadcast companies and communication equipment and accessories manufacturers)all dividends) from December 31, 2015 through2018 to December 31, 2020. The performance graph assumes that an investment of $100 was made in the Class A Common Stock and in each Index on December 31, 2015 and that all dividends were reinvested. Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) plus share price change for a period by the share price at the beginning of the measurement period.
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| Company/Index/Market | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| Sinclair Broadcast Group, Inc. | | 100.00 | | | 104.84 | | | 121.50 | | | 86.67 | | | 111.83 | | | 110.82 | |
| NASDAQ Composite Index | | 100.00 | | | 108.87 | | | 141.13 | | | 137.12 | | | 187.44 | | | 271.64 | |
| NASDAQ Telecommunications Index | | 100.00 | | | 112.56 | | | 135.96 | | | 125.10 | | | 158.73 | | | 192.30 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company/Index/Market | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 | | 12/31/2023 |
| Sinclair, Inc. | | 100.00 | | | 129.03 | | | 127.86 | | | 108.95 | | | 66.79 | | | 60.25 | |
| NASDAQ Composite Index | | 100.00 | | | 136.69 | | | 198.10 | | | 242.03 | | | 163.28 | | | 236.17 | |
| NASDAQ Telecommunications Index | | 100.00 | | | 118.74 | | | 130.71 | | | 133.51 | | | 97.62 | | | 108.00 | |
Stock Repurchases
For the quarter ended December 31, 2020:2023: None
SINCLAIR BROADCAST GROUP, LLC
Not applicable.
ITEM 6. [RESERVED]
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31, 2020, 2019, 2018, 2017, and 2016 have been derived from our audited consolidated financial statements.
The information below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form 10-K.
SINCLAIR BROADCAST GROUP, INC.
STATEMENTS OF OPERATIONS DATA
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Statements of Operations Data: | | | | | | | | | |
| Media revenues (a) | $ | 5,843 | | | $ | 4,046 | | | $ | 2,919 | | | $ | 2,567 | | | $ | 2,521 | |
| | | | | | | | | |
| Non-media revenues | 100 | | | 194 | | | 136 | | | 69 | | | 102 | |
| Total revenues | 5,943 | | | 4,240 | | | 3,055 | | | 2,636 | | | 2,623 | |
| Media programming and production expenses | 2,735 | | | 2,073 | | | 1,191 | | | 1,064 | | | 956 | |
| Media selling, general and administrative expenses | 832 | | | 732 | | | 630 | | | 534 | | | 502 | |
| Amortization of program contract costs | 86 | | | 90 | | | 101 | | | 116 | | | 128 | |
| Non-media expenses | 91 | | | 156 | | | 122 | | | 75 | | | 85 | |
| Depreciation of property and equipment | 102 | | | 97 | | | 105 | | | 97 | | | 98 | |
| Corporate general and administrative expenses | 148 | | | 387 | | | 111 | | | 113 | | | 74 | |
| Amortization of definite-lived intangible and other assets | 572 | | | 327 | | | 175 | | | 179 | | | 184 | |
| Impairment of goodwill and definite-lived intangible assets | 4,264 | | | — | | | — | | | — | | | — | |
| Gain on asset dispositions and other, net of impairment | (115) | | | (92) | | | (40) | | | (279) | | | (6) | |
| Operating (loss) income | (2,772) | | | 470 | | | 660 | | | 737 | | | 602 | |
| Interest expense including amortization of debt discount and deferred financing costs | (656) | | | (422) | | | (292) | | | (212) | | | (211) | |
| Loss on extinguishment of debt | (10) | | | (10) | | | — | | | (1) | | | (24) | |
| (Loss) gain from equity method investments | (36) | | | (35) | | | (61) | | | (14) | | | 1 | |
| Other income, net | 325 | | | 6 | | | 3 | | | 9 | | | 4 | |
| (Loss) income before income taxes | (3,149) | | | 9 | | | 310 | | | 519 | | | 372 | |
| Income tax benefit (provision) | 720 | | | 96 | | | 36 | | | 75 | | | (122) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net (loss) income | (2,429) | | | 105 | | | 346 | | | 594 | | | 250 | |
| Net income attributable to redeemable noncontrolling interests | (56) | | | (48) | | | — | | | — | | | — | |
| Net loss (income) attributable to noncontrolling interests | 71 | | | (10) | | | (5) | | | (18) | | | (5) | |
| Net (loss) income attributable to Sinclair Broadcast Group | $ | (2,414) | | | $ | 47 | | | $ | 341 | | | $ | 576 | | | $ | 245 | |
| Earnings Per Common Share Attributable to Sinclair Broadcast Group: | | | | | | | | | |
| | | | | | | | | |
| Basic earnings per share | $ | (30.20) | | | $ | 0.52 | | | $ | 3.38 | | | $ | 5.77 | | | $ | 2.62 | |
| | | | | | | | | |
| Diluted earnings per share | $ | (30.20) | | | $ | 0.51 | | | $ | 3.35 | | | $ | 5.72 | | | $ | 2.60 | |
| Dividends declared per share | $ | 0.80 | | | $ | 0.80 | | | $ | 0.74 | | | $ | 0.72 | | | $ | 0.71 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 1,259 | | | $ | 1,333 | | | $ | 1,060 | | | $ | 681 | | | $ | 260 | |
| Total assets | $ | 13,382 | | | $ | 17,370 | | | $ | 6,572 | | | $ | 6,784 | | | $ | 5,963 | |
| Total debt (c) | $ | 12,551 | | | $ | 12,438 | | | $ | 3,893 | | | $ | 4,049 | | | $ | 4,204 | |
| Redeemable noncontrolling interests | $ | 190 | | | $ | 1,078 | | | $ | — | | | $ | — | | | $ | — | |
| Total (deficit) equity | $ | (1,185) | | | $ | 1,694 | | | $ | 1,600 | | | $ | 1,534 | | | $ | 558 | |
(a)Media revenues include distribution revenue, advertising revenue, and other media related revenues.
(b)Depreciation and amortization includes depreciation and amortization of property and equipment and amortization of definite-lived intangible assets and other assets.
(c)Total debt is defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “"Forward-Looking Statements.”" Certain risks may cause our actual results, performance, or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A. Risk Factors.
Overview
The following Management’s Discussion and Analysis provides qualitative and quantitative information about ourSinclair's and SBG's financial performance and condition andwhich should be read in conjunction with the other sections in this annual report, including Item 1. BusinessItem 6. Selected Financial Data, and the Consolidated Financial Statements, including the accompanying notes to those statements. This discussion consists of the following sections:
Executive Overview — a description of our business, summary of significant events, and financial highlights from 2020 and so far in 2021, and information about industry trends;
Critical Accounting Policies and Estimates — a discussion of the accounting policies that are most important in understanding the assumptions and judgments incorporated in the consolidated financial statementsConsolidated Financial Statements and a summary of recent accounting pronouncements;
Results of Operations — a summary of the components of ourSinclair's and SBG's revenues by category and by network affiliation, or program service arrangement, a summary of other operating data, and an analysis of ourSinclair's and SBG's revenues and expenses for 2020, 2019,2023, 2022, and 2018,2021, including comparisonsa comparison between years2023 and certain expectations for2022 and between 2022 and 2021; and
Liquidity and Capital Resources — a discussion of ourSinclair's and SBG's primary sources of liquidity and contractual cash obligations and an analysis of ourSinclair's and SBG's cash flows from or used in operating activities, investing activities, and financing activities, a discussion of our dividend policy, and a summary of our contractual cash obligations and off-balance sheet arrangements.activities.
EXECUTIVE OVERVIEW
We are a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, RSNs,digital platform, and, digital platforms. Thisprior to the Deconsolidation, regional sports networks. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us.us and our owned networks, and, prior to the Deconsolidation, college and professional sports. Additionally, we own digital and internet media products that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses,properties and we have interests in, own, manage and/or operate technical and software services companies, focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other media and non-media related businesses and assets, including real estate, venture capital, private equity, and direct investments.
We haveAs of December 31, 2023, Sinclair had two reportable segments: broadcastsegments, local media and tennis, and SBG had one reportable segment, local media. Prior to the Deconsolidation,Sinclair and SBG had one additional reportable segment, local sports. Our broadcastSinclair and SBG's local media segment is comprised of our television stations. Ourstations, which are owned and/or operated by Sinclair and SBG's wholly-owned subsidiary, Sinclair Television Group, Inc. ("STG") and its direct and indirect subsidiaries, original networks and content.Sinclair's tennis segment primarily consists of Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sports and tennis lifestyle shows. Sinclair and SBG's local sports segment iswas comprised of our RSNs. Weregional sports networks, which are owned and operated by our subsidiary, Diamond Sports Group, LLC ("DSG"). Sinclair also earnearns revenues from our owned networks, original content,non-broadcast digital and internet services, technical services, and non-media investments. These businesses areinvestments, included within other. Corporate and unallocated expenses primarily include our costs to operate as a public company and to operate our corporate headquarters location."other". Other and corporate are not reportable segments.segments for either Sinclair or SBG.
STG, for which certain assets and results of operations are included in the broadcastlocal media segment and which is one of ourSinclair's and SBG's wholly owned subsidiaries, is the primary obligor under the STG Bank Credit Agreement the STG 5.125% unsecured notes due 2027, the STG 5.875% unsecured notes due 2026, the STG 5.500% unsecured notes due 2030, and the STG 4.125% secured notes due 2030 (the STG notes are collectively referred to as the STG Notes). WeNotes. SBG and substantially all of STG’s subsidiaries (and not DSG nor any of its subsidiaries) are guarantors under the STG debt instruments. DSG, for which certain assets and results of operations are included in the local sports segment and which is one of our subsidiaries, is the primary obligor under the DSG Bank Credit Agreement, the DSG 5.375% secured notes due 2026, the DSG 6.625% unsecured notes due 2027, and the DSG 12.750% secured notes due 2026 (the DSG notes are collectively referred to as the DSG Notes). DSG’s wholly-owned subsidiaries (and not us, STG, or any of STG's subsidiaries) are guarantors under the DSG debt instruments. OurSinclair's Class A Common Stock and Class B Common Stock remain securities of SBGSinclair and not obligations or securities of STG or DSG.STG.
For more information about our business, reportable segments, and our operating strategy, see Item 1. Business in this Annual Report.Report on Form 10-K.
Summary of Significant Events and Financial Highlights
TransactionsContent and Distribution
•In February 2023, SBG announced that its free, over-the-air multicast networks Comet, CHARGE!, and TBD will add 2.4 million households through upgraded local broadcast affiliates and linear carriage.
•In March 2023, SBG entered into an agreement with fuboTV for carriage of SBG's CBS stations.
•In April 2023, Sinclair announced a distribution agreement with YouTube TV to add carriage of Sinclair's Tennis Channel and T2 and SBG's CHARGE! and TBD to YouTube TV's service offerings and to extend YouTube TV's existing carriage of SBG's CBS and MyNetworkTV affiliated television broadcast stations.
•In April 2023, SBG entered into an agreement with Hulu to resume carriage of SBG's ABC stations.
•In June 2023, SBG reached an agreement with Smith Entertainment Group, parent company of the Utah Jazz, to make KJZZ "The Home of the Utah Jazz," enabling fans within the Jazz's local broadcast market to watch all non-nationally televised exclusive Jazz games on the over-the-air, local TV station.
•In July 2023, Sinclair announced a distribution agreement with Hulu to add carriage of Sinclair's Tennis Channel and T2 and SBG's Comet and CHARGE! to Hulu's service offerings beginning in January 2024.
•In August 2023, SBG agreed to expand and extend its network affiliation agreement with The CW. Under the terms of the comprehensive multiyear agreement, SBG will continue carrying The CW’s entertainment and sports programming in 35 of its owned and/or operated markets across the country. The agreement also includes the right to negotiate carriage agreements directly with vMVPDs. In addition, beginning September 1, SBG launched The CW on two new affiliate stations, KOMO-TV/KUNS-TV, in Seattle, Washington, and WPNT-TV in Pittsburgh, Pennsylvania.
•In September 2023, DIRECTV, LLC extended its distribution agreement with Sinclair.
•In September 2023, Tennis Channel and the Carvana Professional Pickleball Association (PPA Tour) announced a commercial joint venture to further grow pickleball in the United States and worldwide. The partnership will see the vast majority of PPA Tour matches appear live on Tennis Channel platforms, integrated advertising-sales efforts for media and tournaments, and the recent launch of a 24-hour pickleball channel. Tennis Channel will produce all events for the PPA Tour.
•In October 2023, SBG launched The Nest, a new, free over-the-air national broadcast TV network with programming comprised of home-improvement, true-crime, factual reality series, and celebrity driven family shows. The Nest joins SBG’s lineup of national broadcast networks, Comet, CHARGE!, and TBD. It replaces Stadium network on broadcast stations across the country. At launch, the network was available in more than 50% of all US television households including the major markets of New York, Los Angeles, Philadelphia, Dallas - Ft. Worth, Boston, San Francisco - Oakland - San Jose and Seattle-Tacoma.
•In October 2023, SBG and Paramount reached comprehensive, multi-year affiliation agreements across all 21 CBS network affiliations for SBG stations, including six top-50 market affiliates, KUTV in Salt Lake City, UT, KEYE in Austin, TX, WKRC in Cincinnati, OH, WPEC in West Palm Beach, FL, WWMT in Grand Rapids, MI and WHP in Harrisburg, PA. Additionally, Paramount reached an agreement to renew the affiliations of WTVH in Syracuse, NY and WGFL in Gainesville, FL, stations to which SBG provides services.
•In January 2020,2024, Sinclair announced a minority partnercomprehensive multi-year distribution agreement with Verizon for carriage on FiOS TV, covering Tennis Channel and SBG's local television stations in one of our RSNs exercised its right to sell us the entirety of its non-controlling interest for $376 million.10 markets.
•In November 2020, we entered intoJanuary 2024, SBG and FOX Corporation reached an agreement with Bally's for a long-term strategic partnership that combines Bally’s vertically integrated, proprietary sports betting technologymulti-year renewal of all FOX affiliations in SBG markets, including where SBG provides sales and expansive market access footprint with our premier enterprise-wide portfolio of local broadcast stations, RSNs, Tennis Channel, Stadium, and STIRR.other services under JSAs or MSAs.
•In February 2021, we soldJanuary 2024, Sinclair renewed its distribution agreement with the National Content & Technology Cooperative ("NCTC") that allows NCTC's member companies to opt into a multi-year retransmission consent agreement for SBG's owned and operated stations and includes an agreement for Tennis Channel.
Environmental, Social, and Governance
•For the year ended December 31, 2023, our stations WDKAnewsrooms won a total of 276 journalism awards, including 24 Regional and KBSI, in Paducah, KY for $28 million.one National RTDNA Edward R. Murrow awards and 67 regional Emmy awards.
•In February 2021, we acquiredMarch 2023, SBG announced a multi-year, national agreement with USC Shoah Foundation—The Institute for Visual History and Education to assist with the remaining 73% interest we did not already ownrecording of interviews with genocide survivors as part of the Institute’s Last Chance Testimony Collection Initiative.
•In April 2023, SBG announced that Project Baltimore, the special investigative reporting unit of WBFF/Fox 45 News, was honored by Investigative Reporters and Editors for its reporting on Baltimore's public school system.
•In April 2023, Sinclair and SBG celebrated our first Sinclair Day of Service whereby all employees were encouraged to volunteer that day for charitable causes. Thousands of employees eagerly turned out to help out in Zyp Media,their communities.
•In May 2023, Sinclair published its 2022 Environmental, Social and Governance report, detailing ESG achievements in 2022 and progress toward its longstanding ESG goals and commitments.
•In May 2023, SBG announced that "Hate Rising: Antisemitism in America," a leading demand-side platform specializing60-minute special, will initially air on WPEC and be available across SBG's stations throughout the summer, providing an unfiltered look at the rise of antisemitism in executing local media campaigns for media companiesAmerica, examining how the country is combating it through awareness, education, and agencieslegislation.
•In July 2023, Sinclair announced a partnership with the National Diaper Bank Network to launch Sinclair Cares: Summer Diaper Drive, a nationwide campaign to create awareness, provide assistance, and build a community to reduce diaper need in the United States.
Television and Digital Content
•In January 2020, STIRR, our fast-growing, free ad-supported streaming service, launched an original channel, "2020 LIVE", July 2023, SBG announced that scholarships were awarded to offer15 university students as a continuous streampart of live election coverage, giving viewers live access to daily campaign event feeds from across the country, including town hall meetings and stump speeches.SBG's annual Diversity Scholarship program.
•In March 2020, STIRROctober 2023, Sinclair launched Sinclair Cares: Humanitarian Relief in Israel, a new channel dedicatedfundraising partnership in conjunction with Magen David Adom (MDA), an affiliate of the International Federation of Red Cross and Red Crescent Societies, to COVID-19 coverage, including live feedshelp with their efforts providing humanitarian relief and emergency medical services for all people in Israel, regardless of press conferences as well as other localreligious creed or political belief.
•In October 2023, SBG announced the return of SBG's News Reporter and Producer Academies, a series of interactive, virtual workshops for college students interested in pursuing careers in journalism. This year, SBG also added Weather Academy, a workshop for students interested in a career in weather.
•In October 2023, Sinclair updated its Code of Business Conduct and Ethics.
NextGen Broadcasting (ATSC 3.0)
•In April 2023, Sinclair and its partners CAST.ERA, SK Telecom, and Saankhya Labs, announced they will build and operate an innovative and interconnected broadcast platform to provide commercial services and solutions for national news.data distribution using NextGen Broadcast (ATSC 3.0) network technology.
•In April 2020, we made significant changes2023, the Metropolitan Washington Council of Governments and Sinclair's subsidiary, ONE Media 3.0, launched the nation's first pilot project to use Next Generation Broadcast to disseminate Advanced Emergency Information. The pilot program provides an efficient, instantaneous and simultaneous delivery of emergency messaging sent by local governments to all users for free, utilizing the content across three company-owned networks; Comet, Charge!, and TBD, including adding someover-the-air broadcast platform. The pilot also demonstrated delivery of the most popular classic television series, as well as TBD's first-ever original series, The Link.enhanced, rich media supplements to those emergency messages that meet its newsworthy criteria.
•In April 2020, our Nashville affiliate, WZTV FOX17, was named AP Outstanding News OperationOctober 2023, Sinclair announced an agreement to expand development of and promote NextGen services in South Korea with the state of Tennessee. The station was awarded the honor for its remarkable agility in chasing breaking news and demonstrating a sustained commitment to public service.Korea Radio Promotion Association.
•In April 2020, we won four National Headliner Awards and for the second consecutive year, our Project Baltimore investigative reporting team received Investigative Reporters and Editors Inc. (IRE) recognition for exposing local education issues that reflected governmental neglect and lack of oversight.
•In September 2020, we invested in Playfly Sports, a leading company in the management of exclusive college and high school sports and esport multi-media rights across the U.S.
•In 2020, our newsrooms won a total of 356 journalism awards, including a National RTDNA Edward R. Murrow award, 28 Regional RTDNA Edward R. Murrow awards, and 87 regional Emmy awards.
•In January 2021, we launched our headline news service The National Desk across our CW and MNT affiliates and several FOX affiliates, as well as on all station websites and STIRR. The service highlights the latest and most pressing news of the day in real time for viewers across the country.
Distribution, Network and Teams
•In January 2020, we reached an agreement in principle to renew ten affiliation agreements with FOX Broadcasting Company.
•In February 2020, Marquee announced a carriage agreement with Hulu. Including Hulu and previously announced agreements with OTT platform AT&T TV and traditional MVPDs Charter, AT&T U-Verse, DirecTV, and Mediacom, Marquee has signed distribution agreements with 43 Distributors and other OTT distributors.
•In March 2020, we reached an agreement with YouTube TV for continued carriage of 19 regional sports networks across the country.
•In June 2020, we signed a multi-year agreement with ViacomCBS to renew eight CBS network affiliations for our stations. ViacomCBS also reached agreements to renew the affiliations of two stations to which we provide services, WTVH in Syracuse, NY and WGFL in Gainesville, FL.
•In July 2020, we entered into multi-year content carriage agreements with Comcast for all of our television stations and RSNs in Comcast's cable television footprint, including Marquee and the YES Network, as well as continued distribution of the Tennis Channel.
•In August 2020, we entered into a multi-year media rights agreement with the Kansas City Royals beginning with the 2020 baseball season for Fox Sports Kansas City (to be rebranded as Bally Sports Kansas City) to continue as the television home of the Royals. In conjunction with this agreement, the Royals received a minority interest ownership percentage in Fox Sports Kansas City.
•As of September 1, 2020, Frontier Communications no longer carries the Acquired RSNs and the YES Network.
•In September 2020, we reported that YouTube TV would no longer carry our RSNs.
•In October 2020, we reported that Hulu would no longer carry our RSNs and the YES Network.
•In December 2020, we entered into a multi-year agreement with FOX Broadcasting Company that renewed FOX network affiliations for stations in 25 markets that reach approximately 11% of U.S. television households.
•In January 2021, we entered into a multi-year agreement with ViacomCBS across 13 CBS network affiliations reaching about 5% of the U.S. television households.
•In January 2021, we entered into a multi-year agreement with Verizon Communications, Inc., for the continued carriage on Verizon’s FiOS platform of our broadcast television stations and Tennis Channel.
•In February 2021, we entered into a multi-year media rights agreement with the Milwaukee Brewers, beginning with the 2021 baseball season, for FOX Sports Wisconsin (to be rebranded as Bally Sports Wisconsin) to continue as the television home of the Brewers.
NEXTGEN TV
•In January 2020, we announced, with SK Telecom, the Cast.era joint venture focused on cloud infrastructure for broadcasting, ultra-low latency OTT broadcasting, and targeted advertising.
•In January 2020, with significant support from our ONE Media 3.0 team, the International Telecommunications Union announced the approval of NEXTGEN TV for use internationally.
•In February 2020, we became a member of Pearl TV, a business organization of U.S. broadcast companies with a shared interest in exploring forward-looking broadcasting opportunities, including innovative ways of promoting local broadcast TV content and developing digital media and wireless platforms for the broadcast industry.
•In September 2020, we received the honor of being the winner of Achievement in Local Broadcasting awarded by TV of Tomorrow, which was specifically focused and awarded because of2023, Sinclair, and ONE Media’s continued efforts with NEXTGEN TV.
•In December 2020, ONE Media 3.0 launched NEXTGEN radio services, branded as “STIRR XT,” for delivery in Seattle using the NEXTGEN TV standard.
•As of the end of January 2021, we, in coordination with other broadcasters, and led by ourBitPath, Sinclair's joint venture BitPath,with another broadcaster, have deployed NEXTGENNextGen TV, powered by ATSC 3.0, in 12the 6 additional markets below. This brings the total number of our markets:markets in which NextGen TV has been deployed to 43:
| | | | | | | | | | | | | | | | | | | | |
| Month | | Market | | Number of Stations | | SBGCompany Stations |
May 2020March 2023 | | Las Vegas, NVRochester, NY | | 4 | | WHAM-TV(a) (ABC), WUHF (FOX) |
| March 2023 | | KSNV (NBC), KVCW (CW)Des Moines, IA | | 4 | | KDSM-TV (FOX) |
June 20202023 | | Pittsburgh, PASouth Bend, IN | | 3 | | WPGH (FOX), WPNT (MNT) |
June 2020 | | Nashville, TN | | 5 | | WZTV (FOX), WUXP (MNT) |
June 2020WSBT-TV (CBS and FOX) | | Salt Lake City, UT | | 4 | | KUTV (CBS), KJZZ (IND) |
July 20202023 | | Portland, ORReno, NV | | 7 | | KATU (ABC) |
October 2020 | | Austin, TX | | 4 | | KEYE (CBS) |
October 2020 | | Oklahoma City, OK | | 5 | | KOKHKRXI-TV (FOX), KOCB (CW)KRNV-DT(a) (NBC), KNSN-TV(b) (MyNet) |
October 2020August 2023 | | Mobile, AL / Pensacola, FLMinneapolis, MN | | 6 | | WEAR (ABC), WFGX (MNT) |
November 2020 | | Norfolk, VA | | 4 | | WTVZ (MNT) |
November 2020 | | Raleigh / Durham, NC | | 5 | | WLFLWUCW-TV (CW), WRDC (MNT) |
December 20202023 | | Seattle / Tacoma, WAEl Paso, TX | | 75 | | KOMO (ABC)KDBC-TV (CBS), KUNS (Univision)KFOX-TV (FOX) |
| | |
| January 2021 | Columbus, OH | | 4 | | WSYX (ABC/FOX) |
(a)The license and programming assets for these stations are currently owned by a third party. SBG provides certain non-programming related sales, operational, and administrative services to these stations pursuant to a service agreement, such as a JSA and SSA.
(b)The license assets for these stations are currently owned by a third party. SBG provides programming, sales, operational, and administrative services to these stations pursuant to certain service agreements, such as LMAs.
Financing, Capital Allocation, and Shareholder Returns
•In January 2020, we redeemed 200,000February 2023, Sinclair purchased the remaining 175,000 units of the Redeemable Subsidiary Preferred Equityredeemable subsidiary preferred equity for an aggregate redemptionpurchase price equal to $200of $190 million, plusrepresenting 95% of the sum of the remaining unreturned capital contribution of $175 million, and accrued and unpaid dividends.
•In May 2020, we purchased $2.5 million aggregate principal amountdividends up to, but not including, the date of the STG 5.875% unsecured notes in open market transactions for consideration of $2.3 million. The STG 5.875% unsecured notes acquired in May 2020 were canceled immediately following their acquisition.
•In June 2020, we exchanged $66.5 million aggregate principal amount of the DSG 6.625% unsecured notes due 2027 for $31 million aggregate principal amount of the DSG 12.750% secured notes due 2026 and cash payments totaling $10 million, including accrued but unpaid interest.
•In March 2020 and June 2020, we purchased a total of $15 million aggregate principal amount of DSG's 6.625% unsecured notes in open market transactions for consideration of $10 million. The DSG 6.625% unsecured notes acquired in March 2020 and June 2020 were canceled immediately following their acquisition.
•In August 2020, the Board of Directors authorized an additional $500 million share repurchase authorization.
•In August 2020, we redeemed 350,000 units of the Redeemable Subsidiary Preferred Equity for an aggregate redemption price equal to $350 million, plus accrued and unpaid dividends.
•In September 2020, the Company's and DSG's indirect, wholly-owned subsidiary, Diamond Sports Finance SPV, LLC (DSPV), entered into the $250 million A/R Facility which matures on September 23, 2023.
•In December 2020, we issued $750 million aggregate principal amount of senior secured notes, which bear interest at a rate of 4.125% per annum and mature on December 1, 2030 (the STG 4.125% Secured Notes). The net proceeds of the STG 4.125% Secured Notes were used, plus cash on hand, to redeem $550 million aggregate principal amount of STG's 5.625% senior unsecured notes due 2024 (the STG 5.625% Notes) and to prepay $200 million outstanding under STG's term loan B under the STG Bank Credit Agreement.purchase.
•For the year ended December 31, 2020, we repurchased approximately 192023, STG purchased an aggregate $64 million shares of Class A Common Stockprincipal across multiple tranches of debt in the open market for $343$49 million. In January 2024, STG purchased $27 million aggregate principal amount of the Term Loan B-2, due September 30, 2026, for consideration of $25 million.
•For the year ended December 31, 2020, we2023, Sinclair repurchased approximately 8.8 million shares of Class A Common Stock for $153 million. All shares were repurchased under an SEC Rule 10b5-1 plan.
•For the year ended December 31, 2023, Sinclair paid dividends of $0.80$1.00 per share. In February 2021, we2024, Sinclair declared a quarterly cash dividend of $0.20$0.25 per share.
Other Legal and Regulatory
•In January 2020, we and Nexstar agreed to settle the outstanding lawsuit between us and Tribune Media Company, which Nexstar acquired in September 2019. See Litigation under Note 13. Commitments and Contingencies within the Consolidated Financial Statements for further discussion.
•In November 2020, we and the plaintiffs settled the outstanding Derivative actions lawsuit. See Litigation under Note 13. Commitments and Contingencies within the Consolidated Financial Statements for further discussion.
Other Events
•In February 2020, we promoted Lucy RutishauserJanuary 2024, Sinclair announced that it has agreed, subject to Executive Vice President & Chief Financial Officer, Del ParksSinclair and DSG completing definitive documentation, to Executive Vice President & Chief Technology Officer, Don Thompsona global settlement and release of all claims associated with the litigation filed by DSG and DSG’s wholly-owned subsidiary, Diamond Sports Net, LLC, in July 2023. The settlement terms include Sinclair’s cash payment to Executive Vice President & Chief Human Resources Officer, Scott ShapiroDSG of $495 million. The cash payment will be funded by cash on hand at Ventures, STG and/or a loan backed by Ventures. Under the terms of the settlement, Sinclair will provide transition services to Senior Vice President/Chief Development Officer, Brian BarkDSG to Senior Vice President/Chief Information Officer, and Don Robertsallow DSG to VP/Sports Engineering and Production Systems.become a self-standing entity going forward.
•In March 2020, in direct response to the COVID-19 pandemic, we made available incremental payments to offer financial support to nearly 1,300 eligible freelancers who work across the RSNs, as the onset of the COVID-19 pandemic halted the production of live sports, depriving these freelancers of work.
•In April 2020, we entered into a new public service initiative, in partnership with the University of Maryland School of Medicine, to provide consumers with important and timely news and information about COVID-19.
•In June 2020, at our Annual Shareholders' Meeting, our shareholders re-elected all nine Directors, ratified the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020, and approved the proposed non-binding advisory vote on executive compensation.
•In June 2020, we selected ten winning applicants for our Broadcast Diversity Scholarship, awarding tuition assistance to students demonstrating a promising future in the broadcast industry.
•In June 2020, Jeff Krolik, President, RSNs, announced his retirement effective August 30, 2020. We announced in July 2020 that Steve Rosenberg, a broadcasting industry executive with over 30 years of experience, joined the Company and would take on the role of President of Local Sports, effective September 1, 2020.
•In July 2020, we announced that Scott Shapiro assumed the newly-created role of Chief Strategy Officer/Sports in addition to his current role as Chief Development Officer.
•In August 2020, we announced that we were named one of the Baltimore Business Journal's 2020 Best Places to Work award finalists.
•In September 2020, we announced the hiring of J.R. McCabe in the newly-created role of Chief Business Officer of D2C/Gamification.
•In October 2020, Lucy Rutishauser, our Executive Vice President and Chief Financial Officer, was named one of The Baltimore Sun's 2020 Women to Watch.
•In November 2020, we announced the hiring of John Zeigler in the newly-created role of Chief Marketing Officer.
•In December 2020, we produced the 'Rock the Red Kettle' special in partnership with Sony Music Nashville and The Salvation Army.
•In January 2021, we announced the hiring of Jeffrey Lewis as our Chief Compliance Officer, a newly-created position to supervise corporate compliance functions, including regulatory, code of conduct, competition, and privacy.
•In January 2021, we jointly revealed, with Bally's, the new Bally Sports logo and Bally Sports regional monikers for our owned and operated RSNs.
•In February 2021, we began taking applications for our 2021 Diversity Scholarship, which has awarded $160,000 in scholarships over the last five years.
Industry Trends
•The traditional MVPD industry continuesDuring the last few years, the number of subscribers to experience a declineDistributor services in subscribers, whichthe United States has been even higher withdeclining, as technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where, and how they consume news, sports, and other entertainment, including through the onset of COVID-19, which is partially offset by growth in subscribers of virtual MVPDs.so-called "cutting the cord" and other consumption strategies.
•The Distributor industry has continued to undergo significant consolidation, which gives top Distributors purchasepurchasing power.
•The vMVPDs have continued to gain increasing importance and have quickly become a critical segment of the market. These vMVPDs offer a limited number of networks at a significantly lower price point as compared to the traditional cable offering.
•Political spending is significantly higher in the even-numbered years due to the cyclicality of political elections. In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election. 2020 proved to be a record year in political advertising.
•The FCC has permitted broadcast television stations to use their digital spectrum for a wide variety of services including multi-channel broadcasts. The FCC “must-carry”"must-carry" rules only apply to a station’sstation's primary digital stream.
•Seasonal advertising increases within our broadcastlocal media segment occur in the second and fourth quarters due to the anticipation of certain seasonal and holiday spending by consumers.
•Seasonal advertising increases within our local sports segment occur in the second and third quarters due to a higher volume of sports games being played during this time, particularly the MLB season.
•Broadcasters have found ways to increase returns on their news programming initiatives while continuing to maintain locally produced content through the use of news sharing arrangements.
•'Big Tech' has begun offering OTT platforms.
•Broadcast networks have begun launching and expanding their own DTC platforms.
•Advertising revenue on digital platforms continues to grow.
•Advertising revenue related to the Summer Olympics occurs in even numbered years, with the exception of this year2020 which was postponed due to COVID-19 and took place in Summer 2021. Advertising revenue related to the Winter Olympics also occurs in even numbered years but are two years apart from the Summer Olympics. The Super Bowl is aired on a different network each year. BothAll of these popularly viewed events can have an impact on our advertising revenues.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, income taxes and variable interest entities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates have been consistently applied for all years presented in this report and in the past we have not experienced material differences between these estimates and actual results. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and such differences could be material.
We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a detailed discussion of the application of these and other accounting policies, see Note 1. Nature of Operations and Summary of Significant Accounting Policies within theeach of Sinclair'sConsolidated Financial Statements and SBG's Consolidated Financial Statements.
The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties continue to impact our estimates related to, but not limited to, revenue recognition, goodwill and intangible assets, sports programming rights, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. See Distribution Revenue in Revenue Recognition, Sports Programming Rights, and Impairment of Goodwill, Intangibles, and Other Assets under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for further discussion on how COVID-19 has impacted distribution revenue, sports rights expense, and the value of goodwill and definite-lived intangible assets, respectively. Our estimates may further change in the future as the COVID-19 pandemic continues, new events occur, and additional information emerges, and such changes are recognized or disclosed in the consolidated financial statements.
Revenue Recognition. As discussed in Revenue Recognition under Note 1. Nature of Operations and Summary of Significant Accounting Policies within theeach of Sinclair'sConsolidated Financial Statements and SBG's Consolidated Financial Statements, we generate advertising revenue primarily from the sale of advertising spots/impressions on our broadcast television, RSN,digital platforms, and, digital platforms.prior to the Deconsolidation, the RSNs. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where we provide audience ratings guarantees;guarantees, to the extent that there is a ratings shortfall, we will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of our advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is realized is not significant. In certain circumstances, we require customers to pay in advance; payments received in advance of satisfying our performance obligations are reflected as deferred revenue.
We generate distribution revenue through fees received from Distributors and other OTT providers for the right to distribute our broadcast channels and cable networks on their distribution platforms. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal is provided to our customers (as usage occurs) which corresponds with the satisfaction of our performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. Our customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.
Certain of our distribution arrangements contain provisions that require the Company to deliver a minimum number of live professional sports games or tournaments during a defined period which usually corresponds with a calendar year. If the minimum threshold is not met, we may be obligated to refund a portion of the distribution fees received if shortfalls are not cured within a specified period of time. If we are unable to meet these minimum requirements, we reduce revenue based upon estimated rebates due to our distribution customers over the measurement period of the rebate. See Revenue Recognition within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
Impairment of Goodwill, Indefinite-Lived Intangible Assets, and Other Long-Lived Assets. We evaluate our goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate an impairment may exist. As of December 31, 2020, our2023, Sinclair's consolidated balance sheet includes $2,092included $2,082 million and $171$150 million of
goodwill and indefinite-lived intangible assets, respectively. We evaluate long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of our asset groups may not be recoverable.
In the performance of our annual goodwill and indefinite-lived intangible asset impairment assessments we have the option to qualitatively assess whether it is more likely-than-not that the respective asset has been impaired. If we conclude that it is more-likely-than-not that a reporting unit or an indefinite-lived intangible asset is impaired, we apply the quantitative assessment, which involves comparing the estimated fair value of the reporting unit or indefinite-lived intangible asset to its respective carrying value. See Impairment of Goodwill, Intangibles and Other Assets under Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within theeach of Sinclair'sConsolidated Financial Statements and SBG's Consolidated Financial Statements for further discussion of the significant judgments and estimates inherent in both qualitatively assessing whether impairment may exist and estimating the fair values of the reporting units and indefinite-lived intangible assets if a quantitative assessment is deemed necessary.
We are required to analyze our existing Distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic and related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenue and margins of our RSNs. As a result of these factors, we performed an impairment test of the RSN reporting units' goodwill and long-lived asset groups during the third quarter of 2020 which resulted in a non-cash impairment charge on goodwill of $2,615 million, customer relationships of $1,218 million, and otherassets, including definite-lived intangible assets, of $431 million, included within impairment of goodwill andfor impairment. We evaluate our definite-lived intangible assets for impairment if events or changes in our consolidated statementscircumstances indicate that the carrying amount of operations. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for more information. For our annual goodwill and indefinite-lived intangiblessuch assets may not be recoverable. In the event we identify indicators that these assets are not recoverable, we evaluate the recoverability of definite-lived intangible assets by comparing the carrying amount of the assets within an asset group to the estimated undiscounted future cash flows associated with the asset group. An asset group represents the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. At the time that such evaluations indicate that the future undiscounted cash flows are not sufficient to recover the carrying value of the asset group, an impairment tests related to our broadcast and other reporting units in 2020, 2019, and 2018, we concluded that it was more-likely-than-not that goodwill was not impaired based on our qualitative assessments. For one reporting unit in 2019, we elected to perform a quantitative assessment and concluded that itsloss is determined by comparing the estimated fair value significantly exceededof the asset group to the carrying value. We estimate fair value using an income approach involving the performance of a discounted cash flow analysis.
We believe we have made reasonable estimates and utilized appropriate assumptions in the performance of our impairment assessments. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions, loss of significant customers, and significant increases in discount rates, among other factors, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows.
Program Contract Costs. As discussed in Broadcast Television Programming under Note 1. Nature of Operations and Summary of Significant Accounting Policies within theeach of Sinclair'sConsolidated Financial Statements and SBG's Consolidated Financial Statements, we record an asset and corresponding liability for programming rights when the program is available for its first showing or telecast. These costs are expensed over the period in which an economic benefit is expected to be derived. To ensure the related assets for the programming rights are reflected in our consolidated balance sheets at the lower of unamortized cost or fair value, management estimates future advertising revenue to be generated by the remaining program material available under the contract terms. Management’s judgment is required in determining the timing of expense for these costs, which is dependent on the economic benefit expected to be generated from the program and may significantly differ from the timing of related payments under the contractual obligation. If our estimates of future advertising revenues decline, amortization expense could be accelerated or fair value adjustments may be required.
Sports Programming RightsFair Value Measurements of Investments in Bally's Securities. . As discussed in Sports Programming Rights under Note 1. Nature of Operations 6. Other Assets and Summary of Significant Accounting PoliciesNote 18. Fair Value Measurements within the Sinclair's Consolidated Financial Statements, wwe entered into a commercial agreement with Bally’s Corporation on November 18, 2020. As part of this arrangement, we received warrants and options to acquire common equity in the business. These financial instruments are measured each period at fair value. The fair value of the options are derived utilizing a Black Scholes valuation model which utilizes a number of inputs which most significantly includes the trading price of the underlying common stock and the exercise price of the options. The fair value of the warrants are primarily derived from the trading price have multi-year program rights agreements that provide us withof the right to produce underlying common stock and telecast professional sports games within a specified territory in exchange for an annual rights fee. A prepaid asset is recorded for rights acquired related to future games upon paymentthe exercise price of the contracted fee.warrants. The assets recorded for the acquired rights are classified as current or non-current based on the period when the games are expected to be aired. Liabilities are recorded for any program rights obligations that have been incurred but not yet paid at period end. We amortize these programming rights as an expense over each season based upon contractually stated rates. Amortization is accelerated in the event that the stated contractual rates over the termdetermination of the rights agreement results in an expense recognition pattern that is inconsistent withfair value of these financial instruments requires the projected growth of revenue over the contractual term.Company to exercise judgment.
Income Tax. As discussed in Income Taxes under Note 1. Nature of Operations and Summary of Significant Accounting Policies within theeach of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be
realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2020,2023 and 2022, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, interest expense carryforwards under the Internal Revenue Code (IRC) Section 163(j) and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. As of December 31, 2019, a valuation allowance was provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, including the RSN impairment, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on theour consolidated financial statements.
Management periodically performs a comprehensive review of our tax positions, and we record a liability for unrecognized tax benefits if such tax positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes. Significant judgment is required in determining whether positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided. See Note 12. Income Taxes within theSinclair's Consolidated Financial Statements and Note 11. Income Taxes within SBG's Consolidated Financial Statements, for further discussion of accrued unrecognized tax benefits.
Variable Interest Entities (VIEs)("VIEs"). As discussed in Note 14. Variable Interest Entities within theSinclair'sConsolidated Financial Statements and Note 13. Variable Interest Entities within SBG's Consolidated Financial Statements, we have determined that certain third-party licensees of stations for which we perform services pursuant to arrangements, including LMAs, JSAs, and SSAs, are VIEs and we are the primary beneficiary of those variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs. We have determined that certain RSN joint ventures are VIEs. We are the primary beneficiary of those RSN joint ventures because we have the power to direct the activities which significantly impact the economic performance of certain regional sports networks, including sales and certain operational services and because we absorb losses and returns that would be considered significant to the VIEs.
Transactions with Related Parties. We have determined that we conduct certain business-related transactions with related persons or entities. See Note 15. Related Person Transactions within the Sinclair's Consolidated Financial Statements and Note 14. Related Person Transactions within SBG's Consolidated Financial Statements for discussion of these transactions.
Recent Accounting PronouncementsRECENT ACCOUNTING PRONOUNCEMENTS
See Recent Accounting Pronouncements under Note 1. Nature of Operations and Summary of Significant Accounting Policies within theeach of Sinclair'sConsolidated Financial Statements and SBG's Consolidated Financial Statements for a discussion of recent accounting policies and their impact on ourSinclair's and SBG's financial statements.
SINCLAIR, INC. RESULTS OF OPERATIONS
SINCLAIR, INC. RESULTS OF OPERATIONS
Any references to the first, second, third, or fourth quarters are to the three months ended March 31, June 30, September 30, or December 31, respectively, for the year being discussed. We haveAs of December 31, 2023, we had two reportable segments broadcastfor accounting purposes, local media and tennis. Prior to the Deconsolidation,we had one additional reportable segment for accounting purposes, local sports, that are disclosed separately from our other and corporate activities.sports.
Seasonality / Cyclicality
The operating results of our broadcastlocal media segment are usually subject to cyclical fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election (as was the case in 2020).election. Also, the second and fourth quarterquarters' operating results are usually higher than the first and third quarterquarters' operating results because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
The operating results of our local sportstennis segment are usually subject to cyclical fluctuations based ondue to the timingamount and overlapsignificance of tournaments that take place in the MLB, NBA, and NHL seasons. Usually,respective quarters during the second and third quarter operating results are higher than theyear. The first and fourth quarter operating results.
However, withresults are usually higher than the exceptionsecond and third quarters' because of political advertising, our usual seasonalitythe amount and cyclicality, as described above, did not occur in 2020, and may not occur in 2021, for either segment due to the COVID-19 pandemic.significance of tournaments that are played during those periods.
Consolidated Operating Data
The following table sets forth certain of our consolidated operating data for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions). For definitions of terms, see the footnotes to the table in Item 6. Selected Financial Data.
| | | | Years Ended December 31, | | Years Ended December 31, |
| | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Media revenues | Media revenues | $ | 5,843 | | | $ | 4,046 | | | $ | 2,919 | |
| Non-media revenues | Non-media revenues | 100 | | | 194 | | | 136 | |
| Total revenues | Total revenues | 5,943 | | | 4,240 | | | 3,055 | |
| Media programming and production expenses | Media programming and production expenses | 2,735 | | | 2,073 | | | 1,191 | |
| Media selling, general and administrative expenses | Media selling, general and administrative expenses | 832 | | | 732 | | | 630 | |
| Depreciation and amortization expenses | Depreciation and amortization expenses | 674 | | | 424 | | | 280 | |
| Amortization of program contract costs | Amortization of program contract costs | 86 | | | 90 | | | 101 | |
| Non-media expenses | Non-media expenses | 91 | | | 156 | | | 122 | |
| Corporate general and administrative expenses | Corporate general and administrative expenses | 148 | | | 387 | | | 111 | |
| Impairment of goodwill and definite-lived intangible assets | 4,264 | | | — | | | — | |
| Gain on asset dispositions and other, net of impairment | (115) | | | (92) | | | (40) | |
| | Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on asset dispositions and other, net of impairment | |
| Operating (loss) income | Operating (loss) income | $ | (2,772) | | | $ | 470 | | | $ | 660 | |
| Net (loss) income attributable to Sinclair Broadcast Group | $ | (2,414) | | | $ | 47 | | | $ | 341 | |
| Net (loss) income attributable to Sinclair | |
The Impact of COVID-19 onA discussion regarding our Results of Operations
Overview
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic,financial results and by the end of the following day, each of the MLB, NBA, and NHL had suspended their seasons. On March 13, 2020, the United States declared a national state of emergency. Since that time, efforts to contain the spread of COVID-19 have intensified. Several countries, including the United States, have taken steps to restrict travel, temporarily close businesses and issue quarantine orders, and it remains unclear how long such measures will remain in place regionally.
Broadcast segment
Advertising revenue was negatively impacted due to COVID-19 starting in the late first quarter and throughout the year due to lower local and national net times sales. Duringoperations for the year ended December 31, 2020, as2023 compared to the prior year we saw decreases in several advertising categories, primarily as a result ofended December 31, 2022 and for the impact of the COVID-19 pandemic. These decreases were partially offset by an increase in political advertising revenue, primarily due to strong demand in the third and fourth quarters. Distribution revenue was negatively impacted by subscriber erosion experienced by certain Distributors resulting from the effects of COVID-19, among other factors. See Revenues under the Broadcast Segment sectionbelow for further discussion.
Local sports segment
In March 2020, the NBA and NHL each postponed their ongoing 2019-2020 seasons and the MLB postponed the start of its 2020 season. During various points in the third quarter, the NBA, NHL, and MLB all returned to operation under reduced game counts and were able to complete these modified seasons during the early part of the fourth quarter of 2020. During the fourth quarter of 2020, the NBA and NHL announced their plans for their 2020-2021 seasons, which included season start dates inyear ended December 2020 and January 2021, respectively, however both with reduced game counts. Due to these interruptions and modified seasons, advertising revenue was down in the second quarter of 2020 as31, 2022 compared to the first quarter of 2020. However, with the resumption of some events during the third quarter of 2020, advertising revenue increased to $124 million during the period as compared to $3 million in the second quarter of 2020. Distribution revenue was negatively impacted by subscriber erosion experienced by certain Distributors resulting from the effect of COVID-19, three Distributors dropping carriage of the RSNs and lower professional sports game counts due to COVID-19, which resulted in rebates to the Distributors, among other factors. The MLB has announced that they expect theiryear ended December 31, 2021 season to begin on time in April 2021 and contain a full game schedule. The NBA and NHL have not announced their 2021-2022 season schedules yet. There can be no assurance that the MLB, NBA, or NHL will complete full or abbreviated seasons in the future. Any reduction in the actual number of games played by the leagues may have an adverse impact on our operations and the cash flows of our local sports segment. See Distribution Revenue in Revenue Recognition and Sports Programming Rights under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for further discussion on how COVID-19 has impacted distribution revenue and sports rights expense, respectively, including the need for us to provide rebates to our Distributors as well as seek rebate from or reduce future payments to certain of the sports teams.
Business continuity
Within the United States, our business has been designated an essential business, which allows us to continue to serve our customers, however, the COVID-19 pandemic has disrupted our operations. Certain of our facilities have experienced temporary disruptions as a result of the COVID-19 pandemic, and we cannot predict whether our facilities will experience more significant disruptions in the future and how long these disruptions will last. The COVID-19 pandemic has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. Furthermore, reductions in our workforce may become necessary as a result of declines in our business caused by the COVID-19 pandemic. If we take such actions, we cannot assure that we will be able to rehire our workforce once our business has recovered.is presented below.
SINCLAIR, INC. RESULTS OF OPERATIONS
BROADCAST SEGMENTLocal Media Segment
The following table sets forth our revenue and expenses for our broadcast segment, previously referred to as our local news and marketing servicesmedia segment for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | | | | | | | | | Percent Change
Increase / (Decrease) | | | | | | Percent Change
Increase / (Decrease) |
| | | 2020 | | 2019 | | 2018 | | ‘20 vs.‘19 | | ‘19 vs.‘18 | | 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Revenue: | Revenue: | | | | | | | | | | Revenue: | | | |
| Distribution revenue | Distribution revenue | $ | 1,414 | | | $ | 1,341 | | | $ | 1,186 | | | 5% | | 13% | Distribution revenue | $ | 1,491 | | | $ | | $ | 1,531 | | | $ | | $ | 1,476 | | | (3)% | | (3)% | | 4% |
| Advertising revenue | Advertising revenue | 1,364 | | | 1,268 | | | 1,484 | | | 8% | | (15)% | Advertising revenue | 1,236 | | | 1,518 | | 1,518 | | | 1,230 | | 1,230 | | | (19)% | | (19)% | | 23% |
| Other media revenue (a) | Other media revenue (a) | 144 | | | 81 | | | 45 | | | 78% | | 80% | Other media revenue (a) | 139 | | | 144 | | 144 | | | 181 | | 181 | | | (3)% | | (3)% | | (20)% |
| Media revenues | $ | 2,922 | | | $ | 2,690 | | | $ | 2,715 | | | 9% | | (1)% |
| Media revenues (b) | | Media revenues (b) | $ | 2,866 | | | $ | 3,193 | | | $ | 2,887 | | | (10)% | | 11% |
| | Operating Expenses: | Operating Expenses: | |
| Operating Expenses: | |
| Operating Expenses: | |
| Media programming and production expenses | Media programming and production expenses | $ | 1,257 | | | $ | 1,173 | | | $ | 1,081 | | | 7% | | 9% |
| Media selling, general and administrative expenses | 553 | | | 553 | | | 530 | | | —% | | 4% |
| Media programming and production expenses | |
| Media programming and production expenses | | $ | 1,488 | | | $ | 1,450 | | | $ | 1,389 | | | 3% | | 4% |
| Media selling, general and administrative expenses (c) | | Media selling, general and administrative expenses (c) | 694 | | | 704 | | | 644 | | | (1)% | | 9% |
| Depreciation and amortization expenses | | Depreciation and amortization expenses | 243 | | | 243 | | | 248 | | | —% | | (2)% |
| Amortization of program contract costs | Amortization of program contract costs | 83 | | | 90 | | | 101 | | | (8)% | | (11)% | Amortization of program contract costs | 80 | | | 90 | | 90 | | | 93 | | 93 | | | (11)% | | (11)% | | (3)% |
| Corporate general and administrative expenses | Corporate general and administrative expenses | 119 | | | 144 | | | 100 | | | (17)% | | 44% | Corporate general and administrative expenses | 134 | | | 117 | | 117 | | | 148 | | 148 | | | 15% | | 15% | | (21)% |
| Depreciation and amortization expenses | 239 | | | 246 | | | 252 | | | (3)% | | (2)% |
| Non-media expenses | | Non-media expenses | 14 | | | 15 | | | — | | | (7)% | | n/m |
| Gain on asset dispositions and other, net of impairment | Gain on asset dispositions and other, net of impairment | (118) | | | (62) | | | (100) | | | 90% | | (38)% | Gain on asset dispositions and other, net of impairment | (14) | | | (17) | | (17) | | | (23) | | (23) | | | (18)% | | (18)% | | (26)% |
| Operating income | Operating income | $ | 789 | | | $ | 546 | | | $ | 751 | | | 45% | | (27)% | Operating income | $ | 227 | | | $ | | $ | 591 | | | $ | | $ | 388 | | | (62)% | | (62)% | | 52% |
| Interest expense including amortization of debt discount and deferred financing costs | | Interest expense including amortization of debt discount and deferred financing costs | $ | 305 | | | $ | 226 | | | $ | 183 | | | 35% | | 23% |
| Gain (loss) on extinguishment of debt | | Gain (loss) on extinguishment of debt | $ | 15 | | | $ | 3 | | | $ | (7) | | | n/m |
(a)Includes $100$26 million and $111 million for the years ended December 31, 2022 and 2021, respectively, of intercompany revenue related to certain services provided by the local media segment to other and the local sports segment, prior to the Deconsolidation, under management services agreements, which was eliminated in consolidation, and $52 million and $39 million of revenue for the years ended December 31, 2023 and 2022, respectively, for services provided by the local media segment under management services agreements after the Deconsolidation, which is not eliminated in consolidation.
(b)Includes $6 million and $4 million for the years ended December 31, 2023 and 2022, respectively, of intercompany revenue related to certain advertising services provided by the local media segment to the tennis segment, which is eliminated in consolidation.
(c)Includes $8 million, $12 million, and $35 million for the years ended December 31, 20202023, 2022, and 2019,2021, respectively, of intercompany revenueexpense related to certain services provided to the local sportsmedia segment andfrom other, under management services agreements, which is eliminated in consolidation.
Revenues
Distribution revenue. Distribution revenue, which includes payments from Distributors for our broadcast signals, increased $73decreased $40 million in 2020 and $155 million in 20192023, when compared to the same periodsperiod in 2019 and 2018, respectively. The2022, primarily due to a decrease in subscribers, partially offset by an increase isin contractual rates. Distribution revenue increased $55 million in 2022, when compared to the same period in 2021, primarily due to an increase in contractual rates, partially offset by a decrease in subscribers.
Advertising revenue. Advertising revenue increased $96decreased $282 million in 20202023, when compared to 2019,the same period in 2022, primarily due to a decrease in political advertising revenue, as 2022 was a political year, compared to 2023 which is a non-political year. Advertising revenue increased $288 million in 2022, when compared to the same period in 2021, primarily due to an increase in political advertising revenue, of $334 million, as 20202022 was a political and presidential election year. The increase is partially offset by decreases in certain categories, most notably a $92 million decrease in automotive, a $24 million decrease in entertainment, a $21 million decrease in furniture, a $16 million decrease in retail, a $14 million decrease in medical, an $11 million decrease in media, and a $10 million decrease in services, primarily as a result of the impact of the COVID-19 pandemic.
Advertising revenue decreased $216 million in 2019year, compared to 2018. The decrease is primarily related to a decrease in political advertising revenue of $221 million, as 20182021 which was a politicalnon-political year. These decreases were partially offset by increases in certain categories, notably home products and services.
For the year ended December 31, 2021 we expect a significant decrease in advertising revenue, when compared to 2020, primarily related to a decrease in political revenue, as 2020 was a political and presidential election year.
SINCLAIR, INC. RESULTS OF OPERATIONS
The following table sets forth our primary types of programming and their approximate percentages of advertising revenue, excluding digital revenue, for the periods presented:
| | Percent of Advertising Revenue (Excluding Digital) for the
Twelve Months Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Percent of Advertising Revenue (Excluding Digital) for the
Twelve Months Ended December 31, | | | Percent of Advertising Revenue (Excluding Digital) for the
Twelve Months Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Local news | Local news | 34% | | 33% | | 34% | Local news | 34% | | 35% | | 32% |
| Syndicated/Other programming | Syndicated/Other programming | 27% | | 29% | | 28% | Syndicated/Other programming | 28% | | 27% | | 30% |
| Network programming | Network programming | 24% | | 24% | | 25% | Network programming | 18% | | 21% |
| Sports programming | Sports programming | 12% | | 11% | | 10% | Sports programming | 16% | | 13% | | 12% |
| Paid programming | Paid programming | 3% | | 3% | | 3% | Paid programming | 4% | | 4% | | 5% |
The following table sets forth our affiliate percentages of advertising revenue for the years ended December 31, 2020, 2019,2023, 2022, and 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | # of | | Percent of Advertising Revenue for the
Twelve Months Ended December 31, | | |
| | Channels (a) | | 2020 | | 2019 | | 2018 | | | | |
| ABC | 40 | | 28% | | 30% | | 29% | | | | |
| FOX | 57 | | 25% | | 25% | | 24% | | | | |
| CBS | 31 | | 22% | | 20% | | 20% | | | | |
| NBC | 25 | | 15% | | 13% | | 16% | | | | |
| CW | 48 | | 5% | | 6% | | 6% | | | | |
| MNT | 39 | | 4% | | 4% | | 4% | | | | |
| Other | 388 | | 1% | | 2% | | 1% | | | | |
| Total | 628 | | | | | | | | | | |
(a)We broadcast other programming from the following providers on our channels including: Antenna TV, Azteca, Bounce Network, CHARGE!, Comet, Dabl, Decades, Estrella TV, Get TV, Grit, Me TV, Stadium, TBD, Telemundo, This TV, UniMas, Univision, and Weather. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | # of | | Percent of Advertising Revenue for the
Twelve Months Ended December 31, | | |
| | Channels | | 2023 | | 2022 | | 2021 | | | | |
| ABC | 40 | | 29% | | 28% | | 29% | | | | |
| FOX | 55 | | 24% | | 22% | | 23% | | | | |
| CBS | 30 | | 20% | | 19% | | 19% | | | | |
| NBC | 25 | | 12% | | 17% | | 13% | | | | |
| CW | 47 | | 5% | | 5% | | 5% | | | | |
| MNT | 39 | | 4% | | 3% | | 4% | | | | |
| Other | 404 | | 6% | | 6% | | 7% | | | | |
| Total | 640 | | | | | | | | | | |
Other Media Revenue.media revenue. For the years ended December 31, 2020 and 2019, otherOther media revenue increased $63decreased $5 million and $36 million, respectively,in 2023, when compared to the same periodsperiod in 2019 and 2018. The increase is2022, primarily due to $100a decrease related to providing certain services under management service agreements. Other media revenue decreased $37 million and $35in 2022, when compared to the same period in 2021, primarily due to a $46 million respectively,decrease in intercompany revenue from the local sports and other segmentssegment related to providing certain services under a management services agreement which are eliminateddue to the deferral of fees owed under the agreement, partially offset by a $6 million increase related to revenue recognized under the Bally's commercial agreement that we began performing on in our consolidated results.the second quarter of 2021.
Expenses
Media programming and production expenses. Media programming and production expenses increased $84$38 million during 20202023, when compared to 2019,the same period in 2022, primarily related to an increase in fees pursuant to network affiliation agreements as a result of $105 million. Thisincreased contractual rates, and an increase was partially offset by a $16 million decrease in advertising costs, $3 million decrease in employee compensation costs and travel expenses, and a $2 million decrease in network and programming expenses due to COVID-19 broadcasting cancellations.
cost. Media programming and production expenses increased $92$61 million during 20192022, when compared to 2018, which isthe same period in 2021, primarily related to increasesan increase in fessfees pursuant to network affiliation agreements.agreements as a result of increased contractual rates, and an increase in advertising and promotion costs.
Media selling, general and administrative expenses. Media selling, general and administrative expenses remained flatdecreased $10 million during 20202023, when compared to 2019,the same period in 2022, primarily due to a $15 million decrease in national sales commission and an $11 million decrease in professional and consulting fees, partially offset by a $12 million increase in national sales commissions, partially offset by a $6 million decrease in regulatorythird-party fulfillment costs a $4 million decrease in travel and entertainment expenses duerelating to the COVID-19 pandemic, and a $2 million decrease in employee compensation costs and travel expenses.
our digital business. Media selling, general and administrative expenses increased $23$60 million during 20192022, when compared to 2018. The increase isthe same period in 2021, primarily due to a $13$26 million increase in information technology costs, a $16 million increase in third-party fulfillment costs fromrelating to our digital business, due to higher revenues and product mix, a $6$13 million increase related toin national sales commissions, a regulatory$7 million increase in research and professional cost, and a $10$3 million increase related toin employee compensation costs. These increases weretravel expenses, partially offset by an $11a decrease of $8 million decreaserelated to FCC penalties incurred by several consolidated VIEs recorded in national sales commissions.our consolidated financial statements in 2021, as discussed in Note 13. Commitments and Contingencies within Sinclair'sConsolidated Financial Statements.
SINCLAIR, INC. RESULTS OF OPERATIONS
Amortization of program contract costs.The amortization of program contract costs decreased $7$10 million during 20202023, when compared to 2019,the same period in 2022, and is$3 million during 2022, when compared to the same period in 2021, primarily related to the timing of amortization on long-term contracts and reduced renewal costs, partially offset by amortization related to new programming.programming costs.
The amortization of program contract costs decreased $11 million during 2019 compared to 2018. The decrease is primarily due to $11 million related to the timing of amortization on long term contracts and reduced renewal costs.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
Non-media expenses. Non-media expenses increased $15 million during 2022, when compared to the same period in 2021, primarily related to an increase in expenses associated with our broadcast technology related initiatives.
Depreciation and amortization expenses. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets decreased $7 millionremained flat during 2020the year ended 2023, when compared to 2019, primarily related to depreciation and amortization related to assets retired during 2020.
the same period in 2022. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets decreased $6$5 million during 20192022, when compared to 2018,the same period in 2021, primarily related to $3 million of depreciation and amortization relateddue to assets retired during 2019.2022.
Gain on asset dispositions and other, net of impairments. During 2020the years ended December 31, 2023, 2022, and 2019,2021, we recorded a gaingains of $90$14 million, $17 million, and $62$23 million, respectively, of which $8 million, $4 million, and $24 million, respectively, related to reimbursements from the FCC's National Broadband Plan spectrum repack process. For the year ended 2020, we recorded a gain of $29 million related to the sale of KGBT-TV and WDKY-TV. For the year ended 2018, we recorded a gain of $83 million associated with the sale of broadcast spectrum in the FCC broadcast incentive auction.repack. See DispositionsBroadcast Incentive Auction within Note 2. Acquisitions and Dispositions of Assets within theSinclair's Consolidated Financial Statements for further discussion. During the year ended December 31, 2023, we recognized a $6 million gain on the sale of one of our broadcast station buildings. During the year ended December 31, 2022, we recognized a $4 million gain on the sale of Ring of Honor Entertainment. The remaining amounts are primarily related to net gains on the sale of certain broadcast assets.
Interest expense including amortization of debt discount and deferred financing costs. Interest expense increased by $79 million in 2023, when compared to the same period in 2022, and $43 million in 2022, when compared to the same period in 2021, primarily due to increased interest expense related to our variable rate debt as a result of higher interest rates.
Gain on extinguishment of debt. During the year ended December 31, 2023, we purchased $64 million in aggregate principal across multiple tranches of debt and recognized a gain on extinguishment of approximately $15 million. See Bank Credit Agreement and STG Notes under Note 7. Notes Payable and Commercial Bank Financing within Sinclair'sConsolidated Financial Statements.
SINCLAIR, INC. RESULTS OF OPERATIONS
LOCAL SPORTS SEGMENTTennis Segment
The following table sets forth our revenue and expenses for our tennis segment for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change
Increase / (Decrease) |
| | 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Revenue: | | | | | | | | | |
| Distribution revenue | $ | 189 | | | $ | 179 | | | $ | 192 | | | 6% | | (7)% |
| Advertising revenue | 37 | | | 33 | | | 29 | | | 12% | | 14% |
| Other media revenues | 2 | | | 5 | | | 3 | | | (60)% | | 67% |
| Media revenues | $ | 228 | | | $ | 217 | | | $ | 224 | | | 5% | | (3)% |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | | |
| Media programming and production expenses | $ | 115 | | | $ | 97 | | | $ | 92 | | | 19% | | 5% |
| Media selling, general and administrative expenses (a) | $ | 41 | | | $ | 47 | | | $ | 40 | | | (13)% | | 18% |
| Depreciation and amortization expenses | $ | 21 | | | $ | 21 | | | $ | 21 | | | —% | | —% |
| Operating income | $ | 50 | | | $ | 52 | | | $ | 71 | | | (4)% | | (27)% |
(a)Includes $6 million and $4 million for years ended December 31, 2023 and 2022, respectively, of intercompany expense related to certain advertising services provided by the local media segment, which is eliminated in consolidation.
Revenue
Distribution revenue. Distribution revenue, which is generated through fees received from Distributors for the right to distribute Tennis Channel, increased $10 million in 2023, when compared to the same period in 2022, primarily due to an increase in subscribers as a result of increased carriage that occurred during the second quarter of 2023. Distribution revenue decreased $13 million in 2022, when compared to the same period in 2021, primarily due to a decrease in subscribers.
Advertising revenue. Advertising revenue is primarily generated from sales of commercial time within Tennis Channel programming. Advertising revenue increased $4 million in both 2023 and 2022, when compared to the same periods in 2022 and 2021, respectively, primarily due to an increase in the number of tournaments aired in the current periods versus the prior periods.
Expenses
Media programming and production expenses. Media programming and production expenses increased $18 million in 2023, when compared to the same period in 2022, primarily due to a $15 million increase in programming, including rights fees, and live production expenses related to various tournaments, which was a result of an increase in the number of tournaments aired in the current period versus the prior period, and a $4 million increase in employee compensation cost. Media programming and production expenses increased $5 million in 2022, when compared to the same period in 2021, primarily due to a $2 million increase in programming, including rights fees, and live production expenses related to various tournaments, which was a result of an increase in the number of tournaments aired in 2022 versus 2021, and a $1 million increase in employee compensation cost.
Media selling, general and administrative expenses. Media selling, general and administrative expenses decreased $6 million in 2023, when compared to the same period in 2022, primarily due to a decrease in expenses related to start-up costs associated with our online tennis platforms. Media selling, general and administrative expenses increased $7 million in 2022, when compared to the same period in 2021, primarily due to a $4 million increase in national sales commissions and a $2 million increase in employee compensation cost.
SINCLAIR, INC. RESULTS OF OPERATIONS
Local Sports Segment
Our local sports segment previously referred to as our sports segment, reflectsreflected the results of ourthe Bally RSNs, Marquee, and a minority equity interest in the YES Network.Network prior to the Deconsolidation on March 1, 2022. The Bally RSNs, Marquee, and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams.teams in designated local viewing areas.
The following table sets forth our revenue and expenses for our local sports segment for the years ended December 31, 20202022, and 20192021 (in millions):
| | | 2020 | | 2019 (b) | |
| | | 2022 | |
| | | | 2022 | |
| | | | 2022 | |
| Revenue: | |
| Revenue: | |
| Revenue: | Revenue: | | | | |
| Distribution revenue | Distribution revenue | $ | 2,472 | | | $ | 1,029 | | |
| Distribution revenue | |
| Distribution revenue | |
| Advertising revenue | |
| Advertising revenue | |
| Advertising revenue | Advertising revenue | 196 | | | 103 | | |
| Other media revenue | Other media revenue | 18 | | | 7 | | |
| Other media revenue | |
| Other media revenue | |
| Media revenue | |
| Media revenue | |
| Media revenue | Media revenue | $ | 2,686 | | | $ | 1,139 | | |
| | Operating Expenses: | Operating Expenses: | | |
| | Operating Expenses: | |
| | Operating Expenses: | |
| Media programming and production expenses | |
| Media programming and production expenses | |
| Media programming and production expenses | Media programming and production expenses | $ | 1,361 | | | $ | 769 | | |
| Media selling, general and administrative expenses (a) | Media selling, general and administrative expenses (a) | 243 | | | 90 | | |
| | Media selling, general and administrative expenses (a) | |
| Media selling, general and administrative expenses (a) | |
| Depreciation and amortization expenses | |
| Depreciation and amortization expenses | |
| Depreciation and amortization expenses | Depreciation and amortization expenses | 410 | | | 157 | | |
| Corporate general and administrative | Corporate general and administrative | 10 | | | 93 | | |
| Impairment of goodwill and definite-lived intangible assets | 4,264 | | | — | | |
| Operating (loss) income (a) | $ | (3,602) | | | $ | 30 | | |
| Corporate general and administrative | |
| Corporate general and administrative | |
| Gain on asset dispositions and other, net of impairment | |
| Gain on asset dispositions and other, net of impairment | |
| Gain on asset dispositions and other, net of impairment | |
| | Operating loss (a) | |
| | Operating loss (a) | |
| | Operating loss (a) | |
| Income from equity method investments | Income from equity method investments | $ | 6 | | | $ | 18 | | |
| Other income, net | $ | 160 | | | $ | 10 | | |
| Income from equity method investments | |
| Income from equity method investments | |
| Other (expense) income, net | |
| Other (expense) income, net | |
| Other (expense) income, net | |
| Interest expense including amortization of debt discount and deferred financing costs | |
| Interest expense including amortization of debt discount and deferred financing costs | |
| Interest expense including amortization of debt discount and deferred financing costs | |
(a)Includes $98$24 million and $35$109 million for the years ended December 31, 20202022 and 2019,2021, respectively, of intercompany expense related to certain services provided by the broadcast segment under a management services agreement, which is eliminated in consolidation.
(b)Represents the activity from the closing date of the acquisition of the Acquired RSNs of August 23, 2019 through December 31, 2019.
Media revenue. MediaThe revenue was $2,686 million and $1,139 millionexpense items noted above for the years ended December 31, 20202022 and 2019, respectively, and is primarily derived from distribution and advertising revenue. The increase was primarily due2021 represent activity prior to the results of the Acquired RSNs being includedDeconsolidation which occurred on March 1, 2022, thus there is no activity presented for the whole period of the current year, versus a partial period in the prior year, as the acquisition of the Acquired RSNs closed on August 23, 2019. Distribution revenue is generated through fees received from Distributors for the rightperiods subsequent to distribute our RSNs. As discussed under Distribution Revenue in Revenue Recognition under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, decisions made by the leagues during 2020 regarding the timing and format of their seasons have resulted, in some cases, in our inability to meet minimum requirements for delivery of live games and the need to reduce revenue based upon estimated rebates due to our Distributors. As a result, for the year ended December 31, 2020, we reduced revenue and accrued corresponding rebates to Distributors of $420 million. See Subsequent Events under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. We expect distribution revenue to increase during 2021 as compared to 2020, primarily due to $420 million in rebate accruals in 2020 and increases in contractual rates, offset in part by dropped carriage by three Distributors and continued elevated subscriber churn.
Advertising revenue is primarily generated from sales of advertising spots/impressions within the RSNs' programming. Due to the interruptions and modified seasons, advertising revenue decreased in the second quarter of 2020 as compared to the first quarter of 2020. However, with the resumption of some events during the third quarter of 2020, advertising revenue increased to $124 million for the third quarter of 2020, as compared to $3 million in the second quarter of 2020. Advertising revenue decreased in the fourth quarter of 2020 as compared to the third quarter of 2020 due to the postponement of the start of the NBA and NHL seasons. We expect advertising revenue to increase during 2021 compared to 2020, primarily due to a higher number of games scheduled to be played in each of the seasons of the MLB, NBA, and NHL. The extent of this increase will depend on the actual number of games played and other macro-economic factors associated with the COVID-19 pandemic. See discussion under The Impact of COVID-19 on our Results of Operations for further discussion.February 28, 2022.
Media programming and production expenses. Media programming and production expenses were $1,361 million and $769 million for the years ended December 31, 2020 and 2019, respectively, and are primarily related to $1,078 million and $637 million, respectively, of amortization of our sports programming rights with MLB, NBA, and NHL teams and the costs of producing and distributing content for our brands including live games, pre-game and post-game shows, and backdrop programming. The increase was primarily due to the results of the Acquired RSNs being included for the whole period of the current year, versus a partial period in the prior year, as the acquisition of the Acquired RSNs closed on August 23, 2019. We expect media programming and production expenses to increase during 2021 compared to 2020, primarily due to the expectation of a higher number of games scheduled to be played in each of the seasons of the MLB, NBA, and NHL. The extent of this increase will depend on the number of actual games played and other macro-economic factors associated with the COVID-19 pandemic. See discussion under The Impact of COVID-19 on our Results of Operations for further discussion.
Media selling, general, and administrative expenses. Media selling, general, and administrative expenses were $243 million and $90 million for the years ended December 31, 2020 and 2019, respectively, and are primarily related to $98 million and $35 million, respectively, of management services agreement fees paid to the broadcast segment and eliminated in consolidation, employee compensation cost, advertising expenses, and consulting fees.
Depreciation and amortization. Depreciation and amortization expense was $410 million and $157 million for the years ended December 31, 2020 and 2019, respectively, and is primarily related to the amortization of definite-lived intangible assets and other assets.
Impairment of goodwill and definite-lived intangible assets. For the year ended December 31, 2020, we recorded a total impairment loss of $4,264 million relating to goodwill and definite-lived intangible assets of $2,615 million and $1,649 million, respectively. See further discussion in Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within the Consolidated Financial Statements.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
Other income, net. See explanation under Corporate and Unallocated Expenses.
Income from equity method investments. For the years ended December 31, 2020 and 2019, respectively, we recognized income from equity method investments of $6 million and $18 million, respectively. The income is primarily related to our minority ownership interest in the YES Network.
SINCLAIR, INC. RESULTS OF OPERATIONS
OTHEROther
The following table sets forth our revenuesrevenue and expenses for our owned networks and content, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, other)"Other") for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percent Change
Increase / (Decrease) |
| 2020 | | 2019 | | 2018 | | ‘20 vs.‘19 | | ‘19 vs.‘18 |
| Revenue: | | | | | | | | | |
| Distribution revenue | $ | 199 | | | $ | 130 | | | $ | 113 | | | 53% | | 15% |
| Advertising revenue | 131 | | | 110 | | | 75 | | | 19% | | 47% |
| Other media revenues | 7 | | | 13 | | | 16 | | | (46)% | | (19)% |
| Media revenues | $ | 337 | | | $ | 253 | | | $ | 204 | | | 33% | | 24% |
| Non-media revenues (a) | $ | 114 | | | $ | 217 | | | $ | 146�� | | | (47)% | | 49% |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | | |
| Media expenses (c) | $ | 254 | | | $ | 257 | | | $ | 210 | | | (1)% | | 22% |
| Non-media expenses (b) | $ | 98 | | | $ | 168 | | | $ | 128 | | | (42)% | | 31% |
| Amortization of program contract costs | $ | 3 | | | $ | — | | | $ | — | | | n/m | | n/m |
| Corporate general and administrative expenses | $ | 1 | | | $ | 1 | | | $ | 1 | | | —% | | —% |
| Loss (gain) on asset dispositions and other, net of impairments | $ | 3 | | | $ | (4) | | | $ | 60 | | | n/m | | n/m |
| Operating income (loss) | $ | 65 | | | $ | 26 | | | $ | (78) | | | (150)% | | (133)% |
| Loss from equity method investments | $ | (42) | | | $ | (53) | | | $ | (61) | | | (21)% | | (13.1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percent Change
Increase / (Decrease) |
| 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Revenue: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Media revenues (a) | $ | 28 | | | $ | 51 | | | $ | 70 | | | (45)% | | (27)% |
| Non-media revenues (b) | $ | 34 | | | $ | 44 | | | $ | 58 | | | (23)% | | (24)% |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | | |
| Media expenses (c) | $ | 35 | | | $ | 73 | | | $ | 94 | | | (52)% | | (22)% |
| Non-media expenses (d) | $ | 39 | | | $ | 36 | | | $ | 65 | | | 8% | | (45)% |
| | | | | | | | | |
| | | | | | | | | |
| Loss (gain) on asset dispositions and other, net of impairments | $ | 18 | | | $ | (12) | | | $ | (5) | | | n/m | | n/m |
| Operating loss | $ | (44) | | | $ | (9) | | | $ | (35) | | | n/m | | (74)% |
| Income (loss) from equity method investments | $ | 31 | | | $ | 46 | | | $ | (4) | | | (33)% | | n/m |
n/m — not meaningful
(a)Non-mediaMedia revenues for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 include $14$8 million, $23$12 million, and $10$35 million, respectively, of intercompany revenues related to certain services and salesales provided to the broadcastlocal media segment, which are eliminated in consolidation.
(b)Non-media expensesrevenues for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 include $7$6 million, $12$10 million, and $6$7 million, respectively, of intercompany expensesrevenues related to certain services and sales provided byto the broadcastlocal media segment, which are eliminated in consolidation.
(c)Media expenses for the yearyears ended December 31, 2020 includes2023, 2022, and 2021 include $2 million, $7 million, and $1 million, respectively, of intercompany expenseexpenses primarily related to certain services provided by the broadcastlocal media segment, under a management services agreement, which isare eliminated in consolidation.
Revenue. (d)Media revenue increased $84 million and $49 millionNon-media expenses for the years ended December 31, 20202023, 2022, and 2019,2021 include $4 million, $7 million, and $8 million, respectively, of intercompany expenses related to certain services provided by the local media segment, which are eliminated in consolidation.
Revenue. Media revenues decreased $23 million during 2023, when compared to the same period in 2022, primarily due to the prior year. The increase for both periods is primarily related to an increase in distribution and advertising revenue related tosale of our owned networks. Non-media revenueStadium network (Stadium). Media revenues decreased $103$19 million during 20202022, when compared to 2019, and isthe same period in 2021, primarily relateddue to a decrease in broadcast equipmentadvertising revenue. Non-media revenues decreased $10 million during 2023, when compared to the same period in 2022, primarily due to lower sales within our consolidated real estate investments. Non-media revenues decreased $14 million during 2022, when compared to the same period in 2021, primarily due to the winding downsale of Triangle Sign & Service, LLC (Triangle) in the FCC's National Broadband Plan spectrum repack process. Non-media revenue increased $71 million during 2019 compared to 2018 and is primarily related to an increase in broadcast equipment sales and services related to the FCC's National Broadband Plan repack process, partially offset by decreased sales from our real estate development projects.second quarter of 2021.
Expenses. Media expenses decreased $3$38 million during 20202023, when compared to 2019. The decrease isthe same period in 2022, primarily relateddue to our owned networks. Non-mediathe sale of Stadium. Media expenses decreased $70$21 million during 20202022, when compared to 2019, and is primarily related to a decreasethe same period in the cost of goods related to broadcast equipment sales. Media expenses increased $47 million during 2019 compared to 20182021, primarily due to our owned networks and our non-broadcast digital initiatives.businesses. Non-media expenses increased $40$3 million during 20192023, when compared to 2018. The increase is primarily related to broadcast equipment business and services,the same period in 2022, primarily due to higher salesan increase in expenses related to our technical services business. Non-media expenses decreased $29 million during 2022, when compared to the FCC's National Broadband Plan repack process.
Corporate generalsame period in 2021, primarily due to the sale of Triangle in the second quarter of 2021 and administrative expenses. See explanation under Corporate and Unallocated Expenses.a decrease in expenses related to our technical services business.
Loss (gain) on asset dispositions and other, net of impairments.impairments. During the year ended December 31, 2023, we recognized a loss of $12 million related to the sale of Stadium. During the year ended December 31, 2022, we recognized a gain of $14 million related to one of our investments. During the year ended December 31, 2021, we sold our controlling interest in Triangle for $12 million and recognized a gain of $6 million.
Income (loss) from equity method investments. During the year ended 2018,December 31, 2023, we recordedrecognized a non-cash impairmentgain of $60$33 million related to athe sale of two of our real estate development project.investments, which is included in income from equity method investments in our consolidated statements of operations. During the year ended December 31, 2022, we recognized a gain of $29 million related to the sale of one of our real estate investments, which is included in income from equity method investments in our consolidated statements of operations.
SINCLAIR, INC. RESULTS OF OPERATIONS
CORPORATE AND UNALLOCATED EXPENSESCorporate and Unallocated Expenses
The following table presents our corporate and unallocated expenses for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change
Increase/ (Decrease) |
| | 2020 | | 2019 | | 2018 | | ‘20 vs.‘19 | | ‘19 vs.‘18 |
| Corporate general and administrative expenses | $ | 148 | | | $ | 387 | | | $ | 111 | | | (62)% | | 249% |
| Interest expense including amortization of debt discount and deferred financing costs | $ | 656 | | | $ | 422 | | | $ | 292 | | | 55% | | 45% |
| Loss on extinguishment of debt | $ | (10) | | | $ | (10) | | | $ | — | | | —% | | n/m |
| Other income, net | $ | 325 | | | $ | 6 | | | $ | 3 | | | n/m | | 100% |
| Income tax benefit | $ | 720 | | | $ | 96 | | | $ | 36 | | | 650% | | 167% |
| Net income attributable to redeemable noncontrolling interests | $ | (56) | | | $ | (48) | | | $ | — | | | 17% | | n/m |
| Net loss (income) attributable to noncontrolling interests | $ | 71 | | | $ | (10) | | | $ | (5) | | | (810)% | | 100% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change
Increase/ (Decrease) |
| | 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Corporate general and administrative expenses | $ | 694 | | | $ | 160 | | | $ | 170 | | | n/m | | (6)% |
| Loss (gain) on deconsolidation of subsidiary | $ | 10 | | | $ | (3,357) | | | $ | — | | | n/m | | n/m |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other expense, net | $ | (45) | | | $ | (129) | | | $ | (14) | | | (65)% | | n/m |
| Income tax benefit (provision) | $ | 358 | | | $ | (913) | | | $ | 173 | | | n/m | | n/m |
| | | | | | | | | |
| | | | | | | | | |
n/m — not meaningful
Corporate general and administrative expenses. The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses decreased in totalincreased by $239$534 million during 20202023, when compared to 2019. The decrease isthe same period in 2022, primarily due to a $258$495 million decreaselitigation settlement accrual related to the DSG litigation, an $18 million increase in legal, consulting, and regulatory costs, primarily related to the litigation discussed underNote 13. Commitments and Contingencieswithin theSinclair's Consolidated Financial Statements,and and the acquisition of the Acquired RSNs, partially offset by a $20 million increase in employee compensation cost.
expense. Corporate general and administrative expenses increased in totaldecreased by $276$10 million during 20192022, when compared to 2018. The increase is primarily due to a $187 million increasethe same period in legal, litigation, and regulatory costs, primarily related to the acquisition of the Acquired RSNs, $73 million in consulting fees and transaction costs, primarily related to the financing of the acquisition of the Acquired RSNs, and a $14 million increase in employee compensation cost.
We expect corporate general and administrative expenses to remain flat in 2021, compared to 2020.
Interest expense. The table above and explanations that follows cover total consolidated interest expense. Interest expense increased by $234 million during 2020 compared to 2019. The increase is primarily due to an increase of $257$18 million of interest expense associated with acquisition related financingdecrease in employee compensation costs related to the Acquired RSNs which was outstanding forreduction-in-force that occurred in the first quarter of 2021, as well as compensation expense savings within the current period as a partial period in 2019 versusresult of the full year in 2020. The increase isreduction-in-force, partially offset by net decreasesan $8 million increase in STG interest expense duegeneral insurance expenses related to refinancingthe cybersecurity incident that occurred in the fourth quarter of existing debt and decreases in LIBOR.2021.
Interest expense increased by $130 million during 2019 compared to 2018. The increase is primarily related to $211 millionGain on deconsolidation of acquisition related financing related tosubsidiary. During the acquisitionfirst quarter of the Acquired RSNs,2022, we recorded a gain of which $189$3,357 million related to the DSG Notes and DSG Bank Credit Agreement, and $22 million related to a new term loan facility at STG. See Note 7. Notes Payable and Commercial Bank Financing within the Consolidated Financial Statements for further discussion. The increase was partially offset by $79 million in financing ticking fees for the year ended December 31, 2018, associated with the proposed Tribune acquisition, which was subsequently abandoned in August 2018.
Prior to any refinancing activities that may occur in 2021, we expect interest expense in 2021 to decrease when compared to 2020 primarily as a result of refinancing activities discussed in Note 7. Notes Payable and Commercial Bank Financing within the Consolidated Financial Statements.Deconsolidation.
Other income,expense, net. Other income,expense, net increaseddecreased by $319$84 million during 20202023 and increased $115 million during 2022, when compared to 2019. The increase isthe same periods in 2022 and 2021, respectively, primarily due to a $158 million increasechanges in the fair value of certain investments recorded at fair value and a measurement adjustment gain of $159 million related to certain variable payment obligations assumed in connection with the RSN acquisition.value. See Note 6. Other Assets andwithin Note 13. Commitments and ContingenciesSinclair's within the Consolidated Financial Statements for further informationinformation.
Income tax benefit. benefit (provision).The 20202023 income tax benefit for our pre-tax loss of $3,149$637 million resulted in an effective tax rate of 22.9%56.3%. The 20192022 income tax benefitprovision for our pre-tax income of $9$3,614 million resulted in an effective tax rate of (1,103.4)%25.3%. The increase in the effective tax rate from 2022 to 2023 is primarily due to the 2023 benefit from the release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the Internal Revenue Code ("IRC") Section 163(j). The 2021 income tax benefit for our pre-tax loss of $499 million resulted in an effective tax rate of 34.7%. The decrease in the effective tax rate from 20192021 to 20202022 is primarily due to substantially magnified impact of 2019 discrete items as a result of negligible 2019 pre-tax income.the 2021 benefit from federal tax credits related to investments in sustainability initiatives.
The 2018 income tax benefit for our pre-tax income (including the effects of noncontrolling interest) of $306 million resulted in an effective tax rate of (11.7)%. The increase in the effective tax rate from 2018 to 2019 is primarily due to substantially magnified impact of 2019 discrete items as a result of negligible 2019 pre-tax income.
As of December 31, 2020,2023, we had a net deferred tax assetliability of $197$252 million as compared to a net deferred tax liability of $407$610 million as of December 31, 2019.2022. The change from adecrease in net deferred tax liability to a net deferred tax asset primarily relates to the 2020 impairment charge related2023 release of valuation allowance on deferred tax assets relating to goodwill and certain definite-lived intangible assetsdeductibility of our RSNs. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets withininterest expense under the Consolidated Financial Statements for further information.IRC Section 163(j).
As of December 31, 2020,2023, we had $11$14 million of gross unrecognized tax benefits. Of this total, $11 million (netbenefits, all of federal effect on state tax issues) represents the amount of unrecognized tax benefits that,which, if recognized, would favorably affect our effective tax rate. As of December 31, 2019,2022, we had $11$17 million of gross unrecognized tax benefits. Of this total, $10 million (netbenefits, all of federal effect on state tax issues) represents the amount of unrecognized tax benefits that,which, if recognized, would favorably affect our effective tax rate. We recognized $0.3$1 million and $1$2 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 20202023 and 2019,2022, respectively. See Note 12. Income Taxes within the Consolidated Financial StatementsSinclair's for further information. See Note 12. Income Taxes within the Consolidated Financial Statements for further information.
SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS
SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS
Any references to redeemable noncontrolling interests.the first, second, third, or fourth quarters are to the three months ended March 31, June 30, September 30, or December 31, respectively, for the year being discussed. As of December 31, 2023, SBG had one reportable segment for accounting purposes, local media. Prior to the Deconsolidation, ForSBG had one additional reportable segment for accounting purposes, local sports.
Seasonality / Cyclicality
The operating results of SBG's local media segment are usually subject to cyclical fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election. Also, the second and fourth quarters' operating results are usually higher than the first and third quarters' operating results because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
Consolidated Operating Data
The following table sets forth certain of SBG's consolidated operating data for the years ended December 31, 20202023, 2022, and 2019, net income attributable to redeemable noncontrolling interests was $56 million2021 (in millions).
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Media revenues | $ | 2,968 | | | $ | 3,894 | | | $ | 6,083 | |
| Non-media revenues | 10 | | | 34 | | | 51 | |
| Total revenues | 2,978 | | | 3,928 | | | 6,134 | |
| Media programming and production expenses | 1,543 | | | 1,942 | | | 4,291 | |
| Media selling, general and administrative expenses | 719 | | | 812 | | | 908 | |
| Depreciation and amortization expenses | 252 | | | 321 | | | 591 | |
| Amortization of program contract costs | 80 | | | 90 | | | 93 | |
| Non-media expenses | 24 | | | 44 | | | 57 | |
| Corporate general and administrative expenses | 654 | | | 160 | | | 170 | |
| | | | | |
| Loss (gain) on deconsolidation of subsidiary | 10 | | | (3,357) | | | — | |
| Gain on asset dispositions and other, net of impairment | (2) | | | (64) | | | (71) | |
| Operating (loss) income | $ | (302) | | | $ | 3,980 | | | $ | 95 | |
| Net (loss) income attributable to SBG | $ | (257) | | | $ | 2,652 | | | $ | (414) | |
A discussion regarding SBG's financial results and $48 million, respectively, and is primarily related to dividends accrued and distributed relatedoperations for the year ended December 31, 2023 compared to the Redeemable Subsidiary Preferred Equityyear ended December 31, 2022 and for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.
Local Media Segment
Net loss (income) attributableRefer to noncontrolling interests. ForLocal Media Segment above under Sinclair's Results of Operations for a discussion of SBG's local media segment, which is the same as Sinclair's local media segment for all of the years ended December 31, 20202023, 2022, and 2019, net loss2021.
Local Sports Segment
Refer to Local Sports Segment above under Sinclair's Results of Operations for a discussion of SBG's local sports segment, which is the same as Sinclair's local sports segment for the years ended December 31, 2022 and net income attributable2021.
SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS
Other
The following table sets forth SBG's revenue and expenses for tennis, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, "Other") for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Percent Change
Increase / (Decrease) |
| 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Revenue: | (e) | | | | | | | | |
| Distribution revenue | $ | 76 | | | $ | 179 | | | $ | 192 | | | (58)% | | (7)% |
| Advertising revenue | 29 | | | 74 | | | 93 | | | (61)% | | (20)% |
| Other media revenues | 3 | | | 15 | | | 9 | | | (80)% | | 67% |
| Media revenues (a) | $ | 108 | | | $ | 268 | | | $ | 294 | | | (60)% | | (9)% |
| Non-media revenues (b) | $ | 11 | | | $ | 44 | | | $ | 58 | | | (75)% | | (24)% |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | | |
| Media expenses (c) | $ | 86 | | | $ | 217 | | | $ | 226 | | | (60)% | | (4)% |
| Non-media expenses (d) | $ | 10 | | | $ | 36 | | | $ | 65 | | | (72)% | | (45)% |
| | | | | | | | | |
| | | | | | | | | |
| Loss (gain) on asset dispositions and other, net of impairments | $ | 13 | | | $ | (12) | | | $ | (5) | | | n/m | | n/m |
| Operating income | $ | — | | | $ | 43 | | | $ | 36 | | | n/m | | 19% |
| Income (loss) from equity method investments | $ | 31 | | | $ | 46 | | | $ | (4) | | | (33)% | | n/m |
n/m — not meaningful
(a)Media revenues for the years ended December 31, 2023, 2022, and 2021 include $3 million, $12 million, and $35 million, respectively, of intercompany revenues related to certain services and sales provided to the noncontrolling interests was $71local media segment, which are eliminated in consolidation.
(b)Non-media revenues for the years ended December 31, 2023, 2022, and 2021 include $1 million, $10 million, and $10$7 million, respectively. respectively, of intercompany revenues related to certain services and sales provided to the local media segment, which are eliminated in consolidation.
(c)Media expenses for the years ended December 31, 2023, 2022, and 2021 include $1 million, $11 million, and $1 million, respectively, of intercompany expenses primarily related to certain services provided by the local media segment, which are eliminated in consolidation.
(d)Non-media expenses for the years ended December 31, 2023, 2022, and 2021 include $1 million, $7 million, and $8 million, respectively, of intercompany expenses related to certain services provided by the local media segment, which are eliminated in consolidation.
(e)Represents the activity prior to the Reorganization on June 1, 2023. There was no reportable activity for the June through December period in the year ended December 31, 2023 following the Reorganization on June 1, 2023. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements.
The decrease in the revenue and expense items noted above for the year ended December 31, 2023, when compared to the same period in the prior year, was primarily due to the results for the twelve months ended December 31, 2023 including only five months of activity due to the Reorganization (the Transferred Assets were moved to Ventures effective June 1, 2023), versus a full period of activity in the prior year period, and therefore the periods are not comparable. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG'sConsolidated Financial Statements.
Revenue. Media revenues decreased $26 million during 2022, when compared to the same period in 2021, primarily due to a decrease in advertising revenue, partially offset by an increase in distribution revenue related to owned networks. Non-media revenues decreased $14 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021.
Expenses. Media expenses decreased $9 million during 2022, when compared to the same period in 2021, primarily due to our digital businesses. Non-media expenses decreased $29 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021 and a decrease in expenses related to our technical services business.
Loss (gain) on asset dispositions and other, net of impairments. During the year ended December 31, 2023, we recognized a loss isof $12 million related to the sale of Stadium. During the year December 31, 2022, we recognized a gain of $14 million related to one of our investments. During the year ended December 31, 2021, we sold our controlling interest in Triangle for $12 million and recognized a gain of $6 million.
SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS
Income (loss) from equity method investments. Income from equity method investments increased $50 million during 2022, when compared to the same period in 2021, primarily due to a gain on the sale of one of our real estate investments.
Corporate and Unallocated Expenses
The following table presents SBG's corporate and unallocated expenses for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change
Increase/ (Decrease) |
| | 2023 | | 2022 | | 2021 | | ‘23 vs.‘22 | | ‘22 vs.‘21 |
| Corporate general and administrative expenses | $ | 654 | | | $ | 160 | | | $ | 170 | | | n/m | | (6)% |
| Loss (gain) on deconsolidation of subsidiary | $ | 10 | | | $ | (3,357) | | | $ | — | | | n/m | | n/m |
| | | | | | | | | |
| | | | | | | | | |
| Other expense, net | $ | (43) | | | $ | (129) | | | $ | (14) | | | n/m | | n/m |
| Income tax benefit (provision) | $ | 359 | | | $ | (913) | | | $ | 173 | | | n/m | | n/m |
| | | | | | | | | |
| | | | | | | | | |
n/m — not meaningful
Corporate general and administrative expenses. The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses increased by $494 million during 2023, when compared to the same period in 2022, primarily due to an increase in legal, consulting, and regulatory costs, primarily related to the portion of the non-cash impairment charge on customer relationships, other definite-lived intangible assetslitigation discussed under Note 12. Commitments and goodwill that is attributableContingencies within SBG'sConsolidated Financial Statements. Corporate general and administrative expenses decreased by $10 million during 2022, when compared to the noncontrolling interests,same period in 2021, primarily due to an $18 million decrease in employee compensation costs related to the reduction-in-force that occurred in the first quarter of 2021, partially offset by income attributablean $8 million increase in general insurance expenses related to the noncontrolling interest.cybersecurity incident that occurred in the fourth quarter of 2021.
Gain on deconsolidation of subsidiary. During the first quarter of 2022 we recorded a gain of $3,357 million related to the Deconsolidation.
Other expense, net.Other expense, net decreased by $86 million during 2023 and increased $115 million during 2022, when compared to the same periods in 2022 and 2021, respectively, primarily due to changes in the fair value of certain investments recorded at fair value. See Note 6. Other Assets within SBG's Consolidated Financial Statements for further information.
Income tax benefit (provision). The 2023 income tax benefit for SBG’s pre-tax loss of $604 million resulted in an effective tax rate of 59.4%. The 2022 income tax provision for SBG’s pre-tax income of $3,614 million resulted in an effective tax rate of 25.3%. The increase in the effective tax rate from 2022 to 2023 is primarily due to the 2023 benefit from the release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). The 2021 income tax benefit for SBG’s pre-tax loss of $499 million resulted in an effective tax rate of 34.7%. The decrease in the effective tax rate from 2021 to 2022 is primarily due to the 2021 benefit from federal tax credits related to investments in sustainability initiatives.
As of December 31, 2023, SBG had a net deferred tax liability of $283 million as compared to a net deferred tax liability of $610 million as of December 31, 2022. The decrease in net deferred tax liability primarily relates to the 2023 release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j).
As of December 31, 2023, SBG had $12 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect SBG’s effective tax rate. As of December 31, 2022, SBG had $17 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect SBG’s effective tax rate. SBG recognized less than $1 million and $2 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2023 and 2022, respectively. See Note 11. Income Taxes within the SBG's Consolidated Financial Statements for further information.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2020, we2023, Sinclair had net working capital of approximately $2,183$372 million, including $1,259$662 million in cash and cash equivalent balances.balances and $650 million of available borrowing capacity. Cash on hand, cash generated by ourSinclair's operations, and borrowing capacity under the Bank Credit AgreementsAgreement are used as ourSinclair's primary sources of liquidity.
On September 23, 2020, DSPV entered into the A/R Facility, which matures on September 23, 2023, in order to enable DSG to raise incremental funding for the ongoing business needs of the local sports segment. The maximum funding availability under the A/R Facility is the lesser of $250 million and the sum of the lowest aggregate loan balance since November 1, 2020 plus $50 million. The amount of actual availability under the A/R Facility is subject to change based on the level of eligible receivables sold by certain indirect wholly owned subsidiaries of DSG identified therein (Originators) to DSPV and certain reserves. Eligibility of the receivables is determined by a variety of factors, including, but not limited to, credit ratings of the Originators’ customers, customer concentration levels, and certain characteristics of the accounts receivable being transferred. As of December 31, 2020, the total commitment was $2272023, SBG had net negative working capital of approximately $1 million, including $319 million in cash and the balancecash equivalent balances and $650 million of the loansavailable borrowing capacity. Cash on hand, cash generated by SBG's operations, and borrowing capacity under the A/R Facility was $177 million.
On March 17, 2020, we drew $648 million and $225 million under the revolving credit facility portion of the STG Bank Credit Agreement (the STG Revolving Credit Facility) and the revolving credit facility portionare used as SBG's primary sources of the DSG Bank Credit Agreement (the DSG Revolving Credit Facility, and together with the STG Revolving Credit Facility, the Revolving Credit Facilities), respectively, as a precautionary measure given the COVID-19 pandemic. During the quarter ended June 30, 2020, we fully repaid the amounts outstanding under each of the Revolving Credit Facilities.liquidity.
The Bank Credit Agreements each includeAgreement includes a financial maintenance covenant, the first lien leverage ratio (as defined in the respective Bank Credit Agreements)Agreement), which requires such applicable ratio not to exceed 4.5x, and 6.25x, measured as of the end of each fiscal quarter, forquarter. As of December 31, 2023, the STG and DSG, respectively. The respectivefirst lien leverage ratio was below 4.5x. Under the Bank Credit Agreement, a financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the respective Revolving Credit Facility,revolving credit facility, measured as of the last day of each fiscal quarter, is utilizeddrawn under such Revolving Credit Facilitythe revolving credit facility as of such date. Since there was no utilization under either of the Revolving Credit Facilitiesrevolving credit facility as of December 31, 2020, neither2023, STG nor DSG was subject to the respective financial maintenance covenant under their applicable Bank Credit Agreement. As of December 31, 2020, the STG first lien leverage ratio was below 4.5x and the DSG first lien leverage ratio exceeded 6.25x. We expect that DSG's first lien leverage ratio will remain above 6.25x for at least the next 12 months, which will restrict our ability to fully utilize the DSG Revolving Credit Facility. We do not currently expect to have more than the 35% of the capacity of the DSG Revolving Credit Facility outstanding as of any quarterly measurement date during the next 12 months, therefore we do not expect DSG will be subject to the financial maintenance covenant.covenant under the Bank Credit Agreement. The Bank Credit Agreements containAgreement contains other restrictions and covenants with which the respective entities wereSTG was in compliance with as of December 31, 2020 and expect to be over the next 12 months.2023.
InDuring the year ended December 2020,31, 2023, STG issued $750 million aggregate principal amount of 4.125% secured notes which mature on December 1, 2030. The net proceeds of the STG 4.125% secured notes were used, plus cash on hand, to redeem all of STG's $550 million aggregate principal amount of 5.625% unsecured notes due 2024 for a redemption price including accrued and unpaid interest, and a call premium, of $571 million and to prepay $200 million outstanding under STG's term loan B with a January 2024 stated maturity date.
In June 2020, DSG exchanged $66.5 million aggregate principal amount of its 6.625% unsecured notes due 2027 for $31 million aggregate principal amount of its 12.750% secured notes due 2026 and cash payments totaling $10 million, including accrued but unpaid interest.
In May 2020, we purchased $2.5$30 million aggregate principal amount of the STG 5.875% unsecured notes in open market transactionsTerm Loan B-2 for consideration of $2.3$26 million. In March 2020 and June 2020, weJanuary 2024, STG purchased a total of $15$27 million aggregate principal amount of the DSG 6.625% unsecured notes in open market transactionsTerm Loan B-2 for consideration of $10$25 million.
During the year ended December 31, 2020, we redeemed 550,000 units2023, STG purchased $7 million, $15 million, and $13 million aggregate principal amount of the Redeemable Subsidiary Preferred Equity5.125% Senior Notes due 2027 (the "5.125% Notes"), the 5.500% Senior Notes due 2030 (the "5.500% Notes"), and the 4.125% Senior Secured Notes due 2030 (the "4.125% Notes" and, collectively with the 5.125% Notes and 5.500% Notes, the notes are referred to as the "STG Notes"), respectively, in open market transactions for an aggregate redemption price equal to $550consideration of $6 million, plus accrued$8 million, and unpaid dividends, representing 100% of the unreturned capital contribution with respect to the units redeemed, plus accrued and unpaid dividends with respect to the units redeemed up to, but not including, the redemption date, and after giving effect to any applicable rebates.$8 million, respectively. The balance of the Redeemable Subsidiary Preferred Equity as of December 31, 2020 was $170 million, net of issuance costs.
In January 2020, a minority partner in one of our RSNs exercised its right to sell us the entirety of its non-controlling interest, which we purchased for $376 million.
We anticipate that existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the Bank Credit Agreements and A/R Facility will be sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next 12 months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and resulting effect on the economy, our advertisers, Distributors, and their subscribers, could affect our liquidity and our first lien leverage ratio which could affect our ability to access the full borrowing capacity under the Bank Credit Agreements. For our long-term liquidity needs, in addition to the sources described above, we may rely upon various sources, such as but not limited to, the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of interests in the RSNs or non-core assets. However, there can be no assurance that additional financing or capital or buyers of our non-core assets will be available, or that the terms of any transactions will be acceptable or advantageous to us.
Sources and Uses of Cash
The following table sets forth our cash flows for the years ended December 31, 2020, 2019, and 2018 (in millions):
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Net cash flows from operating activities | $ | 1,548 | | | $ | 916 | | | $ | 647 | |
| Cash flows used in investing activities: | | | | | |
| Acquisition of property and equipment | $ | (157) | | | $ | (156) | | | $ | (105) | |
| Acquisition of businesses, net of cash acquired | (16) | | | (8,999) | | | — | |
| Spectrum repack reimbursements | 90 | | | 62 | | | 6 | |
| Proceeds from the sale of assets | 36 | | | 8 | | | 2 | |
| | | | | |
| | | | | |
| Purchases of investments | (139) | | | (452) | | | (48) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | 27 | | | 7 | | | 27 | |
| Net cash flows used in investing activities | $ | (159) | | | $ | (9,530) | | | $ | (118) | |
| Cash flows (used in) from financing activities: | | | | | |
| Proceeds from notes payable and commercial bank financing | $ | 1,819 | | | $ | 9,956 | | | $ | 4 | |
| Repayments of notes payable, commercial bank financing, and finance leases | (1,739) | | | (1,236) | | | (167) | |
| | | | | |
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | — | | | 985 | | | — | |
| Repurchase of outstanding Class A Common Stock | (343) | | | (145) | | | (221) | |
| Dividends paid on Class A and Class B Common Stock | (63) | | | (73) | | | (74) | |
| Dividends paid on redeemable subsidiary preferred equity | (36) | | | (33) | | | — | |
| Redemption of redeemable subsidiary preferred equity | (547) | | | (297) | | | — | |
| Debt issuance costs | (19) | | | (199) | | | (1) | |
| | | | | |
| | | | | |
| Distributions to redeemable noncontrolling interests | (383) | | | (5) | | | — | |
| Other, net | (149) | | | (66) | | | (6) | |
| Net cash flows (used in) from financing activities | $ | (1,460) | | | $ | 8,887 | | | $ | (465) | |
Operating Activities
Net cash flows from operating activities increasedSTG Notes acquired during the year ended December 31, 2020 compared2023 were canceled immediately following their acquisition.
For the year ending December 31, 2024, Sinclair expects capital expenditures to be within the same period in 2019. The increase isrange of $110 million to $117 million, primarily related to station technical, maintenance, and building projects, and SBG expects capital expenditures to be within the resultsrange of the Acquired RSNs being included for the entire period in 2020 versus a partial period in the prior year, as the acquisition closed on August 23, 2019, partially offset by a corresponding increase in interest expense on debt incurred in connection with the acquisition of the Acquired RSNs.
Net cash flows from operating activities increased during the year ended December 31, 2019 compared$107 million to the same period in 2018. The increase is primarily due to the acquisition of the Acquired RSNs in August 2019 and higher distribution revenues.
Investing Activities
Net cash flows used in investing activities decreased during the year ended December 31, 2020 compared to the same period in 2019. The decrease is$114 million, primarily related to the acquisition of the Acquired RSNsstation technical, maintenance, and equity interest in the YES Network during the third quarter of 2019, partially offset by the sale of WDKY-TV during the third quarter of 2020 and KGBT-TV during the first quarter of 2020 as well as higher spectrum repack reimbursements.
Net cash flows used in investing activities increased during the year ended December 31, 2019 compared to the same period in 2018. The increase is primarily related to the acquisition of the Acquired RSNs in August 2019, and an increase in net cash invested in debt and equity investments, primarily related to our investment in the YES Network.
Financing Activities
Net cash flows from financing activities decreased during the year ended December 31, 2020 compared to the same period in 2019. The decrease is primarily related to financing inflows during the prior year associated with the issuance of debt and Redeemable Subsidiary Preferred Equity for the acquisition of the Acquired RSNs. During the year ended December 31, 2020, net cash flows used in financing activities primarily related to the redemption of Redeemable Subsidiary Preferred Equity, payments on our term loans, the redemption of the STG 5.625% unsecured notes, and repurchases of Class A Common Stock, partially offset by the proceeds from loans under the A/R Facility and the issuance of the STG 4.125% senior secured notes. See Note 7. Notes Payable and Commercial Bank Financing and Note 10. Redeemable Noncontrolling Interests within the Consolidated Financial Statements for further discussion.
Net cash flows from financing activities increased during the year ended December 31, 2019 compared to the same period in 2018. The increase is primarily related to the issuance of debt and the Redeemable Subsidiary Preferred Equity for the acquisition of the Acquired RSNs, offset by the redemption of the STG 5.375% unsecured notes in August 2019, the STG 6.625% unsecured notes in November 2019, and the Redeemable Subsidiary Preferred Equity in December 2019. See Note 7. Notes Payable and Commercial Bank Financing and Note 10. Redeemable Noncontrolling Interests within the Consolidated Financial Statements for further discussion.
70
LIQUIDITY AND CAPITAL RESOURCES
Contractual Obligations
WeSinclair and SBG have various contractual obligations which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitmentsSinclair's and other executory contracts are not recognized as liabilities in ourSBG's consolidated financial statements, but are required to be disclosed. For example, we are contractually committed to acquire future programming.
The following table reflects a summary of our contractual cash obligationssuch as of December 31, 2020 and the future periods in which such obligations are expected to be settled in cash (in millions):
CONTRACTUAL OBLIGATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and thereafter |
| Notes payable, finance leases and commercial bank financing (a) | $ | 16,157 | | | $ | 622 | | | $ | 1,410 | | | $ | 2,275 | | | $ | 11,850 | |
| Operating leases | 306 | | | 46 | | | 68 | | | 50 | | | 142 | |
| Programming rights and content (b) | 17,168 | | | 2,832 | | | 4,391 | | | 3,033 | | | 6,912 | |
| Programming services (c) | 103 | | | 50 | | | 49 | | | 3 | | | 1 | |
| Other (d) | 459 | | | 183 | | | 133 | | | 61 | | | 82 | |
| Total contractual cash obligations | $ | 34,193 | | | $ | 3,733 | | | $ | 6,051 | | | $ | 5,422 | | | $ | 18,987 | |
(a)Includes interest on debt and finance leases, including finance leases payable to related parties. Estimated interest on our variable rate debt has been calculated at an effective weighted interest rate of 3.11% as of December 31, 2020. Variable rate debt represents $6 billion of our $13 billion total face value of debt as of December 31, 2020. See Note 7. Notes Payable and Commercial Bank Financing within the Consolidated Financial Statements for further discussion of the changes to notes payable, finance leases, and commercial bank financing during 2020financing; operating leases; and Note 15. Related Person Transactions within the Consolidated Financial Statements for further discussion of related parties.
(b)Our programming rightsactive television program contracts. Certain other contractual obligations have not been recognized as liabilities in Sinclair's and content includes contractual amounts owed through the expiration date of the underlying agreement for the local sports segment's sports programming rights of $14.7 billion, active andSBG's consolidated financial statements, such as certain future television program contracts and network programming and additional advertising inventory in various dayparts.rights. Active television program contracts are included in theSinclair's and SBG's balance sheetsheets as an asset and liability while future television program contracts are excluded until the cost is known, the program is available for its first showing or telecast, and the licensee has accepted the program. Industry protocol typically enables us to make payments for television program contracts on a three-month lag, which differs from the contractual timingtiming. As of December 31, 2023, Sinclair's and SBG's significant contractual obligations include:
Sinclair:
•Total debt of Sinclair, defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates, of $4,175 million, including current debt, due within the table.next 12 months, of $36 million.
•Interest due on Sinclair's total debt in the next twelve months of $298 million, including interest estimated on Sinclair's variable rate debt calculated at an effective weighted average interest rate of 8.42% as of December 31, 2023.
•Sinclair's contractual amounts owed through the expiration date of the underlying agreement for active and future television program contracts, network programming rights, and Tennis programming rights of $1,632 million, including $779 million due within the next 12 months. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and reflected in the table aboveprevious amounts based on current subscriber amounts.
(c)
SBG:
•Includes obligations related to rating service fees, music license fees, market research, weather,Total debt of SBG, defined as current and news services.long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates, of $4,160 million, including current debt, due within the next 12 months, of $36 million.
(d)•Other includes obligations related to post-retirement benefits, guaranteed payments under a deferred purchase price liability, maintenanceInterest due on SBG's total debt in the next twelve months of $298 million, including interest estimated on SBG's variable rate debt calculated at an effective weighted average interest rate of 8.42% as of December 31, 2023.
•SBG's contractual amounts owed through the expiration date of the underlying agreement for active and support, other corporatefuture television program contracts other long-term liabilities, commitments to contribute capital to various non-media private equity investments, and LMAnetwork programming rights of $1,205 million, including $711 million due within the next 12 months. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and outsourcing agreements. Excludedreflected in the previous amounts based on current subscriber amounts.
See Note 7. Notes Payable and Commercial Bank Financing, Note 8. Leases, and Note 9. Program Contracts within Sinclair's Consolidated Financial Statements and Note 7. Notes Payable and Commercial Bank Financing, Note 8. Leases, and Note 9. Program Contracts within SBG's Consolidated Financial Statements for further information.
Sinclair and SBG anticipate that existing cash and cash equivalents, cash flow from the table are estimated amounts due pursuantlocal media segment's operations, and borrowing capacity under the Bank Credit Agreement will be sufficient to LMAssatisfy the local media segment's debt service obligations, capital expenditure requirements, and outsourcing agreements where we consolidate the counter-party. The fees that we are required to pay under these agreements total $3 million and $0.4 millionworking capital needs for the periods 2021next twelve months. Sinclair anticipates that existing cash and 2022-2023, respectively. Certain station related operating expenses are paid bycash equivalents and cash flow from the licenseetennis segment and reimbursed by usother's operations will be sufficient to satisfy the tennis segment and other's debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to the war in Ukraine, conflict in the Middle East, and other geopolitical matters, natural disasters, and pandemics, and their resulting effect on the economy, Sinclair's and SBG's advertisers, and Sinclair's and SBG's Distributors and their subscribers, could affect Sinclair's and SBG's liquidity and first lien leverage ratio which could affect Sinclair's and SBG's ability to access the full borrowing capacity under the LMA agreements. CertainBank Credit Agreement. In addition to the sources described above, Sinclair and SBG may rely upon various sources for long-term liquidity needs, such as but not limited to, the issuance of these expenseslong-term debt, the issuance of Sinclair equity, for Sinclair only, the issuance of Ventures equity or debt, or other instruments convertible into or exchangeable for Sinclair equity, or the sale of assets. However, there can be no assurance that areadditional financing or capital or buyers of assets will be available, or that the terms of any transactions will be acceptable or advantageous to Sinclair or SBG.
In January 2024, Sinclair announced that it has agreed, subject to definitive documentation and final court approval, to a global settlement and release of all claims associated with the litigation filed by DSG and DSG’s wholly-owned subsidiary, Diamond Sports Net, LLC, in connection with contracts are included inJuly 2023.
LIQUIDITY AND CAPITAL RESOURCES
The settlement terms include Sinclair’s cash payment to DSG of $495 million. The cash payment will be funded by cash on hand at Ventures, STG and/or a loan backed by Ventures. Under the table above.terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity.
Off Balance Sheet ArrangementsSinclair, Inc. Sources and Uses of Cash
Off balance sheet arrangementsThe following table sets forth Sinclair's cash flows for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Net cash flows from operating activities | $ | 235 | | | $ | 799 | | | $ | 327 | |
| Cash flow from (used in) investing activities: | | | | | |
| Acquisition of property and equipment | $ | (92) | | | $ | (105) | | | $ | (80) | |
| | | | | |
| Spectrum repack reimbursements | 8 | | | 4 | | | 24 | |
| Proceeds from the sale of assets | 1 | | | 9 | | | 43 | |
| Deconsolidation of subsidiary cash | — | | | (315) | | | — | |
| Purchases of investments | (72) | | | (75) | | | (256) | |
| Distributions from investments | 206 | | | 99 | | | 26 | |
| | | | | |
| Other, net | 1 | | | 2 | | | (3) | |
| Net cash flows from (used in) investing activities | $ | 52 | | | $ | (381) | | | $ | (246) | |
| Cash flows used in financing activities: | | | | | |
| Proceeds from notes payable and commercial bank financing | $ | — | | | $ | 728 | | | $ | 357 | |
| Repayments of notes payable, commercial bank financing, and finance leases | (85) | | | (863) | | | (601) | |
| | | | | |
| | | | | |
| Repurchase of outstanding Class A Common Stock | (153) | | | (120) | | | (61) | |
| Dividends paid on Class A and Class B Common Stock | (65) | | | (70) | | | (60) | |
| Dividends paid on redeemable subsidiary preferred equity | — | | | (7) | | | (5) | |
| Redemption of redeemable subsidiary preferred equity | (190) | | | — | | | — | |
| | | | | |
| | | | | |
| Distributions to noncontrolling interests | (13) | | | (12) | | | (95) | |
| Distributions to redeemable noncontrolling interests | — | | | — | | | (6) | |
| Other, net | (3) | | | (9) | | | (53) | |
| Net cash flows used in financing activities | $ | (509) | | | $ | (353) | | | $ | (524) | |
Operating Activities
Net cash flows from Sinclair's operating activities decreased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors, as definedwell as the partial period impact related to the Deconsolidation.
Net cash flows from Sinclair's operating activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the receipt of income taxes receivable, increased cash collections on accounts receivable associated with increased political advertising revenue, and a partial period of payments for production and overhead costs, distributor rebate payments, and payments for sports rights as a result of the Deconsolidation, partially offset by the SEC means any transaction, agreement or other contractual arrangement to which an entity unconsolidated withpartial period of cash collections from Distributors and advertisers as a result of the registrant is a party, under whichDeconsolidation.
Investing Activities
Net cash flows from Sinclair's investing activities increased during the registrant has: obligations under certain guarantees or contracts; retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangements; obligations under certain derivative arrangements; and obligations arising out of a material variable interest in an unconsolidated entity. As ofyear ended December 31, 2020, we do not have any material off2023, when compared to the same period in 2022, primarily related to the removal of DSIH's cash balance sheet arrangements.as a result of the Deconsolidation in the first quarter of 2022 and the $193 million A/R Facility principal payment received from DSPV.
Net cash flows used in Sinclair's investing activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation, partially offset by increased distributions from investments and decreased purchases of investments.
LIQUIDITY AND CAPITAL RESOURCES
Financing Activities
Net cash flows used in Sinclair's financing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the repurchase of the Redeemable Subsidiary Preferred Equity and an increase in the repurchase of outstanding Common Stock, partially offset by a decrease in the net repayment of debt (repayments less proceeds).
Net cash flows used in Sinclair's financing activities decreased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the proceeds from the STG Term Loan B-4 issuance, partially offset by the repurchase of Class A Common Stock during 2022, the redemption of STG's Term Loan B-1, the redemption of the STG 5.875% Notes, and the partial redemption of the STG 5.125% Notes.
Sinclair Broadcast Group, LLC Sources and Uses of Cash
The following table sets forth SBG's cash flows for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Net cash flows from operating activities | $ | 260 | | | $ | 799 | | | $ | 327 | |
| Cash flow from (used in) investing activities: | | | | | |
| Acquisition of property and equipment | $ | (90) | | | $ | (105) | | | $ | (80) | |
| | | | | |
| Spectrum repack reimbursements | 8 | | | 4 | | | 24 | |
| Proceeds from the sale of assets | — | | | 9 | | | 43 | |
| Deconsolidation of subsidiary cash | — | | | (315) | | | — | |
| Purchases of investments | (39) | | | (75) | | | (256) | |
| Distributions from investments | 204 | | | 99 | | | 26 | |
| | | | | |
| Other, net | 1 | | | 2 | | | (3) | |
| Net cash flows from (used in) investing activities | $ | 84 | | | $ | (381) | | | $ | (246) | |
| Cash flows used in financing activities: | | | | | |
| Proceeds from notes payable and commercial bank financing | $ | — | | | $ | 728 | | | $ | 357 | |
| Repayments of notes payable, commercial bank financing, and finance leases | (85) | | | (863) | | | (601) | |
| Repurchase of outstanding Old Sinclair Class A Common Stock | (153) | | | (120) | | | (61) | |
| Dividends paid on Old Sinclair Class A and Class B Common Stock | (18) | | | (70) | | | (60) | |
| Dividends paid on redeemable subsidiary preferred equity | — | | | (7) | | | (5) | |
| Redemption of redeemable subsidiary preferred equity | (190) | | | — | | | — | |
| | | | | |
| | | | | |
| Distribution to member | (448) | | | — | | | — | |
| Distributions to noncontrolling interests | (12) | | | (12) | | | (95) | |
| Distributions to redeemable noncontrolling interests | — | | | — | | | (6) | |
| Other, net | (3) | | | (9) | | | (53) | |
| Net cash flows used in financing activities | $ | (909) | | | $ | (353) | | | $ | (524) | |
Operating Activities
Net cash flows from SBG's operating activities decreased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors, as well as the partial period impact related to the Deconsolidation and Reorganization.
Net cash flows from SBG's operating activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the receipt of income taxes receivable, increased cash collections on accounts receivable associated with increased political advertising revenue, and a partial period of payments for production and overhead costs, distributor rebate payments, and payments for sports rights as a result of the Deconsolidation, partially offset by the partial period of cash collections from Distributors and advertisers as a result of the Deconsolidation.
LIQUIDITY AND CAPITAL RESOURCES
Investing Activities
Net cash flows from SBG's investing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation in the first quarter of 2022; the $193 million A/R Facility principal payment received from DSPV; a decrease in the purchases of investments during the year ended December 31, 2023, as a result of the Reorganization; and the partial period impact related to the Reorganization.
Net cash flows used in SBG's investing activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation, partially offset by increased distributions from investments and decreased purchases of investments.
Financing Activities
Net cash flows used in SBG's financing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the repurchase of the Redeemable Subsidiary Preferred Equity; an increase in the repurchase of outstanding Old Sinclair Common Stock, prior to the Reorganization; the one-time distribution to member at the time of the Reorganization of $360 million; and the partial period impact related to the Reorganization, partially offset by a decrease in the net repayment of debt (repayments less proceeds).
Net cash flows used in SBG's financing activities decreased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the proceeds from the STG Term Loan B-4 issuance, partially offset by the repurchase of Class A Common Stock during 2022, the redemption of STG's Term Loan B-1, the redemption of the STG 5.875% Notes, and the partial redemption of the STG 5.125% Notes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
WeSinclair and SBG are exposed to market risk from changes in interest rates and consider entering into derivative instruments primarily for the purpose of reducing the impact of changing interest rates on our floating rate debt and to reduce the impact of changing fair market values on ourSinclair's and SBG's fixed rate debt. See Note 7. Notes Payable and Commercial Bank Financing within theeach of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements for further discussion. WeDuring the year ended December 31, 2023, STG entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of STG's exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.9%, and STG receives a floating rate of interest based on SOFR. See Hedge Accounting in Note 1. Nature of Operations and Summary of Significant Accounting Policies and Interest Rate Swap in Note 7. Notes Payable and Commercial Bank Financing within Sinclair's Consolidated Financial Statements. See Hedge Accounting in Note 1. Nature of Operations and Summary of Significant Accounting Policies and Interest Rate Swap in Note 7. Notes Payable and Commercial Bank Financing within SBG's Consolidated Financial Statements. Sinclair and SBG did not have any outstanding derivative instruments during the three years ended December 31, 2020, 2019,2022 and 2018.2021.
During the year ended December 31, 2019, we entered into an amendedSinclair and restated STG Bank Credit Agreement and the DSG Bank Credit Agreement. WeSBG are exposed to risk from the changing interest rates of ourtheir variable rate debt issued under the Bank Credit Agreements.Agreement. As of December 31, 2020, our2023, Sinclair and SBG's total variable rate debt under the Bank Credit AgreementsAgreement was $6 billion. We$2,676 million. Sinclair and SBG estimate that adding 1% to respective interest rates would result in an increase in oureach of Sinclair and SBG's interest expense of $57 million.$27 million, exclusive of any impact of our interest rate swap.
ITEM 8.8A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SINCLAIR, INC.
The financial statements and supplementary data of Sinclair, Inc. required by this item are filed as exhibits to this report, are listed under Item 15(a)(1) and (2) and are incorporated by reference in this report.
ITEM 8B.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SINCLAIR BROADCAST GROUP, LLC
The financial statements and supplementary data of Sinclair Broadcast Group, LLC required by this item are filed as exhibits to this report, are listed under Item 15(a)(1) and (2), and are incorporated by reference in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the year ended December 31, 2020.2023.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
OurEach of Sinclair's and SBG's management, under the supervision and with the participation of ourits respective Chief Executive Officer and Chief Financial Officer, evaluated the design and effectiveness of ourits disclosure controls and procedures and ourits internal control over financial reporting as of December 31, 2020.2023.
The term “disclosure"disclosure controls and procedures,”" as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The term “internal"internal control over financial reporting,”" as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of ourSinclair's and SBG's Chief Executive Officer and Chief Financial OfficersOfficer and effected by ourits Board of Directors or Board of Managers, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP)("GAAP") and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of ourSinclair's and SBG's assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made in accordance with authorizations of management or ourits Board of Directors;Directors or Board of Managers; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of ourSinclair's and SBG's assets that could have a material adverse effect on ourSinclair's and SBG's financial statements.
Assessment of Effectiveness of Disclosure Controls and Procedures
Based on the evaluation of ourits disclosure controls and procedures as of December 31, 2020, our2023, each of Sinclair's and SBG's Chief Executive Officer and Chief Financial Officer concluded that, as of such date, ourSinclair's and SBG's disclosure controls and procedures were effective at the reasonable assurance level.
Report of Management on Internal Control over Financial Reporting
OurSinclair's and SBG's management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of ourSinclair's and SBG's management, including ourSinclair's and SBG's Chief Executive Officer and Chief Financial Officer, weSinclair and SBG assessed the effectiveness of ourits internal control over financial reporting as of December 31, 20202023 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO)("COSO"). Based on ourSinclair's and SBG's assessment, Sinclair's and SBG's management has concluded that, as of December 31, 2020, our2023, Sinclair's and SBG's internal control over financial reporting was effective based on those criteria.
The effectiveness of ourSinclair's and SBG's internal control over financial reporting as of December 31, 20202023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in ourSinclair's and SBG's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020,2023, that have materially affected, or are reasonably likely to materially affect, ourSinclair's and SBG's internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including oureach of Sinclair's and SBG's Chief Executive Officer and Chief Financial Officer, do not expect that ourSinclair's and SBG's disclosure controls and procedures or ourits internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within oureach company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.During the three months ended December 31, 2023, none of Sinclair's or SBG's directors, managers, or officers, as applicable, adopted or terminated any contract, instruction, or written plan for the purchase or sale of Sinclair's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
On February 27, 2024, the Board of Managers of SBG was reconstituted such that the members of the Board of Managers of SBG comprise the same individuals as the members of the Board of Directors of Sinclair. As a result, Jason B. Pappas and Steven M. Marks are no longer members of the Board of Managers of SBG and Laurie R. Beyer, Benjamin S. Carson, Sr., Howard E. Friedman, Daniel C. Keith, Benson E. Legg, and Robert E. Smith were added to the Board of Managers of SBG.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in ourSinclair's Proxy Statement for the 2021Sinclair's 2024 Annual Meeting of Stockholders under the captions, “Directors,"Directors, Executive Officers and Key Employees,” “Delinquent" "Delinquent Section 16(a) Reports,” “Code" "Code of Business Conduct and Ethics”Ethics" and “Corporate"Corporate Governance,”" as applicable, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20202023 and is incorporated by reference in this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in ourSinclair's Proxy Statement for the 2021Sinclair's 2024 Annual Meeting of Stockholders under the captions, “Compensation"Compensation Discussion and Analysis”Analysis", “Director"Director Compensation for 2020,” “Compensation2023," "Compensation Committee Interlocks and Insider Participation,”" and “Compensation"Compensation Committee Report,”" which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20202023 and is incorporated by reference in this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in ourSinclair's Proxy Statement for the 2021Sinclair's 2024 Annual Meeting of Stockholders under the caption, “Security"Security Ownership of Certain Beneficial Owners and Management,”" which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20202023 and is incorporated by reference in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in ourSinclair's Proxy Statement for the 2021Sinclair's 2024 Annual Meeting of Stockholders under the captions, “Related"Related Person Transactions”Transactions" and “Director"Director Independence,”" which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20202023 and is incorporated by reference in this report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in ourSinclair's Proxy Statement for the 2021Sinclair's 2024 Annual Meeting of Stockholders under the caption, “Disclosure"Disclosure of Fees Charged by Independent Registered Public Accounting Firm,”" which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20202023 and is incorporated by reference in this report.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
The following consolidated financial statements of Sinclair, Inc. required by this item are submitted in a separate section beginning on page F-1F-1 of this report.
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Sinclair, Broadcast Group, Inc. Financial Statements: | | Page: |
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The following consolidated financial statements of Sinclair Broadcast Group, LLC required by this item are submitted in a separate section beginning on page F-52 of this report.
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| Sinclair Broadcast Group, LLC Financial Statements: | | Page: |
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(a) (2) Financial Statements Schedules
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the accompanying notes.
(a) (3) Exhibits
The following exhibits are filed with this report:
| | | | | | | | |
| EXHIBIT NO. | | EXHIBIT DESCRIPTION |
2.13.1 | | Equity Purchase Agreement of Share Exchange and Plan of Reorganization, dated as of MayApril 3, 2019,2023, by and among The Walt Disney Company, Fox Cable Networks, LLCOld Sinclair, Sinclair, and Diamond Sports Group, LLC. (IncorporatedSinclair Holdings (incorporated by reference from Exhibit 2.1 to Registrant'sOld Sinclair’s Current Report on Form 8-K filed on MayApril 3, 2019.)2023). |
3.13.2 | | |
3.2 | | |
4.1 | | |
4.23.3 | | |
| 3.4 | | |
| 3.5 | | |
| | | | | | | | |
| EXHIBIT NO. | | EXHIBIT DESCRIPTION |
| 3.6 | | |
| 3.7 | | |
| 3.8 | | |
| 4.1 | | |
4.34.2 | | |
4.4 | | |
4.5** | | |
4.6 | | |
| | | | | | | | |
EXHIBIT NO. | | EXHIBIT DESCRIPTION |
4.7 | | |
4.8** | | |
4.9 | | |
4.104.3 | | |
4.11 | | |
4.12 | | |
| 4.4† | | |
| 10.1* | | |
10.2* | | |
10.3* | | |
10.4* | | |
10.5*10.2* | | |
10.6* | | |
10.7*10.3* | | |
10.8* | | |
10.9*10.4* | | |
10.10*10.5* | | |
10.11*10.6* | | |
10.12* | | |
10.13** | | |
10.14* | | |
10.15* | | |
| | | | | | | | |
EXHIBIT NO. | | EXHIBIT DESCRIPTION |
10.16* | | |
10.17*10.7* | | |
10.18*10.8* | | |
| 10.9* | | |
10.19* | | |
10.20* | | |
10.21* | | |
10.2210.10 | | |
10.2310.11 | | |
10.2410.12 | | |
10.2510.13 | | |
10.2610.14 | | |
10.2710.15† | | |
| | | | | | | | |
| EXHIBIT NO. | | EXHIBIT DESCRIPTION |
| 10.16 | | |
10.28**10.17† | | |
10.29** | | |
10.30**10.18 | | |
10.31 | | |
10.32** | | |
10.33 | | |
10.34 | | Credit Agreement, dated as of August 23, 2019, by and among Diamond Sports Intermediate Holdings LLC, Diamond Sports Group, LLC, the guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto. (Incorporated by reference from Exhibit 10.3 to Registrant's Current Report on Form 8-K filed on August 23, 2019.) |
10.35** | | First Amendment, dated as of December 20, 2019, to the Credit Agreement, dated as of August 23, 2019, among Diamond Sports Intermediate Holdings LLC, Diamond Sports Group, LLC, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. |
10.36 | | |
| | | | | | | | |
EXHIBIT NO. | | EXHIBIT DESCRIPTION |
10.37 | | Seventh Amended and Restated Credit Agreement, dated as of August 23, 2019, by and among Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), Sinclair Television Group, Inc., the guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto. (Incorporated by reference from Exhibit 10.4 to Registrant'sOld Sinclair's Current Report on Form 8-K filed on August 23, 2019.) |
10.38**10.19 | | First Amendment, dated as of December 20, 2019, to the Seventh Amended and Restated Credit Agreement, dated as of August 23, 2019, among Sinclair Television Group, Inc., Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. (Incorporated by reference from Exhibit 10.38 to Old Sinclair's Annual Report on Form 10-K filed on March 1, 2021.) |
10.3910.20 | | Second Amendment, dated as of December 4, 2020, to the Seventh Amended and Restated Credit Agreement by and among Sinclair Television Group, Inc., Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), the guarantors party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as the administrative agent. (Incorporated by reference from Exhibit 10.1 to Registrant'sOld Sinclair's Current Report on Form 8-K filed on December 4, 2020.) |
10.4010.21 | | Purchase and Sale Agreement,Third Amendment, dated as of September 23, 2020,April 1, 2021, to the Seventh Amended and Restated Credit Agreement by and among Fox Sports Net,Sinclair Television Group, Inc., Sinclair Broadcast Group, LLC certain persons identified therein(formerly Sinclair Broadcast Group, Inc.), the guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as originatorsthe administrative agent and Diamond Sports Finance SPV, LLC.collateral agent. (Incorporated by reference from Exhibit 10.210.1 to Registrant'sOld Sinclair's Current Report on Form 8-K filed on September 25, 2020.April 1, 2021.) |
10.4110.22 | | Fourth Amendment, dated as of April 21, 2022, to the Seventh Amended and Restated Credit Agreement by and among Sinclair Television Group, Inc., Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), the guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as the administrative agent and collateral agent (incorporated by reference from Exhibit 10.1 to Old Sinclair’s Current Report on Form 8-K filed on April 21, 2022). |
| 10.23 | | Amended and Restated Loan and Security Agreement, dated as of September 23, 2020,June 25, 2021, by and among Diamond Sports Finance SPV, LLC, Fox Sports Net, LLC, Credit Suisse AG, New York Branch, as administrative agent, Wilmington Trust, National Association, as collateral agent, paying agent and account bank, and the lenders party thereto. (Incorporated by reference from Exhibit 10.1 to Registrant's CurrentOld Sinclair's Quarterly Report on Form 8-K10-Q filed on September 25, 2020.November 9, 2021.) |
10.4210.24 | | Performance Guaranty,First Amendment to Loan and Security Agreement, dated as of September 23, 2020,15, 2021, by and among Diamond Sports Finance SPV, LLC, Diamond Sports Net, LLC (f/k/a Fox Sports Net, LLC in favor ofLLC), Credit Suisse AG, New York Branch, as administrative agent.agent, Wilmington Trust, National Association, as collateral agent, paying agent and account bank, and the lenders party thereto. (Incorporated by reference from Exhibit 10.2 to Old Sinclair's Quarterly Report on Form 10-Q filed on November 9, 2021.) |
| 10.25 | | Assignment and Acceptance Agreement, dated as of November 5, 2021, by and between Credit Suisse AG, Cayman Islands Branch, as assignor, and Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), as assignee, and accepted by Credit Suisse AG, New York Branch, as administrative agent and Diamond Sports Finance SPV, LLC, as borrower. (Incorporated by reference from Exhibit 10.3 to Registrant'sOld Sinclair's Quarterly Report on Form 10-Q filed on November 9, 2021.) |
| 10.26 | | Omnibus Amendment to Amended and Restated Loan Agreement & Purchase Agreement, dated as of November 5, 2021, by and among Diamond Sports Finance SPV, LLC, Diamond Sports Net, LLC (f/k/a Fox Sports Net, LLC), Sinclair Broadcast Group, LLC (formerly Sinclair Broadcast Group, Inc.), as administrative agent and lender, Wilmington Trust, National Association, as collateral agent, paying agent and account bank, and certain persons identified therein as originators. (Incorporated by reference from Exhibit 10.3 to Old Sinclair's Quarterly Report on Form 10-Q filed on November 9, 2021.) |
| 10.27 | | |
21**21† | | |
23**23† | | |
| 24 | | |
| | |
31.1***31.1 | | |
31.2***31.2 | | |
| | | | | | | | |
32.1***EXHIBIT NO. | | EXHIBIT DESCRIPTION |
| 31.3 | | |
| 31.4 | | |
| 32.1‡ | | |
32.2***32.2‡ | | |
| 32.3‡ | | |
| 32.4‡ | | |
| 97.1† | | |
| 99.1 | | |
101101† | | The Company's Consolidated Financial Statements and related Notes for the year ended December 31, 20202023 from this Annual Report on Form 10-K, formatted in iXBRL (Inline eXtensible Business Reporting Language).** |
* Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
**† Filed herewith.
***‡ In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed”"filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
(b) Exhibits
The exhibits required by this Item are listed under Item 15 (a) (3).
ITEM 16. FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 1st29th day of March 2021.February 2024.
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| SINCLAIR, INC. |
| | SINCLAIR BROADCAST GROUP, INC.LLC |
| | |
| | By: | /s/ Christopher S. Ripley |
| | | Christopher S. Ripley |
| | | President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below under the heading “Signature”"Signature" constitutes and appoints Christopher S. Ripley as his true and lawful attorney-in-fact each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities to sign any or all amendments to this 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or theirhis substitute or substitutes, each acting alone, may lawfully do or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantSinclair, Inc. and Sinclair Broadcast Group, LLC and in the capacities and on the dates indicated.
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| Signature | | Title | | Date |
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| /s/ Christopher S. Ripley | | | President and Chief Executive Officer | |
| Christopher S. Ripley | | President and Chief Executive Officer | | March 1, 2021February 29, 2024 |
| | | | |
| /s/ Lucy A. Rutishauser | | | | |
| Lucy A. Rutishauser | | Executive Vice President and Chief Financial Officer | | |
Lucy A. Rutishauser | | | | March 1, 2021February 29, 2024 |
| | | | | |
| /s/ David R. Bochenek | | | Senior Vice President and Chief Accounting Officer | |
| David R. Bochenek | | Senior Vice President and Chief Accounting Officer | | March 1, 2021February 29, 2024 |
| | | | | |
| /s/ David D. Smith | | | Chairman of the Board and Executive Chairman | |
| David D. Smith | | Chairman of the Board and Executive Chairman | | March 1, 2021February 29, 2024 |
| | | | |
| /s/ Frederick G. Smith | | | | |
| Frederick G. Smith | | Director (Sinclair) and Manager (SBG) | | March 1, 2021February 29, 2024 |
| | | | | |
| /s/ J. Duncan Smith | | | | |
| J. Duncan Smith | | Director (Sinclair) and Manager (SBG) | | March 1, 2021February 29, 2024 |
| | | | | |
| /s/ Robert E. Smith | | | | |
| Robert E. Smith | | Director (Sinclair) and Manager (SBG) | | March 1, 2021February 29, 2024 |
| | | | | |
/s/ Lawrence E. McCannaLaurie R. Beyer | | | | |
| Laurie R. Beyer | | Director (Sinclair) and Manager (SBG) | | February 29, 2024 |
| | | | |
| /s/ Benjamin S. Carson, Sr. | | | | |
Lawrence E. McCannaBenjamin S. Carson, Sr. | | Director (Sinclair) and Manager (SBG) | | March 1, 2021 |
| | | | |
/s/ Daniel C. Keith | | | | |
Daniel C. Keith | | Director | | March 1, 2021 |
| | | | |
/s/ Martin R. Leader | | | | |
Martin R. Leader | | Director | | March 1, 2021February 29, 2024 |
| | | | | |
| /s/ Howard E. Friedman | | | | |
| Howard E. Friedman | | Director (Sinclair) and Manager (SBG) | | March 1, 2021February 29, 2024 |
| | | | |
| /s/ Daniel C. Keith | | | | |
| Daniel C. Keith | | Director (Sinclair) and Manager (SBG) | | February 29, 2024 |
| | | | |
| /s/ Benson E. Legg | | | | |
| Benson E. Legg | | Director (Sinclair) and Manager (SBG) | | March 1, 2021February 29, 2024 |
SINCLAIR, BROADCAST GROUP, INC.
INDEX TO FINANCIAL STATEMENTS OF SINCLAIR, INC.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Sinclair, Broadcast Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Sinclair, Broadcast Group, Inc. and its subsidiaries (the “Company”"Company") as of December 31, 20202023 and 2019,2022, and the related consolidated statements of operations, of comprehensive (loss) income, of equity (deficit) and redeemable noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2020,2023, including the related notes (collectively referred to as the “consolidated"consolidated financial statements”statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Goodwill Impairment AssessmentRevenue Recognition – Regional Sports Network Reporting UnitsLocal Media Segment Advertising Revenue
As describeddiscussed in NotesNote 1 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2,092Company recorded advertising revenue of $1,236 million as ofrelating to the local media segment for the year ended December 31, 2020, and2023. Advertising revenue is generated primarily from the impairment charge related to the Regional Sports Network reporting units was $2,615 million. Management evaluates goodwill for impairment annuallysale of advertising spots/impressions. Advertising revenue is recognized in the fourth quarter, or more frequently if events or changesperiod in circumstances indicate that an impairment may exist. If management concludes it is more likely than not that a reporting unit is impaired,which the fair value of the reporting unit is determined by management and compared to the net book value of the reporting unit. If the fair value is less than the net book value, an impairment to goodwill for the amount of the difference is recorded by management. The interim goodwill impairment test was performed during the third quarter of 2020 due to the negative impacts by the recent loss of certain distributors in the local sports segment , and resulted in an impairment charge of $2,615 million to the goodwill associated with the Regional Sports Network Reporting Units included within the local sports segment. Fair value of the Company’s reporting units is estimated utilizing an income approach involving the performance of a discounted cash flow analysis. The more sensitive inputs used by management in the discounted cash flow analysis include projected revenues and margins, as well as the discount rates used to calculate the present value of future cash flows.advertising spots/impressions are delivered.
The principal considerationsconsideration for our determination that performing procedures relating to the goodwill impairment assessment of the Regional Sports Network Reporting Unitslocal media segment advertising revenue is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting units; (ii)is a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenues and margins, and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment,revenue recognition for advertising revenue, including controls over the valuationrecording of advertising revenue in the Company’s Regional Sports Network Reporting units.period in which the advertising spots/impressions are delivered. These procedures also included, among others, (i) testing management’s processevaluating revenue recognition for developinga sample of advertising transactions by obtaining taped recordings denoting the fair value estimate of the reporting units; (ii) evaluating the appropriateness of management’s valuation model; (iii) testing the completenessas-aired advertisements and accuracy of underlying data used in the valuation model; and (iv) evaluating the significant assumptions used by management relatedcomparing those ads to the projected revenuesinvoices generated and margins and the discount rate. Evaluating management’s assumptions related to projected revenues and margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtainedcash received against revenue transactions recorded in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation approach and the discount rate.
Impairment Assessment of certain Definite-Lived Intangible Assets within the Regional Sports Network Asset Groups
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated customer relationship and other definite-lived intangibles balance was $4,286 million and $1,338 million, respectively, as of December 31, 2020, and the impairment charge related to the Regional Sports Network Asset Groups was $1,218 million and $431 million to customer relationships and other definite-lived intangibles, respectively. Management periodically evaluates long-lived assets, which includes definite-lived intangible assets, for impairment and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Recoverability of long-lived intangible assets are evaluated by management by measuring the carrying amount of the assets within an asset group against the estimated undiscounted future cash flows associated with that asset group. At the time that such evaluations indicate that the future undiscounted cash flows of certain long-lived intangible assets are not sufficient to recover the carrying value of such assets, the assets are tested for impairment by comparing their estimated fair value to the carrying value. As a result of the loss of certain distributors, management performed an impairment test of the Regional Sports Network asset groups during the third quarter of 2020, which indicated certain Regional Sports Network asset groups had carrying values in excess of the future undiscounted cash flows. At that time the impairment loss was measured as the amount by which the carrying value of the asset group exceeded the fair value. The calculated impairment was then allocated to the definite-lived intangible assets based upon relative fair value. Fair value of the Company’s asset groups is determined based upon a discounted cash flow analysis which uses the present value of projected cash flows. The more significant inputs used in the cash flow analyses relate to projected revenues and margins in both the undiscounted and discounted cash flow analyses, and the discount rate used to present value future cash flows in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the impairment assessment of certain definite-lived intangible assets within the Regional Sports Network asset groups is a critical audit matter are (i) the significant judgment by management when developing the estimated future undiscounted and discounted cash flows expected to be generated by certain assets within the Regional Sports Network asset groups; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenues and projected margins in both the undiscounted and discounted cash flow analyses, and the discount rate in the discounted cash flow analysis, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment assessment of definite-lived intangible assets, including controls over the Company’s valuation of certain assets in the Regional Sports Network asset groups. These procedures also included, among others, (i) testing management’s process for developing the undiscounted and discounted cash flows expected to be generated by the assets groupings; (ii) testing the completeness and accuracy of underlying data used in the valuation; and (iii) evaluating the significant assumptions used by management related to projected revenues and projected margins in both the undiscounted and discounted cash flow analyses, and the discount rate in the discounted cash flow analysis. Evaluating management’s assumptions related to projected revenues and projected margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the asset group, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rate assumption.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
March 1, 2021February 29, 2024
We have served as the Company’s auditor since 2009.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| | | | As of December 31, | | As of December 31, |
| | | 2020 | | 2019 | | 2023 | | 2022 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| CURRENT ASSETS: | | | |
| Current Assets: | | Current Assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,259 | | | $ | 1,333 | |
| Accounts receivable, net of allowance for doubtful accounts of $5 and $8, respectively | 1,060 | | | 1,132 | |
| Accounts receivable, net of allowance for doubtful accounts of $4 and $5, respectively | |
| Income taxes receivable | Income taxes receivable | 230 | | | 103 | |
| Prepaid sports rights | 498 | | | 113 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 170 | | | 232 | |
| Total current assets | Total current assets | 3,217 | | | 2,913 | |
| Property and equipment, net | Property and equipment, net | 823 | | | 765 | |
| Operating lease assets | Operating lease assets | 197 | | | 223 | |
| Deferred tax assets | 197 | | | 0 | |
| Restricted cash | 3 | | | 0 | |
| | Goodwill | |
| | Goodwill | |
| | Goodwill | Goodwill | 2,092 | | | 4,716 | |
| Indefinite-lived intangible assets | Indefinite-lived intangible assets | 171 | | | 158 | |
| Customer relationships, net | Customer relationships, net | 4,286 | | | 5,979 | |
| Other definite-lived intangible assets, net | Other definite-lived intangible assets, net | 1,338 | | | 1,998 | |
| Other assets | Other assets | 1,058 | | | 618 | |
| Total assets (a) | Total assets (a) | $ | 13,382 | | | $ | 17,370 | |
| | LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | | | |
| Current liabilities: | | | |
| LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | |
| LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | | | | |
| Current Liabilities: | | Current Liabilities: | | | |
| Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 533 | | | $ | 782 | |
| | Current portion of notes payable, finance leases, and commercial bank financing | |
| Current portion of notes payable, finance leases, and commercial bank financing | |
| Current portion of notes payable, finance leases, and commercial bank financing | Current portion of notes payable, finance leases, and commercial bank financing | 58 | | | 71 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 34 | | | 38 | |
| Current portion of program contracts payable | Current portion of program contracts payable | 92 | | | 88 | |
| Other current liabilities | Other current liabilities | 317 | | | 155 | |
| Total current liabilities | Total current liabilities | 1,034 | | | 1,134 | |
| Notes payable, finance leases, and commercial bank financing, less current portion | Notes payable, finance leases, and commercial bank financing, less current portion | 12,493 | | | 12,367 | |
| Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | 198 | | | 217 | |
| Program contracts payable, less current portion | Program contracts payable, less current portion | 30 | | | 39 | |
| Deferred tax liabilities | Deferred tax liabilities | 0 | | | 407 | |
| Other long-term liabilities | Other long-term liabilities | 622 | | | 434 | |
| Total liabilities (a) | Total liabilities (a) | 14,377 | | | 14,598 | |
Commitments and contingencies (See Note 13) | Commitments and contingencies (See Note 13) | 0 | | 0 | Commitments and contingencies (See Note 13) | | | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 190 | | | 1,078 | |
| Shareholders' Equity: | | | |
| Class A Common Stock, $0.01 par value, 500,000,000 shares authorized, 49,252,671 and 66,830,110 shares issued and outstanding, respectively | 1 | | | 1 | |
| Class B Common Stock, $0.01 par value, 140,000,000 shares authorized, 24,727,682 and 24,727,682 shares issued and outstanding, respectively, convertible into Class A Common Stock | 0 | | | 0 | |
| Shareholders' equity: | | Shareholders' equity: | | | |
| Class A Common Stock, $0.01 par value, 500,000,000 shares authorized, 39,737,682 and 45,847,879 shares issued and outstanding, respectively | |
| Class B Common Stock, $0.01 par value, 140,000,000 shares authorized, 23,775,056 and 23,775,056 shares issued and outstanding, respectively, convertible into Class A Common Stock | |
| Additional paid-in capital | Additional paid-in capital | 721 | | | 1,011 | |
| (Accumulated deficit) retained earnings | (Accumulated deficit) retained earnings | (1,986) | | | 492 | |
| Accumulated other comprehensive loss | (10) | | | (2) | |
| Total Sinclair Broadcast Group shareholders’ (deficit) equity | (1,274) | | | 1,502 | |
| Accumulated other comprehensive income | |
| Total Sinclair shareholders’ equity | |
| Noncontrolling interests | Noncontrolling interests | 89 | | | 192 | |
| Total (deficit) equity | (1,185) | | | 1,694 | |
| Total equity | |
| Total liabilities, redeemable noncontrolling interests, and equity | Total liabilities, redeemable noncontrolling interests, and equity | $ | 13,382 | | | $ | 17,370 | |
The accompanying notes are an integral part of these consolidated financial statements.
(a)Our consolidated total assets as of December 31, 20202023 and 20192022 include total assets of variable interest entities (VIEs)Variable Interest Entities ("VIEs") of $233$85 million and $228$115 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of December 31, 20202023 and 20192022 include total liabilities of the VIEs of $60$17 million and $27$18 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 14. Variable Interest Entities.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022, AND 20182021
(In millions, except share and per share data)
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| REVENUES: | REVENUES: | | | | | | REVENUES: | | | |
| Media revenues | Media revenues | $ | 5,843 | | | $ | 4,046 | | | $ | 2,919 | |
| Non-media revenues | Non-media revenues | 100 | | | 194 | | | 136 | |
| Total revenues | Total revenues | 5,943 | | | 4,240 | | | 3,055 | |
| | OPERATING EXPENSES: | OPERATING EXPENSES: | | | | |
| OPERATING EXPENSES: | |
| OPERATING EXPENSES: | | | | | | |
| Media programming and production expenses | Media programming and production expenses | 2,735 | | | 2,073 | | | 1,191 | |
| Media selling, general and administrative expenses | Media selling, general and administrative expenses | 832 | | | 732 | | | 630 | |
| Amortization of program contract costs | Amortization of program contract costs | 86 | | | 90 | | | 101 | |
| Non-media expenses | Non-media expenses | 91 | | | 156 | | | 122 | |
| Depreciation of property and equipment | Depreciation of property and equipment | 102 | | | 97 | | | 105 | |
| Corporate general and administrative expenses | Corporate general and administrative expenses | 148 | | | 387 | | | 111 | |
| Amortization of definite-lived intangible and other assets | Amortization of definite-lived intangible and other assets | 572 | | | 327 | | | 175 | |
| Impairment of goodwill and definite-lived intangible assets | 4,264 | | | 0 | | | 0 | |
| Gain on asset dispositions and other, net of impairment | (115) | | | (92) | | | (40) | |
| Total operating expenses | 8,715 | | | 3,770 | | | 2,395 | |
| | Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on deconsolidation of subsidiary | |
| Loss (gain) on asset dispositions and other, net of impairment | |
| Total operating expenses (gains) | |
| Operating (loss) income | Operating (loss) income | (2,772) | | | 470 | | | 660 | |
| | OTHER INCOME (EXPENSE): | OTHER INCOME (EXPENSE): | | | | | |
| OTHER INCOME (EXPENSE): | |
| OTHER INCOME (EXPENSE): | | | | |
| Interest expense including amortization of debt discount and deferred financing costs | Interest expense including amortization of debt discount and deferred financing costs | (656) | | | (422) | | | (292) | |
| Loss on extinguishment of debt | (10) | | | (10) | | | 0 | |
| Loss from equity method investments | (36) | | | (35) | | | (61) | |
| Other income, net | 325 | | | 6 | | | 3 | |
| Gain (loss) on extinguishment of debt | |
| Income from equity method investments | |
| Other expense, net | |
| Total other expense, net | Total other expense, net | (377) | | | (461) | | | (350) | |
| (Loss) income before income taxes | (Loss) income before income taxes | (3,149) | | | 9 | | | 310 | |
| INCOME TAX BENEFIT | 720 | | | 96 | | | 36 | |
| INCOME TAX BENEFIT (PROVISION) | |
| | NET (LOSS) INCOME | NET (LOSS) INCOME | (2,429) | | | 105 | | | 346 | |
| Net income attributable to the redeemable noncontrolling interests | (56) | | | (48) | | | 0 | |
| Net loss (income) attributable to the noncontrolling interests | 71 | | | (10) | | | (5) | |
| NET (LOSS) INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP | $ | (2,414) | | | $ | 47 | | | $ | 341 | |
| | EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP: | | | | | |
| | Basic earnings per share | $ | (30.20) | | | $ | 0.52 | | | $ | 3.38 | |
| NET (LOSS) INCOME | |
| | Diluted earnings per share | $ | (30.20) | | | $ | 0.51 | | | $ | 3.35 | |
| | NET (LOSS) INCOME | |
| Net loss (income) attributable to the redeemable noncontrolling interests | |
| Net income attributable to the noncontrolling interests | |
| NET (LOSS) INCOME ATTRIBUTABLE TO SINCLAIR | |
| | EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR: | |
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR: | |
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR: | | | | |
| | Basic (loss) earnings per share | |
| Basic (loss) earnings per share | |
| Basic (loss) earnings per share | |
| | Diluted (loss) earnings per share | |
| Diluted (loss) earnings per share | |
| Diluted (loss) earnings per share | |
| Basic weighted average common shares outstanding (in thousands) | Basic weighted average common shares outstanding (in thousands) | 79,924 | | | 92,015 | | | 100,913 | |
| Diluted weighted average common and common equivalent shares outstanding (in thousands) | Diluted weighted average common and common equivalent shares outstanding (in thousands) | 79,924 | | | 93,185 | | | 101,718 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
(In millions)
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Net (loss) income | $ | (279) | | | $ | 2,701 | | | $ | (326) | |
| | | | | |
| Adjustments to post-retirement obligations, net of taxes | — | | | 3 | | | 1 | |
| Share of other comprehensive gain of equity method investments | — | | | 3 | | | 7 | |
| Comprehensive (loss) income | (279) | | | 2,707 | | | (318) | |
| Comprehensive loss (income) attributable to redeemable noncontrolling interests | 4 | | | (20) | | | (18) | |
| Comprehensive income attributable to noncontrolling interests | (16) | | | (29) | | | (70) | |
| Comprehensive (loss) income attributable to Sinclair | $ | (291) | | | $ | 2,658 | | | $ | (406) | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEEQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022, AND 20182021
(In millions)millions, except share data)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Net (loss) income | $ | (2,429) | | | $ | 105 | | | $ | 346 | |
| Adjustments to post-retirement obligations, net of taxes | (1) | | | (1) | | | 1 | |
| Share of other comprehensive loss of equity method investments | (7) | | | 0 | | | 0 | |
| Comprehensive (loss) income | (2,437) | | | 104 | | | 347 | |
| Comprehensive income attributable to redeemable noncontrolling interests | (56) | | | (48) | | | 0 | |
| Comprehensive loss (income) attributable to noncontrolling interests | 71 | | | (10) | | | (5) | |
| Comprehensive (loss) income attributable to Sinclair Broadcast Group | $ | (2,422) | | | $ | 46 | | | $ | 342 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Sinclair Shareholders | | | | |
| | Redeemable
Noncontrolling
Interests | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interests | | Total Deficit |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2020 | $ | 190 | | | | 49,252,671 | | | $ | 1 | | | 24,727,682 | | | $ | — | | | $ | 721 | | | $ | (1,986) | | | $ | (10) | | | $ | 89 | | | $ | (1,185) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (60) | | | — | | | — | | | (60) | |
| Class B Common Stock converted into Class A Common Stock | — | | | | 952,626 | | | — | | | (952,626) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Repurchases of Class A Common Stock | — | | | | (2,438,585) | | | — | | | — | | | — | | | (61) | | | — | | | — | | | — | | | (61) | |
| Class A Common Stock issued pursuant to employee benefit plans | — | | | | 1,547,591 | | | — | | | — | | | — | | | 31 | | | — | | | — | | | — | | | 31 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests, net | (11) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (95) | | | (95) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Other comprehensive income | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | 8 | |
| Net income (loss) | 18 | | | | — | | | — | | | — | | | — | | | — | | | (414) | | | — | | | 70 | | | (344) | |
| BALANCE, December 31, 2021 | $ | 197 | | | | 49,314,303 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 691 | | | $ | (2,460) | | | $ | (2) | | | $ | 64 | | | $ | (1,706) | |
The accompanying notes are an integral part of these consolidated financial statementsstatements.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022, AND 20182021
(In millions, except share data)
| | | | Sinclair Broadcast Group Shareholders | | | | | | | | | Sinclair Shareholders | | |
| | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | Retained Earnings | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interests | | Total Equity | | Redeemable Noncontrolling Interest | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | (Accumulated
Deficit) Retained Earnings | | Accumulated
Other
Comprehensive
(Loss) Income | | Noncontrolling
Interests | | Total (Deficit) Equity |
| | | Shares | | Values | | Shares | | Values | |
| BALANCE, December 31, 2017 | 76,071,145 | | | $ | 1 | | | 25,670,684 | | | $ | 0 | | | $ | 1,321 | | | $ | 249 | | | $ | (2) | | | $ | (34) | | | $ | 1,535 | |
| BALANCE, December 31, 2021 | |
| BALANCE, December 31, 2021 | |
| BALANCE, December 31, 2021 | |
| | Cumulative effect of adoption of new accounting standard | — | | | — | | | — | | | — | | | — | | | 2 | | | $ | — | | | $ | — | | | 2 | |
| Dividends declared and paid on Class A and Class B Common Stock ($0.74 per share) | — | | | — | | | — | | | — | | | — | | | (74) | | | — | | | — | | | (74) | |
| Dividends declared and paid on Class A and Class B Common Stock ($1.00 per share) | |
| Dividends declared and paid on Class A and Class B Common Stock ($1.00 per share) | |
| Dividends declared and paid on Class A and Class B Common Stock ($1.00 per share) | |
| | Repurchases of Class A Common Stock | |
| Repurchases of Class A Common Stock | |
| Repurchases of Class A Common Stock | Repurchases of Class A Common Stock | (7,761,529) | | | — | | | — | | | — | | | (221) | | | — | | | — | | | — | | | (221) | |
| Class A Common Stock issued pursuant to employee benefit plans | Class A Common Stock issued pursuant to employee benefit plans | 588,107 | | | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | 21 | |
| | | Distributions to noncontrolling interests, net | Distributions to noncontrolling interests, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
| | | Distributions to noncontrolling interests, net | |
| | Distributions to noncontrolling interests, net | |
| | Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| | Other comprehensive income | |
| | Other comprehensive income | |
| Deconsolidation of subsidiary | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 341 | | | — | | | 5 | | | 346 | |
| BALANCE, December 31, 2018 | 68,897,723 | | | $ | 1 | | | 25,670,684 | | | $ | 0 | | | $ | 1,121 | | | $ | 518 | | | $ | (1) | | | $ | (39) | | | $ | 1,600 | |
| BALANCE, December 31, 2022 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022, AND 2018
(In millions, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Sinclair Broadcast Group Shareholders | | | | |
| | Redeemable Noncontrolling Interest | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | Retained Earnings | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interests | | Total Equity |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2018 | $ | 0 | | | | 68,897,723 | | | $ | 1 | | | 25,670,684 | | | $ | 0 | | | $ | 1,121 | | | $ | 518 | | | $ | (1) | | | $ | (39) | | | $ | 1,600 | |
| Issuance of redeemable subsidiary preferred equity, net of issuance costs | 985 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (73) | | | — | | | — | | | (73) | |
| Class B Common Stock converted into Class A Common Stock | — | | | | 943,002 | | | — | | | (943,002) | | | — | | | — | | | — | | | — | | | — | | | 0 | |
| Repurchases of Class A Common Stock | — | | | | (4,555,487) | | | — | | | — | | | — | | | (145) | | | — | | | — | | | — | | | (145) | |
| Class A Common Stock issued pursuant to employee benefit plans | — | | | | 1,544,872 | | | — | | | — | | | — | | | 35 | | | — | | | — | | | — | | | 35 | |
| Noncontrolling interests acquired in a business combination | 380 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 248 | | | 248 | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests, net | (38) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (27) | | | (27) | |
| | | | | | | | | | | | | | | | | | | | |
| Redemption of redeemable subsidiary preferred equity, net of fees | (297) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive loss | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Net income | 48 | | | | — | | | — | | | — | | | — | | | — | | | 47 | | | — | | | 10 | | | 57 | |
| BALANCE, December 31, 2019 | $ | 1,078 | | | | 66,830,110 | | | $ | 1 | | | 24,727,682 | | | $ | 0 | | | $ | 1,011 | | | $ | 492 | | | $ | (2) | | | $ | 192 | | | $ | 1,694 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 20182021
(In millions, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Sinclair Broadcast Group Shareholders | | | | |
| | Redeemable Noncontrolling Interests | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | (Accumulated
Deficit) Retained Earnings | | Accumulated
Other
Comprehensive Loss | | Noncontrolling
Interests | | Total Equity (Deficit) |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2019 | $ | 1,078 | | | | 66,830,110 | | | $ | 1 | | | 24,727,682 | | | $ | 0 | | | $ | 1,011 | | | $ | 492 | | | $ | (2) | | | $ | 192 | | | $ | 1,694 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (64) | | | — | | | — | | | (64) | |
| | | | | | | | | | | | | | | | | | | | |
| Repurchases of Class A Common Stock | — | | | | (19,418,934) | | | — | | | — | | | — | | | (343) | | | — | | | — | | | — | | | (343) | |
| Class A Common Stock issued pursuant to employee benefit plans | — | | | | 1,841,495 | | | — | | | — | | | — | | | 53 | | | — | | | — | | | — | | | 53 | |
| | | | | | | | | | | | | | | | | | | | |
| Noncontrolling interests issued | 22 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | |
| Distributions to noncontrolling interests, net | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (32) | | | (32) | |
| Distributions to redeemable noncontrolling interests | (419) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Redemption of redeemable subsidiary preferred equity, net of fees | (547) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| Other comprehensive loss | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | — | | | (8) | |
| Net income (loss) | 56 | | | | — | | | — | | | — | | | — | | | — | | | (2,414) | | | — | | | (71) | | | (2,485) | |
| BALANCE, December 31, 2020 | $ | 190 | | | | 49,252,671 | | | $ | 1 | | | 24,727,682 | | | $ | 0 | | | $ | 721 | | | $ | (1,986) | | | $ | (10) | | | $ | 89 | | | $ | (1,185) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Sinclair Shareholders | | | | |
| | Redeemable Noncontrolling Interests | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated
Other
Comprehensive Income | | Noncontrolling
Interests | | Total
Equity |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2022 | $ | 194 | | | | 45,847,879 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 624 | | | $ | 122 | | | $ | 1 | | | $ | (67) | | | $ | 681 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends declared and paid on Class A and Class B Common Stock ($1.00 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (65) | | | — | | | — | | | (65) | |
| | | | | | | | | | | | | | | | | | | | |
| Repurchases of Class A Common Stock | — | | | | (8,785,022) | | | — | | | — | | | — | | | (153) | | | — | | | — | | | — | | | (153) | |
| Class A Common Stock issued pursuant to employee benefit plans | — | | | | 2,674,825 | | | — | | | — | | | — | | | 46 | | | — | | | — | | | — | | | 46 | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests, net | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13) | | | (13) | |
| | | | | | | | | | | | | | | | | | | | |
| Redemption, net | (190) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net (loss) income | (4) | | | | — | | | — | | | — | | | — | | | — | | | (291) | | | — | | | 16 | | | (275) | |
| BALANCE, December 31, 2023 | $ | — | | | | 39,737,682 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 517 | | | $ | (234) | | | $ | 1 | | | $ | (64) | | | $ | 221 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR, BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022, AND 20182021
(In millions)
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net (loss) income | Net (loss) income | $ | (2,429) | | | $ | 105 | | | $ | 346 | |
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | |
| Impairment of goodwill and definite-lived intangible assets | 4,264 | | | 0 | | | 0 | |
| Adjustments to reconcile net (loss) income to net cash flows from operating activities: | | Adjustments to reconcile net (loss) income to net cash flows from operating activities: | | | |
| | Amortization of sports programming rights | |
| Amortization of sports programming rights | |
| Amortization of sports programming rights | Amortization of sports programming rights | 1,078 | | | 637 | | | 0 | |
| Amortization of definite-lived intangible and other assets | Amortization of definite-lived intangible and other assets | 572 | | | 327 | | | 175 | |
| Depreciation of property and equipment | Depreciation of property and equipment | 102 | | | 97 | | | 105 | |
| Amortization of program contract costs | Amortization of program contract costs | 86 | | | 90 | | | 101 | |
| Stock-based compensation | Stock-based compensation | 52 | | | 33 | | | 26 | |
| Deferred tax benefit | (604) | | | (5) | | | (103) | |
| Gain on asset disposition and other, net of impairment | (119) | | | (62) | | | (19) | |
| Loss from equity method investments | 36 | | | 35 | | | 61 | |
| Net (gain) loss from investments | (152) | | | 6 | | | 1 | |
| Deferred tax (benefit) provision | |
| Loss (gain) on asset dispositions and other, net of impairment | |
| Loss (gain) on deconsolidation of subsidiary | |
| Income from equity method investments | |
| Loss from investments | |
| Distributions from investments | Distributions from investments | 27 | | | 6 | | | 4 | |
| Sports programming rights payments | Sports programming rights payments | (1,345) | | | (578) | | | 0 | |
| Loss on extinguishment of debt | 10 | | | 10 | | | 0 | |
| Measurement adjustment gain on variable payment obligations | (159) | | | 0 | | | 0 | |
| Changes in assets and liabilities, net of acquisitions: | | | | | |
| Decrease (increase) in accounts receivable | 70 | | | 70 | | | (37) | |
| Decrease (increase) in prepaid expenses and other current assets | 48 | | | (27) | | | (10) | |
| (Decrease) increase in accounts payable and accrued and other current liabilities | (3) | | | 334 | | | 24 | |
| Net change in net income taxes payable/receivable | (127) | | | (127) | | | 49 | |
| Rebate payments to distributors | |
| (Gain) loss on extinguishment of debt | |
| | Changes in assets and liabilities, net of acquisitions and deconsolidation of subsidiary: | |
| Changes in assets and liabilities, net of acquisitions and deconsolidation of subsidiary: | |
| Changes in assets and liabilities, net of acquisitions and deconsolidation of subsidiary: | | | | |
| (Increase) decrease in accounts receivable | |
| Increase in prepaid expenses and other current assets | |
| Increase (decrease) in accounts payable and accrued and other current liabilities | |
| Net change in current and long-term net income taxes payable/receivable | |
| Decrease in program contracts payable | Decrease in program contracts payable | (96) | | | (94) | | | (108) | |
| Increase (decrease) in other long-term liabilities | 198 | | | (1) | | | 0 | |
| | Other, net | |
| Other, net | |
| Other, net | Other, net | 39 | | | 60 | | | 32 | |
| Net cash flows from operating activities | Net cash flows from operating activities | 1,548 | | | 916 | | | 647 | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | | | | | |
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | | |
| Acquisition of property and equipment | Acquisition of property and equipment | (157) | | | (156) | | | (105) | |
| Acquisition of businesses, net of cash acquired | (16) | | | (8,999) | | | 0 | |
| | Spectrum repack reimbursements | |
| Spectrum repack reimbursements | |
| Spectrum repack reimbursements | Spectrum repack reimbursements | 90 | | | 62 | | | 6 | |
| Proceeds from the sale of assets | Proceeds from the sale of assets | 36 | | | 8 | | | 2 | |
| | Deconsolidation of subsidiary cash | |
| Purchases of investments | Purchases of investments | (139) | | | (452) | | | (48) | |
| | Distributions from investments | |
| | Other, net | Other, net | 27 | | | 7 | | | 27 | |
| Net cash flows used in investing activities | (159) | | | (9,530) | | | (118) | |
| CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES: | | | | | |
| Other, net | |
| Other, net | |
| Net cash flows from (used in) investing activities | |
| CASH FLOWS USED IN FINANCING ACTIVITIES: | | CASH FLOWS USED IN FINANCING ACTIVITIES: | | | | | |
| Proceeds from notes payable and commercial bank financing | Proceeds from notes payable and commercial bank financing | 1,819 | | | 9,956 | | | 4 | |
| Repayments of notes payable, commercial bank financing, and finance leases | Repayments of notes payable, commercial bank financing, and finance leases | (1,739) | | | (1,236) | | | (167) | |
| | Proceeds from the issuance of redeemable subsidiary preferred equity, net | 0 | | | 985 | | | 0 | |
| | Repurchase of outstanding Class A Common Stock | |
| | Repurchase of outstanding Class A Common Stock | |
| | Repurchase of outstanding Class A Common Stock | Repurchase of outstanding Class A Common Stock | (343) | | | (145) | | | (221) | |
| Dividends paid on Class A and Class B Common Stock | Dividends paid on Class A and Class B Common Stock | (63) | | | (73) | | | (74) | |
| Dividends paid on redeemable subsidiary preferred equity | Dividends paid on redeemable subsidiary preferred equity | (36) | | | (33) | | | 0 | |
| Redemption of redeemable subsidiary preferred equity | (547) | | | (297) | | | 0 | |
| Debt issuance costs | (19) | | | (199) | | | (1) | |
| Repurchase of redeemable subsidiary preferred equity | |
| | Distributions to noncontrolling interests, net | |
| | Distributions to noncontrolling interests, net | |
| | Distributions to noncontrolling interests, net | Distributions to noncontrolling interests, net | (32) | | | (27) | | | (9) | |
| Distributions to redeemable noncontrolling interests | Distributions to redeemable noncontrolling interests | (383) | | | (5) | | | 0 | |
| Other, net | Other, net | (117) | | | (39) | | | 3 | |
| Net cash flows (used in) from financing activities | (1,460) | | | 8,887 | | | (465) | |
| Net cash flows used in financing activities | |
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (71) | | | 273 | | | 64 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | 1,333 | | | 1,060 | | | 996 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | $ | 1,262 | | | $ | 1,333 | | | $ | 1,060 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR, BROADCAST GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Sinclair, Broadcast Group, Inc. (the Company)("Sinclair") is a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, digital platform, and, prior to the Deconsolidation (as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC), regional sports networks, and digital platforms.networks. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us.us and our owned networks and professional sports. Additionally, we own digital media productscompanies that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses,properties and we have interests in, own, manage, and/or operate technical and software services companies, focused on supply and maintenance of broadcast transmission systems as well as research and development companies for the advancement of broadcast technology, and we manage other media and non-media related businesses and assets, including real estate, venture capital, private equity, and direct investments.
As of December 31, 2020,2023, we had 2two reportable segments for accounting purposes, broadcastsegments: local media and tennis. Prior to the Deconsolidation (as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC),we had one additional reportable segment, local sports. The broadcastlocal media segment consists primarily of our 188185 broadcast television stations in 8886 markets, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs),LMAs, or provide sales services and other non-programming operating services pursuant to other outsourcing agreements, (suchsuch as JSAs and SSAs).SSAs. These stations broadcast 628640 channels as of December 31, 2020.2023. For the purpose of this report, these 188185 stations and 628640 channels are referred to as “our”"our" stations and channels. The tennis segment consists of Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sports and tennis lifestyle shows; Tennis Channel International streaming service; Tennis Channel Plus streaming service; T2 FAST, a 24-hours a day free ad-supported streaming television channel; and Tennis.com. The local sports segment consistsconsisted primarily of our regional sportsthe Bally Sports network brands ("Bally RSNs"), the Marquee Sports Network ("Marquee") joint venture, and a minority equity interest in the Yankee Entertainment and Sports Network, LLC ("YES Network.Network") through February 28, 2022. On March 1, 2022, the Bally RSNs, Marquee, and YES Network were deconsolidated from our financial statements. See Deconsolidation of Diamond Sports Intermediate Holdings LLC below. Through February 28, 2022, we refer to the Bally RSNs and Marquee as "the RSNs." The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams.teams in designated local viewing areas.
Principles of Consolidation
The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries including the operating results of the Acquired RSNs acquired on August 23, 2019, as discussed in Note 2. Acquisitions and Dispositions of Assets, and VIEs for which we are the primary beneficiary. Noncontrolling interests represent a minority owner’sowner's proportionate share of the equity in certain of our consolidated entities. Noncontrolling interests which may be redeemed by the holder, and the redemption is outside of our control, are presented as redeemable noncontrolling interests. All intercompany transactions and account balances have been eliminated in consolidation.
We consolidate VIEs when we are the primary beneficiary. We are the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. See Note 14. Variable Interest Entities for more information on our VIEs.
Investments in entities over which we have significant influence but not control are accounted for using the equity method of accounting. Income (loss) from equity method investments represents our proportionate share of net income or loss generated by equity method investees.
Company Reorganization
On April 3, 2023, the company formerly known as Sinclair Broadcast Group, Inc., a Maryland corporation ("Old Sinclair"), entered into an Agreement of Share Exchange and Plan of Reorganization (the "Share Exchange Agreement") with Sinclair, and Sinclair Holdings, LLC, a Maryland limited liability company ("Sinclair Holdings"). The purpose of the transactions contemplated by the Share Exchange Agreement was to effect a holding company reorganization in which Sinclair would become the publicly-traded parent company of Old Sinclair.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Effective at 12:00 am Eastern U.S. time on June 1, 2023 (the "Share Exchange Effective Time"), pursuant to the Share Exchange Agreement and Articles of Share Exchange filed with the Maryland State Department of Assessments and Taxation, the share exchange between Sinclair and Old Sinclair was completed (the "Share Exchange"). In the Share Exchange, (i) each share or fraction of a share of Old Sinclair's Class A common stock, par value $0.01 per share ("Old Sinclair Class A Common Shares"), outstanding immediately prior to the Share Exchange Effective Time was exchanged on a one-for-one basis for an equivalent share of Sinclair's Class A common stock, par value $0.01 per share ("Sinclair Class A Common Shares"), and (ii) each share or fraction of a share of Old Sinclair's Class B common stock, par value $0.01 per share ("Old Sinclair Class B Common Shares"), outstanding immediately prior to the Share Exchange Effective Time was exchanged on a one-for-one basis for an equivalent share of Sinclair’s Class B common stock, par value $0.01 per share ("Sinclair Class B Common Shares").
Immediately following the Share Exchange Effective Time, Old Sinclair converted from a Maryland corporation to a Maryland limited liability company named Sinclair Broadcast Group, LLC ("SBG"). On the day following the Share Exchange Effective Time (June 2, 2023), Sinclair Holdings became the intermediate holding company between Sinclair and SBG, and SBG transferred certain of its assets (the "Transferred Assets") to Sinclair Ventures, LLC, a new indirect wholly-owned subsidiary of Sinclair ("Ventures"). We refer to the Share Exchange and the related steps described above collectively as the "Reorganization." The Transferred Assets included technical and software services companies, intellectual property for the advancement of broadcast technology, and other media and non-media related businesses and assets including real estate, venture capital, private equity, and direct investments, as well as Compulse, a marketing technology and managed services company, and Tennis Channel and related assets. As a result of the Reorganization, the local media segment assets are owned and operated by SBG and the assets of the tennis segment and the Transferred Assets are owned and operated by Ventures.
At the Share Exchange Effective Time, Sinclair's articles of incorporation and bylaws were amended and restated to be the same in all material respects as the existing articles of incorporation and bylaws of Old Sinclair immediately prior to the Share Exchange. As a result, the Sinclair Class A Common Shares confer upon the holders thereof the same rights with respect to Sinclair that the holders of the Old Sinclair Class A Common Shares had with respect to Old Sinclair, and the Sinclair Class B Common Shares confer upon the holders thereof the same rights with respect to Sinclair that the holders of the Old Sinclair Class B Common Shares had with respect to Old Sinclair. Sinclair's Board of Directors, including its committees, and senior management team immediately after the Share Exchange were the same as Old Sinclair's immediately before the Share Exchange.
The Reorganization is considered transactions between entities under common control and as SBG and Ventures are both subsidiaries of Sinclair, there was no impact on the consolidated financial statements of Sinclair.
Deconsolidation of Diamond Sports Intermediate Holdings LLC
On March 1, 2022, Old Sinclair's subsidiary Diamond Sports Intermediate Holdings, LLC, and certain of its subsidiaries (collectively "DSIH") completed a series of transactions (the "Transaction"). As part of the Transaction, the governance structure of DSIH was modified including changes to the composition of its Board of Managers, resulting in the Company's loss of voting control. As a result, DSIH, whose operations represented the entirety of our local sports segment, was deconsolidated from our consolidated financial statements effective as of March 1, 2022 (the "Deconsolidation"). The consolidated statement of operations for the year ended December 31, 2022 therefore includes two months of activity related to DSIH prior to the Deconsolidation. Subsequent to February 28, 2022, the assets and liabilities of DSIH were no longer included within our consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with DSIH are referring to the periods prior to the Deconsolidation.
Upon Deconsolidation, we recognized a gain before income taxes of approximately $3,357 million, which is recorded within gain on deconsolidation of subsidiary in our consolidated statements of operations for the year ended December 31, 2022. During the year ended December 31, 2023, we recorded an adjustment to the deconsolidation gain of $10 million. Subsequent to the Deconsolidation, our equity ownership interest in DSIH is accounted for under the equity method of accounting. See Note 6. Other Assets for more information.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
The impact of the outbreak of the novel coronavirus (COVID-19) continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could further materially impact our estimates related to, but not limited to, revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In February 2016,October 2021, the Financial Accounting Standards Board (FASB)FASB issued new guidance related to improve the accounting for leases, Accounting Standards Codification (ASC) Topic 842. We adopted the new guidance on January 1, 2019 using the modified retrospective approachacquired revenue contracts with customers in a business combination by addressing diversity in practice. ASU 2021-08 requires that an acquiring entity recognize and the optional transition method. Under this adoption method, comparative prior periods were not adjustedmeasure contract assets and continue to be reportedcontract liabilities acquired in a business combination in accordance with our historical accounting policy. We elected to applyTopic 606, as if it had originated the package of practical expedients permitted under the transitioncontracts. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within the new standard, which, among other things, allowed us to carryforward our historical assessments of whether contracts are, or contain, leases and lease classification. The primary impact of adopting this standard was the recognition of $215 million of operating lease liabilities and $196 million of operating lease assets. The adoption did not have a material impact on how we account for finance leases. See Note 8. Leases for more information regarding our leasing arrangements.
In June 2016, the FASB issued amended guidance on the accounting for credit losses on financial instruments. Among other provisions, this guidance introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for losses.those fiscal years. We adopted this guidance during the first quarter of 2020.2023. The impact of the adoption did not have a material impact on our consolidated financial statements.
In August 2018,November 2023, the FASB issued guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with the capitalized implementation costs of a hosting arrangement that is a service contract expensed over the term of the hosting arrangement. We adopted this guidance during the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety, as currently required in generally accepted accounting principles (GAAP). We adopted this guidance during the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In March 2019, the FASB issued guidance which requires that an entity test a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group level, when the film or license agreement is predominantly monetized with other films and/or license agreements. We adopted this guidance during the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued guidance which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will bereportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for interim and annual periodsfiscal years beginning after December 15, 2020.2023, and interim periods within fiscal years beginning after December 15, 2024, applied retrospectively. Early adoption is permitted. We early adopted this guidance during the third quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The guidance was effective for all entities immediately upon issuance of the update and may be applied prospectively to applicable transactions existing as of or entered into from the date of adoption through December 31, 2022. We are currently evaluating the impact of this guidance.
In December 2023, the FASB issued guidance if elected, but do not expectto enhance the transparency and decision usefulness of income tax disclosures, requiring annual disclosure of consistent categories and greater disaggregation of information in the rate reconciliation table; additional information for reconciling items that meet a materialquantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate); income taxes paid disaggregated by jurisdiction; and income or loss before income tax disaggregated between foreign and domestic. The guidance is effective for annual periods beginning after December 15, 2024, applied prospectively. Early adoption is permitted. We are currently evaluating the impact on our consolidated financial statements.of this guidance.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
We regularly review accounts receivable and determine an appropriate estimate for the allowance for doubtful accounts based upon the impact of economic conditions on the merchant’smerchant's ability to pay, past collection experience, and such other factors which, in management’smanagement's judgment, deserve current recognition. In turn, a provision is charged against earnings in order to maintain the appropriate allowance level.
A rollforward of the allowance for doubtful accounts for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 is as follows (in millions):
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Balance at beginning of period | Balance at beginning of period | $ | 8 | | | $ | 2 | | | $ | 3 | |
| Charged to expense | Charged to expense | 2 | | | 9 | | | 5 | |
| Net write-offs | Net write-offs | (5) | | | (3) | | | (6) | |
| Balance at end of period | Balance at end of period | $ | 5 | | | $ | 8 | | | $ | 2 | |
As of December 31, 2020, three2023, two customers accounted for 19%, 17%,10% and 15%10%, respectively, of our accounts receivable, net. As of December 31, 2019,2022, one customer accounted for 13% of our accounts receivable, net. As of December 31, 2021, three customers accounted for 24%15%, 15%, and 11%12%, respectively, of our accounts receivable, net. For purposes of this disclosure, a single customer may include multiple entities under common control.
Broadcast Television Programming
We have agreements with programming syndicators for the rights to television programming over contract periods, which generally run from one to seventhree years. Contract payments are made in installments over terms that are generally equal to or shorter than the contract period. Pursuant to accounting guidance for the broadcasting industry, an asset and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement, and the program is available for its first showing or telecast. The portion of program contracts which becomes payable within one year is reflected as a current liability in the accompanying consolidated balance sheets.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The rights to this programming are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or fair value. Program contract costs are amortized on a straight-line basis except for contracts greater than three years which are amortized utilizing an accelerated method. Program contract costs estimated by management to be amortized in the succeeding year are classified as current assets. Payments of program contract liabilities are typically made on a scheduled basis and are not affected by amortization or fair value adjustments.
Fair value is determined utilizing a discounted cash flow model based on management’smanagement's expectation of future advertising revenues, net of sales commissions, to be generated by the program material. We assess our program contract costs on a quarterly basis to ensure the costs are recorded at the lower of unamortized cost or fair value.
Sports Programming Rights
We haveDSIH has multi-year program rights agreements that provide the Companyprovided DSIH with the right to produce and telecast professional live sports games within a specified territory in exchange for a rights fee. A prepaid asset is recorded for rights acquired relatedPrior to future games upon payment of the contracted fee. The assets recorded for the acquired rights are classified as current or non-current based on the period when the games are expected to be aired. Liabilities are recorded for any program rights obligations that have been incurred but not yet paid at period end. We amortizeDeconsolidation, we amortized these programming rights as an expense over each season based upon contractually stated rates. Amortization iswas accelerated in the event that the stated contractual rates over the term of the rights agreement resultsresulted in an expense recognition pattern that iswas inconsistent with the projected growth of revenue over the contractual term.
On March 12, 2020, the NBA, NHL, and MLB suspended or delayed the start of their seasons as a result of the COVID-19 pandemic. On that date, the Company suspended the recognition of amortization expense associated with prepaid program rights agreements with teams within these leagues. Amortization expense resumed for the NBA, NHL, and MLB over the modified seasons when the games commenced during the third quarter of 2020. The NBA and NHL also delayed the start of their 2020-2021 seasons until December 22, 2020 and January 13, 2021, respectively; sports rights expense associated with these seasons will be recognized over the modified term of these seasons.
Certain rights agreements with professional teams contain provisions which require the rebate of rights fees paid by the Company if a contractually minimum number of live games are not delivered. As a result of the COVID-19 pandemic, the number of games played in the 2019-2020 NBA and NHL seasons and the 2020 MLB season were less than the contractual minimum number of games to be delivered. The resulting reduction in sports rights expense was recognized over the term of the modified seasons. Rights fees paid in advance of expense recognition, inclusive of any contractual rebates due to the Company, are included within prepaid sports rights in our consolidated balance sheets.
Impairment of Goodwill, Indefinite-lived Intangible Assets, and Other Long-lived Assets
We evaluate our goodwill and indefinite lived intangible assets for impairment annually in the fourth quarter, or more frequently, if events or changes in circumstances indicate that an impairment may exist. Our goodwill has been allocated to, and is tested for impairment at, the reporting unit level. A reporting unit is an operating segment or a component of an operating segment to the extent that the component constitutes a business for which discrete financial information is available and regularly reviewed by management. Components of an operating segment with similar characteristics are aggregated when testing goodwill for impairment.
In the performance of our annual assessment of goodwill for impairment, we have the option to qualitatively assess whether it is more likely than not that a reporting unit has been impaired. As part of this qualitative assessment, we weigh the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over carrying value in prior quantitative assessments.
If we conclude that it is more likely than not that a reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we will determine the fair value of the reporting unit and compare it to the net book value of the reporting unit. If the fair value is less than the net book value, we will record an impairment to goodwill for the amount of the difference. We estimate the fair value of our reporting units utilizing the income approach involving the performance of a discounted cash flow analysis. Our discounted cash flow model is based on our judgment of future market conditions based on our internal forecast of future performance, as well as discount rates that are based on a number of factors including market interest rates, a weighted average cost of capital analysis, and includes adjustments for market risk and company specific risk.
Our indefinite-lived intangible assets consist primarily of our broadcast licenses and a trade name. For our annual impairment test for indefinite-lived intangible assets, we have the option to perform a qualitative assessment to determine whether it is more likely than not that these assets are impaired. As part of this qualitative assessment we weigh the relative impact of factors that are specific to the indefinite-lived intangible assets as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over carrying value in prior quantitative assessments. When evaluating our broadcast licenses for impairment, the qualitative assessment is done at the market level because the broadcast licenses within the market are complementary and together enhance the single broadcast license of each station. If we conclude that it is more likely than not that one of our broadcast licenses is impaired, we will perform a quantitative assessment by comparing the aggregate fair value of the broadcast licenses in the market to the respective carrying values. We estimate the fair values of our broadcast licenses using the Greenfield method, which is an income approach. This method involves a discounted cash flow model that incorporates several variables, including, but not limited to, market revenues and long-term growth projections, estimated market share for the typical participant without a network affiliation, and estimated profit margins based on market size and station type. The model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. If the carrying amount of the broadcast licenses exceeds the fair value, then an impairment loss is recorded to the extent that the carrying value of the broadcast licenses exceeds the fair value.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
We evaluate our long-lived assets, including definite-lived intangible assets, for impairment asif events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We evaluate the recoverability of long-lived assets by comparing the carrying amount of the assets within an asset group to the estimated undiscounted future cash flows associated with the asset group. An asset group represents the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. At the time that such evaluations indicate that the future undiscounted cash flows are not sufficient to recover the carrying value of the asset group, an impairment loss is determined by comparing the estimated fair value of the asset group to the carrying value. We estimate fair value using an income approach involving the performance of a discounted cash flow analysis.
Our RSNs included inDuring the local sports segment have been negatively impacted by the recent loss of three Distributors. In addition,years ended December 31, 2023, 2022, and 2021, we did not identify any indicators that our existing Distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic and related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenues and margins of our RSNs. As a result of these factors, we performed an impairment test of the RSN reporting units' goodwill, andindefinite-lived or long-lived asset groups during the third quarter of 2020 which resulted in a non-cash impairment charge on goodwill of $2,615 million, customer relationships of $1,218 million and other definite-lived intangible assets of $431 million, included within impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations.may not be recoverable. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for more information.
We believe we have made reasonable estimates and utilized appropriate assumptions in the performance of our impairment assessments. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions, loss of significant customers, and significant increases in discount rates, among other factors, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.
When factors indicate that there may be a decrease in value of an equity method investment, we assess whether a loss in value has occurred. If that loss is deemed to be other than temporary, an impairment loss is recorded accordingly. For any equity method investments that indicate a potential impairment, we estimate the fair values of those investments using a combination of a market-based approach, which considers earnings and cash flow multiples of comparable businesses and recent market transactions, as well as an income approach involving the performance of a discounted cash flow analysis. See Note 6. Other Assets for more information.
We recorded an impairment charge of $60 million for the year ended December 31, 2018 to adjust one of our consolidated real estate development projects to fair value less costs to sell based upon a pending sale transaction. This impairment is reflected in gain on asset dispositions and other, net of impairment within our statements of operations. The fair value of the real estate investment was determined based on both observable and unobservable inputs, including the expected sales price as supported by a discounted cash flow model.
Accounts Payable and Accrued Liabilities
AccruedAccounts payable and accrued liabilities consisted of the following as of December 31, 20202023 and 20192022 (in millions):
| | | | 2020 | | 2019 | | 2023 | | 2022 |
| Compensation and employee benefits | Compensation and employee benefits | $ | 131 | | | $ | 136 | |
| Interest | Interest | 127 | | | 154 | |
| Programming related obligations | Programming related obligations | 183 | | | 191 | |
| Legal, litigation, and regulatory | 2 | | | 186 | |
| Legal, litigation, and regulatory (a) | |
| Accounts payable and other operating expenses | Accounts payable and other operating expenses | 90 | | | 115 | |
| Total accounts payable and accrued liabilities | Total accounts payable and accrued liabilities | $ | 533 | | | $ | 782 | |
(a)See Note 13. Commitments and Contingencies for additional information regarding the litigation accruals recorded.
We expense these activities when incurred.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2020,2023 and 2022, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, interest expense carryforwards under the Internal Revenue Code (IRC) Section 163(j) and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. As of December 31, 2019, a valuation allowance was provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, including the RSN impairment, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements.
Management periodically performs a comprehensive review of our tax positions, and we record a liability for unrecognized tax benefits if such tax positions are more likely than not to be sustained upon examination based on their technical merits,
including the resolution of any appeals or litigation processes. Significant judgment is required in determining whether positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided. See Note 12. Income Taxes, for further discussion of accrued unrecognized tax benefits.
Hedge Accounting
We entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of our exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.90%, and we receive a floating rate of interest based on the Secured Overnight Financing Rate ("SOFR").
We have determined that the interest rate swap meets the criteria for hedge accounting. The initial value of the interest rate swap and any changes in value in subsequent periods is included in accumulated other comprehensive income, with a corresponding change recorded in assets or liabilities depending on the position of the swap. Gains or losses on the monthly settlement of the interest rate swap are reflected in interest expense in our consolidated statements of operations. Cash flows related to the interest rate swap are classified as operating activities in our consolidated statements of cash flows. See Interest Rate Swap within Note 7. Notes Payable and Commercial Bank Financing for further discussion.
Supplemental Information — Statements of Cash Flows
During the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, we had the following cash transactions (in millions):
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Income taxes paid | Income taxes paid | $ | 11 | | | $ | 32 | | | $ | 17 | |
| Income tax refunds | Income tax refunds | $ | 2 | | | $ | 2 | | | $ | 0 | |
| Interest paid | Interest paid | $ | 634 | | | $ | 283 | | | $ | 285 | |
Non-cash investing activities included property and equipment purchases of $6$5 million $10 million, and $11 million for each of the years ended December 31, 2020, 2019,2023, 2022, and 2018, respectively,2021 and the transferreceipt of an asset for propertyequipment with a fair value of $7$58 million in connection with completing the repack process as more fully described in Note 2. Acquisitions and Dispositions of Assets for the year ended December 31, 2020. During the year ended December 31, 2020 the Company entered into a commercial agreement with Bally's and received equity interests in the business with a value of $199 million. See Note 6. Other Assets and Note 18. Fair Value Measurements for further discussion.Non-cash transactions related to sports rights were $22 million for the year ended December 31, 2020.2021.
During the years ended December 31, 2022 and 2021, we received equity shares in investments valued at $3 million and $6 million, respectively, in exchange for an equivalent value of advertising spots.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The following table presents our revenue disaggregated by type and segment for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | For the year ended December 31, 2020 | Broadcast | | Local sports | | Other | | Eliminations | | Total |
| For the year ended December 31, 2023 | |
| Distribution revenue | |
| Distribution revenue | |
| Distribution revenue | |
| Advertising revenue | |
| Advertising revenue | |
| Advertising revenue | |
| Other media, non-media, and intercompany revenue | |
| Other media, non-media, and intercompany revenue | |
| Other media, non-media, and intercompany revenue | |
| Total revenues | |
| Total revenues | |
| Total revenues | |
| | For the year ended December 31, 2022 | |
| | For the year ended December 31, 2022 | |
| | For the year ended December 31, 2022 | | Local media | | Tennis | | Local sports | | Other | | Eliminations | | Total |
| Distribution revenue | Distribution revenue | $ | 1,414 | | | $ | 2,472 | | | $ | 199 | | | $ | 0 | | | $ | 4,085 | |
| Advertising revenue | Advertising revenue | 1,364 | | | 196 | | | 131 | | | (2) | | | 1,689 | |
| Other media, non-media, and intercompany revenue | Other media, non-media, and intercompany revenue | 144 | | | 18 | | | 121 | | | (114) | | | 169 | |
| Total revenues | Total revenues | $ | 2,922 | | | $ | 2,686 | | | $ | 451 | | | $ | (116) | | | $ | 5,943 | |
| | For the year ended December 31, 2019 | Broadcast | | Local sports | | Other | | Eliminations | | Total |
| For the year ended December 31, 2021 | |
| For the year ended December 31, 2021 | |
| For the year ended December 31, 2021 | | Local media | | Tennis | | Local sports | | Other | | Eliminations | | Total |
| Distribution revenue | Distribution revenue | $ | 1,341 | | | $ | 1,029 | | | $ | 130 | | | $ | 0 | | | $ | 2,500 | |
| Advertising revenue | Advertising revenue | 1,268 | | | 103 | | | 110 | | | (1) | | | 1,480 | |
| Other media, non-media, and intercompany revenue | Other media, non-media, and intercompany revenue | 81 | | | 7 | | | 230 | | | (58) | | | 260 | |
| Total revenues | Total revenues | $ | 2,690 | | | $ | 1,139 | | | $ | 470 | | | $ | (59) | | | $ | 4,240 | |
| | For the year ended December 31, 2018 | Broadcast | | Local sports | | Other | | Eliminations | | Total |
| Distribution revenue | $ | 1,186 | | | $ | 0 | | | $ | 113 | | | $ | 0 | | | $ | 1,299 | |
| Advertising revenue | 1,484 | | | 0 | | | 75 | | | 0 | | | 1,559 | |
| Other media, non-media, and intercompany revenue | 45 | | | 0 | | | 162 | | | (10) | | | 197 | |
| Total revenues | $ | 2,715 | | | $ | 0 | | | $ | 350 | | | $ | (10) | | | $ | 3,055 | |
Distribution Revenue. We generate distribution revenue through fees received from Distributors for the right to distribute our stations, RSNs,other properties, and, other properties.prior to the Deconsolidation, the RSNs. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal or network programming is provided to our customers (as("as usage occurs)occurs") which corresponds with the satisfaction of our performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. Our customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.
Certain of our distribution arrangements contain provisions that require the Company to deliver a minimum number of live professional sports games or tournaments during a defined period which usually corresponds with a calendar year. If the minimum threshold is not met, we may be obligated to refund a portion of the distribution fees received if shortfalls are not cured within a specified period of time. Our ability to meet these requirements is primarily driven by the delivery of games by the professional sports leagues. The Company has not historically paid any material rebates under these contractual provisions as it is unusual for there to be an event which is significant enough to preclude the Company from meeting or exceeding these thresholds. The COVID-19 pandemic has resulted in significant disruptions to the normal operations of the professional sports leagues resulting in delays and uncertainty with respect to regularly scheduled games. Decisions made by the leagues during the second quarter of 2020 regarding the timing and format of the revised 2020 seasons and decisions made by the NHL and NBA during the fourth quarter of 2020 regarding the timing and format of their revised 2020-2021 seasons have resulted, in some cases, in our inability to meet these minimum requirements and the need to reduce revenue based upon estimated rebates due to our distribution customers. These estimated rebates were recognized over the measurement period of the rebate which is the year ended December 31, 2020. For the year ended December 31, 2020, we reduced revenue by, and accrued corresponding rebates to Distributors of $420 million, which is expected to be paid over 2021 and 2022. See Subsequent Events within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
Advertising Revenue. We generate advertising revenue primarily from the sale of advertising spots/impressions within our broadcast television, RSN,digital platforms, and, digital platforms.prior to the Deconsolidation, RSNs. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where we provide audience ratings guarantees, to the extent that there is a ratings shortfall, we will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of our advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is due is not significant. In certain circumstances, we require customers to pay in advance; payments received in advance of satisfying our performance obligations are reflected as deferred revenue.
Practical Expedients and Exemptions. We expense sales commissions when incurred because the period of benefit for these costs is one year or less. These costs are recorded within media selling, general and administrative expenses. In accordance with ASC 606, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) distribution arrangements which are accounted for as a sales/usage based royalty.
Arrangements with Multiple Performance Obligations. Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price, which is generally based on the prices charged to customers.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred Revenues. We record deferred revenue when cash payments are received or due in advance of our performance, including amounts which are refundable. We classify deferred revenue as either current in other current liabilities or long-term in other long-term liabilities within our consolidated balance sheets, based on the timing of when we expect to satisfy our performance obligations. Deferred revenue was $233$178 million, $54$200 million, and $83$235 million as of December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively, of which $184$124 million, $144 million, and $164 million as of December 31, 20202023, 2022, and 2021, respectively, was reflected in other long-term liabilities in our consolidated balance sheets. Deferred revenue recognized during the yearyears ended December 31, 20202023 and 20192022 that was included in the deferred revenue balance as of December 31, 20192022 and 20182021 was $49$50 million and $76$62 million, respectively.
On November 18th, 2020, we entered into a commercial agreement with Bally’s Corporation where we will provide certain branding integrations in our RSNs, broadcast networks and other properties. These branding integrations include naming rights associated with the majority of our RSNs. The initial term of this arrangement is 10 years and we expect to begin performing under this arrangement in 2021. The Company received non-cash consideration initially valued at $199 million which is reflected as a contract liability and will be recognized as revenue as the performance obligations under the arrangement are satisfied. No revenue was recognized under this arrangement during the year ended December 31, 2020. See Note 6. Other Assets for more information.
For the year ended December 31, 2020, three2023, two customers accounted for 18%, 17%,11% and 12%10%, respectively, of our total revenues. For the year ended December 31, 20192022, three customers accounted for 16%12%, 13%11%, and 10%, respectively, of our total revenues. For the year ended December 31, 2021, three customers accounted for 19%, 18%, and 14%, respectively, of our total revenues. For purposes of this disclosure, a single customer may include multiple entities under common control.
Advertising Expenses
Promotional advertising expenses are recorded in the period when incurred and are included in media production and other non-media expenses. Total advertising expenses, net of advertising co-op credits, were $23$8 million, $25$9 million, and $19$22 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively.
Financial Instruments
Financial instruments, as of December 31, 20202023 and 2019,2022, consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued liabilities, stock options and warrants, and notes payable. The carrying amounts approximate fair value for each of these financial instruments, except for the notes payable. See Note 18. Fair Value Measurements for additional information regarding the fair value of notes payable.
Post-retirement Benefits
We maintain a supplemental executive retirement plan (SERP) which we inherited upon the acquisition of certain stations. As of December 31, 2020,2023, the estimated projected benefit obligation was $21$14 million, of which $2$1 million is included in accrued expenses and $19$13 million is included in other long-term liabilities in our consolidated balance sheets. At December 31, 2020,2023, the projected benefit obligation was measured using a 2.10%4.92% discount rate compared to a discount rate of 3.04%5.20% for the year ended December 31, 2019.2022. For each of the years ended December 31, 20202023 and 2019,2022, we made $2$1 million in benefit paymentspayments. We recognized an actuarial loss of $0.3 million and recognized $2gain of $3 million of actuarial losses through other comprehensive income.income for the years ended December 31, 2023 and 2022, respectively. For each of the years ended December 31, 20202023 and 2019,2022, we recognized $1 million of periodic pension expense, reported in other income,expense, net in our consolidated statements of operations.
We also maintain other post-retirement plans provided to certain employees. The plans are voluntary programs that primarily allow participants to defer eligible compensation and they may also qualify to receive a discretionary match on their deferral. As of December 31, 2020,2023, the assets and liabilities included in our consolidated balance sheets related to deferred compensation plans were $42$45 million and $36$44 million, respectively.
Reclassifications
Certain reclassifications have been made to prior years’years' consolidated financial statements to conform to the current year’syear's presentation.
Subsequent Events
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it has already impacted, and will impact, its advertisers, Distributors, and agreements with professional sports leagues. While the NBA, NHL, and MLB were able to complete modified season schedules during 2020, there can be no assurance that the MLB, NBA, or NHL will complete full or abbreviated seasons in the future. The NBA and NHL delayed the start of their 2020-2021 seasons until December 22, 2020 and January 13, 2021, respectively, however both under reduced game counts. The MLB has announced that they expect their 2021 season to begin on time in April 2021 and contain a full game schedule. The NBA and NHL have not announced their 2021-2022 season schedules yet. Any reduction in the number of games played by the leagues may have an adverse impact on our operations and cash flows. The Company is currently unable to predict the full extent that the COVID-19 pandemic will have on its financial condition, results of operations, and cash flows in future periods due to numerous uncertainties.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS:
During the yearsyear ended December 31, 2020 and 2019,2021, we acquired certain businesses for an aggregate purchase price, net of cash acquired, of $9 billion,$10 million, including working capital adjustments and other adjustments. There were no acquisitions during the years ended December 31, 2023 and 2022.
The following summarizes the material acquisition activity during the yearsyear ended December 31, 2020 and 2019:2021:
20202021 Acquisitions
During the year ended December 31, 2020,2021, we completed the acquisition of the license asset and certain non-license assets of a radio stationZypMedia for approximately $7 million and the licensein cash. The acquired assets and certain non-license assetsliabilities were recorded at fair value as of 2 television stations for $9 million. The acquisitions were completed using cash on hand.
2019 Acquisitionsthe closing date of the transactions.
RSN Acquisition. In May 2019, DSG entered into a definitive agreement to acquire controlling interests in 21 Regional Sports Network brands and Fox College Sports (collectively, the Acquired RSNs), from Disney for $9.6 billion plus certain adjustments. On August 23, 2019, we completed the acquisition (the RSN Acquisition) for an aggregate purchase price, including cash acquired, and subject to an adjustment based upon finalization of working capital, net debt, and other adjustments, of $9,817 million, accounted for as a business combination under the acquisition method of accounting. The RSN Acquisition provides an expansion to our premium sports programming including the exclusive regional distribution rights to 42 professional teams consisting of 14 MLB teams, 16 NBA teams, and 12 NHL teams. The Acquired RSNs are reported within our local sports segment. See Note 17. Segment Data.
The transaction was funded through a combination of debt financing raised by DSG and STG, as described in Note 7. Notes Payable and Commercial Bank Financing, and redeemable subsidiary preferred equity, as described in Note 10. Redeemable Noncontrolling Interests.
The following table summarizes the fair value of acquired assets, assumed liabilities, and noncontrolling interests of the Acquired RSNs (in millions):
| | | | | |
Cash and cash equivalents | $ | 824 | |
Accounts receivable, net | 606 | |
Prepaid expenses and other current assets | 175 | |
Property and equipment, net | 25 | |
Customer relationships, net | 5,439 | |
Other definite-lived intangible assets, net | 1,286 | |
Other assets | 52 | |
Accounts payable and accrued liabilities | (181) | |
Other long-term liabilities | (396) | |
Goodwill | 2,615 | |
Fair value of identifiable net assets acquired | $ | 10,445 | |
Redeemable noncontrolling interests | (380) | |
Noncontrolling interests | (248) | |
Gross purchase price | $ | 9,817 | |
Purchase price, net of cash acquired | $ | 8,993 | |
The final purchase price allocation presented above is based upon management's estimates of the fair value of the acquired assets, assumed liabilities, and noncontrolling interest at the time of acquisition using valuation techniques including income and cost approaches. The fair value estimates are based on, but not limited to, projected revenue, projected margins, and discount rates used to present value future cash flows. The adjustments made to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed and did not result in material changes to the amortization expense recorded in previous quarters.
The definite-lived intangible assets of $6,725 million are primarily comprised of customer relationships, which represent existing advertiser relationships and contractual relationships with Distributors of $5,439 million, the fair value of contracts with sports teams of $1,271 million, and tradenames/trademarks of $15 million. The intangible assets will be amortized over a weighted average useful life of 2 years for tradenames/trademarks, 13 years for customer relationships, and 12 for contracts with sports teams on a straight-line basis. The fair value of the sports team contracts will be amortized over the respective contract term. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as expected future synergies. We estimate that $2.4 billion of goodwill, which represents our interest in the Acquired RSNs, will be deductible for tax purposes. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for discussion of the impairment of the acquired goodwill and definite-lived intangible assets duringDuring the year ended December 31, 2020.2021, we purchased 360IA, LLC for $5 million, with $2 million being paid in cash and the remaining to be paid in $1 million increments on each of the first three anniversaries following the closing date.
Financial Results of Acquisitions
The following tables summarize the results of the net revenues and operating (loss) incomeloss included in the financial statements of the Company beginning on the acquisition date of each acquisition as listed below (in millions):
| | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Revenues: | | | | | |
| RSN | $ | 2,562 | | | $ | 1,139 | | | |
| Other acquisitions in 2020 | 3 | | | 0 | | | |
| Total net revenues | $ | 2,565 | | | $ | 1,139 | | | |
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Revenues: | | | | | |
| Other acquisitions in 2021 | $ | 39 | | | $ | 72 | | | $ | 8 | |
| | | | | |
| | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Operating (Loss) Income: | | | | | |
| RSN (a) | $ | (3,585) | | | $ | 70 | | | |
| Other acquisitions in 2020 | (2) | | | 0 | | | |
| Total operating (loss) income | $ | (3,587) | | | $ | 70 | | | |
(a)Operating (loss) income for the years ended December 31, 2020 and 2019 includes transaction costs discussed below and excludes $98 million and $35 million selling, general, and administrative expenses, respectively, for services provided by broadcast to local sports, which are eliminated in consolidation.
In connection with the 2020 and 2019 acquisitions, for the years ended December 31, 2020, and 2019, we recognized $5 million and $96 million, respectively, of transaction costs which we expensed as incurred and classified as corporate general and administrative expenses in our consolidated statements of operations.
Pro Forma Information
The following table sets forth unaudited pro forma results of operations, assuming that the RSN Acquisition, along with transactions necessary to finance the acquisition, occurred at the beginning of the year preceding the year of acquisition (in millions, except per data share):
| | | | | | | | | | | | | |
| | Unaudited | | |
| | 2019 | | 2018 | | |
| Total revenues | $ | 6,689 | | | $ | 6,874 | | | |
| Net income | $ | 328 | | | $ | 732 | | | |
| Net income attributable to Sinclair Broadcast Group | $ | 130 | | | $ | 524 | | | |
| Basic earnings per share attributable to Sinclair Broadcast Group | $ | 1.41 | | | $ | 5.20 | | | |
| Diluted earnings per share attributable to Sinclair Broadcast Group | $ | 1.39 | | | $ | 5.16 | | | |
This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of what our results would have been had we operated the Acquired RSNs for the period presented because the pro forma results do not reflect expected synergies. The pro forma adjustments reflect depreciation expense and amortization of intangible assets related to the fair value adjustments of the assets acquired and any adjustments to interest expense to reflect the debt financing of the transactions. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquiree due to the fair value adjustments recorded for long-lived tangible and intangible assets in purchase accounting.
Termination of Material Definitive Agreement.
In August 2018, we received a termination notice from Tribune Media Company (Tribune), terminating the Agreement and Plan of Merger entered into on May 8, 2017, between the Company and Tribune (Merger Agreement), which provided for the acquisition by the Company of the outstanding shares of Tribune Class A common stock and Tribune Class B common stock (Merger). On January 27, 2020, the Company and Nexstar, which acquired Tribune in September 2019, agreed to settle the Tribune Complaint. See Litigation under Note 13. Commitments and Contingencies for further discussion on our settlement with Nexstar.
For the year ended December 31, 2018 we incurred $100 million of costs in connection with this acquisition, of which $21 million primarily related to legal and other professional services, that we expensed as incurred and classified as corporate general and administrative expenses in our consolidated statements of operations; and $79 million of ticking fees and the write-off of previously capitalized debt issuance costs associated with the Tribune acquisition which was subsequently terminated, which are recorded as interest expense in our consolidated statements of operations. | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Operating Loss: | | | | | |
| Other acquisitions in 2021 | $ | (12) | | | $ | (7) | | | $ | (45) | |
| | | | | |
Dispositions
Broadcast Sales2021 Dispositions. In January 2020,September 2021, we agreed to sellsold all of our radio broadcast stations, KOMO-FM, KOMO-AM, KPLZ-FM and KVI-AM in Seattle, WA, for consideration valued at $13 million. For the license and non-license assets of WDKY-TV in Lexington, KY and certain non-license assets associated with KGBT-TV in Harlingen, Texas for an aggregate purchase price of $36 million. The KGBT-TV transaction closed during the first quarter of 2020 andyear ended December 31, 2021, we recorded a gainnet loss of $8$12 million related to the sale, which is included within gainloss (gain) on asset dispositions and other, net of impairment in our consolidated statements of operations. The WDKY-TV transaction closed duringoperations, and was primarily related to the third quarterwrite-down of 2020the carrying value of the assets to estimate the selling price.
In June 2021, we sold our controlling interest in Triangle Sign & Service, LLC ("Triangle") for $12 million. We recorded a gain on the sale of Triangle of $6 million, of which $3 million was attributable to noncontrolling interests, for the year ended December 31, 2021, which is included in the loss (gain) on asset dispositions and other, net of impairment and net (income) loss attributable to the noncontrolling interests, respectively, in our consolidated statements of operations.
In February 2021, we sold two of our television broadcast stations, WDKA-TV in Paducah, KY and KBSI-TV in Cape Girardeau, MO, for an aggregate sale price of $28 million. We recorded a gain of $21$12 million for the year ended December 31, 2021, which is included within gainloss (gain) on asset dispositions and other, net of impairment in our consolidated statements of operations.
Broadcast Incentive Auction. In 2012, Congress authorized the FCC to conduct so-called "incentive auctions" to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of their rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process.
For the year ended December 31, 2018, we recognized a gain of $83 million, which was included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations and was related to the auction proceeds associated with one market where the underlying spectrum was vacated during the first quarter of 2018. The results of the auction are not expected to produce any material change in operations of the Company as there is no change in on air operations.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We have received notification from the FCC that 100 of our stations have been assigned to new channels. Legislation has provided the FCC with a $3 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that the reimbursements from the fund will cover the majority of our expenses related to the repack. We recorded gains related to reimbursements for the spectrum repack costs incurred of $90$8 million, $62$4 million, and $6$24 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively, which are recorded within gainloss (gain) on asset dispositions and other, net of impairment in our consolidated statements of operations. For the years ended December 31, 2020, 2019,2022 and 2018,2021, capital expenditures related to the spectrum repack were $61 million, $66$1 million and $31$12 million, respectively.
In December 2020, the FCC began a similar repacking process associated with a portion of the C-Band spectrum in order to free up this spectrum for the use of 5G wireless services. The repack was scheduled to be completed in two phases, the first ended on December 31, 2021 and the second ended on December 31, 2023. Prior to the Deconsolidation, DSG entered into an agreement with a communications provider in which they received equipment to complete the repack process at a maximum cost to DSG of $15 million. Prior to the Deconsolidation, for the year ended December 31, 2021, we recognized a gain of $43 million, which is recorded within loss (gain) on asset dispositions and other, net of impairment in our consolidated statements of operations, equal to the fair value of the equipment that DSG received of $58 million, less the maximum cost to DSG of $15 million.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. STOCK-BASED COMPENSATION PLANS:
In June 1996, ourthe Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term Incentive Plan (LTIP)("LTIP"). The purpose of the LTIP is to reward key individuals for making major contributions to our success and the success of our subsidiaries and to attract and retain the services of qualified and capable employees. Under the LTIP, we have issued restricted stock awards (RSAs)("RSAs"), stock grants to our non-employee directors, stock-settled appreciation rights (SARs)("SAR"), and stock options. AIn June 2022, the Board adopted, upon approval of the shareholders by proxy, the 2022 Stock Incentive Plan ("SIP"). Upon approval of the SIP, it succeeded the LTIP and no additional awards were granted under the LTIP. All outstanding awards granted under the LTIP will remain subject to their original terms. The purpose of the SIP is to provide stock-based incentives that align the interests of employees, consultants, and outside directors with those of the stockholders of the Company by motivating its employees to achieve long-term results and rewarding them for their achievements, and to attract and retain the types of employees, consultants, and outside directors who will contribute to the Company’s long-range success.
As of December 31, 2023, a total of 14,000,00010,498,506 shares of Class A Common Stock arewere reserved for awards under this plan.the SIP. As of December 31, 2020, 2,309,8552023, 7,425,918 shares were available for future grants. Additionally, we have the following arrangements that involve stock-based compensation: employer matching contributions (the Match) for participants in our 401(k) plan, an employee stock purchase plan (ESPP)("ESPP"), and subsidiary stock awards. Stock-based compensation expense has no effect on our consolidated cash flows. For the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, we recorded stock-based compensation of $51$45 million, $33$50 million, and $26$60 million, respectively. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards:
Restricted Stock Awards
RSAs.
RSAs issued in 2020, 2019, and 20182023 have certain restrictions that generally lapse after two years at 100% or over two years at 50% and 50%, respectively. RSAs issued in 2022 and 2021 have certain restrictions that generally lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. Unvested RSAs are entitled to dividends, and therefore, are included in weighted shares outstanding, resulting in a dilutive effect on basic and diluted earnings per share. The fair value assumes the closing value of the stock on the measurement date.
The following is a summary of changes in unvested restricted stock:
| | | | | | | | | | | |
| | RSAs | | Weighted-Average Price |
| Unvested shares at December 31, 2019 | 136,543 | | | $ | 32.80 | |
| 2020 Activity: | | | |
| Granted | 831,228 | | | 28.21 | |
| Vested | (520,655) | | | 28.81 | |
| Forfeited | (5,407) | | | 28.89 | |
| Unvested shares at December 31, 2020 | 441,709 | | | $ | 28.86 | |
| | | | | | | | | | | |
| | RSAs | | Weighted-Average Price |
| Unvested shares at December 31, 2022 | 477,721 | | | $ | 29.53 | |
| 2023 Activity: | | | |
| Granted | 1,440,446 | | | 15.54 | |
| Vested | (985,881) | | | 17.12 | |
| Forfeited (a) | (13,819) | | | 21.03 | |
| Unvested shares at December 31, 2023 | 918,467 | | | $ | 21.04 | |
(a) Forfeitures are recognized as they occur.
For
We recorded compensation expense of $19 million for both of the years ended December 31, 2020, 2019,2023 and 2018, we recorded compensation expense of $232022, respectively, and $21 million $9 million, and $5 million, respectively.for the year ended December 31, 2021. The majority of the unrecognized compensation expense of $18$9 million as of December 31, 20202023 will be recognized in 2021.2024.
Stock Grants to Non-Employee Directors.Directors
In addition to fees paid in cash to our non-employee directors, on the date of each annual meetingsmeeting of shareholders, each non-employee director receives a grant of unrestricted shares of Class A Common Stock. We issued 63,60080,496 shares in 2020, 24,0002023, 60,732 shares in 2019,2022, and 20,00045,836 shares in 2018.2021. We recorded expense of $1 million for the year ended December 31, 2023 and $2 million for each of the years ended December 31, 2020, 2019,2022 and 2018,2021, which was based on the average share price of the stock on the date of grant. Additionally, these shares are included in the total shares outstanding, which results in a dilutive effect on our basic and diluted earnings per share.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
StockStock-Settled Appreciation Rights (SARs).
These awards entitle holders to the appreciation in our Class A Common Stock over the base value of each SAR over the term of the award. The SARs have a 10-year term with vesting periods ranging from zero to four years. The base value of each SAR is equal to the closing price of our Class A Common Stock on the date of grant. For the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, we recorded compensation expense of $6$7 million, $4$10 million, and $3$15 million, respectively.
The following is a summary of the 20202023 activity:
| | | | | | | | | | | |
| | SARs | | Weighted-Average Price |
| Outstanding SARs at December 31, 2019 | 2,080,032 | | | $ | 20.14 | |
| 2020 Activity: | | | |
| Granted | 1,763,828 | | | 28.83 | |
| Forfeited | (638,298) | | (a) | 28.20 | |
| Outstanding SARs at December 31, 2020 | 3,205,562 | | | $ | 23.32 | |
| | | | | | | | | | | |
| | SARs | | Weighted-Average Price |
| Outstanding SARs at December 31, 2022 | 3,269,916 | | | $ | 30.16 | |
| 2023 Activity: | | | |
| Granted | 1,474,764 | | | 15.97 | |
| | | |
| Outstanding SARs at December 31, 2023 | 4,744,680 | | | $ | 25.75 | |
(a)In connection with the settlementAs of certain litigation as discussed in Note 13. Commitments and Contingencies, David Smith agreed to forego, cancel, and return his February 2020 grant of a SAR award of 638,298 shares of Class A Common Stock..
TheDecember 31, 2023, there was no aggregate intrinsic value of the 3,205,562 SARs outstanding as of December 31, 2020 was $28 million and the outstanding SARs have a weighted average remaining contractual life of 5 years as of December 31, 2020.8 years.
Valuation of SARS. Our SARs were valued using the Black-Scholes pricing model utilizing the following assumptions:
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Risk-free interest rate | Risk-free interest rate | 1.2% - 1.6% | | 2.5 | % | | 2.6 | % | Risk-free interest rate | 4.4 | % | | 1.6% | | 0.6% |
| Expected years to exercise | Expected years to exercise | 5 years | | 5 years | | 5 years | Expected years to exercise | 5 years | | 5 years |
| Expected volatility | Expected volatility | 35.0 | % | | 33.8 | % | | 36.2 | % | Expected volatility | 52.1 | % | | 49.6 | % | | 48.2 | % |
| Annual dividend yield | Annual dividend yield | 2.4% - 2.9% | | 2.5 | % | | 2.1% - 2.2% | Annual dividend yield | 6.8 | % | | 3.0% | | 2.5% |
The risk-free interest rate is based on the U.S. Treasury yield curve, in effect at the time of grant, for U.S. Treasury STRIPS that approximate the expected life of the award. The expected volatility is based on our historical stock prices over a period equal to the expected life of the award. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date.
During 2022, outstanding SARs increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.
Options.
Options
As of December 31, 2020,2023, there were options outstanding to purchase 375,000 shares of Class A Common Stock. These options are fully vested and have a weighted average exercise price of $31.08,$31.25 and a weighted average remaining contractual term of 5 years, and an2 years. As of December 31, 2023, there was no aggregate intrinsic value of $1 million.for the options outstanding. There was no grant, exercise, or forfeiture activity during the year ended December 31, 2020.2023. There was 0no expense recognized during the years ended December 31, 2020, 2019,2023, 2022, and 2018.2021.
401(k) Match
During 2019 and 2018, outstanding SARs and options increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.
401(k) Match.The Sinclair, Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the("the 401(k) Plan)Plan") is available as a benefit for our eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount with a match calculation (The Match)(the "Match"). The Match and any additional discretionary contributions may be made using our Class A Common Stock, if the Board of Directors so chooses. Typically, we make the Match using our Class A Common Stock.
The value of the Match is based on the level of elective deferrals into the 401(k) Plan. The number of our Class A Common shares granted under the Match is determined based upon the closing price on or about March 1st of each year for the previous calendar year’s Match. ForWe recorded $17 million for each of the years ended December 31, 2020, 2019,2023 and 2018, we recorded $192022 and $20 million $17 million, and $16 million, respectively,for the year ended December 31, 2021 of stock-based compensation expense related to the Match. AAs of December 31, 2023, a total of 7,000,000 shares of Class A Common Stock arewere reserved for matches under the plan. As of December 31, 2020, 3,575,9582023, 445,970 shares were available for future grants.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP was $3$1 million offor the year ended December 31, 2020,2023 and $1$2 million for each of the years ended December 31, 20192022 and 2018. A2021, respectively. As of December 31, 2023, a total of 3,200,0005,200,000 shares of Class A Common Stock arewere reserved for awards under the plan. As of December 31, 2020, 175,8902023, 1,273,854 shares were available for future purchases.
4. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is generally computed under the straight-line method over the following estimated useful lives:
| | | | | | | | |
| Buildings and improvements | | 10 - 30 years |
| Operating equipment | | 5 - 10 years |
| Office furniture and equipment | | 5 - 10 years |
| Leasehold improvements | | Lesser of 10 - 30 years or lease term |
| Automotive equipment | | 3 - 5 years |
| Property and equipment under finance leases | | Lease term |
Acquired property and equipment as discussed in Note 2. Acquisitions and Dispositions of Assets, is depreciated on a straight-line basis over the respective estimated remaining useful lives.
Property and equipment consisted of the following as of December 31, 20202023 and 20192022 (in millions):
| | | | 2020 | | 2019 | | 2023 | | 2022 |
| Land and improvements | Land and improvements | $ | 74 | | | $ | 75 | |
| Real estate held for development and sale | Real estate held for development and sale | 25 | | | 26 | |
| Buildings and improvements | Buildings and improvements | 307 | | | 293 | |
| Operating equipment | Operating equipment | 939 | | | 781 | |
| Office furniture and equipment | Office furniture and equipment | 123 | | | 114 | |
| Leasehold improvements | Leasehold improvements | 59 | | | 36 | |
| Automotive equipment | Automotive equipment | 66 | | | 64 | |
| Finance lease assets | Finance lease assets | 59 | | | 53 | |
| Construction in progress | Construction in progress | 36 | | | 116 | |
| | | 1,688 | | | 1,558 | |
| Less: accumulated depreciation | Less: accumulated depreciation | (865) | | | (793) | |
| | | $ | 823 | | | $ | 765 | |
5. GOODWILL, INDEFINITE-LIVED INTANGIBLE ASSETS, AND OTHER INTANGIBLE ASSETS:
Goodwill, which arises from the purchase price exceeding the assigned value of the net assets of an acquired business, represents the value attributable to unidentifiable intangible elements being acquired. Goodwill totaled $2,092 million and $4,716 million at December 31, 2020 and 2019, respectively. The change in the carrying amount of goodwill at December 31, 2023 and 2022 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Broadcast | | Local sports | | Other | | Consolidated |
| Balance at December 31, 2018 | $ | 2,055 | | | 0 | | | $ | 69 | | | $ | 2,124 | |
| | | | | | | |
| Acquisition (a) | 0 | | | 2,615 | | | 6 | | | 2,621 | |
| Assets held for sale (b) | (29) | | | 0 | | | 0 | | | (29) | |
| Balance at December 31, 2019 | $ | 2,026 | | | $ | 2,615 | | | $ | 75 | | | $ | 4,716 | |
| | | | | | | |
| Assets held for sale | (9) | | | 0 | | | 0 | | | (9) | |
| Impairment | 0 | | | (2,615) | | | 0 | | | (2,615) | |
| Balance at December 31, 2020 | $ | 2,017 | | | $ | 0 | | | $ | 75 | | | $ | 2,092 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Local media | | Tennis | | Other | | Consolidated |
| Balance at December 31, 2021 | $ | 2,016 | | | $ | 61 | | | $ | 11 | | | $ | 2,088 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at December 31, 2022 | $ | 2,016 | | | $ | 61 | | | $ | 11 | | | $ | 2,088 | |
| Disposition | — | | | — | | | (6) | | | (6) | |
| | | | | | | |
| | | | | | | |
| Balance at December 31, 2023 | $ | 2,016 | | | $ | 61 | | | $ | 5 | | | $ | 2,082 | |
(a)Our accumulated See Note 2. Acquisitions and Dispositions of Assets for discussion of acquisitions made during 2019.
(b)Assets held for salegoodwill impairment was $3,029 million as of both December 31, 2019 were sold during the year ended December 31, 2020. See Note 2. Acquisitions2023 and Dispositions of Assets for discussion of dispositions during 2020.2022.
During the year ended December 31, 2020, we recorded a $2,615 million goodwill impairment charge related to our regional sports networks included within the local sports segment based upon an interim impairment test performed during the three-month period ended September 30, 2020. See ImpairmentTable of Goodwill and Definite-Lived Intangible Assets below for additional discussion surrounding this impairment charge. Our accumulated goodwill impairment as of December 31, 2020 and 2019 was $3,029 million and $414 million, respectively.Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For our annual goodwill impairment tests related to our broadcastlocal media and other reporting units in 2020, 2019,2023, our other reporting units in 2022, and 2018,our local media and other reporting units in 2021, we concluded that it was more-likely-than-not that goodwill was not impaired for the reporting units in which we performed a qualitative assessment. The qualitative factors reviewed during our annual assessments indicated stable or improving margins and favorable or stable forecasted economic conditions including stable discount rates and comparable or improving business multiples. For one reporting unit in 2019, we elected to perform a quantitative assessment and concluded that its fair value significantly exceeded the carrying value. Additionally, the results of prior quantitative assessments supported significant excess fair value over carrying value of our reporting units. We did 0tnot have any indicators of impairment in any interim period in 20192023 or 2018,2022, and therefore did not perform interim impairment tests for goodwill during those periods.
For our annual goodwill impairment test related to our local media reporting unit in 2022, we elected to perform a quantitative assessment and concluded that its fair value substantially exceeded its carrying value. The key assumptions used to determine the fair value of our local media reporting unit consisted primarily of significant unobservable inputs (Level 3 fair value inputs), including discount rates, estimated cash flows, profit margins, and growth rates. The discount rate used to determine the fair value of our local media reporting unit is based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television broadcasting company, and includes adjustments for market risk and company specific risk. Estimated cash flows are based upon internally developed estimates and growth rates and profit margins are based on market studies, industry knowledge, and historical performance.
As of December 31, 20202023 and 2019,2022, the carrying amount of our indefinite-lived intangible assets was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Broadcast | | Other | | Consolidated |
| Balance at December 31, 2018 (a) | $ | 131 | | | $ | 27 | | | $ | 158 | |
| Balance at December 31, 2019 (a) (b) | $ | 131 | | | $ | 27 | | | $ | 158 | |
| Acquisition / Disposition (c) | 13 | | | 0 | | | 13 | |
| Balance at December 31, 2020 (a) (b) | $ | 144 | | | $ | 27 | | | $ | 171 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Local media | | Tennis | | Other | | Consolidated |
| Balance at December 31, 2021 (a) | $ | 123 | | | $ | 24 | | | $ | 3 | | | $ | 150 | |
| | | | | | | |
| | | | | | | |
| Balance at December 31, 2022 (a) (b) | $ | 123 | | | $ | 24 | | | $ | 3 | | | $ | 150 | |
| | | | | | | |
| Balance at December 31, 2023 (a) (b) | $ | 123 | | | $ | 24 | | | $ | 3 | | | $ | 150 | |
(a)Our indefinite-lived intangible assets in our broadcastlocal media segment relate to broadcast licenses and our indefinite-lived intangible assets in our tennis segment and other relate to trade names.
(b)Approximately $14 million of indefinite-lived intangible assets relate to consolidated VIEs as of December 31, 20202023 and 2019.
(c)See Note 2. Acquisitions and Dispositions of Assets for discussion of acquisitions made during 2020.
2022.
We did not have any indicators of impairment for our indefinite-lived intangible assets in any interim period in 20202023 or 2019,2022, and therefore did not perform interim impairment tests during those periods. We performed our annual impairment tests for indefinite-lived intangibles in 20202023 and 20192022 and as a result of our qualitative assessments, we recorded 0no impairment.
SINCLAIR, INC.
The following table shows the gross carrying amount and accumulated amortization of definite-lived intangibles (in millions):
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships (a) | $ | 5,329 | | | $ | (1,043) | | | $ | 4,286 | |
| | | | | |
| Network affiliation | 1,438 | | | (775) | | | 663 | |
| Favorable sports contracts (a) | 840 | | | (174) | | | 666 | |
| Other (a) | 35 | | | (26) | | | 9 | |
| Total other definite-lived intangible assets, net (b) | $ | 2,313 | | | $ | (975) | | | $ | 1,338 | |
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships | $ | 1,098 | | | $ | (729) | | | $ | 369 | |
| | | | | |
| Network affiliation | $ | 1,435 | | | $ | (1,032) | | | $ | 403 | |
| Other | 36 | | | (29) | | | 7 | |
| Total other definite-lived intangible assets (a) | $ | 1,471 | | | $ | (1,061) | | | $ | 410 | |
| | | | | |
| Total definite-lived intangible assets | $ | 2,569 | | | $ | (1,790) | | | $ | 779 | |
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships (c) | $ | 6,548 | | | $ | (569) | | | $ | 5,979 | |
| | | | | |
| Network affiliation (c) | 1,441 | | | (689) | | | 752 | |
| Favorable sports contracts (c) | 1,271 | | | (43) | | | 1,228 | |
| Other | 46 | | | (28) | | | 18 | |
| Total other definite-lived intangible assets, net (b) | $ | 2,758 | | | $ | (760) | | | $ | 1,998 | |
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships (b) | $ | 1,103 | | | $ | (659) | | | $ | 444 | |
| | | | | |
| Network affiliation | $ | 1,436 | | | $ | (948) | | | $ | 488 | |
| Other | 34 | | | (20) | | | 14 | |
| Total other definite-lived intangible assets (a) (b) | $ | 1,470 | | | $ | (968) | | | $ | 502 | |
| | | | | |
| Total definite-lived intangible assets | $ | 2,573 | | | $ | (1,627) | | | $ | 946 | |
(a)As of December 31, 2020, we recorded a total impairment loss relating to customer relationships and favorable sports contracts of $1,218Approximately $33 million and $431 million, respectively, which is reflected as a reduction within the Gross Carrying Value column.
(b)Approximately $54 million and $93$40 million of definite-lived intangible assets relate to consolidated VIEs as of December 31, 20202023 and 2019,2022, respectively.
(c)(b)As a result of our 2019 acquisitions,During 2022, we acquired $6,725deconsolidated $3,330 million of definite-lived assets as discussed in Note 2. Acquisitionscustomer relationships and Dispositions$585 million of Assets.favorable sports contracts related to the Deconsolidation.
Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over their estimated useful lives. The definite-lived intangible assets are amortized over a weighted average useful life of 1314 years for customer relationships and 15 years for network affiliations, and 12 years for favorable sports contracts. The total weighted average useful life of definite-lived intangible assets and other assets subject to amortization acquired as a result of the acquisitions, as discussed in Note 2. Acquisitions and Dispositions of Assets, is 13 years.affiliations. The amortization expense of the definite-lived intangible and other assets for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 was $703$166 million, $370$225 million, and $175$554 million, respectively, of which $131$4 million and $43$77 million for the years endedas of December 31, 20202022 and 2019 is2021, respectively, was associated with the amortization of favorable sports contracts prior to the Deconsolidation and is presented within media programming and production expenses in our statements of operations. We analyze specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets. There were no impairment charges recorded for the years ended December 31, 2023, 2022, and 2021, as there were no indicators of impairment.
The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in millions):
| | | | | |
| 2021 | $ | 559 | |
| 2022 | 542 | |
| 2023 | 530 | |
| 2024 | 517 | |
| 2025 | 505 | |
| 2026 and thereafter | 2,971 | |
| $ | 5,624 | |
Impairment of Goodwill and Definite-Lived Intangible Assets
In conjunction with the interim third quarter impairment testing related to our RSNs discussed below, during the year ended December 31, 2020, we recorded a non-cash impairment charge associated with customer relationships and other definite-lived intangible assets of $1,218 million and $431 million, respectively, included in impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. After the recognition of these impairments there were no asset groups which have a heightened risk of impairment because the projected undiscounted cash flows of the individual asset groups were substantially greater than their carrying values. However, significant deterioration in the factors described below could result in future material impairments. There were 0 impairment charges recorded for the years ended December 31, 2019 and 2018.
The Company performed an interim goodwill and long-lived asset impairment test during the three-month period ending September 30, 2020. Our RSNs, included in the local sports segment, have been negatively impacted by the recent loss of certain distributors. In addition, our existing distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic, and related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenue and margins of our RSNs.
The long-lived asset impairment test requires a comparison of undiscounted cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. We evaluated each of our RSNs individually as asset groups. We estimated the projected undiscounted cash flows over the remaining useful life of each asset group. The more sensitive inputs used in the undiscounted cash flow analysis include projected revenues and margins. We identified 10 RSNs which had carrying values in excess of the future undiscounted cash flows.For these RSNs, an impairment loss was measured as the amount by which the carrying value of the asset group exceeded the fair value. The calculated impairment was then allocated to the long-lived assets within the asset group, which primarily consists of definite lived intangible assets, based upon relative fair value.
The fair value of the asset groups, reporting units and definite lived intangible assets were determined based upon a discounted cash flow analysis which uses the present value of projected cash flows. The projected cash flows were based upon our estimates of future revenues and margins, among other inputs. The discount rates used in the valuation were based on a weighted-average cost of capital determined from relevant market comparisons and taking into consideration the risk specifically associated with our asset groups and underlying assets. Terminal values were determined based upon the final year of projected cash flows which reflected our estimate of stable perpetual growth. The more sensitive inputs used in the discounted cash flow analysis include projected revenues and margins, as well as the discount rates used to calculate the present value of future cash flows. Projected revenue was based on the consideration of historical experience of the business, market data surrounding subscriber projections and advertising growth, our ability to retain existing customers and our ability to obtain new customers. Our revenue projections could be negatively impacted by the further loss of key distributors, inability to obtain new or retain existing distributors on terms similar to those expiring, greater than expected consumer migration away from traditional linear distributors, or our inability to successfully develop alternative revenue streams, among other factors. Our future margins may also be affected by our inability to renew sports rights agreements on terms favorable to us.
We tested the RSN reporting units' goodwill for impairment on an interim basis by comparing the fair value of each of the RSN reporting units to their revised carrying value after adjustments were made related to the impairments of the asset groups, as described above. To the extent that the carrying value of the respective reporting units exceeded the fair value, a goodwill impairment charge was recorded. The fair value of the reporting units was determined based upon a discounted cash flow analysis, as described above. We recorded a non-cash goodwill impairment charge of $2,615 million, included in impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. As of December 31, 2020, there was 0 remaining goodwill within our local sports segment and the remaining balance of the customer relationship intangible asset was $3,679 million and the aggregate remaining balance of the other definite-lived intangible assets was $671 million within our local sports segment. | | | | | |
| 2024 | $ | 149 | |
| 2025 | 143 | |
| 2026 | 141 | |
| 2027 | 127 | |
| 2028 | 101 | |
| 2029 and thereafter | 118 | |
| $ | 779 | |
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER ASSETS:
Other assets as of December 31, 20202023 and 20192022 consisted of the following (in millions):
| | | | 2020 | | 2019 | | 2023 | | 2022 |
| Equity method investments | Equity method investments | $ | 451 | | | $ | 459 | |
| Other investments | Other investments | 450 | | | 52 | |
| Note receivable | |
| Income tax receivable | |
| Post-retirement plan assets | Post-retirement plan assets | 44 | | | 38 | |
| | Other | Other | 113 | | | 69 | |
| Total other assets | Total other assets | $ | 1,058 | | | $ | 618 | |
Equity Method Investments
We have a portfolio of investments including our investment in the YES Network anda number of entities that are primarily focused on the development of real estate sustainability initiatives, and other media and non-media businesses. Forbusinesses, our investment in DSIH (subsequent to the Deconsolidation), and an investment in the YES Network (prior to the Deconsolidation). No investments were individually significant for the years ended December 31, 2020, 2019,2023, 2022, and 2018, none of our investments were individually significant.2021.
Summarized Financial Information.Diamond Sports Intermediate Holdings LLC. Subsequent to the Deconsolidation, we began accounting for our equity interest in DSIH under the equity method of accounting. As described underof March 1, 2022, we reflected the investment in DSIH at fair value, which was determined to be nominal. For the year ended December 31, 2023, we recorded no equity method loss related to the investment because the carrying value of the investment is zero and we are not obligated to fund losses incurred by DSIH. See PrinciplesDeconsolidation of ConsolidationDiamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting PoliciesPolicies., we record our proportionate share of net income generated by equity method investees in loss from equity method investments in our consolidated statements of operations. The summarized results of operations and financial position of the investments accounted for under the equity method are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Revenues, net | $ | 611 | | | $ | 386 | | | $ | 145 | |
| Operating income (loss) | $ | 147 | | | $ | 47 | | | $ | (58) | |
| Net income (loss) | $ | 23 | | | $ | 13 | | | $ | (82) | |
| | | | | | | | | | | |
| As of December 31, |
| 2020 | | 2019 |
| Current assets | $ | 493 | | | $ | 369 | |
| Noncurrent assets | $ | 4,219 | | | $ | 4,056 | |
| Current liabilities | $ | 410 | | | $ | 118 | |
| Noncurrent liabilities | $ | 2,327 | | | $ | 2,313 | |
YES Network Investment. On August 29, 2019, an indirect subsidiary of DSG, an indirect wholly-owned subsidiary ofPrior to the Company, acquired a minority equity interest in the YES Network for cash consideration of $346 million as part of a consortium led by Yankee Global Enterprises. We accountDeconsolidation, we accounted for our investment in the YES Network as an equity method investment, which iswas recorded within other assets in our consolidated balance sheets, and in which our proportionate share of the net income generated by the investment is representedwas included within lossincome from equity method investments in our consolidated statements of operations. We recorded income of $6$10 million and $16$41 million related to our investment for the years ended December 31, 20202022 and December 31, 2019,2021, respectively. We did not identify any other than temporary impairments associated with our investment in the YES Network during the years ended December 31, 2020 and 2019,
Other Investments
We measure our investments, excluding equity method investments, at fair value or, in situations where fair value is not readily determinable, we have the option to value investments at cost plus observable changes in value, less impairment. Additionally, certain investments are measured at net asset value ("NAV").
At December 31, 20202023 and 2019,2022, we held $68$162 million and $2$234 million,of respectively, in investments in equity securities which are classified as level 1 securities in themeasured at fair value hierarchy. Duringand $189 million and $190 million, respectively, in investments measured at NAV. We recognized a fair value adjustment loss of $87 million, a loss of $145 million, and a loss of $42 million during the years ended December 31, 20202023, 2022, and 2019 we recognized fair value adjustments2021, respectively, associated with these securities, of $24 million and $0.1 million which is reflected in other (expense) income, net in our consolidated statements of operations. S
eeNote 18. Fair Value Measurements for further information.
Investments accounted for utilizing the measurement alternative were $26$36 million as of December 31, 2023 and $18 million, net of $7 million of cumulative impairments, as of December 31, 2020, and $28 million, net of $7 million of cumulative impairments, as of December 31, 2019.2022. We recorded a $7$6 million impairment related to two investments forone investment during the year ended December 31, 2019,2023, which is reflected in other income,expense, net in our consolidated statements of operations. We recorded no impairments related to these investments for the years ended December 31, 2022 and 2021.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On November 18, 2020, we entered into a commercial agreement with Bally's Corporation.Bally's. As part of this arrangement, we received warrants to acquire up to 8.2 million shares of Bally's Commoncommon stock for a penny per share, of which 3.3 million are exercisable upon meeting certain performance metrics. We also received options to purchase up to 1.6 million shares of Bally's common stock with exercise prices between $30 and $45 per share, exercisable after four years. The initial value associated withIn April 2021, we made an incremental investment of $93 million in Bally's in the form of non-voting perpetual warrants, was $199 million.convertible into 1.7 million shares of Bally's common stock at an exercise price of $0.01 per share, subject to certain adjustments. These financial instrumentsinvestments are reflected at fair value within our financial statements. For the year ended December 31, 2020 we recorded an increase in value of $133 million which is reflected in other income, net in our consolidated statements of operations. The value of these investments was $332 million as of December 31, 2020. See Note 18. Fair Value Measurements for further discussion.
As of December 31, 20202023 and 2019,2022, our unfunded commitments related to certain equity investments totaled $98$103 million and $32$128 million, respectively.respectively, including $74 million and $88 million, respectively, related to investments measured at NAV.
Note Receivable
We are party to an Accounts Receivable Securitization Facility ("A/R Facility"), held by Diamond Sports Finance SPV, LLC ("DSPV"), an indirect wholly-owned subsidiary of DSIH. Subsequent to the Deconsolidation, transactions related to the A/R Facility are no longer eliminated as intercompany transactions and, therefore, are reflected in our consolidated financial statements. On May 10, 2023, DSPV paid the Company approximately $199 million, representing the aggregate outstanding principal amount of the loans under the A/R Facility, accrued interest, and outstanding fees and expenses. There was no outstanding balance as of December 31, 2023 and an outstanding balance of $193 million as of December 31, 2022, which is recorded within other assets in our consolidated balance sheets. As of December 31, 2023, the maximum aggregate commitment under the A/R Facility is $50 million and the A/R Facility has a maturity date of September 23, 2024.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
Notes payable, finance leases, and commercial bank financing (including finance"finance leases to affiliates)affiliates") consisted of the following as of December 31, 20202023 and 20192022 (in millions):
| | | | | | | | | | | |
| | 2020 | | 2019 |
| STG Bank Credit Agreement: | | | |
| Term Loan B-1, due January 3, 2024 (a) | $ | 1,119 | | | $ | 1,329 | |
| Term Loan B-2, due September 30, 2026 | 1,284 | | | 1,297 | |
| | | |
| DSG Bank Credit Agreement: | | | |
| Term Loan, due August 24, 2026 | 3,259 | | | 3,291 | |
| | | |
| STG Notes: | | | |
| 5.625% Unsecured Notes, due August 1, 2024 (a) | 0 | | | 550 | |
| 5.875% Unsecured Notes, due March 15, 2026 | 348 | | | 350 | |
| 5.125% Unsecured Notes, due February 15, 2027 | 400 | | | 400 | |
| 5.500% Unsecured Notes, due March 1, 2030 | 500 | | | 500 | |
| 4.125% Senior Secured Notes, due December 1, 2030 (a) | 750 | | | 0 | |
| DSG Notes: | | | |
| 12.750% Senior Secured Notes, due December 1, 2026 (b) | 31 | | | 0 | |
| 5.375% Senior Secured Notes, due August 15, 2026 | 3,050 | | | 3,050 | |
| 6.625% Unsecured Notes, due August 15, 2027 (b) | 1,744 | | | 1,825 | |
| DSG Accounts Receivable Securitization Facility (c) | 177 | | | 0 | |
| Debt of variable interest entities | 17 | | | 21 | |
| Debt of non-media subsidiaries | 17 | | | 18 | |
| Finance leases | 30 | | | 27 | |
| Finance leases - affiliate | 8 | | | 11 | |
| Total outstanding principal | 12,734 | | | 12,669 | |
| Less: Deferred financing costs and discounts | (183) | | | (231) | |
| Less: Current portion | (56) | | | (69) | |
| Less: Finance leases - affiliate, current portion | (2) | | | (2) | |
| Net carrying value of long-term debt | $ | 12,493 | | | $ | 12,367 | |
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Bank Credit Agreement: | | | |
| Term Loan B-2, due September 30, 2026 (a) | $ | 1,215 | | | $ | 1,258 | |
| Term Loan B-3, due April 1, 2028 | 722 | | | 729 | |
| Term Loan B-4, due April 21, 2029 | 739 | | | 746 | |
| STG Notes (b): | | | |
| 5.125% Unsecured Notes, due February 15, 2027 | 274 | | | 282 | |
| 5.500% Unsecured Notes, due March 1, 2030 | 485 | | | 500 | |
| 4.125% Senior Secured Notes, due December 1, 2030 | 737 | | | 750 | |
| Debt of variable interest entities | 7 | | | 8 | |
| Debt of non-media subsidiaries | 15 | | | 16 | |
| Finance leases | 20 | | | 23 | |
| Finance leases - affiliate | 7 | | | 9 | |
| Total outstanding principal | 4,221 | | | 4,321 | |
| Less: Deferred financing costs and discounts | (46) | | | (56) | |
| Less: Current portion | (34) | | | (35) | |
| Less: Finance leases - affiliate, current portion | (2) | | | (3) | |
| Net carrying value of long-term debt | $ | 4,139 | | | $ | 4,227 | |
(a)OnDuring the year ended December 4, 2020, we issued $75031, 2023, STG repurchased $30 million aggregate principal amount of the STG 4.125% Secured Notes,Term Loan B-2 for consideration of $26 million. See Bank Credit Agreement below.
(b)During the net proceeds of which were used, plus cash on hand, to redeem $550year ended December 31, 2023, we purchased $7 million, $15 million, and $13 million aggregate principal amount of the 5.125% Notes, 5.500% Notes, the 4.125% Notes, respectively, in open market transactions for consideration of $6 million, $8 million, and $8 million, respectively. The STG 5.625% Notes as well as repay $200 million of STG's Term Loan B-1, as more fully described below underacquired during the year ended December 31, 2023 were canceled immediately following their acquisition. See STG Notes. below.
(b)
On June 10, 2020, we exchanged a portion of principal of the DSG 6.625% Notes for cash payment and the newly issued 12.750% Secured Notes, as more fully described below under DSG Notes.
(c)We entered into the A/R Facility on September 23, 2020, as more fully described below under Accounts Receivable Securitization Facility.
Debt under the STG Bank Credit Agreement, DSG Bank Credit Agreement, notes payable, A/R Facility, and finance leases as of December 31, 20202023 matures as follows (in millions):
| | | | | | | | | | | | | | | | | | | |
| | Notes and
Bank Credit Agreements | | Finance Leases | | | | Total |
| 2021 | $ | 53 | | | $ | 8 | | | | | $ | 61 | |
| 2022 | 57 | | | 8 | | | | | 65 | |
| 2023 | 224 | | | 7 | | | | | 231 | |
| 2024 | 1,165 | | | 6 | | | | | 1,171 | |
| 2025 | 62 | | | 5 | | | | | 67 | |
| 2026 and thereafter | 11,135 | | | 19 | | | | | 11,154 | |
| Total minimum payments | 12,696 | | | 53 | | | | | 12,749 | |
| Less: Deferred financing costs, discounts, and premiums | (183) | | | — | | | | | (183) | |
| | | | | | | |
| Less: Amount representing future interest | — | | | (15) | | | | | (15) | |
| Net carrying value of debt | $ | 12,513 | | | $ | 38 | | | | | $ | 12,551 | |
| | | | | | | | | | | | | | | | | |
| | Notes and
Bank Credit Agreement | | Finance Leases | | Total |
| 2024 | $ | 31 | | | $ | 7 | | | $ | 38 | |
| 2025 | 43 | | | 7 | | | 50 | |
| 2026 | 1,204 | | | 7 | | | 1,211 | |
| 2027 | 292 | | | 4 | | | 296 | |
| 2028 | 699 | | | 2 | | | 701 | |
| 2029 and thereafter | 1,925 | | | 5 | | | 1,930 | |
| Total minimum payments | 4,194 | | | 32 | | | 4,226 | |
| Less: Deferred financing costs and discounts | (46) | | | — | | | (46) | |
| Less: Amount representing future interest | — | | | (5) | | | (5) | |
| Net carrying value of total debt | $ | 4,148 | | | $ | 27 | | | $ | 4,175 | |
Interest expense in our consolidated statements of operations was $656$305 million, $422$296 million, and $292$618 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively. Interest expense included amortization of deferred financing costs, debt discounts, and premiums of $31$10 million, $17$12 million, and $8$30 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018, respectively, and ticking fees and the write-off of previously capitalized debt issuance costs associated with the Tribune acquisition, which was subsequently terminated, of $79 million for the year ended December 31, 2018.2021, respectively.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The stated and weighted average effective interest rates on the above obligations are as follows, for the years ended December 31, 20202023 and 2019:2022:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted Average Effective Rate |
| | Stated Rate | | 2020 | | 2019 |
| STG Bank Credit Agreement: | | | | | | |
| Term Loan B | | LIBOR plus 2.25% | | 2.94% | | 4.62% |
| Term Loan B-2 | | LIBOR plus 2.50% | | 3.29% | | 4.36% |
| Revolving Credit Facility (a) | | LIBOR plus 2.00% | | 0% | | 0% |
| DSG Bank Credit Agreement: | | | | | | |
| Term Loan | | LIBOR plus 3.25% | | 4.21% | | 5.31% |
| Revolving Credit Facility (b) | | LIBOR plus 3.00% | | 0% | | 0% |
| DSG Accounts Receivable Securitization Facility (c) | | LIBOR plus 4.97% | | 4.77% | | 0% |
| STG Notes: | | | | | | |
| 5.625% Unsecured Notes | | 5.63% | | 5.83% | | 5.83% |
| 5.875% Unsecured Notes | | 5.88% | | 6.09% | | 6.09% |
| 5.125% Unsecured Notes | | 5.13% | | 5.33% | | 5.33% |
| 5.500% Unsecured Notes | | 5.50% | | 5.66% | | 5.66% |
| 4.125% Secured Notes | | 4.13% | | 4.31% | | 0% |
| DSG Notes: | | | | | | |
| 12.750% Secured Notes | | 12.75% | | 11.95% | | 0% |
| 5.375% Secured Notes | | 5.38% | | 5.73% | | 5.73% |
| 6.625% Unsecured Notes | | 6.63% | | 7.00% | | 7.00% |
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted Average Effective Rate |
| | Stated Rate | | 2023 | | 2022 |
| Bank Credit Agreement: | | | | | | |
| Term Loan B-2 (a) | | SOFR plus 2.50% | | 7.98% | | 4.62% |
| Term Loan B-3 (a) | | SOFR plus 3.00% | | 8.35% | | 4.88% |
| Term Loan B-4 (b) | | SOFR plus 3.75% | | 9.77% | | 8.21% |
| Revolving Credit Facility (b) (c) | | SOFR plus 2.00% | | —% | | —% |
| STG Notes: | | | | | | |
| 5.125% Unsecured Notes | | 5.13% | | 5.33% | | 5.33% |
| 5.500% Unsecured Notes | | 5.50% | | 5.66% | | 5.66% |
| 4.125% Secured Notes | | 4.13% | | 4.31% | | 4.31% |
(a)(b)Interest rate terms on the STG Term Loan B-4 and revolving credit facility include additional customary credit spread adjustments.
(c)We incur a commitment fee on undrawn capacity of 0.25%, 0.375%, or 0.50% if our first lien indebtedness ratio (as defined in the Bank Credit Agreement) is less than or equal to 2.75x, less than or equal to 3.0x but greater than 2.75x, or greater than 3.0x, respectively. The STG Revolving Credit Facilityrevolving credit facility is priced at LIBORSOFR plus 2.00%, subject to decrease if the specified first lien leverage ratio (as defined in the STG Bank Credit Agreement) is less than or equal to certain levels. As of December 31, 20202023 and December 31, 2019,2022, there were 0were no outstanding borrowings, $1 million in letters of credit outstanding, and $649 million available under the STG Revolving Credit Facility.revolving credit facility and the revolving credit facility matures on December 4, 2025. See STG Bank Credit Agreement below for further information.
(b)We incur a commitment fee on undrawn capacity of 0.25%, 0.375%, or 0.50% if our first lien indebtedness ratio is less than or equal to 3.25x, less than or equal to 3.75x but greater than 3.25x, or greater than 3.75x, respectively. The DSG Revolving Credit Facility is priced at LIBOR plus 3.00%, subject to decrease if the specified first lien leverage ratio (as defined in the DSG Bank Credit Agreement) is less than or equal to certain levels. As of December 31, 2020 and December 31, 2019, there were 0 outstanding borrowings, 0 letters of credit outstanding, and $650 million available under the DSG Revolving Credit Facility. See DSG Bank Credit Agreement below for further information.
(c)Borrowings under the A/R Facility generally bear interest at a rate per annum equal to LIBOR, which is subject to an interest rate floor of 0.00% per annum, plus 4.97% or, if the aggregate outstanding principal amount of loans is less than $125 million on or after November 1, 2020, 5.47%.
We recorded $19 million of debt issuance costs and a $25$23 million original issuance premiumdiscount during the year ended December 31, 2020, $222 million of debt issuance costs2022 and original issuance discounts during the year ended December 31, 2019, and $1$4 million of debt issuance costs during the year ended December 31, 2018.2021. Debt issuance costs and original issuance discounts and premiums are presented as a direct deduction from, or addition to, the carrying amount of an associated debt liability, except for debt issuance costs related to our STG Revolving Credit Facility, DSG Revolving Credit Facility, and A/R Facilityrevolving credit facility, which are presented within other assets in our consolidated balance sheets.
STG Bank Credit Agreement
We haveSTG, a wholly owned subsidiary of SBG, has a syndicated credit facility which includes both revolving credit and issued term loans (the STG Bank"Bank Credit Agreement)Agreement").
On August 13, 2019, we issued a seven-year incremental term loan facility in an aggregate principal amount of $600 million (the STG Term Loan B-2b) with an original issuance discount of $3 million, which bears interest at LIBOR plus 2.50%. The proceeds from the Term Loan B-2b were used, together with cash on hand, to redeem, at par value, $600 million aggregate principal amount of STG's 5.375% Senior Notes due 2021 (the STG 5.375% Notes). We recognized a loss on the extinguishment of the STG 5.375% Notes of $2 million for the year ended December 31, 2019.
On August 23, 2019, we amended and restated the STG Bank Credit Agreement which provided additional operating flexibility and revisions to certain restrictive covenants. Concurrent with the amendment, we raised a seven-year incremental term loan facility of $700 million (the STG Term Loan B-2a, and, together with the STG Term Loan B-2b, the STG Term Loan B-2) with an original issuance discount of $4 million, which bears interest at LIBOR plus 2.50%.
The STG Term Loan B-2 amortizes in equal quarterly installments in an aggregate amount equal to 1% of the original amount of such term loans, with the balance being payable on the maturity date.
Additionally, in connection with the amendment, we replaced STG's existing revolving credit facility with a new $650 million five-year revolving credit facility (the STG Revolving Credit Facility), priced at LIBOR plus 2.00%, subject to decrease if the specified first lien leverage ratio (as defined in the STG Bank Credit Agreement) is less than or equal to certain levels, which includes capacity for up to $50 million of letters of credit and for borrowings of up to $50 million under swingline loans. On December 4, 2020, we entered into an amendment to the STG Bank Credit Agreement to extend the maturity date of the STG Revolving Credit Facility to December 4, 2025. On March 17, 2020, we drew $648 million under the STG Revolving Credit Facility as a precautionary measure given the COVID-19 pandemic. During the second quarter of 2020, we fully repaid the amount outstanding under the STG Revolving Credit Facility.
The STG Bank Credit Agreement includes a financial maintenance covenant, the first lien leverage ratio (as defined in the STG Bank Credit Agreements)Agreement), which requires such applicable ratio not to exceed 4.5x, measured as of the end of each fiscal quarter. As of December 31, 2023, the STG first lien leverage ratio was below 4.5x. The financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the STG Revolving Credit Facility,revolving credit facility, measured as of the last day of each quarter, is utilized under the STG Revolving Credit Facilityrevolving credit facility as of such date. Since there was no utilization under the STG Revolving Credit Facilityrevolving credit facility as of December 31, 2020,2023, STG was not subject to the financial maintenance covenant under the STG Bank Credit Agreement. As of December 31, 2020, the STG first lien leverage ratio was below 4.5x. The STG Bank Credit Agreement contains other restrictions and covenants which we were in compliance with as of December 31, 2020.
STG Notes2023.
On November 27, 2019, we issued $500 million of senior notes, which bear interest at a rate of 5.500% per annum and mature on MarchApril 1, 2030 (the2021, STG 5.500% Notes). The net proceeds ofamended the STG 5.500% Notes were used, plus cash on hand,Bank Credit Agreement to redeem $500 millionraise additional term loans in an aggregate principal amount of STG's 6.125% senior unsecured notes due 2022 (the STG 6.125% Notes) for$740 million ("Term Loan B-3"), with an original issuance discount of $4 million, the proceeds of which were used to refinance a redemption price, including the outstanding principal amountportion of the STG 6.125% Notes, accruedTerm Loan B-1 maturing in January 2024. The Term Loan B-3 matures in April 2028 and unpaidbears interest and a make-whole premium, of $510 million. We recognized a loss on the extinguishment of the STG 6.125% Notes of $8 million for the year ended December 31, 2019.at SOFR plus 3.00%.
PriorOn April 21, 2022, STG entered into the Fourth Amendment (the "Fourth Amendment") to December 1, 2024, we may redeem the STG 5.500% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the STG 5.500% Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, on or prior to December 1, 2022, we may redeem up to 40% of the STG 5.500% Notes using the proceeds of certain equity offerings. Beginning on December 1, 2024, we may redeem some or all of the STG 5.500% Notes at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. If the notes are redeemed during the twelve-month period beginning December 1, 2024, 2025, 2026, and 2027 and thereafter, then the redemption prices for the STG 5.500% Notes are 102.750%, 101.833%, 100.917%, and 100%, respectively. Upon the sale of certain of STG’s assets or certain changes of control, the holders of the STG 5.500% Notes may require us to repurchase some or all of the STG 5.500% Notes.
STG’s obligations under the STG 5.500% Notes are guaranteed, jointly and severally, on a senior unsecured basis, by the Company and each wholly-owned subsidiary of STG or the Company that guarantees the STG Bank Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto (the "Guarantors") and rank equally with all of STG’sthe lenders and other senior unsecured debt.parties thereto.
SINCLAIR, INC.
On May 21, 2020, we purchased $2.5 million
Pursuant to the Fourth Amendment, STG raised Term B-4 Loans (as defined in the Bank Credit Agreement) in an aggregate principal amount of STG's$750 million, which mature on April 21, 2029 (the "Term Loan B-4"). The Term Loan B-4 was issued at 97% of par and bears interest, at STG’s option, at Term SOFR plus 3.75% (subject to customary credit spread adjustments) or base rate plus 2.75%. The proceeds from the Term Loan B-4 were used to refinance all of STG’s outstanding Term Loan B-1 due January 2024 and to redeem STG’s outstanding 5.875% senior unsecured notes due 2026 (the STG 5.875% Notes) in open market transactions for consideration2026. In addition, the maturity of $2.3 million. The STG 5.875% Notes acquired in May 2020$612.5 million of the total $650 million of revolving commitments under the Bank Credit Agreement were canceled immediately following their acquisition.extended to April 21, 2027, with the remaining $37.5 million continuing to mature on December 4, 2025. For the year ended December 31, 2022, we capitalized an original issuance discount of $23 million associated with the issuance of the Term Loan B-4, which is reflected as a reduction to the outstanding debt balance and will be recognized as interest expense over the term of the outstanding debt utilizing the effective interest method. We recognized a gainloss on extinguishment of the STG 5.875% Notes of $0.2$10 million for the year ended December 31, 2020.
On December 4, 2020, we issued $750 million aggregate principal amount of senior secured notes, which bear interest at a rate of 4.125% per annum and mature on December 1, 2030 (the STG 4.125% Secured Notes). The net proceeds of the STG 4.125% Secured Notes were used, plus cash on hand, to redeem $550 million aggregate principal amount of STG's 5.625% senior unsecured notes due 2024 (the STG 5.625% Notes) for a redemption price, including the outstanding principal amount of the STG 5.625% Notes, accrued and unpaid interest, and a call premium, of $571 million and to prepay $200 million outstanding under the STG Term Loan B-1. We recognized a loss on extinguishment of the STG 5.625% Notes and prepayment of the STG Term Loan B-1 of $15 million for the year ended December 31, 2020.
Prior to December 1, 2025, we may redeem the STG 4.125% Secured Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the STG 4.125% Secured Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, on or prior to December 1, 2023, we may redeem up to 40% of the STG 4.125% Secured Notes using the proceeds of certain equity offerings. Beginning on December 1, 2025, we may redeem some or all of the STG 4.125% Secured Notes at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. If the notes are redeemed during the twelve-month period beginning December 1, 2025, 2026, 2027, and 2028 and thereafter, then the redemption prices for the STG 4.125% Secured Notes are 102.063%, 101.375%, 100.688%, and 100%, respectively. Upon the sale of certain of STG’s assets or certain changes of control, we may be required to repurchase some or all of the STG 4.125% Secured Notes.
STG’s obligations under the STG 4.125% Secured Notes are secured on a first-lien basis by substantially all tangible and intangible personal property of STG and each wholly-owned subsidiary of STG or the Company that guarantees the STG Bank Credit Agreement (the Guarantors) and on a pari passu basis with all of STG's and the Guarantor's existing and future debt that is secured by a first-priority lien on the collateral securing the STG 4.125% Secured Notes, including the debt under the STG Bank Credit Agreement, subject to permitted liens and certain other exceptions.
Upon issuance, the STG 5.875% Notes and STG 5.125% Notes were redeemable up to 35%. We may redeem 100% of these notes upon the date set forth in the indenture of each note. The price at which we may redeem the notes is set forth in the indenture of each note. Also, if we sell certain of our assets or experience specific kinds of changes of control, the holders of these notes may require us to repurchase some or all of the outstanding notes.
DSG Bank Credit Agreement
On August 23, 2019, DSG and Diamond Sports Intermediate Holdings LLC (DSIH), an indirect wholly owned subsidiary of the Company and an indirect parent of DSG, entered into a credit agreement (the DSG Bank Credit Agreement). Pursuant to the DSG Bank Credit Agreement, DSG raised a seven-year $3,300 million aggregate amount term loan (the DSG Term Loan), with an original issuance discount of $17 million, which bears interest at LIBOR plus 3.25%.2022.
The DSG Term Loan amortizesB-2, Term Loan B-3, and Term Loan B-4 amortize in equal quarterly installments in an aggregate amount equal to 1% of the original amount of such term loan, with the balance being payable on the maturity date. Following the end of each fiscal year, beginning with the fiscal year ending December 31, 2020, we are required to prepay the DSG Term Loan in an aggregate amount equal to (a) 50% of excess cash flow for such fiscal year if the first lien leverage ratio is greater than 3.75 to 1.00, (b) 25% of excess cash flow for such fiscal year if the first lien leverage ratio is greater than 3.25 to 1.00 but less than or equal to 3.75 to 1.00, and (c) 0% of excess cash flow for such fiscal year if the first lien leverage ratio is equal to or less than 3.25 to 1.00.
Additionally, in connection with the DSG Bank Credit Agreement, DSG obtained a $650 million five-year revolving credit facility (the DSG Revolving Credit Facility, and, together with the DSG Term Loan, the DSG Credit Facilities), priced at LIBOR plus 3.00%, subject to reduction based on a first lien net leverage ratio, which includes capacity for up to $50 million of letters of credit and for borrowings of up to $50 million under swingline loans. On March 17, 2020, we drew $225 million under the DSG Revolving Credit Facility as a precautionary measure given the COVID-19 pandemic. During the second quarter of 2020, we fully repaid the amount outstanding under the DSG Revolving Credit Facility.
The DSG Bank Credit Agreement includes a financial maintenance covenant, the first lien leverage ratio (as defined in the DSG Bank Credit Agreements), which requires such applicable ratio not to exceed 6.25x, measured as of the end of each fiscal quarter. The financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the DSG Revolving Credit Facility, measured as of the last day of each quarter, is utilized under the DSG Revolving Credit Facility as of such date. Since there was no utilization under the DSG Revolving Credit Facility as ofyear ended December 31, 2020, DSG was not subject to the financial maintenance covenant under the DSG Bank Credit Agreement. As of December 31, 2020, the DSG first lien leverage ratio was above 6.25x. We expect that the DSG first lien leverage ratio will remain above 6.25x for at least the next 12 months, which will restrict our ability to utilize the full DSG Revolving Credit Facility. We do not currently expect to have more than 35% of the capacity of the DSG Revolving Credit Facility outstanding as of any quarterly measurement date during the next twelve months, therefore we do not expect DSG will be subject to the financial maintenance covenant. The DSG Bank Credit Agreement contains other restrictions and covenants which we were in compliance with as of December 31, 2020.
DSG's obligations under the DSG Bank Credit Agreement are (i) jointly and severally guaranteed by DSIH and DSG’s direct and indirect, existing and future wholly-owned domestic restricted subsidiaries, subject to certain exceptions, and (ii) secured by first-priority lien on substantially all tangible and intangible assets (whether now owned or hereafter arising or acquired) of DSG and the guarantors, subject to certain permitted liens and other agreed upon exceptions. The DSG Credit Facilities are not guaranteed by the Company,2023, STG or any of STG’s subsidiaries.
DSG Notes
On August 2, 2019, DSG issued $3,050 million principal amount of senior secured notes, which bear interest at a rate of 5.375% per annum and mature on August 15, 2026 (the DSG 5.375% Secured Notes), and issued $1,825 million principal amount of senior notes, which bear interest at a rate of 6.625% per annum and mature on August 15, 2027 (the DSG 6.625% Notes). The proceeds of the DSG 5.375% Secured Notes and DSG 6.625% Notes were used, in part, to fund the RSN Acquisition.
In March 2020 and June 2020, we purchased a total of $15repurchased $30 million aggregate principal amount of the DSG's 6.625%Term Loan B-2 for consideration of $26 million. SBG recognized a gain on extinguishment of $3 million for the year ended December 31, 2023.
In January 2024, STG repurchased $27 million aggregate principal amount of the Term Loan B-2 for consideration of $25 million.
STG Notes
During the year ended December 31, 2022, we purchased $118 million aggregate principal amount of the 5.125% Notes in open market transactions for consideration of $10$104 million. The DSG 6.625%5.125% Notes acquired in March 2020 and June 2020during the year ended December 31, 2022 were canceled immediately following their acquisition. We recognized a gain on extinguishment of the DSG 6.625%5.125% Notes of $5$13 million for the year ended December 31, 2020.2022.
On June 10, 2020,During the year ended December 31, 2023, we exchanged $66.5purchased $7 million, $15 million, and $13 million aggregate principal amount of the DSG 6.625%5.125% Notes, the 5.500% Notes, and the 4.125% Notes, respectively, in open market transactions for cash paymentsconsideration of $10$6 million, including accrued but unpaid interest,$8 million, and $31$8 million, aggregate principal amountrespectively. The STG Notes acquired during the year ended December 31, 2023 were canceled immediately following their acquisition. We recognized a gain on extinguishment of newly issued senior secured notes, which bear interest at a ratethe STG Notes of 12.750% per annum and mature on$12 million for the year ended December 1, 2026 (the DSG 12.750% Secured Notes)31, 2023.
Prior to August 15, 2022,The price at which we may redeem the DSGSTG Notes is set forth in whole or in part, at any time or from time to time, at a price equal to 100%the respective indenture of the principal amountSTG Notes. Also, if we sell certain of our assets or experience specific kinds of changes of control, the holders of these STG Notes may require us to repurchase some or all of the applicable DSG Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a ‘‘make-whole’’ premium. Beginning on August 15, 2022, we may redeem the DSG Notes, in whole or in part, at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or prior to August 15, 2022, we may redeem up to 40% of each series of the DSG Notes using the proceeds of certain equity offerings. If the notes are redeemed during the twelve-month period beginning August 15, 2022, 2023, and 2024 and thereafter, then the redemption prices for the DSG 5.375% Secured Notes are 102.688%, 101.344%, and 100%, respectively, the redemption prices for the DSG 6.625% Notes are 103.313%, 101.656%, and 100%, respectively, and the redemption prices for the DSG 12.750% Secured Notes are 102.688%, 101.344%, and 100%, respectively.
DSG’s obligations under the DSG Notes are jointly and severally guaranteed by DSIH, DSG’s direct parent, and certain wholly-owned subsidiaries of DSIH. The RSNs wholly-owned by DSIH and its subsidiaries will also jointly and severally guarantee the Issuers' obligations under the DSGoutstanding STG Notes. The DSG Notes are not guaranteed by the Company, STG, or any of STG’s subsidiaries.
Accounts Receivable Securitization Facility
On September 23, 2020 (the Closing Date), the Company's and DSG's indirect wholly-owned subsidiary, DSPV, entered into a $250 million accounts receivable securitization facility (the A/R Facility) which matures on September 23, 2023, in order to enable DSG to raise incremental funding for the ongoing business needs of DSG and its subsidiaries.
SINCLAIR, INC.
The A/R Facility was entered into pursuant to a LoanNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Debt of Variable Interest Entities and Security Agreement (the Loan Agreement), dated September 23, 2020, among DSPV, as borrower, the persons from time to time party thereto, as lenders (the Lenders), and Fox Sports Net, LLC (FSN), a wholly-owned direct subsidiaryGuarantees of DSG, as initial servicer, Credit Suisse AG, New York Branch, as administrative agent and Wilmington Trust, National Association, as collateral agent, paying agent and account bank. The Lenders will provide certain loans, which loans will be secured by certain accounts receivable (Pool Receivables) purchased by DSPV pursuant to a Purchase and Sale Agreement (the Purchase Agreement, and together with the Loan Agreement, the A/R Agreements), dated September 23, 2020, among FSN, certain indirect wholly owned subsidiaries of DSG identified therein as originators (the Originators) and DSPV as purchaser, pursuant to which the Originators will sell certain accounts receivable to DSPV and FSN will continue to service such accounts receivable.Third-party Obligations
The maximum funding availability under the A/R Facility is the lesser of $250 million and the sum of the lowest aggregate loan balance since November 1, 2020 plus $50 million. The amount of actual availability under the A/R Facility is subject to change based on the level of eligible receivables sold by the Originators to DSPV and certain reserves. Eligibility of the receivables is determined by a variety of factors, including, but not limited to, credit ratings of the Originators’ customers, customer concentration levels, and certain characteristics of the accounts receivable being transferred. As of December 31, 2020, the total commitment was $227 million.
Borrowings under the A/R Facility generally bear interest at a rate per annum equal to LIBOR, which is subject to an interest rate floor of 0.00% per annum, plus 4.97% or, if the aggregate outstanding principal amount of loans is less than $125 million on or after November 1, 2020, 5.47%. We are required to pay a commitment fee on unutilized commitments under the A/R Facility.
We may voluntarily prepay outstanding loans or terminate commitments under the A/R Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBOR rate loans, except (1) any voluntary prepayment (x) from the proceeds of a voluntary repurchase in accordance with the Purchase Agreement by any Originator of any Pool Receivables on or prior to the date that is 18 months after the Closing Date or (y) from the proceeds of a new accounts receivable financing entered into by DSPV or an affiliate thereof and requiring the purchase of Pool Receivables from DSPV after the date that is 18 months after the Closing Date but on or prior to the date that is 36 months after the Closing Date or (2) certain terminations of commitments on or prior to the date that is 18 months after the Closing Date, shall in each case be subject to a prepayment premium of 1.00% of the principal amount of the loans prepaid or commitments terminated, as the case may be.
DSPV, FSN, and the Originators provide customary representations and covenants under the A/R Agreements. Receivables in the A/R Facility are subject to certain eligibility criteria, concentration limits and reserves. The Loan Agreement provides for certain events of default upon the occurrence of which the administrative agent may declare the facility’s termination date to have occurred and declare the outstanding loan and all other obligations of DSPV to be due and payable. The Purchase Agreement provides for certain early amortization events upon the occurrence of which DSPV may terminate the sale and contribution of accounts receivable and related assets thereunder, including an early amortization event which would occur upon Consolidated EBITDA (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, less Consolidated Interest Expense (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, being less than zero as of the last day of any fiscal quarter (measured on a trailing four fiscal quarter basis).
As of December 31, 2020, the balance of the loans under the A/R Facility was $177 million and the balance of the receivables held by DSPV as part of the A/R Facility was $228 million, included in accounts receivable, net in our consolidated balance sheets.
The performance by the Originators of their respective obligations under the A/R Facility is guaranteed by FSN pursuant to a performance guaranty by FSN in favor of Credit Suisse AG, New York Branch, as administrative agent under the Loan Agreement.
DSG's ability to make scheduled payments on its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyond its control. The impact of the outbreak of COVID-19 continues to create significant uncertainty and disruption in the global economy and financial markets. Further, DSG’s success is dependent upon the existence and terms of its agreements with distributors, OTT and other streaming providers. We anticipate DSG’s existing cash and cash equivalents, cash flow from our operations, and borrowing capacity will be sufficient to satisfy its debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and resulting effect on the economy, our advertisers, distributors, and their subscribers, could affect DSG’s liquidity and ability to maintain a level of cash flows from operating activities sufficient to permit DSG to pay the principal, premium, if any, and interest on its debt.
Debt of variable interest entities and guarantees of third-party debt
We jointly, severally, unconditionally, and irrevocably guarantee $49 million and $57guaranteed $2 million of debt of certain third parties as of both December 31, 20202023 and 2019, respectively,2022, all of which $16 million and $20 million, net of deferred financing costs, related to consolidated VIEs is included in our consolidated balance sheets assheets. We provide a guarantee of December 31, 2020 and 2019, respectively. These guarantees primarily relatecertain obligations of a regional sports network subject to a maximum annual amount of $117 million with annual escalations of 4% for the debt of Cunningham as discussed under Cunningham Broadcasting Corporation within Note 15. Related Person Transactions. The credit agreements and term loans of these VIEs each bear interest of LIBOR plus 2.50%.next five years. As of December 31, 2020,2023, we have determined that it is not probable that we would have to perform under any of these guarantees.
Interest Rate Swap
During the year ended December 31, 2023, we entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of our exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.9%, and we receive a floating rate of interest based on SOFR. See Hedge Accounting within Note 1. Nature of Operations and Summary of Significant Accounting Policies for further discussion. As of December 31, 2023, the fair value of the interest rate swap was an asset of $1 million, which is recorded in other assets in our consolidated balance sheets.
Finance leasesLeases
For more information related to our finance leases and affiliate finance leases see Note 8. Leases and Note 15. Related Person Transactions, respectively.
8. LEASES:
As described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, we adopted new lease accounting guidance effective January 1, 2019.
We determine if a contractual arrangement is a lease at inception. Our lease arrangements provide the Company the right to utilize certain specified tangible assets for a period of time in exchange for consideration. Our leases primarily relate to building space, tower space, and equipment. We do not separate non-lease components from our building and tower leases for the purposes of measuring our lease liabilities and assets. Our leases consist of operating leases and finance leases which are presented separately in our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
We recognize a lease liability and a right of use asset at the lease commencement date based on the present value of the future lease payments over the lease term discounted using our incremental borrowing rate. Implicit interest rates within our lease arrangements are rarely determinable. Right of use assets also include, if applicable, prepaid lease payments and initial direct costs, less incentives received.
We recognize operating lease expense on a straight-line basis over the term of the lease within operating expenses. Expense associated with our finance leases consists of two components, including interest on our outstanding finance lease obligations and amortization of the related right of use assets. The interest component is recorded in interest expense and amortization of the finance lease asset is recognized on a straight-line basis over the term of the lease in depreciation of property and equipment.
Our leases do not contain any material residual value guarantees or material restrictive covenants. Some of our leases include optional renewal periods or termination provisions which we assess at inception to determine the term of the lease, subject to reassessment in certain circumstances.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents lease expense we have recorded in our consolidated statements of operations for the years ended December 31, 20202023, 2022, and December 31, 20192021 (in millions):
| | 2020 | | 2019 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Finance lease expense: | Finance lease expense: | | | |
| Amortization of finance lease asset | |
| Amortization of finance lease asset | |
| Amortization of finance lease asset | Amortization of finance lease asset | $ | 3 | | | $ | 3 | |
| Interest on lease liabilities | Interest on lease liabilities | 4 | | | 4 | |
| Total finance lease expense | Total finance lease expense | 7 | | | 7 | |
| Operating lease expense (a) | Operating lease expense (a) | 64 | | | 47 | |
| Total lease expense | Total lease expense | $ | 71 | | | $ | 54 | |
(a)Includes variable lease expense of $6 million for the year ended December 31, 2023 and $7 million and $5 million for each of the years ended December 31, 20202022 and 2019, respectively,2021 and short-term lease expense of $1 million for both the yearsyear ended December 31 2020 and 2019.2021.
The following table summarizes our outstanding operating and finance lease obligations as of December 31, 20202023 (in millions):
| | Operating Leases | | Finance Leases | | Total |
| 2021 | $ | 46 | | | $ | 8 | | | $ | 54 | |
| 2022 | 36 | | | 8 | | | 44 | |
| 2023 | 32 | | | 7 | | | 39 | |
| Operating Leases | | | Operating Leases | | Finance Leases | | Total |
| 2024 | 2024 | 26 | | | 6 | | | 32 | |
| 2025 | 2025 | 24 | | | 5 | | | 29 | |
| 2026 and thereafter | 142 | | | 19 | | | 161 | |
| 2026 | |
| 2027 | |
| 2028 | |
| 2029 and thereafter | |
| Total undiscounted obligations | Total undiscounted obligations | 306 | | | 53 | | | 359 | |
| Less imputed interest | Less imputed interest | (74) | | | (15) | | | (89) | |
| Present value of lease obligations | Present value of lease obligations | $ | 232 | | | $ | 38 | | | $ | 270 | |
The following table summarizes supplemental balance sheet information related to leases as of December 31, 20202023 and December 31, 20192022 (in millions, except lease term and discount rate):
| | 2020 | | 2019 | |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | |
| 2023 | |
| Operating Leases | |
| Operating Leases | |
| Operating Leases | |
| Lease assets, non-current | |
| Lease assets, non-current | |
| Lease assets, non-current | Lease assets, non-current | $ | 197 | | | $ | 17 | | (a) | $ | 223 | | | $ | 14 | | (a) | $ | 142 | | | $ | | $ | 12 | | (a) | (a) | $ | 145 | | | $ | | $ | 16 | | (a) | (a) |
| | Lease liabilities, current | Lease liabilities, current | 34 | | | 5 | | | 38 | | | 5 | | |
| Lease liabilities, current | |
| Lease liabilities, current | |
| Lease liabilities, non-current | Lease liabilities, non-current | 198 | | | 33 | | | 217 | | | 33 | | |
| Lease liabilities, non-current | |
| Lease liabilities, non-current | |
| Total lease liabilities | |
| Total lease liabilities | |
| Total lease liabilities | Total lease liabilities | $ | 232 | | | $ | 38 | | | $ | 255 | | | $ | 38 | | |
| | Weighted average remaining lease term (in years) | Weighted average remaining lease term (in years) | 9.39 | | 8.39 | | 9.55 | | 7.18 | |
| | Weighted average remaining lease term (in years) | |
| | Weighted average remaining lease term (in years) | |
| Weighted average discount rate | Weighted average discount rate | 5.7 | % | | 8.4 | % | | 5.7 | % | | 8.8 | % | |
| Weighted average discount rate | |
| Weighted average discount rate | |
(a)Finance lease assets are reflected in property and equipment, net in our consolidated balance sheets.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents other information related to leases for the years ended December 31, 20202023, 2022, and December 31, 20192021 (in millions):
| | 2020 | | 2019 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | |
| Operating cash flows from operating leases | |
| Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 55 | | | $ | 38 | |
| Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 3 | | | $ | 4 | |
| Financing cash flows from finance leases | Financing cash flows from finance leases | $ | 5 | | | $ | 5 | |
| Leased assets obtained in exchange for new operating lease liabilities | Leased assets obtained in exchange for new operating lease liabilities | $ | 20 | | | $ | 35 | |
| Leased assets obtained in exchange for new finance lease liabilities | Leased assets obtained in exchange for new finance lease liabilities | $ | 6 | | | $ | 0 | |
9. PROGRAM CONTRACTS:
Future payments required under television program contracts as of December 31, 20202023 were as follows (in millions):
| | 2021 | $ | 92 | |
| 2022 | 16 | |
| 2023 | 9 | |
| 2024 | 2024 | 4 | |
| 2025 | 2025 | 1 | |
| 2026 | |
| | Total | |
| | Total | |
| | | Total | Total | 122 | |
| Less: Current portion | Less: Current portion | 92 | |
| Long-term portion of program contracts payable | Long-term portion of program contracts payable | $ | 30 | |
Each future period’s film liability includes contractual amounts owed, but what is contractually owed does not necessarily reflect what we are expected to pay during that period. While we are contractually bound to make the payments reflected in the table during the indicated periods, industry protocol typically enables us to make film payments on a three-monththree-month lag. Included in the current portion amount are payments due in arrears of $24$13 million. In addition, we have entered into non-cancelable commitments for future television program rights aggregating to $91$14 million as of December 31, 2020.2023.
10. REDEEMABLE NONCONTROLLING INTERESTS:
We account for redeemable noncontrolling interests in accordance with ASC 480, Distinguishing Liabilities from Equity, and classify them as mezzanine equity in our consolidated balance sheets because their possible redemption is outside of the control of the Company. Our redeemable non-controlling interests consist of the following:
Redeemable Subsidiary Preferred Equity
.
On August 23, 2019, DSH,Diamond Sports Holdings, LLC ("DSH"), an indirect parent of DSG and indirect wholly-owned subsidiary of the Company, issued preferred equity (the Redeemable Subsidiary Preferred Equity) for $1,025 million.
The Redeemable Subsidiary Preferred Equity is redeemable by the holder in the following circumstances (1) in the event of a change of control with respect to DSH, the holder will have the right (but not the obligation) to require the redemption of the securities at a per unit amount equal to the liquidation preference per share plus accrued and unpaid dividends (2) in the event of the sale of new equity interests in DSG or direct and indirect subsidiaries to the extent of proceeds received and (3) beginning on August 23, 2027, so long as any Redeemable Subsidiary Preferred Equity remains outstanding, the holder, subject to certain minimum holding requirements, or investors holding a majority of the outstanding Redeemable Subsidiary Preferred Equity, may compel DSH and DSG to initiate a process to sell DSG and/or conduct an initial public offering.
We may redeem some or all of ("the Redeemable Subsidiary Preferred Equity from time to time thereafter at a price equal to $1,000 per unit plus the amount of dividends per unit previously paid in kind (the Liquidation Preference), multiplied by the applicable premium as follows (presented as a percentage of the Liquidation Preference): (i) on or after November 22, 2019 until February 19, 2020: 100%; (ii) on or after February 20, 2020 until August 22, 2020: 102%; (iii) on or after August 23, 2020 but prior to August 23, 2021: at a customary "make-whole" premium representing the present value of 103% plus all required dividend payments due on such Redeemable Subsidiary Preferred Equity through August 23, 2021; (iv) on or after August 23, 2021 until August 22, 2022: 103%; (v) on or after August 23, 2022 until August 22, 2023: 101%; and (vi) August 23, 2023 and thereafter: 100%, in each case, plus accrued and unpaid dividends.
The Redeemable Subsidiary Preferred Equity accrues an initial quarterly dividend commencing on August 23, 2019 equal to 1-Month LIBOR (with a 0.75% floor) plus 7.5% (8% if paid in kind) per annum onOn February 10, 2023, we purchased the sum of (i) $1,025 million (the Aggregate Liquidation Preference) plus (ii) the amount of aggregate accrued and unpaid dividends as of the end of the immediately preceding dividend accrual period, payable, at DSH's election, in cash or, to the extent not paid in cash, by automatically increasing the Aggregate Liquidation Preference, whether or not such dividends have been declared and whether or not there are profits, surplus, or other funds legally available for the payment of dividends. The Redeemable Subsidiary Preferred Equity dividend rate is subject to rate step-ups of 0.5% per annum, beginning on August 23, 2022; provided that, and subject to other applicable increases in the dividend rate described below, the cumulative dividend rate will be capped at 1-Month LIBOR plus 10.5% per annum until (a) on February 23, 2028, the Redeemable Subsidiary Preferred Equity dividend rate will increase by 1.50% with further increases of 0.5% on each six month anniversary thereafter and (b) the Redeemable Subsidiary Preferred Equity dividend rate will increase by 2% if we do not redeem the Redeemable Subsidiary Preferred Equity, to the extent elected by holders of the Redeemable Subsidiary Preferred Equity, upon a change of control; provided, in each case, that the cumulative dividend rate will be capped at 1-Month LIBOR plus 14% per annum.
Subject to limited exceptions, DSH shall not, and shall not permit its subsidiaries, directly or indirectly, to pay a dividend or make a distribution, unless DSH applies 75% of the amount of such dividend or distribution payable to DSH or its subsidiaries (with the amount payable calculated on a pro rata basis based on their direct or indirect common equity ownership by DSH) to make an offer to the holders of Redeemable Subsidiary Preferred Equity to redeem the Redeemable Subsidiary Preferred Equity (subject to certain redemption restrictions) at a price equal to 100% of the Liquidation Preference of such Redeemable Subsidiary Preferred Equity, plus accrued and unpaid dividends.
During the years ended December 31, 2020 and 2019, we redeemed 550,000 and 300,000remaining 175,000 units respectively, of the Redeemable Subsidiary Preferred Equity for an aggregate redemptionpurchase price equal to $550of $190 million and $300representing 95% of the sum of the remaining unreturned capital contribution of $175 million, respectively, plusand accrued and unpaid dividends representing 100% of the unreturned capital contribution with respect to the units redeemed, plus accrued and unpaid dividends with respect to the units redeemed up to, but not including, the redemption date of purchase. We redeemed no Redeemable Subsidiary Preferred Equity during the years ended December 31, 2022 and after giving effect to any applicable rebates.2021.
Dividends accrued during the years ended December 31, 20202023, 2022, and 20192021 were $36$3 million, $13 million, and $33$14 million, respectively, and are reflected in net income attributable to the redeemable noncontrolling interests in our consolidated statements of operations. Dividends accrued during 2023, 2022, and the 2nd, 3rd, and 4th quarters of 2021 were paid in kind and added to the liquidation preference. The balance, net of issuance costs, and the liquidation preference of the Redeemable Subsidiary Preferred Equity net of issuance costs, was $170$194 million and $700$198 million, respectively, as of December 31, 2020 and 2019, respectively.2022.
In connection with the Redeemable Subsidiary Preferred Equity, the Company provides a guarantee
Subsidiary Equity Put Right. A noncontrolling equity holder of one of our subsidiaries had the right to sell its interest to the Company at a fair market sale value of $376 million, plus any undistributed income, which was exercised and settled in January 2020.SINCLAIR, INC.
A noncontrolling equity holder of one of our subsidiaries has the right to sell its interest to the Company at any time during the 30-day period following September 30, 2025. The initial value of this redeemable noncontrolling interest was recorded at $22 million.
11. COMMON STOCK:
Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to ten votes per share, except for votes relating to “going private” and certain other transactions. Substantially all of the Class B Common Stock is held by David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith who entered into a stockholders’ agreement pursuant to which they have agreed to vote for each other as candidates for election to our board of directorsthe Board until December 31, 2025. The Class A Common Stock and the Class B Common Stock vote together as a single class, except as otherwise may be required by Maryland law, on all matters presented for a vote. Holders of Class B Common Stock may at any time convert their shares into the same number of shares of Class A Common Stock. During 2020, 02023 and 2022, no Class B Common Stock shares were converted into Class A Common Stock shares. During 2019, 943,0022021, 952,626 Class B Common Stock shares were converted into Class A Common Stock shares.
OurThe Bank Credit AgreementsAgreement and some of our subordinate debt instruments have restrictions on our ability to pay dividends on our common stock unless certain specific conditions are satisfied, including, but not limited to:
•no event of default then exists under each indenture or certain other specified agreements relating to our debt; and
•after taking into account the dividends payment, we are within certain restricted payment requirements contained in each indenture.
During 20202023 and 2019, our2022, the Board of Directors declared a quarterly dividend in the months of February, May, August, and November which were paid in March, June, September, and December, respectively. Total dividend payments for botheach of the yearyears ended December 31, 20202023 and 20192022 were $0.80$1.00 per share. In February 2021, our2024, the Board of Directors declared a quarterly dividend of $0.20$0.25 per share. Future dividends on our common shares, if any, will be at the discretion of ourthe Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions, and other factors that the Board of Directors may deem relevant. The holders of Class A Common Stock and Class B Common Stock holders have the same rights related to dividends.
On August 4, 2020, the Board of Directors authorized an additional $500 million share repurchase authorization in addition to the previous repurchase authorization of $1 billion. There is no expiration date and currently, management has no plans to terminate this program. For the year ended December 31, 2020,2023, we repurchased approximately 198.8 million shares of Class A Common Stock for $343$153 million. As of December 31, 2020,2023, the total remaining repurchase authorization was $880$547 million. All shares were repurchased under a Rule 10b5-1 plan.
12. INCOME TAXES:
The provision (benefit) provision for income taxes consisted of the following for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Current (benefit) provision for income taxes: | | | | | |
| Current provision (benefit) for income taxes: | | Current provision (benefit) for income taxes: | | | |
| Federal | Federal | $ | (126) | | | $ | (89) | | | $ | 59 | |
| State | State | 9 | | | (2) | | | 8 | |
| | | (117) | | | (91) | | | 67 | |
| Deferred benefit for income taxes: | | | | | |
| Deferred (benefit) provision for income taxes: | | Deferred (benefit) provision for income taxes: | | | |
| Federal | Federal | (584) | | | (4) | | | (69) | |
| State | State | (19) | | | (1) | | | (34) | |
| | | (603) | | | (5) | | | (103) | |
| Benefit for income taxes | $ | (720) | | | $ | (96) | | | $ | (36) | |
| (Benefit) provision for income taxes | |
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision:
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Adjustments: | | | | | |
| Valuation allowance (a) | (6.1) | % | | (237.1) | % | | 0.7 | % |
| State income taxes, net of federal tax benefit (b) | 4.0 | % | | 56.6 | % | | (8.8) | % |
| Net operating loss carryback (c) | 1.9 | % | | 0 | % | | 0 | % |
| Federal tax credits (d) | 1.7 | % | | (684.6) | % | | (19.9) | % |
| Noncontrolling interest (e) | 0.7 | % | | (138.9) | % | | (0.3) | % |
| Change in unrecognized tax benefits (f) | (0.2) | % | | 72.2 | % | | 0 | % |
| Effect of consolidated VIEs (g) | (0.1) | % | | 46.3 | % | | 1.6 | % |
| Stock-based compensation | (0.1) | % | | (15.9) | % | | 0.5 | % |
| Spectrum sales (h) | 0 | % | | (386.7) | % | | (5.8) | % |
| Nondeductible items (i) | 0 | % | | 192.7 | % | | 0.4 | % |
| Capital loss carryback (j) | 0 | % | | (26.0) | % | | 0 | % |
| Federal tax reform (k) | 0 | % | | 0 | % | | (1.4) | % |
| Other | 0.1 | % | | (3.0) | % | | 0.3 | % |
| Effective income tax rate | 22.9 | % | | (1,103.4) | % | | (11.7) | % |
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Adjustments: | | | | | |
| State income taxes, net of federal tax benefit (a) | 4.6 | % | | 2.0 | % | | (4.2) | % |
| Valuation allowance (b) | 30.6 | % | | 1.6 | % | | (1.5) | % |
| Noncontrolling interest (c) | 0.4 | % | | 0.2 | % | | 2.6 | % |
| Federal tax credits (d) | 0.6 | % | | (0.2) | % | | 10.6 | % |
| Net Operating Loss Carryback (e) | — | % | | — | % | | 7.5 | % |
| Other | (0.9) | % | | 0.7 | % | | (1.3) | % |
| Effective income tax rate | 56.3 | % | | 25.3 | % | | 34.7 | % |
(a)Our 2020 income tax provision includes a $192 million addition related to an increase in valuation allowance primarily due to the change in judgement in the realizability of certain deferred tax assets resulting from the reduction in forecast of future operating income and the RSN impairment. Our 2019 income tax provision included a $16 million benefit related to a release of valuation allowance on certain state net operating losses where utilization was expected as a result of a business combination.
(b)Included in state income taxes are deferred income tax effects related to certain acquisitions, intercompany mergers, tax elections, law changes and/or impact of changes in apportionment.
(c)(b)Our 20202023 income tax provision includes a $61$212 million decrease related to the release of valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j). Our 2022 income tax provision includes a net $56 million addition related to an increase in valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j) and primarily offset by a decrease in valuation allowance on certain state deferred tax assets resulting from the Deconsolidation of Diamond. Our 2021 income tax provision includes a net $8 million addition related to an increase in valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j) and primarily offset by a decrease in valuation allowance on certain state deferred tax assets as a result of the changes in estimate of the state apportionment.
(c)Our 2023, 2022, and 2021 income tax provisions include a $3 million benefit, a $9 million expense, and a $13 million benefit, respectively, related to noncontrolling interest of various partnerships.
(d)Our 2021 income tax provision includes a benefit $40 million related to investments in sustainability initiatives whose activities qualify for federal income tax credits through 2021.
(e)Our 2021 income tax provision includes a benefit of $38 million as result of the CARES Act allowing for the 2020 federal net operating loss to be carried back to the pre-2018 years when the federal tax rate was 35%.
(d)Our 2020, 2019, and 2018 income tax provisions include a benefit of $42 million, $57 million, and $58 million, respectively, related to investments in sustainability initiatives whose activities qualify for federal income tax credits through 2021.
(e)Our 2020 and 2019 income tax provisions include a $23 million and a $12 million benefit, respectively, related to noncontrolling interest of various partnerships.
(f)Our 2020 and 2019 income tax provisions include a $5 million and $4 million additions, respectively, related to tax positions of prior tax years.
(g)Certain of our consolidated VIEs incur expenses that are not attributable to non-controlling interests because we absorb certain related losses of the VIEs. These expenses are not tax-deductible by us, and since these VIEs are treated as pass-through entities for income tax purposes, deferred income tax benefits are not recognized.
(h)Our 2019 income tax provision includes a benefit of $34 million related to the treatment of the gain from the sale of certain broadcast spectrum in connection with the Broadcast Incentive Auction.
(i)Our 2019 income tax provision includes a $17 million addition primarily related to regulatory costs, executive compensation and other not tax-deductible expenses.
(j)Our 2019 income tax provision includes a $2 million benefit related to capital losses that will be carried back to the pre-2018 tax years when the federal tax rate was 35%.
(k)Our 2018 income tax provision includes a non-recurring benefit of $4 million to reflect the effect of the Tax Reform enacted on December 22, 2017.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Temporary differences between the financial reporting carrying amounts and the tax bases of assets and liabilities give rise to deferred taxes. Total deferred tax assets and deferred tax liabilities as of December 31, 20202023 and 20192022 were as follows (in millions):
| | | | 2020 | | 2019 | | 2023 | | 2022 |
| Deferred Tax Assets: | Deferred Tax Assets: | | | | Deferred Tax Assets: | | | |
| Net operating losses: | Net operating losses: | | | | Net operating losses: | | | |
| Federal | Federal | $ | 22 | | | $ | 22 | |
| State | State | 130 | | | 92 | |
| Goodwill and intangible assets | 9 | | | 10 | |
| Basis in DSH | 834 | | | 0 | |
| IRC Section 163(j) interest expense carryforward | |
| Investment in Bally's securities | |
| Tax Credits | Tax Credits | 67 | | | 0 | |
| Settlement and other accruals | 7 | | | 39 | |
| Other | Other | 46 | | | 28 | |
| | | 1,115 | | | 191 | |
| Valuation allowance for deferred tax assets | Valuation allowance for deferred tax assets | (252) | | | (65) | |
| Total deferred tax assets | Total deferred tax assets | $ | 863 | | | $ | 126 | |
| | Deferred Tax Liabilities: | Deferred Tax Liabilities: | | | |
| Deferred Tax Liabilities: | |
| Deferred Tax Liabilities: | | | | |
| Goodwill and intangible assets | Goodwill and intangible assets | $ | (402) | | | $ | (415) | |
| Property & equipment, net | Property & equipment, net | (221) | | | (90) | |
| | Investment in DSIH | |
| Other | Other | (43) | | | (28) | |
| Total deferred tax liabilities | Total deferred tax liabilities | (666) | | | (533) | |
| Net deferred tax assets (liabilities) | $ | 197 | | | $ | (407) | |
| Net deferred tax liabilities | |
At December 31, 2020,2023, the Company had approximately $106$527 million and $2.9 billion$3,236 million of gross federal and state net operating losses, respectively. ThoseExcept for those without an expiration date, these losses will expire during various years from 20212024 to 2040,2043, and some of them are subject to annual limitations under the IRC Section 382 and similar state provisions. As discussed in Income Taxes underwithin Note 1. Nature of Operations and Summary of Significant Accounting Policies, we establish a valuation allowancesallowance in accordance with the guidance related to accounting for income taxes. As of December 31, 2020,2023, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences interest expense carryforwards under the IRC Section 163(j) and a substantial portion of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies, current and cumulative losses, and projected future taxable income. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that they will be realized in the future. During the year ended December 31, 2020,2023, we increaseddecreased our valuation allowance by $187$192 million to $252$120 million. The increase in valuation allowancedecrease was primarily due to the release of valuation allowance related to interest expense carryforwards under the IRC Section 163(j) offset by a change in judgement in the realizability of certain state deferred tax assets resulting from changes in our forecast of future operating income and the RSN impairment.assets. During the year ended December 31, 2019,2022, we decreasedincreased our valuation allowance by $1$56 million to $65$312 million. The decrease in valuation allowanceincrease was primarily due to uncertainty in the realizability of deferred tax assets related to interest expense carryforwards under the IRC Section 163(j), offset by a change in judgement in the realizability of certain state deferred tax assets as a result of a business combination in 2019.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity related to our accrued unrecognized tax benefits (in millions):
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Balance at January 1, | Balance at January 1, | $ | 11 | | | $ | 7 | | | $ | 7 | |
| Additions related to prior year tax positions | Additions related to prior year tax positions | 5 | | | 4 | | | 0 | |
| Additions related to current year tax positions | Additions related to current year tax positions | 3 | | | 0 | | | 2 | |
| Reductions related to prior year tax positions | (1) | | | 0 | | | (1) | |
| | Reductions related to settlements with taxing authorities | |
| Reductions related to settlements with taxing authorities | |
| Reductions related to settlements with taxing authorities | Reductions related to settlements with taxing authorities | (4) | | | 0 | | | 0 | |
| Reductions related to expiration of the applicable statute of limitations | Reductions related to expiration of the applicable statute of limitations | (3) | | | 0 | | | (1) | |
| Balance at December 31, | Balance at December 31, | $ | 11 | | | $ | 11 | | | $ | 7 | |
We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Our 2017 and 20182014 through 2020 federal tax returns are currently under audit, and several of our subsidiaries are currently under state examinations for various years. Certain of our 2016 and subsequent federal and/or state tax returns remain subject to examination by various tax authorities. We do not anticipate thethat resolution of these matters will result in a material change to our consolidated financial statements. In addition, we do not believe that our liability for unrecognized tax benefits wouldcould be materially impacted,reduced by up to $1 million, in the next twelve months, as a result of expected statute of limitations expirations the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities.
In August 2020, we received an approval from the Joint Committee on Taxation of a settlement agreement with the Internal Revenue Service with respect to the audit of our 2013 - 2015 federal income tax returns. There was no material impact on our financial statements as a result of this settlement.
13. COMMITMENTS AND CONTINGENCIES:
Sports Programming Rights
We are contractually obligated to make payments to purchase sports programming rights. The following table presents our annual non-cancellable commitments relating to the local sports segment's sports programming rights agreements as of December 31, 2020. These commitments assume that sports teams fully deliver the contractually committed games, and do not reflect the impact of rebates expected to be paid by the teams.
| | | | | |
| (in millions) | |
| 2021 | $ | 1,820 | |
| 2022 | 1,575 | |
| 2023 | 1,525 | |
| 2024 | 1,457 | |
| 2025 | 1,370 | |
| 2026 and thereafter | 6,912 | |
| Total | $ | 14,659 | |
Other Liabilities
In connection with the RSN Acquisition, we assumed certain fixed payment obligations which are payable through 2027. We recorded these obligations in purchase accounting at estimated fair value. As of December 31, 2020 and December 31, 2019, $31 million and $56 million, respectively, were recorded within other current liabilities and $97 million and $145 million, respectively, were recorded within other long-term liabilities in our consolidated balance sheets. Interest expense of $8 million and $4 million was recorded for the years ended December 31, 2020 and 2019, respectively.
In connection with the RSN Acquisition, we assumed certain variable payment obligations which are payable through 2030. These contractual obligations are based upon the excess cash flow of certain RSNs. We recorded these obligations in purchase accounting at estimated fair value. As of December 31, 2020 and December 31, 2019, $12 million and $34 million, respectively, were recorded within other current liabilities and $41 million and $205 million, respectively, were recorded within other long-term liabilities in our consolidated balance sheets. These obligations are measured at the present value of the estimated amount of cash to be paid over the term of the contracts. We recorded a measurement adjustment gain of $159 million for the year ended December 31, 2020, recorded within other income, net in our consolidated statements of operations. The measurement adjustment gain was a result of a decrease in the projected excess cash flows of the related RSNs, as further discussed in Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets.
Litigation
We are a party to lawsuits, claims, and regulatory matters from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. Except as noted below, we do not believe the outcome of these matters, individually or in the aggregate, will have a material effect on the Company's financial statements.
FCC Litigation Matters
On December 21, 2017, the FCC issued a Notice of Apparent Liability for Forfeiture (NAL) proposing a $13 million fine for alleged violations of the FCC's sponsorship identification rules by the Company and certain of its subsidiaries.Matters. We filed a response disputing the Commission's findings and the proposed fine.
On July 19, 2018, the FCC released a Hearing Designation Order (HDO) to commence a hearing before an Administrative Law Judge (ALJ) with respect to the Company’s proposed acquisition of Tribune. The HDO asked the ALJ to determine (i) whether Sinclair was the real party in interest to the sale of WGN-TV, KDAF(TV), and KIAH(TV), (ii) if so, whether the Company engaged in misrepresentation and/or lack of candor in its applications with the FCC and (iii) whether consummation of the overall transaction would be in the public interest and compliance with the FCC’s ownership rules. The Company maintains that the overall transaction and the proposed divestitures complied with the FCC’s rules, and strongly rejects any allegation of misrepresentation or lack of candor. The Merger Agreement was terminated by Tribune on August 9, 2018, on which date the Company subsequently filed a letter with the FCC to withdraw the merger applications and have them dismissed with prejudice and filed with the ALJ a Notice of Withdrawal of Applications and Motion to Terminate Hearing (Motion). On August 10, 2018, the FCC's Enforcement Bureau filed a responsive pleading with the ALJ stating that it did not oppose dismissal of the merger applications and concurrent termination of the hearing proceeding. The ALJ granted the Motion and terminated the hearing on March 5, 2019.
On May 22, 2020, the FCCFederal Communications Commission ("FCC") released an Order and Consent Decree pursuant to which the Company agreed to pay $48 million to resolve the matters covered by a Notice of Apparent Liability for Forfeiture ("NAL") issued in December 2017 proposing a $13 million fine for alleged violations of the NAL,FCC's sponsorship identification rules by the FCC’sCompany and certain of its subsidiaries, the FCC's investigation of the allegations raised in the HDO,Hearing Designation Order issued in connection with the Company's proposed acquisition of Tribune, and a retransmission related matter. The Company submitted the $48 million payment on August 19, 2020. As part of the consent decree, the Company also agreed to implement a 4-year compliance plan. Two petitions were filed on June 8, 2020 seeking reconsideration of the Order and Consent Decree. The Company filed an opposition to the petitions on June 18, 2020, and the petitions remain pending. For the year ended December 31, 2020, we recorded an expense of $2.5 million for the above legal matters, which is reflected within selling, general, and administrative expenses in our consolidated statements of operations.
On September 1, 2020, one of the individuals who filed a petition for reconsideration of the Order and Consent Decree filed a petition to deny the license renewal application of WBFF(TV), Baltimore, MD, and the license renewal applications of two other Baltimore, MD stations with which the Company has a JSA or LMA, Deerfield Media station WUTB(TV) and Cunningham Broadcasting Corporation ("Cunningham") station WNUV(TV). The Company filed an opposition to the petition on October 1, 2020,2020. On January 18, 2024, a motion was filed to request substitution of the petitioner, who is deceased. On January 29, 2024, the Company filed (1) an opposition to the motion for substitution and (2) a motion to dismiss the petition to deny the renewal applications. An opposition was filed to the motion to dismiss on February 5, 2024, and the petitionCompany timely filed its reply on February 13, 2024, and the matter remains pending.
On September 2, 2020, the FCC adopted a Memorandum Opinion and Order and Notice of Apparent Liability for Forfeiture (NAL)NAL against the licensees of several stations with whom the Company has LMAs, JSAs, and/or SSAs in response to a complaint regarding those stations’ retransmission consent negotiations. The NAL proposed a $0.5 million penalty for each station, totaling $9 million. The licensees filed a response to the NAL on October 15, 2020, asking the CommissionFCC to dismiss the proceeding or, alternatively, to reduce the proposed forfeiture to $25,000 per station. On July 28, 2021, the FCC issued a forfeiture order in which the $0.5 million penalty was upheld for all but one station. A Petition for Reconsideration of the forfeiture order was filed on August 7, 2021. On March 14, 2022, the FCC released a Memorandum Opinion and Order and Order on Reconsideration, reaffirming the forfeiture order and dismissing (and in the alternative, denying) the Petition for Reconsideration. The Company is not a party to that proceeding and cannot predict whether or how the proceeding will affect the Company’sthis forfeiture order; however, our consolidated financial statements. However, we accruedstatements include an expenseaccrual of additional expenses of $8 million for the above legal matters during the year endingended December 31, 2020,2021, as we consolidate these stations as VIEs.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On September 21, 2022, the FCC released an NAL against the licensees of a number of stations, including 83 Company stations and several stations with whom the Company has LMAs, JSAs, and/or SSAs, for violation of the FCC's limitations on commercial matter in children’s television programming related to KidsClick network programming distributed by the Company in 2018. The NAL proposed a fine of $2.7 million against the Company, and fines ranging from $20,000 to $26,000 per station for the other licensees, including the LMA, JSA, and/or SSA stations, for a total of $3.4 million. As of December 31, 2023, we have accrued $3.4 million. On October 21, 2022, the Company filed a written response seeking reduction of the proposed fine amount, and the matter remains pending.
Other Litigation Matters. On November 6, 2018, the Company agreed to enter into a proposed consent decree with the Department of Justice (DOJ)("DOJ"). This consent decree resolves the Department of Justice’sDOJ's investigation into the sharing of pacing information among certain stations in some local markets. The DOJ filed the consent decree and related documents in the U.S. District Court for the District of Columbia on November 13, 2018. The U.S. District Court for the District of Columbia entered the consent decree on May 22, 2019. The consent decree is not an admission of any wrongdoing by the Company and does not subject Sinclairthe Company to any monetary damages or penalties. The Company believes that even if the pacing information was shared as alleged, it would not have impacted any pricing of advertisements or the competitive nature of the market. The consent decree requires the Company to adopt certain antitrust compliance measures, including the appointment of an Antitrust Compliance Officer, consistent with what the Department of JusticeDOJ has required in previous consent decrees in other industries. The consent decree also requires the Company's stations not to exchange pacing and certain other information with other stations in their local markets, which the Company’sCompany's management hashad already instructed them not to do.
The Company is aware of NaNtwenty-two putative class action lawsuits that were filed against the Company following published reports of the DOJ investigation into the exchange of pacing data within the industry. On October 3, 2018, these lawsuits were consolidated in the Northern District of Illinois. The consolidated action alleges that the Company and 13thirteen other broadcasters conspired to fix prices for commercials to be aired on broadcast television stations throughout the United States and engaged in unlawful information sharing, in violation of the Sherman Antitrust Act. The consolidated action seeks damages, attorneys’attorneys' fees, costs and interest, as well as injunctions against adopting practices or plans that would restrain competition in the ways the plaintiffs have alleged.The Court denied the Defendants’defendants' motion to dismiss on November 6, 2020.Since then, Discovery commenced shortly after that and is continuing. Under the Plaintiffs have servedcurrent schedule set by the DefendantsCourt, fact discovery is scheduled to close 90 days after a Special Master completes his review of the plaintiffs' objections to the defendant's privilege claims. That privilege review is ongoing. On August 18, 2023, the defendants filed objections to the Special Master’s First Report and Recommendations with written discovery requests,the Court. The Court overruled the defendants’ objections on January 31, 2024. The Special Master has not indicated when he expects to complete his privilege review. On December 8, 2023, the Court granted final approval of the settlements the plaintiffs had reached with four of the original defendants (CBS, Fox, Cox Media, and ShareBuilders), who agreed to pay a total of $48 million to settle the plaintiffs' claims against them. The Company and the Court has set a pretrial schedule requiring discoveryother non-settling defendants continue to be completed by July 1, 2022, and briefing on class certification to be completed by November 14, 2022.The Company believesbelieve the lawsuits are without merit and intendsintend to vigorously defend itselfthemselves against all such claims.
On August 9, 2018, Edward Komito, a putative Company shareholder,July 19, 2023, as part of the ongoing bankruptcy proceedings of DSG, an independently managed and unconsolidated subsidiary of Sinclair, DSG and its wholly-owned subsidiary, Diamond Sports Net, LLC, filed a class action complaint (the "Diamond Litigation", under seal, in the United States DistrictBankruptcy Court for the Southern District of Maryland (the DistrictTexas naming certain subsidiaries of Maryland) against the Company,Sinclair, including SBG and STG, David D. Smith, Sinclair's Executive Chairman, Christopher S. Ripley, Sinclair's President and Chief Executive Officer, Lucy A. Rutishauser, which action is now captioned In re Sinclair Broadcast Group, Inc. Securities Litigation, case No. 1:18-CV-02445-CCB (the Securities Action). On March 1, 2019, lead counsel in the Securities Action filed an amended complaint, adding David SmithSinclair's Executive Vice President & Chief Financial Officer, and Steven MarksScott Shapiro, Sinclair's Executive Vice President, Corporate Development and Strategy, as defendants, and alleging that defendants violated the federal securities laws by issuing false or misleading disclosures concerning (a) the Merger prior to the termination thereof; and (b) the DOJ investigation concerning the alleged exchange of pacing information. The Securities Action seeks declaratory relief, money damages in an amount to be determined at trial, and attorney’s fees and costs. On May 3, 2019, Defendants filed a motion to dismiss the amended complaint, which motion was opposed by lead plaintiff. On February 4, 2020, the Court issued a decision granting the motion to dismiss in part and denying the motion to dismiss in part. On February 18, 2020, plaintiffs filed a motion for reconsideration or, in the alternative, to certify dismissal as final and appealable. Defendants filed an opposition to this motion. On July 20, 2020, the Court issued a decision denying plaintiffs’ motion and dismissing the remaining claims (which the Court previously had not dismissed in its February 4, 2020 decision) based on lack of standing. The plaintiffs did not appeal this decision, and the Securities Action therefore has concluded.defendants.
In addition, beginningthe complaint, plaintiffs challenge a series of transactions involving SBG and certain of its subsidiaries, on the one hand, and DSG and its subsidiaries, on the other hand, since SBG acquired the former Fox Sports regional sports networks from The Walt Disney Company in late July 2018, Sinclair received letters from two putative Company shareholders requestingAugust 2019. The complaint alleges, among other things, that the Boardmanagement services agreement (the "MSA") entered into by STG and DSG was not fair to DSG and was designed to benefit STG and SBG; that the Bally's Corporation ("Bally's") transaction in November 2020 through which Bally's acquired naming rights to certain regional sports networks was not fair to DSG and was designed to benefit STG and SBG; and that certain distributions made by DSG that were used to pay down preferred equity of DirectorsDSH, were inappropriate and were conducted at a time when DSG was insolvent. The complaint alleges that SBG and its subsidiaries (other than DSG and its subsidiaries) received payments or indirect benefits of approximately $1.5 billion as a result of the Company investigate whether anyalleged misconduct. The complaint asserts a variety of the Company’s officersclaims, including certain fraudulent transfers of assets, unlawful distributions and directors committed nonexculpatedpayments, breaches of contracts, unjust enrichment and breaches of fiduciary duties in connection with, or gross mismanagement with respect to: (i)duties. The plaintiffs are seeking, regulatory approvalamong other relief, avoidance of the Tribune Mergerfraudulent transfers and (ii) the HDO,unlawful distributions, and the allegations contained therein. A committee consisting of independent members of the board of directors has been formedunspecified monetary damages to respond to these demands (the Special Litigation Committee). The members of the Special Litigation Committee are Martin R. Leader, Larry E. McCanna, and the Honorable Benson Everett Legg, with Martin Leader as its designated Chair.be determined.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On November 29, 2018, putative Company shareholder FireJanuary 17, 2024, Sinclair announced that it had agreed, subject to definitive documentation and Police Retiree Health Care Fund, San Antonio filedfinal court approval, to a shareholder derivative complaint inglobal settlement and release of all claims associated with the District of Maryland against the members of the Company’s Board of Directors, Mr. Ripley, and the Company (as a nominal defendant),Diamond Litigation, which action is captioned Fire and Police Retiree Health Care Fund, San Antonio v. Smith, et al., Case No. 1:18-cv-03670-RDB (the San Antonio Action). On December 26, 2018, putative Company shareholder Teamsters Local 677 Health Services & Insurance Plan filed a shareholder derivative complaint in the Circuit Court of Maryland for Baltimore County (the Circuit Court) against the members of the Company’s Board of Directors, Mr. Ripley, and the Company (as a nominal defendant), which action is captioned Teamsters Local 677 Health Services & Insurance Plan v. Friedman, et al., Case No. 03-C-18-12119 (the Teamsters Action). A defendant in the Teamsters Action removed the Teamsters actionsettlement includes an amendment to the DistrictMSA. The settlement terms include, among other things, DSG’s dismissal with prejudice of Maryland,its $1.5 billion litigation against Sinclair and all other defendants, along with the plaintifffull and final satisfaction and release of all claims in that case has movedlitigation against all defendants, including Sinclair and its subsidiaries, in exchange for Sinclair’s cash payment to remand the case back to the Circuit Court. That motion is fully briefedDSG of $495 million. The cash payment will be funded by cash on hand at Ventures and awaiting decision. On December 21, 2018, putative Company shareholder Norfolk County Retirement System filedSTG, and/or a shareholder derivative complaint in the District of Maryland against the members of the Company’s Board of Directors, Mr. Ripley, and the Company (as a nominal defendant), which action is captioned Norfolk County Retirement System v. Smith, et al., Case No. 1:18-cv-03952-RDB (the Norfolk Action, and together with the San Antonio Action and the Teamsters Action, the Derivative Actions). The plaintiffs in each of the Derivative Actions allege breaches of fiduciary dutiesloan backed by the defendants in connection with (i) seeking regulatory approval of the Tribune Merger and (ii) the HDO, and the allegations contained therein. The plaintiffs in the Derivative Actions seek declaratory relief, money damages to be awarded to the Company in an amount to be determined at trial, corporate governance reforms, equitable or injunctive relief, and attorney’s fees and costs. Additionally, the plaintiffs in the Teamsters and Norfolk Actions allege that the defendants were unjustly enriched, in the form of their compensation as directors and/or officers of the Company, in light of the alleged breaches of fiduciary duty, and seek restitution to be awarded to the Company. These allegations are the subject matter of the review being conducted by the Special Litigation Committee, as noted above. On April 30, 2019, the Special Litigation Committee moved to dismiss and, in the alternative, to stay the San Antonio and Norfolk Actions, which motion was opposed by the plaintiffs. The Company and the remaining individual defendants joined in this motion. On October 23, 2019, the court granted the plaintiff’s motion in the Teamsters Action to remand that action back to the Circuit Court. On December 9, 2019, the court denied defendants’ motions to dismiss and, in the alternative, to stay the San Antonio and Norfolk Actions without prejudice, subject to potential renewal following limited discovery.
On July 20, 2020, the parties to the Derivative Actions executed a Stipulation and Agreement of Settlement, Compromise and Release (the Settlement Stipulation) reflectingVentures. Under the terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity going forward. As of December 31, 2023, we have accrued $495 million, exclusive of any potential offsetting benefits to be received, related to the Derivative Actions (the Settlement),above matter, which is recorded within accounts payable and accrued liabilities in our consolidated balance sheets and corporate general and administrative expenses in our consolidated statement of operations.
The settlement is subject to final approval bydefinitive documentation. On February 26, 2024, the Court (which approval subsequently was obtained). In connection with the Settlement, (a) the Company’s Board of Directors agreed to implement a series of corporate governance measures (as described in Exhibit A to the Settlement Stipulation); (b) defendants’ insurers agreed to pay $20.5 million into a settlement fund, which, after a deduction for an award of fees and expenses to plaintiffs’ counsel in an amount determined by the Court, was paid to the Company; (c) the Board of Directors agreed to designate an aggregate amount of $5 million ofcourt approved the settlement, fundsubject to be used, over a period of five years, for the implementationSinclair and operation of the corporate governance measures and certain compliance programs in connection with an FCC consent decree that was previously announced on May 6, 2020; and (d) the Company’s Executive Chairman David D. Smith agreed to forgo, cancel, or return a grant of SARs of 638,298 shares of DSG completing definitive documentation.
Sinclair Class A Common Stock that was awarded to him in February 2020. In exchange for the consideration described above, the Settlement provided that the Derivative Actions would be dismissed and defendants would be released of any claims relating to the Tribune Merger or the HDO (provided that the release will not include the Securities Action). Defendants did not admit any liability or wrongdoing in connection with the Settlement andhas entered into the Settlementsettlement, without admitting any fault or wrongdoing. If the settlement does not receive final court approval, Sinclair remains committed to avoidvigorously defending against the costs, risks, distraction, and uncertainties of continued litigation. On July 23, 2020, and pursuant to the Settlement, the Teamsters Action was voluntarily dismissed. Also on July 23, 2020, the plaintiffsclaims asserted in the Norfolk Action and the San Antonio Action filed the settlement papers with the District of Maryland and moved for preliminary approval of the Settlement as fair, reasonable, and adequate, and providing for notice to shareholders of the Settlement. On August 6, 2020, the court entered an order preliminarily approving the settlement and providing for notice of a final settlement hearing to be held on October 27, 2020. On October 27, 2020, the court held the final settlement hearing. On November 20, 2020, the court issued an opinion and entered a Final Order and Judgment approving the Settlement and the Settlement Stipulation (with a modification of the fees to be awarded to plaintiffs’ counsel). Accordingly, the Derivative Actions have concluded.litigation.
Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap
Certain of our stations have entered into what have commonly been referred to as local marketing agreements or LMAs. One typical type of LMA is a programming agreement between 2two separately owned television stations serving the same market, whereby the licensee of 1one station programs substantial portions of the broadcast day and sells advertising time during such programming segments on the other licensee’s station subject to the latter licensee’s ultimate editorial and other controls. We believe these arrangements allow us to reduce our operating expenses and enhance profitability.
In 1999, the FCC established a local television ownership rule that made certain LMAs attributable. The FCC adopted policies to grandfatherexempt from attribution "legacy" LMAs that were entered into prior to November 5, 1996 and permitted the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review. The FCC stated it would conduct a case-by-case review of grandfatheredlegacy LMAs and assess the appropriateness of extending the grandfatheringexemption periods. The FCC did not initiate any review of grandfatheredlegacy LMAs in 2004 or as part of its subsequent quadrennial reviews. We do not know when, or if, the FCC will conduct any such review of grandfatheredlegacy LMAs. Currently, all of our LMAs are grandfatheredexempt from attribution under the local television ownership rule because they were entered into prior to November 5, 1996. If the FCC were to eliminate the grandfathering ofexemption for these LMAs, we would have to terminate or modify these LMAs.
In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality"totality of the circumstances test”test" for good-faith negotiations of retransmission consent. The proposed rulemaking seeks comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee"marquee sports or entertainment event,”" restrictions on online access to broadcast programming during negotiation impasses, broadcasters’broadcasters' ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’broadcasters' ability to invoke the FCC’sFCC's exclusivity rules during service interruptions. On July 14, 2016, the FCC’s Chairman at the time announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations of retransmission consent.consent but did not formally terminate the rulemaking. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the full CommissionFCC will agree to terminate the Rulemaking withoutrulemaking or take other action.
In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviews of its media ownership rules and issued an order (Ownership Order) which left most of the existing multiple ownership rules intact, but amended the rules to provide for the attribution of JSAs where two television stations are located in the same market, and a party with an attributable interest in one station sells more than 15% of the advertising time per week of the other station. JSAs existing as of March 31, 2014, were grandfathered until October 1, 2025, at which point they would have to be terminated, amended or otherwise come into compliance with the JSA attribution rule. On November 20, 2017, the FCC released an Ownership Order on Reconsideration that amongeliminated or revised several media ownership rules. Among other things, the Order on Reconsideration (1) eliminated the “Eight-Voices Test” that previously allowed common ownership of two stations in a single market only if eight or more independently-owned television stations would remain in the market (allowing common ownership of up to two stations in a market as long as such ownership does not violate the Top-Four Prohibition), and (3) eliminated the JSA attribution rule. The rule changes adoptedOwnership Order on Reconsideration was vacated and remanded by the U.S. Court of Appeals for the Third Circuit in September 2019, but the Supreme Court ultimately reversed the Third Circuit’s decision on April 1, 2021 and the Ownership Order on Reconsideration became effective on February 7, 2018. Petitions for Review of the Ownership Order on Reconsideration, including the elimination of the JSA attribution rule, were filed before the U.S. Court of Appeals for the Third Circuit. On September 23, 2019, the court vacated and remanded the Ownership Order on Reconsideration. Petitions for rehearing en banc were filed by the FCC and industry intervenors (including the Company) on November 7, 2019. The Third Circuit denied the petitions for rehearing on November 20, 2019 and the court’s mandate issued on November 29, 2019. On April 17, 2020, the FCC and industry intervenors filed petitions for writ of certiorari with the Supreme Court, which petitions were granted on October 2, 2020. The briefing schedule concluded on January 12, 2021, and oral argument was heard on January 19,June 30, 2021. We cannot predict the outcome of the proceeding. If we are required to terminate or modify our LMAs or JSAs, our business could be adversely affected in several ways, including loss of revenues, increased costs, losses on investments, and termination penalties.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On September 6, 2016,December 18, 2017, the FCC released a Notice of Proposed Rulemaking to examine the UHF Discount Order, eliminatingFCC’s national ownership cap, including the UHF discount. The UHF discount allowedallows television station owners to discount the coverage of UHF stations when calculating compliance with the FCC’sFCC's national ownership cap, which prohibits a single entity from owning television stations that reach, in total, more than 39% of all the television households in the nation. All but 34 of the stations we currently own and operate, or to which we provide programming services are UHF. On April 20, 2017, the FCC acted on a Petition for Reconsideration of the UHF Discount Order and adopted the UHF Discount Order on Reconsideration which reinstated the UHF discount, which became effective June 15, 2017 and is currently in effect. A Petition for Review of the UHF Discount Order on Reconsideration was filed in the U.S. Court of Appeals for the D.C. Circuit on May 12, 2017. The court dismissed the Petition for Review on July 25, 2018. On December 18, 2017, the Commission released a Notice of Proposed Rulemaking to examine the national audience reach cap, including the UHF discount. We cannot predict the outcome of the rulemaking proceeding. With the application of the UHF discount counting all our present stations we reach approximately 25%24% of U.S. households. Changes to the national ownership cap could limit our ability to make television station acquisitions.
On December 13, 2018, the FCC released a Notice of Proposed Rulemaking to initiate the 2018 Quadrennial Regulatory Review of the FCC’s broadcast ownership rules. The NPRM seeks comment on whether certain of its ownership rules continue to be necessary in the public interest or whether they should be modified or eliminated. With respect to the local television ownership rule specifically, among other things, the NPRM seeksNotice of Proposed Rulemaking sought comment on possible modifications to the rule’s operation, including the relevant product market, the numerical limit, the top-four prohibition;Top-Four Prohibition, and the implications of multicasting, satellite stations, low power television ("LPTV") stations and the next generationNext Generation broadcasting standard. In addition,On December 22, 2023, the NPRM examines further several diversity related proposals raisedFCC completed its 2018 Quadrennial Regulatory Review (the "2018 Ownership Order"). The 2018 Ownership Order declined to loosen or eliminate any of the existing television ownership rules and expanded the Top-Four Prohibition to multicast streams and LPTV stations, each of which were not previously considered as part of the local television ownership rules. The expanded rule prohibits a broadcaster with a top-four-rated television station from acquiring the network affiliation of another top-four rated station in the last quadrennial review proceeding.market and airing that second top-four network on a multicast stream or commonly owned LPTV station under certain circumstances. Affiliation arrangements existing as of the release of the 2018 Ownership Order that would otherwise violate the expanded Top-Four Prohibition will not be subject to divestiture, but such arrangements will not be transferrable or assignable. The public2018 Ownership Order also revised the methodology for determining whether a station is rated among the top-four stations in the market, retained the SSA disclosure requirement, and declined to attribute SSAs or JSAs. The 2018 Ownership Order’s expansion of the Top-Four Prohibition to multicast streams and LPTV stations may affect the Company’s ability to acquire programming or to sell or acquire stations due to the need to divest grandfathered affiliations.
On December 22, 2022, the FCC released a Public Notice to initiate the 2022 Quadrennial Regulatory Review, seeking comment period began on April 29, 2019,the Local Radio Ownership Rule, the Local Television Ownership Rule, and reply comments were due by May 29, 2019.the Dual Network Rule. This proceeding remains pending. We cannot predict the outcome of thethat rulemaking proceeding. Changes to these rules could impact our ability to make radio or television station acquisitions.
14. VARIABLE INTEREST ENTITIES:
Certain of our stations provide services to other station owners within the same respective market through agreements, such as LMAs, where we provide programming, sales, operational, and administrative services, and JSAs and SSAs, where we provide non-programming, sales, operational, and administrative services. In certain cases, we have also entered into purchase agreements or options to purchase the license related assets of the licensee. We typically own the majority of the non-license assets of the stations, and in some cases where the licensee acquired the license assets concurrent with our acquisition of the non-license assets of the station, we have provided guarantees to the bank for the licensee’s acquisition financing. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. Based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary when, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and we absorb losses and returns that would be considered significant to the VIEs. The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation.
We areA subsidiary of DSIH is a party to a joint venture associated with Marquee. Marquee is party to a long term telecast rights agreement which provides the rights to air certain live game telecasts and other content, which we guarantee. In connection with the RSN Acquisition,a prior acquisition, we became party to a joint venture associated with one other regional sports network. We participateDSIH participated significantly in the economics and havehad the power to direct the activities which significantly impactimpacted the economic performance of these regional sports networks, including sales and certain operational services. We consolidateAs of December 31, 2021, we consolidated these regional sports networks because they arewere variable interest entities and we arewere the primary beneficiary. As of March 1, 2022, as a result of the Deconsolidation, we no longer consolidate these regional sports networks. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets as of December 31, 20202023 and 20192022 were as follows (in millions):
| | | | 2020 | | 2019 | | 2023 | | 2022 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | $ | 64 | | | $ | 39 | |
| | Accounts receivable, net | Accounts receivable, net | 70 | | | 39 | |
| Prepaid sports rights | 2 | | | 10 | |
| Accounts receivable, net | |
| Accounts receivable, net | |
| | Other current assets | |
| Other current assets | |
| Other current assets | Other current assets | 5 | | | 6 | |
| | Total current asset | |
| Total current asset | |
| Total current asset | Total current asset | 141 | | | 94 | |
| | | Property and equipment, net | Property and equipment, net | 16 | | | 15 | |
| Operating lease assets | 6 | | | 8 | |
| | Property and equipment, net | |
| | Property and equipment, net | |
| | Goodwill and indefinite-lived intangible assets | |
| Goodwill and indefinite-lived intangible assets | |
| Goodwill and indefinite-lived intangible assets | Goodwill and indefinite-lived intangible assets | 15 | | | 15 | |
| | Definite-lived intangible assets, net | Definite-lived intangible assets, net | 54 | | | 93 | |
| Other assets | 1 | | | 3 | |
| Definite-lived intangible assets, net | |
| Definite-lived intangible assets, net | |
| | Total assets | |
| Total assets | |
| Total assets | Total assets | $ | 233 | | | $ | 228 | |
| | LIABILITIES | |
| LIABILITIES | |
| LIABILITIES | LIABILITIES | | | | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Other current liabilities | Other current liabilities | $ | 40 | | | $ | 19 | |
| | | Long-term liabilities: | |
| | | Long-term liabilities: | |
| | Long-term liabilities: | | | | |
| Notes payable, finance leases, and commercial bank financing, less current portion | Notes payable, finance leases, and commercial bank financing, less current portion | 10 | | | 15 | |
| Operating lease liabilities, less current portion | 5 | | | 6 | |
| | Program contracts payable, less current portion | Program contracts payable, less current portion | 4 | | | 7 | |
| Other long term liabilities | 17 | | | 1 | |
| Program contracts payable, less current portion | |
| Program contracts payable, less current portion | |
| Other long-term liabilities | |
| Total liabilities | Total liabilities | $ | 76 | | | $ | 48 | |
The amounts above represent the consolidatedcombined assets and liabilities of the VIEs described above, for which we are the primary beneficiary. Total liabilities associated with certain outsourcing agreements and purchase options with certain VIEs, which are excluded from above, were $131 million and $127$130 million as of both December 31, 20202023 and December 31, 2019, respectively,2022, as these amounts are eliminated in consolidation. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. As of December 31, 2020,2023, all of the liabilities are non-recourse to us except for the debt of certain VIEs. See Debt of variable interest entitiesVariable Interest Entities and guaranteesGuarantees of third-party debtThird-party Obligations under Note 7. Notes Payable and Commercial Bank Financing for further discussion. The risk and reward characteristics of the VIEs are similar.
Other VIEs
We have several investments in entities which are considered VIEs. However, we do not participate in the management of these entities, including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs.
The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary were $75$192 million and $71$187 million as of December 31, 20202023 and 2019,2022, respectively, and are included in other assets in our consolidated balance sheets. See Note 6. Other Assets for more information related to our equity investments. Our maximum exposure is equal to the carrying value of our investments. The income and loss related to equity method investments and other equity investments are recorded in lossincome from equity method investments and other income,expense, net, respectively, in our consolidated statements of operations. We recorded lossesgains of $38$27 million, $50$58 million, and $45$37 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively, related to these investments.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the Transaction, the composition of the DSIH board of managers was modified resulting in our loss of voting control over DSIH. We hold substantially all of the equity of DSIH and provide certain management and general and administrative services to DSIH. However, it was determined that we are not the primary beneficiary because we lack the ability to control the activities that most significantly drive the economics of the business. The carrying amount of our investment in DSIH is zero and there is no obligation for us to provide additional financial support. We are also party to an A/R facility held by an indirect wholly-owned subsidiary of DSIH which has a maturity date of September 23, 2024. There was no outstanding balance as of December 31, 2023 and an outstanding balance of $193 million as of December 31, 2022, which is recorded within other assets in our consolidated balance sheets. On May 10, 2023, DSPV paid the Company approximately $199 million, representing the aggregate outstanding principal amount of the loans under the A/R Facility, accrued interest, and outstanding fees and expenses. As of December 31, 2023, the maximum aggregate commitment under the A/R Facility is $50 million. See Note Receivable within Note 6. Other Assets. The amounts drawn under the A/R facility represent our maximum loss exposure.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. RELATED PERSON TRANSACTIONS:
Transactions with our controlling shareholdersWith Our Controlling Shareholders
David, Frederick, J. Duncan, and Robert Smith (collectively, the"the controlling shareholders)shareholders") are brothers and hold substantially all of theour Class B Common Stock and some of our Class A Common Stock. We engaged in the following transactions with them and/or entities in which they have substantial interests:
Leases. Certain assets used by us and our operating subsidiaries are leased from entities owned by the controlling shareholders. Lease payments made to these entities were $5$6 million for each of theboth years ended December 31, 2020, 2019,2023 and 2018.2022 and $5 million for the year ended December 31, 2021.
Finance leases payable related to the aforementioned relationships were $8$7 million, net of $2$1 million interest, and $11$9 million, net of $3$1 million interest, as of December 31, 20202023 and 2019,2022, respectively. The finance leases mature in periods through 2029.2030. For further information on finance leases to affiliates, see Note 7. Notes Payable and Commercial Bank Financing.
Charter Aircraft. We lease aircraft owned by certain controlling shareholders. For all leases, we incurred aggregate expenses of $0.2 million, $0.4 million and $1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
For the year ended December 31, 2020 and $22023, we made a $22 million for eachinvestment in a company in which certain of the years ended December 31, 2019 and 2018.our controlling shareholders also hold an equity interest.
Cunningham Broadcasting Corporation
Cunningham owns a portfolio of television stations, including: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; WDBB-TV Birmingham, Alabama; WBSF-TV Flint, Michigan; WGTU-TV/WGTQ-TV Traverse City/Cadillac, Michigan; WEMT-TV Tri-Cities, Tennessee; WYDO-TV Greenville, North Carolina; KBVU-TV/KCVU-TV Eureka/Chico-Redding, California; WPFO-TV Portland, Maine; and KRNV-DT/KENV-DT Reno, Nevada/Salt Lake City, UtahUtah; and KTXD-TV in Dallas, Texas (collectively, the Cunningham Stations). Certain of our stations provide services to these Cunningham Stations pursuant to LMAs or JSAs and SSAs. See Note 14. Variable Interest Entities, for further discussion of the scope of services provided under these types of arrangements. As of December 31, 2020, we have jointly, severally, unconditionally, and irrevocably guaranteed $41 million of Cunningham debt, of which $8 million, net of $0.4 million deferred financing costs, relates to the Cunningham VIEs that we consolidate.
The voting stock of Cunningham is owned by an unrelated party. All of the non-voting stock of the Cunningham Stations is owned by trusts for the benefit of the children of our controlling shareholders. We consolidate certain subsidiaries of Cunningham with which we have variable interests through various arrangements related to the Cunningham Stations.
The services provided to WNUV-TV, WMYA-TV, WTTE-TV, WRGT-TV and WVAH-TV are governed by a master agreement which has a current term that expires on July 1, 20232028 and there are 2is one additional 5-yearfive-year renewal terms remaining with final expiration on July 1, 2033. We also executed purchase agreements to acquire the license related assets of these stations from Cunningham, which grant us the right to acquire, and grant Cunningham the right to require us to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of these individual subsidiaries of Cunningham. Pursuant to the terms of this agreement we are obligated to pay Cunningham an annual fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue or (ii) $5$6 million. The aggregate purchase price of these television stations increases by 6% annually. A portion of the fee is required to be applied to the purchase price to the extent of the 6% increase. The cumulative prepayments made under these purchase agreements were $54$65 million and $51$61 million as of December 31, 20202023 and 2019,2022, respectively. The remaining aggregate purchase price of these stations, net of prepayments, was $54 million for both the years ended December 31, 20202023 and 2019.2022. Additionally, we provide services to WDBB-TV pursuant to an LMA, which expires April 22, 2025, and have a purchase option to acquire for $0.2 million. We paid Cunningham, under these agreements, $8$12 million, $10 million, and $11 million for each of the years ended December 31, 20202023, 2022, and 2019 and $10 million for the year ended December 31, 2018.2021, respectively.
The agreements with KBVU-TV/KCVU-TV, KRNV-DT/KENV-DT, WBSF-TV, WDBB-TV, WEMT-TV, WGTU-TV/WGTQ-TV, WPFO-TV, and WYDO-TV expire between April 2025 and November 2021 and December 2028,2029, and certain stations have renewal provisions for successive eight-yeareight-year periods.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As we consolidate the licensees as VIEs, the amounts we earn or pay under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported in our consolidated statements of operations. Our consolidated revenues include $157$140 million, $155$159 million, and $171$144 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively, related to the Cunningham Stations.
We have an agreement with Cunningham to provide master control equipment and provide master control services to a station in Johnstown, PA with which Cunningham has an LMA that expires in June 2022.2025. Under the agreement, Cunningham paid us an initial fee of $1 million and pays us $0.2$0.3 million annually for master control services plus the cost to maintain and repair the equipment. In addition, we have an agreement with Cunningham to provide a news share service with the Johnstown, PA station for an annual fee of $1$0.6 million thatwhich increases by 3% on each anniversary and which expires in December 2021.November 2024.
Atlantic Automotive CorporationWe have multi-cast agreements with Cunningham Stations in the Eureka/Chico-Redding, California; Tri-Cities, Tennessee; Anderson, South Carolina; Baltimore, Maryland; Portland, Maine; Charleston, West Virginia; Dallas, Texas; and Greenville, North Carolina markets. In exchange for carriage of these networks in their markets, we paid $2 million, $1 million, and $2 million for the years ended December 31, 2023, 2022, and 2021, respectively, under these agreements.
MileOne Autogroup, Inc.
We sell advertising time to Atlantic Automotive Corporation (Atlantic Automotive)certain operating subsidiaries of MileOne Autogroup, Inc. ("MileOne"), a holding company that ownsincluding automobile dealerships, body shops, and an automobile leasing company. David D. Smith, our Executive Chairman, has a controlling interest in, and is a member of the Board of Directors of, Atlantic Automotive.MileOne. We received payments for advertising totaling $0.2less than $0.1 million for each of the years ended December 31, 2020, 2019,2023 and 2018.2022 and $0.1 million for the year December 31, 2021.
Leased propertyProperty by real estate venturesReal Estate Ventures
Certain of our real estate ventures have entered into leases with entities owned by members of the Smith Family. Total rent received under these leases was $1 million for each of the years ended December 31, 2020, 2019,2023, 2022, and 2018.2021.
Diamond Sports Intermediate Holdings LLC
Subsequent to February 28, 2022, we account for our equity interest in DSIH as an equity method investment.
Management Services Agreement. In 2019, we entered into a management services agreement with DSG, a wholly-owned subsidiary of DSIH, in which we provide DSG with affiliate sales and marketing services and general and administrative services. The contractual annual amount due from DSG for these services during the fiscal year ended December 31, 2023 is $78 million, which is subject to increases on an annual basis. Additionally, the agreement contains an incentive fee payable to us calculated based on certain terms contained within new or renewed distribution agreements with Distributors. As a condition to the Transaction, DSG will defer the cash payment of a portion of its management fee payable to the Company over the next four years. Pursuant to this agreement, excluding the amounts deferred as part of the Transaction, the local media segment recorded $49 million and $60 million of revenue for the years ended December 31, 2023 and 2022 related to both the contractual and incentive fees, of which $24 million was eliminated in consolidation prior to the Deconsolidation for the year ended December 31, 2022. We will not recognize the portion of deferred management fees as revenue until such fees are determined to be collectible. The terms of this agreement are subject to change depending upon the outcome of the settlement with DSG discussed in Note 13. Commitments and Contingencies.
Distributions. DSIH made distributions to DSH for tax payments on the dividends of the Redeemable Subsidiary Preferred Equity method investeesof $7 million for the year ended December 31, 2022.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note receivable. For the year ended December 31, 2023, we received payments totaling $203 million related to the note receivable associated with the A/R facility, including $199 million from DSPV on May 10, 2023, representing the aggregate outstanding principal amount of the loans under the A/R Facility, accrued interest, and outstanding fees and expenses. For the year ended December 31, 2022, we received payments totaling $60 million from DSPV and funded an additional $40 million related to the note receivable associated with the A/R facility.
We recorded revenue of $19 million and $15 million for the years ended December 31, 2023 and 2022, respectively, within other related to certain other transactions between DSIH and the Company.
Other Equity Method Investees
YES Network. In August 2019, YES Network, which was accounted for as an equity method investee,investment prior to the Deconsolidation, entered into a management services agreement with the Company, in which the Company provides certain services for an initial term that expires on August 29, 2025. The agreement will automatically renew for 2two 2-year renewal terms, with a final expiration on August 29, 2029. Pursuant to the terms of the agreement, the YES Network paid us a management services fee of $5$1 million and $2$6 million for the years ended December 31, 20202022 and 2019,2021, respectively.
In conjunction with the RSN Acquisition on August 23, 2019, as discussed in Note 2. Acquisitions and Dispositions of Assets, we assumedDSIH has a minority interest in certain mobile production businesses, whichbusinesses. Prior to the Deconsolidation, we accountaccounted for these as equity method investments. WeDSIH made payments to these businesses for production services totaling $19$5 million and $12$45 million for the years ended December 31, 20202022 and 2019,2021, respectively.
Programming rightsWe have a minority interest in a sports marketing company, which we account for as an equity method investment. We made payments to this business for marketing services totaling $2 million and $17 million for the years ended December 31, 2022 and 2021, respectively.
AsSports Programming Rights
Affiliates of December 31, 2020, affiliates of 6six professional teams havehad non-controlling equity interests in certain of our RSNs. These agreements expire on various dates during the fiscal years ended 2025 through 2032. The CompanyDSIH's regional sports networks. DSIH paid $168$61 million and $424 million, net of rebates, for the yearyears ended December 31, 20202022 and $73 million for the year ended December 31, 20192021, respectively, under sports programming rights agreements covering the broadcast of regular season games associated with these professional teams. Prior to professional teams who have non-controlling equity intereststhe Deconsolidation, these payments were recorded in certainour consolidated statements of our RSNs.operations and cash flows.
Employees
Jason Smith, an employee of the Company, is the son of Frederick Smith, who is a Vice President of the Company and a member of the Company's Board of Directors.Board. Jason Smith received total compensation of $0.8 million, $0.6 million, and $0.2 million, consisting of salary and bonus, for the years ended December 31, 2023, 2022, and 2021, respectively, consisting of salary and bonus, and was granted 2,239 shares of restricted stock, vesting over two years, during the year ended December 31, 2021.
Ethan White, an employee of the Company, is the son-in-law of J. Duncan Smith, who is a Vice President of the Company and Secretary of the Board. Ethan White received total compensation of $0.2 million, consisting of salary and bonus, for the year ended December 31, 2023 and $0.1 million, consisting of salary and bonus, for each of the years ended December 31, 2020, 2019,2022 and 2018,2021, and was granted a RSA with respect to 3551,252 shares of restricted stock, vesting over two years, forduring the year ended December 31, 2020. 2023.
Amberly Thompson, an employee of the Company, is the daughter of Donald Thompson, who is an Executive Vice President and Chief Human Resources Officer of the Company. Amberly Thompson received total compensation of $0.2 million, consisting of salary$0.1 million, and bonus, for each of the years ended December 31, 2020 and 2019, and $0.1$0.2 million, consisting of salary and bonus, for the yearyears ended December 31, 2018. 2023, 2022, and 2021, respectively.
Edward Kim, an employee of the company, is the brother-in-law of Christopher Ripley, who is the President and Chief Executive Officer of the Company. Edward Kim was hired duringreceived total compensation of $0.2 million, consisting of salary, for each of the yearyears ended December 31, 2020, with a base salary2023, 2022, and 2021 and was granted 516 and 302 shares of $0.2 million,restricted stock, vesting over two years, during the years ended December 31, 2023 and received total compensation for the year of $0.1 million, consisting of salary.2022, respectively.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Frederick Smith is the brother of David Smith, Executive Chairman of the Company and Chairman of the Board; J. Duncan Smith; and Robert Smith, a member of the Board. Frederick Smith received total compensation of $1 million for each of the years ended December 31, 2023, 2022, and 2021, consisting of salary, bonus, and earnings related to Frederick Smith’s participation in the Company's deferred compensation plan. J. Duncan Smith is the brother of David Smith, Frederick Smith, and Robert Smith. J. Duncan Smith received total compensation of $1 million for each of the years ended December 31, 2023, 2022, and 2021, consisting of salary and bonus.
16. EARNINGS PER SHARE:
The following table reconciles income (numerator)("numerator") and shares (denominator)("denominator") used in our computations of earnings per share for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions, except share amounts which are reflected in thousands):
| | | | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
| Income (Numerator) | | | | | |
| Income ("Numerator") | | Income ("Numerator") | | | |
| Net (loss) income | Net (loss) income | $ | (2,429) | | | $ | 105 | | | $ | 346 | |
| Net income attributable to the redeemable noncontrolling interests | (56) | | | (48) | | | 0 | |
| Net loss (income) attributable to the noncontrolling interests | 71 | | | (10) | | | (5) | |
| Net loss (income) attributable to the redeemable noncontrolling interests | |
| Net income attributable to the noncontrolling interests | |
| Numerator for basic and diluted earnings per common share available to common shareholders | Numerator for basic and diluted earnings per common share available to common shareholders | $ | (2,414) | | | $ | 47 | | | $ | 341 | |
| | Shares (Denominator) | | | | | |
| Shares ("Denominator") | |
| Shares ("Denominator") | |
| Shares ("Denominator") | | | | |
| Basic weighted-average common shares outstanding | Basic weighted-average common shares outstanding | 79,924 | | | 92,015 | | | 100,913 | |
| Dilutive effect of stock settled appreciation rights and outstanding stock options | Dilutive effect of stock settled appreciation rights and outstanding stock options | 0 | | | 1,170 | | | 805 | |
| Diluted weighted-average common and common equivalent shares outstanding | Diluted weighted-average common and common equivalent shares outstanding | 79,924 | | | 93,185 | | | 101,718 | |
The net earnings per share amounts are the same for Class A and Class B Common Stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
The following table shows the weighted-average stock-settled appreciation rights and outstanding stock options (in thousands) that are excluded from the calculation of diluted earnings per common share as the inclusion of such shares would be anti-dilutive.
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Weighted-average stock-settled appreciation rights and outstanding stock options excluded | 3,288 | | | 238 | | | 1,325 | |
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Weighted-average stock-settled appreciation rights and outstanding stock options excluded | 4,425 | | | 3,370 | | | 1,973 | |
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. SEGMENT DATA:
We measureDuring the year ended December 31, 2023, we modified our segment reporting to align with the new organizational structure of the Company discussed within Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies. The segment information within the comparative periods have been recast to reflect this new presentation. During the year ended December 31, 2023, we measured segment performance based on operating income (loss). We have 2For the year ended December 31, 2023, we had two reportable segments: broadcastlocal media and tennis. Prior to the Deconsolidation on March 1, 2022, we had one additional reportable segment: local sports. Our broadcastlocal media segment previously referred to asincludes our local newstelevision stations, original networks and marketing service segment,content and provides these through free over-the-air programming to television viewing audiences and includesfor stations in 88 markets located throughout the continental United States.States, as well as distributes the content of these stations to MVPDs for distribution to their customers in exchange for contractual fees. Our tennis segment provides viewers coverage of many of tennis' top tournaments and original professional sport and tennis lifestyle shows. Prior to the Deconsolidation, our local sports segment previously referred to as our sports segment, providesprovided viewers with live professional sports content and includes our regional sports network brands,included the Bally RSNs, Marquee, and a minority equity interestour investment in the YES Network. Other and corporate are not reportable segments but are included for reconciliation purposes. Other primarily consists of original networks and content, including Tennis, non-broadcast digital and internet solutions, technical services, and other non-media investments. Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location. All of our businesses are located within the United States. As a result of the Reorganization, the local media segment assets are owned and operated by SBG, the assets of the tennis segment are owned and operated by Ventures, and the other Transferred Assets, which are included in other and corporate, are owned and operated by Ventures.
Segment financial information is included in the following tables for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 (in millions):
| | As of December 31, 2020 | | Broadcast | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| As of December 31, 2023 | | As of December 31, 2023 | | Local media | | Tennis | | Other & Corporate | | Eliminations | | Consolidated |
| Goodwill | Goodwill | | $ | 2,017 | | | $ | 0 | | | $ | 75 | | | $ | 0 | | | $ | 2,092 | |
| Assets | Assets | | 4,908 | | | 6,620 | | | 1,867 | | | (13) | | | 13,382 | |
| Capital expenditures | | 101 | | | 24 | | | 32 | | | 0 | | | 157 | |
|
| | As of December 31, 2019 | | Broadcast | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| As of December 31, 2022 | | As of December 31, 2022 | | Local media | | Tennis | | Other & Corporate | | Eliminations | | Consolidated |
| Goodwill | Goodwill | | $ | 2,026 | | | $ | 2,615 | | | $ | 75 | | | $ | 0 | | | $ | 4,716 | |
| Assets | Assets | | 4,866 | | | 11,258 | | | 1,271 | | | (25) | | | 17,370 | |
| Capital expenditures | | 150 | | | 9 | | | 9 | | | (12) | | | 156 | |
|
| | For the year ended December 31, 2020 | | Broadcast | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| For the year ended December 31, 2023 | | For the year ended December 31, 2023 | | Local media | | Tennis | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | Revenue | | $ | 2,922 | | | $ | 2,686 | | | $ | 451 | | | $ | (116) | | (e) | $ | 5,943 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 239 | | | 410 | | | 27 | | | (2) | | | 674 | |
| Amortization of sports programming rights (a) | | 0 | | | 1,078 | | | 0 | | | 0 | | | 1,078 | |
| Amortization of program contract costs | Amortization of program contract costs | | 83 | | | 0 | | | 3 | | | 0 | | | 86 | |
| Corporate general and administrative expenses | Corporate general and administrative expenses | | 119 | | | 10 | | | 19 | | | 0 | | | 148 | |
| Loss on deconsolidation of subsidiary | |
| (Gain) loss on asset dispositions and other, net of impairment | (Gain) loss on asset dispositions and other, net of impairment | | (118) | | (b) | 0 | | | 3 | | | 0 | | | (115) | |
| Impairment of goodwill and definite-lived intangible assets | | 0 | | | 4,264 | | | 0 | | | 0 | | | 4,264 | |
| | Operating income (loss) | |
| Operating income (loss) | |
| Operating income (loss) | Operating income (loss) | | 789 | | (b) | (3,602) | | | 47 | | | (6) | | | (2,772) | |
| Interest expense including amortization of debt discount and deferred financing costs | Interest expense including amortization of debt discount and deferred financing costs | | 5 | | | 460 | | | 203 | | | (12) | | | 656 | |
| Income (loss) from equity method investments | | 0 | | | 6 | | | (42) | | | 0 | | | (36) | |
| (Loss) income from equity method investments | |
| Capital expenditures | |
SINCLAIR, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2019 | | Broadcast | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | | $ | 2,690 | | | $ | 1,139 | | | $ | 470 | | | $ | (59) | | (e) | $ | 4,240 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 246 | | | 157 | | | 22 | | | (1) | | | 424 | |
| Amortization of sports programming rights (a) | | 0 | | | 637 | | | 0 | | | 0 | | | 637 | |
| Amortization of program contract costs | | 90 | | | 0 | | | 0 | | | 0 | | | 90 | |
| Corporate general and administrative expenses | | 144 | | | 93 | | | 151 | | | (1) | | | 387 | |
| Gain on asset dispositions and other, net of impairment | | (62) | | (b) | 0 | | | (30) | | | 0 | | | (92) | |
| Operating income (loss) | | 546 | | (b) | 30 | | | (98) | | | (8) | | | 470 | |
| Interest expense including amortization of debt discount and deferred financing costs | | 5 | | | 200 | | | 230 | | | (13) | | | 422 | |
| Income (loss) from equity method investments | | 0 | | | 18 | | | (53) | | | 0 | | | (35) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2022 | | Local media | | Tennis | | Local sports (d) | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | | $ | 3,193 | | (a) | $ | 217 | | | $ | 482 | | | $ | 95 | | | $ | (59) | | (c) | $ | 3,928 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 243 | | | 21 | | | 54 | | | 7 | | | (4) | | | 321 | |
| Amortization of sports programming rights (e) | | — | | | — | | | 326 | | | — | | | — | | | 326 | |
| Amortization of program contract costs | | 90 | | | — | | | — | | | — | | | — | | | 90 | |
| Corporate general and administrative expenses | | 117 | | | — | | | 1 | | | 42 | | | — | | | 160 | |
| Gain on deconsolidation of subsidiary | | — | | | — | | | — | | | (3,357) | | (f) | — | | | (3,357) | |
| Gain on asset dispositions and other, net of impairment | | (17) | | (b) | — | | | — | | | (47) | | | — | | | (64) | |
| Operating income (loss) | | 591 | | (b) | 52 | | | (4) | | | 3,341 | | | — | | | 3,980 | |
| Interest expense including amortization of debt discount and deferred financing costs | | 226 | | | — | | | 72 | | | 6 | | | (8) | | | 296 | |
| Income from equity method investments | | — | | | — | | | 10 | | | 46 | | | — | | | 56 | |
| Capital expenditures | | 96 | | | 1 | | | 2 | | | 6 | | | — | | | 105 | |
| | For the year ended December 31, 2018 | | Broadcast | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| For the year ended December 31, 2021 | | For the year ended December 31, 2021 | | Local media | | Tennis | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | Revenue | | $ | 2,715 | | | $ | 0 | | | $ | 350 | | | $ | (10) | | | $ | 3,055 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 252 | | | 0 | | | 29 | | | (1) | | | 280 | |
| Amortization of sports programming rights (e) | |
| Amortization of program contract costs | Amortization of program contract costs | | 101 | | | 0 | | | 0 | | | 0 | | | 101 | |
| Corporate general and administrative overhead expenses | | 100 | | | 0 | | | 11 | | | 0 | | | 111 | |
| (Gain) loss on asset dispositions and other, net of impairment | | (100) | | (c) | 0 | | | 60 | | (d) | 0 | | | (40) | |
| Corporate general and administrative expenses | |
| Gain on asset dispositions and other, net of impairment | |
| Operating income (loss) | Operating income (loss) | | 751 | | (c) | 0 | | | (88) | | (d) | (3) | | | 660 | |
| Interest expense including amortization of debt discount and deferred financing costs | Interest expense including amortization of debt discount and deferred financing costs | | 6 | | | 0 | | | 301 | | | (15) | | | 292 | |
| Loss from equity method investments | | 0 | | | 0 | | | (61) | | | 0 | | | (61) | |
| Income (loss) from equity method investments | |
| Capital expenditures | |
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a)Includes $52 million and $39 million for the year ended December 31, 2023 and 2022, respectively, of revenue for services provided by local media under management services agreements after the Deconsolidation, which is not eliminated in consolidation.
(b)Local media includes gains of $8 million, $4 million, and $24 million related to reimbursements for spectrum repack costs for the years ended December 31, 2023, 2022, and 2021, respectively. Local sports includes $43 million related to the fair value of equipment that we received for the C-Band spectrum repack for the year ended December 31, 2021. See Note 2. Acquisitions and Dispositions of Assets.
(c)Includes $26 million, and $111 million of revenue for the years ended December 31, 2022 and 2021, respectively, for services provided by local media to local sports and other and $8 million, $12 million, and $35 million for the year ended December 31, 2023, 2022, and 2021, respectively, for services provided by other to local media, which are eliminated in consolidation.
(d)Represents the activity prior to the Deconsolidation on March 1, 2022.
(e)The amortization of sports programming rights is included within media programming and production expenses on our consolidated statements of operations.
(b)(f)Includes gains of $90 million and $62 million forRepresents the years ended December 31, 2020 and 2019, respectively, related to reimbursements forgain recognized on the spectrum repack costs. See Note 2. Acquisitions and Dispositions of Assets.
(c)Includes a gain of $83 million related to the auction proceeds. See Note 2. Acquisitions and Dispositions of Assets.
(d)Includes a $60 million impairment to the carrying value of a consolidated real estate venture. See Note 1. Nature of Operations and Summary of Significant Accounting Policies.
(e)Includes $100 million and $35 million of revenue for the years ended December 31, 2020 and 2019, respectively, for services provided by broadcast to local sports and other, which are eliminated in consolidation.Deconsolidation.
18. FAIR VALUE MEASUREMENTS:
Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value. The following is a brief description of those three levels:
•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the carryingface value and fair value of our financial assets and liabilities as of December 31, 20202023 and 20192022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Level 1: | | | | | | | |
| Investments in equity securities | $ | 68 | | | $ | 68 | | | $ | 2 | | | $ | 2 | |
| STG: | | | | | | | |
| Money market funds | 448 | | | 448 | | | 354 | | | 354 | |
| Deferred compensation assets | 42 | | | 42 | | | 36 | | | 36 | |
| Deferred compensation liabilities | 36 | | | 36 | | | 33 | | | 33 | |
| DSG: | | | | | | | |
| Money market funds | 292 | | | 292 | | | 559 | | 559 |
| | | | | | | |
| Level 2 (a): | | | | | | | |
| STG: | | | | | | | |
| 5.875% Senior Unsecured Notes due 2026 | 348 | | | 358 | | | 350 | | | 368 | |
| 5.625% Senior Unsecured Notes due 2024 (b) | 0 | | | 0 | | | 550 | | | 566 | |
| 5.500% Senior Unsecured Notes due 2030 | 500 | | | 520 | | | 500 | | | 511 | |
| 5.125% Senior Unsecured Notes due 2027 | 400 | | | 408 | | | 400 | | | 411 | |
| 4.125% Senior Secured Notes due 2030 (b) | 750 | | | 770 | | | 0 | | | 0 | |
| Term Loan B (b) | 1,119 | | | 1,107 | | | 1,329 | | | 1,326 | |
| Term Loan B-2 | 1,284 | | | 1,264 | | | 1,297 | | | 1,300 | |
| | | | | | | |
| DSG: | | | | | | | |
| 12.750% Senior Secured Notes due 2026 (c) | 31 | | | 28 | | | 0 | | | 0 | |
| 6.625% Senior Unsecured Notes due 2027 (c) | 1,744 | | | 1,056 | | | 1,825 | | | 1,775 | |
| 5.375% Senior Secured Notes due 2026 | 3,050 | | | 2,483 | | | 3,050 | | | 3,085 | |
| Term Loan | 3,259 | | | 2,884 | | | 3,292 | | | 3,284 | |
| Accounts Receivable Securitization Facility (d) | 177 | | | 177 | | | 0 | | | 0 | |
| Debt of variable interest entities | 17 | | | 17 | | | 21 | | | 21 | |
| Debt of non-media subsidiaries | 17 | | | 17 | | | 18 | | | 18 | |
| | | | | | | |
| Level 3: | | | | | | | |
| Options and warrants (e) | 332 | | | 332 | | | 0 | | | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | Face Value | | Fair Value | | Face Value | | Fair Value |
| Level 1: | | | | | | | |
| Investments in equity securities | N/A | | $ | 6 | | | N/A | | $ | 6 | |
| Money market funds | N/A | | $ | 588 | | | N/A | | $ | 741 | |
| Deferred compensation assets | N/A | | $ | 45 | | | N/A | | $ | 41 | |
| Deferred compensation liabilities | N/A | | $ | 44 | | | N/A | | $ | 35 | |
| | | | | | | |
| Level 2: | | | | | | | |
| Investments in equity securities (a) | N/A | | $ | 110 | | | N/A | | $ | 153 | |
| Interest rate swap (b) | N/A | | $ | 1 | | | N/A | | $ | — | |
| STG (c): | | | | | | | |
| 5.500% Senior Notes due 2030 | $ | 485 | | | $ | 362 | | | $ | 500 | | | $ | 347 | |
| 5.125% Senior Notes due 2027 | $ | 274 | | | $ | 248 | | | $ | 282 | | | $ | 230 | |
| 4.125% Senior Secured Notes due 2030 | $ | 737 | | | $ | 521 | | | $ | 750 | | | $ | 560 | |
| Term Loan B-2, due September 30, 2026 | $ | 1,215 | | | $ | 1,124 | | | $ | 1,258 | | | $ | 1,198 | |
| Term Loan B-3, due April 1, 2028 | $ | 722 | | | $ | 595 | | | $ | 729 | | | $ | 692 | |
| Term Loan B-4, due April 21, 2029 | $ | 739 | | | $ | 602 | | | $ | 746 | | | $ | 709 | |
| | | | | | | |
| Debt of variable interest entities (c) | $ | 7 | | | $ | 7 | | | $ | 8 | | | $ | 8 | |
| Debt of non-media subsidiaries (c) | $ | 15 | | | $ | 15 | | | $ | 16 | | | $ | 16 | |
| | | | | | | |
| Level 3: | | | | | | | |
| Investments in equity securities (d) | N/A | | $ | 46 | | | N/A | | $ | 75 | |
N/A - Not applicable
(a)(b)See Hedge Accounting within Note 1. Nature of Operations and Summary of Significant Accounting Policies and Interest Rate Swap within Note 7. Notes Payable and Commercial Bank Financing.
(c)Amounts are carried in our consolidated balance sheets net of debt discount premium, and deferred financing costs, which are excluded in the above table, of $183$46 million and $231$56 million as of December 31, 20202023 and 2019,2022, respectively.
(b)On December 4, 2020, we issued $750 million aggregate principal amount of the STG 4.125% Secured Notes, the net proceeds of which were used, plus cash on hand, to redeem $550 million aggregate principal amount of the STG 5.625% Notes, as well as repay $200 million of STG's Term Loan B-1. See Note 7. Notes Payable and Commercial Bank Financing for additional information.
(c)On June 10, 2020, we exchanged $66.5 million aggregate principal amount of the DSG 6.625% Notes for cash payments of $10 million, including accrued but unpaid interest, and $31 million aggregate principal amount of the newly issued DSG 12.750% Secured Notes. See Note 7. Notes Payable and Commercial Bank Financing for additional information.
(d)We entered into the A/R Facility on September 23, 2020. As of December 31, 2020, the balance of the loans under the A/R Facility was $177 million. See Note 7. Notes Payable and Commercial Bank Financing for additional information.
(e)On November 18, 2020, we entered into a commercial agreement with Bally's and received warrants and options to acquire common equity in the business. These financial instruments were determined to have an initial value of $199 million. During the yearyears ended December 31, 20202023, 2022, and 2021, we recorded $133 million ofa fair value adjustmentsadjustment loss of $29 million, loss of $112 million, and loss of $50 million, respectively, related to these interests. The fair value of the warrants areis primarily derived from the quoted trading prices of the underlying common equity. The fair value of the options is derived utilizing the Black Scholes valuation model. The most significant inputs include the trading price of the underlying common stock and the exercise price of the options, which range from $30 to $45 per share.
The following table summarizes the changes in financial assets measured at fair value on a recurring basis and categorized as Level 3 under the fair value hierarchy (in millions):
| | | | | |
| Options and Warrants |
| Fair Value at December 31, 2021 | $ | 282 | |
| |
| |
| Measurement adjustments | (112) | |
| Transfer to Level 2 | (95) | |
| Fair Value at December 31, 2022 | 75 | |
| Measurement adjustments | (29) | |
| |
| Fair Value at December 31, 2023 | $ | 46 | |
SINCLAIR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. SUBSEQUENT EVENTS:
On January 17, 2024, we announced that we agreed, subject to definitive documentation and final court approval, to a global settlement and release of all claims associated with the litigation filed by DSG and DSG’s wholly-owned subsidiary, Diamond Sports Net, LLC, in July 2023, which settlement includes an amendment to the management services agreement between STG and DSG.
The settlement is subject to definitive documentation, including finalization of certain transition terms, and approval by the U.S. Bankruptcy Court in Houston overseeing DSG’s chapter 11 case. A motion for approval of the settlement was filed with the court on January 23, 2024. On February 26, 2024, the court approved the settlement, subject to Sinclair and DSG completing definitive documentation.
See Note 13. Commitments and Contingencies for additional information regarding the settlement.
SINCLAIR BROADCAST GROUP, LLC
FINANCIAL STATEMENTS OF SINCLAIR BROADCAST GROUP, LLC
Report of Independent Registered Public Accounting Firm
To the Board of Managers of Sinclair Broadcast Group, LLC and to the Board of Directors of Sinclair, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Sinclair Broadcast Group, LLC and its subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, of comprehensive (loss) income, and of cash flows for each of the three years in the period ended December 31, 2023, of member’s equity adjusted(deficit) and redeemable noncontrolling interests for the year ended December 31, 2023, and of equity (deficit) and redeemable noncontrolling interests for each of the years ended December 31, 2022 and 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with thestandards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Local Media Segment Advertising Revenue
As discussed in Note 1 to the consolidated financial statements, the Company recorded advertising revenue of $1,236 million relating to the local media segment for the year ended December 31, 2023. Advertising revenue is generated primarily from the sale of advertising spots/impressions. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered.
The principal consideration for our determination that performing procedures relating to the local media segment advertising revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to revenue recognition for advertising revenue, including controls over the recording of advertising revenue in the period in which the advertising spots/impressions are delivered. These procedures also included, among others, evaluating revenue recognition for a 25%sample of advertising transactions by obtaining taped recordings denoting the as-aired advertisements and comparing those ads to the invoices generated and cash received against revenue transactions recorded in the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 29, 2024
We have served as the Company’s auditor since 2009.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| | | | | | | | | | | |
| | As of December 31, |
| | 2023 | | 2022 |
| ASSETS | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 319 | | | $ | 884 | |
| Accounts receivable, net of allowance for doubtful accounts of $4 and $5, respectively | 568 | | | 612 | |
| Income taxes receivable | 7 | | | 5 | |
| Prepaid expenses and other current assets | 139 | | | 182 | |
| Total current assets | 1,033 | | | 1,683 | |
| Property and equipment, net | 692 | | | 728 | |
| Operating lease assets | 142 | | | 145 | |
| | | |
| | | |
| Goodwill | 2,016 | | | 2,088 | |
| Indefinite-lived intangible assets | 123 | | | 150 | |
| Customer relationships, net | 238 | | | 444 | |
| Other definite-lived intangible assets, net | 409 | | | 502 | |
| Other assets | 184 | | | 964 | |
| Total assets (a) | $ | 4,837 | | | $ | 6,704 | |
| | | |
| LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | | | |
| Current Liabilities: | | | |
| Accounts payable and accrued liabilities | $ | 851 | | | $ | 397 | |
| | | |
| Current portion of notes payable, finance leases, and commercial bank financing | 36 | | | 38 | |
| Current portion of operating lease liabilities | 21 | | | 23 | |
| Current portion of program contracts payable | 76 | | | 83 | |
| Other current liabilities | 50 | | | 67 | |
| Total current liabilities | 1,034 | | | 608 | |
| Notes payable, finance leases, and commercial bank financing, less current portion | 4,124 | | | 4,227 | |
| Operating lease liabilities, less current portion | 152 | | | 154 | |
| Program contracts payable, less current portion | 14 | | | 10 | |
| Deferred tax liabilities | 283 | | | 610 | |
| Other long-term liabilities | 158 | | | 220 | |
| Total liabilities (a) | 5,765 | | | 5,829 | |
Commitments and contingencies (See Note 12) | | | |
| Redeemable noncontrolling interests | — | | | 194 | |
| SBG member's (deficit) equity: | | | |
| | | |
| Accumulated deficit | (865) | | | — | |
| Accumulated other comprehensive income | 1 | | | — | |
| Total SBG member's deficit | (864) | | | — | |
| Old Sinclair shareholders' equity: | | | |
| Old Sinclair Class A Common Stock, $0.01 par value, 500,000,000 shares authorized and 45,847,879 shares issued and outstanding as of December 31, 2022 | — | | | 1 | |
| Old Sinclair Class B Common Stock, $0.01 par value, 140,000,000 shares authorized and 23,775,056 shares issued and outstanding as of December 31, 2022, convertible into Old Sinclair Class A Common Stock | — | | | — | |
| Additional paid-in capital | — | | | 624 | |
| Retained earnings | — | | | 122 | |
| Accumulated other comprehensive income | — | | | 1 | |
| Total Old Sinclair shareholders’ equity | — | | | 748 | |
| Noncontrolling interests | (64) | | | (67) | |
| Total (deficit) equity | (928) | | | 681 | |
| Total liabilities, redeemable noncontrolling interests, and equity | $ | 4,837 | | | $ | 6,704 | |
The accompanying notes are an integral part of these consolidated financial statements.
(a)Our consolidated total assets as of December 31, 2023 and 2022 include total assets of VIEs of $85 million and $115 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of December 31, 2023 and 2022 include total liabilities of the VIEs of $17 million and $18 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 13. Variable Interest Entities.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
(In millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| REVENUES: | | | | | |
| Media revenues | $ | 2,968 | | | $ | 3,894 | | | $ | 6,083 | |
| Non-media revenues | 10 | | | 34 | | | 51 | |
| Total revenues | 2,978 | | | 3,928 | | | 6,134 | |
| | | | | |
| OPERATING EXPENSES: | | | | | |
| Media programming and production expenses | 1,543 | | | 1,942 | | | 4,291 | |
| Media selling, general and administrative expenses | 719 | | | 812 | | | 908 | |
| Amortization of program contract costs | 80 | | | 90 | | | 93 | |
| Non-media expenses | 24 | | | 44 | | | 57 | |
| Depreciation of property and equipment | 104 | | | 100 | | | 114 | |
| Corporate general and administrative expenses | 654 | | | 160 | | | 170 | |
| Amortization of definite-lived intangible and other assets | 148 | | | 221 | | | 477 | |
| | | | | |
| Loss (gain) on deconsolidation of subsidiary | 10 | | | (3,357) | | | — | |
| Gain on asset dispositions and other, net of impairment | (2) | | | (64) | | | (71) | |
| Total operating expenses (gains) | 3,280 | | | (52) | | | 6,039 | |
| Operating (loss) income | (302) | | | 3,980 | | | 95 | |
| | | | | |
| OTHER INCOME (EXPENSE): | | | | | |
| Interest expense including amortization of debt discount and deferred financing costs | (305) | | | (296) | | | (618) | |
| Gain (loss) on extinguishment of debt | 15 | | | 3 | | | (7) | |
| Income from equity method investments | 31 | | | 56 | | | 45 | |
| Other expense, net | (43) | | | (129) | | | (14) | |
| Total other expense, net | (302) | | | (366) | | | (594) | |
| (Loss) income before income taxes | (604) | | | 3,614 | | | (499) | |
| INCOME TAX BENEFIT (PROVISION) | 359 | | | (913) | | | 173 | |
| | | | | |
| | | | | |
| | | | | |
| NET (LOSS) INCOME | (245) | | | 2,701 | | | (326) | |
| Net loss (income) attributable to redeemable noncontrolling interests | 4 | | | (20) | | | (18) | |
| Net (income) loss attributable to the noncontrolling interests | (16) | | | (29) | | | (70) | |
| NET (LOSS) INCOME ATTRIBUTABLE TO SBG | $ | (257) | | | $ | 2,652 | | | $ | (414) | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
(In millions)
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Net (loss) income | $ | (245) | | | $ | 2,701 | | | $ | (326) | |
| | | | | |
| Adjustments to post-retirement obligations, net of taxes | — | | | 3 | | | 1 | |
| Share of other comprehensive gain of equity method investments | — | | | 3 | | | 7 | |
| Comprehensive (loss) income | (245) | | | 2,707 | | | (318) | |
| Comprehensive loss (income) attributable to redeemable noncontrolling interests | 4 | | | (20) | | | (18) | |
| Comprehensive income attributable to noncontrolling interests | (16) | | | (29) | | | (70) | |
| Comprehensive (loss) income attributable to SBG | $ | (257) | | | $ | 2,658 | | | $ | (406) | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(In millions, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Old Sinclair Shareholders | | | | |
| | Redeemable
Noncontrolling
Interests | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interests | | Total Deficit |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2020 | $ | 190 | | | | 49,252,671 | | | $ | 1 | | | 24,727,682 | | | $ | — | | | $ | 721 | | | $ | (1,986) | | | $ | (10) | | | $ | 89 | | | $ | (1,185) | |
| Dividends declared and paid on Old Sinclair Class A and Class B Common Stock ($0.80 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (60) | | | — | | | — | | | (60) | |
| Old Sinclair Class B Common Stock converted into Old Sinclair Class A Common Stock | — | | | | 952,626 | | | — | | | (952,626) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Repurchases of Old Sinclair Class A Common Stock | — | | | | (2,438,585) | | | — | | | — | | | — | | | (61) | | | — | | | — | | | — | | | (61) | |
| Old Sinclair Class A Common Stock issued pursuant to employee benefit plans | — | | | | 1,547,591 | | | — | | | — | | | — | | | 31 | | | — | | | — | | | — | | | 31 | |
| Distributions to noncontrolling interests, net | (11) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (95) | | | (95) | |
| Other comprehensive income | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | 8 | |
| Net income (loss) | 18 | | | | — | | | — | | | — | | | — | | | — | | | (414) | | | — | | | 70 | | | (344) | |
| BALANCE, December 31, 2021 | $ | 197 | | | | 49,314,303 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 691 | | | $ | (2,460) | | | $ | (2) | | | $ | 64 | | | $ | (1,706) | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(In millions, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Old Sinclair Shareholders | | | | |
| | Redeemable Noncontrolling Interest | | | Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-In
Capital | | (Accumulated
Deficit) Retained Earnings | | Accumulated
Other
Comprehensive
(Loss) Income | | Noncontrolling
Interests | | Total (Deficit) Equity |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2021 | $ | 197 | | | | 49,314,303 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 691 | | | $ | (2,460) | | | $ | (2) | | | $ | 64 | | | $ | (1,706) | |
| Dividends declared and paid on Old Sinclair Class A and Class B Common Stock ($1.00 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (70) | | | — | | | — | | | (70) | |
| Repurchases of Old Sinclair Class A Common Stock | — | | | | (4,850,398) | | | — | | | — | | | — | | | (120) | | | — | | | — | | | — | | | (120) | |
| Old Sinclair Class A Common Stock issued pursuant to employee benefit plans | — | | | | 1,383,974 | | | — | | | — | | | — | | | 53 | | | — | | | — | | | — | | | 53 | |
| Distributions to noncontrolling interests, net | (7) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | (12) | |
| Other comprehensive income | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
| Deconsolidation of subsidiary | (16) | | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (148) | | | (151) | |
| Net income | 20 | | | | — | | | — | | | — | | | — | | | — | | | 2,652 | | | — | | | 29 | | | 2,681 | |
| BALANCE, December 31, 2022 | $ | 194 | | | | 45,847,879 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 624 | | | $ | 122 | | | $ | 1 | | | $ | (67) | | | $ | 681 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENT OF MEMBER'S EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2023
(In millions, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | SBG Member | | | | |
| | Redeemable Noncontrolling Interests | | | Old Class A
Common Stock | | Old Class B
Common Stock | | Old Additional
Paid-In
Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated
Other
Comprehensive Income | | Noncontrolling
Interests | | Total Member's
Equity (Deficit) |
| | | | Shares | | Values | | Shares | | Values | | | | | |
| BALANCE, December 31, 2022 | $ | 194 | | | | 45,847,879 | | | $ | 1 | | | 23,775,056 | | | $ | — | | | $ | 624 | | | $ | 122 | | | $ | 1 | | | $ | (67) | | | $ | 681 | |
| Dividends declared and paid on Old Sinclair Class A and Class B Common Stock ($0.25 per share) | — | | | | — | | | — | | | — | | | — | | | — | | | (18) | | | — | | | — | | | (18) | |
| Repurchases of Old Sinclair Class A Common Stock | — | | | | (8,785,022) | | | — | | | — | | | — | | | (153) | | | — | | | — | | | — | | | (153) | |
| Old Sinclair Class A Common Stock issued pursuant to employee benefit plans | — | | | | 2,274,558 | | | — | | | — | | | — | | | 40 | | | — | | | — | | | — | | | 40 | |
| Old Sinclair Class A And Class B Common Stock converted to SBG member's equity | — | | | | (39,337,415) | | | (1) | | | (23,775,056) | | | — | | | — | | | — | | | — | | | — | | | (1) | |
| Deemed dividend to parent | — | | | | — | | | — | | | — | | | — | | | (511) | | | (635) | | | — | | | (1) | | | (1,147) | |
| Distribution to parent | — | | | | — | | | — | | | — | | | — | | | — | | | (77) | | | — | | | — | | | (77) | |
| Repurchase of redeemable subsidiary preferred equity | (190) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Distributions to noncontrolling interests | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | (12) | |
| | | | | | | | | | | | | | | | | | | | |
| Net (loss) income | (4) | | | | — | | | — | | | — | | | — | | | — | | | (257) | | | — | | | 16 | | | (241) | |
| BALANCE, December 31, 2023 | $ | — | | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | (865) | | | $ | 1 | | | $ | (64) | | | $ | (928) | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
(In millions)
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net (loss) income | $ | (245) | | | $ | 2,701 | | | $ | (326) | |
| Adjustments to reconcile net (loss) income to net cash flows from operating activities: | | | | | |
| | | | | |
| Amortization of sports programming rights | — | | | 326 | | | 2,350 | |
| Amortization of definite-lived intangible and other assets | 148 | | | 221 | | | 477 | |
| Depreciation of property and equipment | 104 | | | 100 | | | 114 | |
| Amortization of program contract costs | 80 | | | 90 | | | 93 | |
| Stock-based compensation | 45 | | | 50 | | | 60 | |
| Deferred tax (benefit) provision | (359) | | | 906 | | | (92) | |
| Gain on asset dispositions and other, net of impairment | (2) | | | (11) | | | (69) | |
| Loss (gain) on deconsolidation of subsidiary | 10 | | | (3,357) | | | — | |
| Income from equity method investments | (31) | | | (56) | | | (45) | |
| Loss from investments | 77 | | | 133 | | | 38 | |
| Distributions from investments | 29 | | | 87 | | | 54 | |
| Sports programming rights payments | — | | | (325) | | | (1,834) | |
| Rebate payments to distributors | — | | | (15) | | | (202) | |
| (Gain) loss on extinguishment of debt | (15) | | | (3) | | | 7 | |
| | | | | |
| Changes in assets and liabilities, net of acquisitions, deconsolidation of subsidiary, and asset transfer to Ventures: | | | | | |
| Decrease (increase) in accounts receivable | 9 | | | 20 | | | (187) | |
| Decrease (increase) in prepaid expenses and other current assets | 4 | | | (96) | | | (86) | |
| Decrease in due from member | 43 | | | — | | | — | |
| Increase (decrease) in accounts payable and accrued and other current liabilities | 486 | | | (14) | | | 113 | |
| Net change in current and long-term net income taxes payable/receivable | (3) | | | 147 | | | (52) | |
| Decrease in program contracts payable | (88) | | | (103) | | | (102) | |
| | | | | |
| Other, net | (32) | | | (2) | | | 16 | |
| Net cash flows from operating activities | 260 | | | 799 | | | 327 | |
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | | | | |
| Acquisition of property and equipment | (90) | | | (105) | | | (80) | |
| | | | | |
| Spectrum repack reimbursements | 8 | | | 4 | | | 24 | |
| Proceeds from the sale of assets | — | | | 9 | | | 43 | |
| Deconsolidation of subsidiary cash | — | | | (315) | | | — | |
| Purchases of investments | (39) | | | (75) | | | (256) | |
| Distributions from investments | 204 | | | 99 | | | 26 | |
| | | | | |
| Other, net | 1 | | | 2 | | | (3) | |
| Net cash flows from (used in) investing activities | 84 | | | (381) | | | (246) | |
| CASH FLOWS USED IN FINANCING ACTIVITIES: | | | | | |
| Proceeds from notes payable and commercial bank financing | — | | | 728 | | | 357 | |
| Repayments of notes payable, commercial bank financing, and finance leases | (85) | | | (863) | | | (601) | |
| Repurchase of outstanding Old Sinclair Class A Common Stock | (153) | | | (120) | | | (61) | |
| Dividends paid on Old Sinclair Class A and Class B Common Stock | (18) | | | (70) | | | (60) | |
| Dividends paid on redeemable subsidiary preferred equity | — | | | (7) | | | (5) | |
| Repurchase of redeemable subsidiary preferred equity | (190) | | | — | | | — | |
| | | | | |
| | | | | |
| Distributions to member | (448) | | | — | | | — | |
| Distributions to noncontrolling interests, net | (12) | | | (12) | | | (95) | |
| Distributions to redeemable noncontrolling interests | — | | | — | | | (6) | |
| Other, net | (3) | | | (9) | | | (53) | |
| Net cash flows used in financing activities | (909) | | | (353) | | | (524) | |
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (565) | | | 65 | | | (443) | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | 884 | | | 819 | | | 1,262 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | $ | 319 | | | $ | 884 | | | $ | 819 | |
The accompanying notes are an integral part of these consolidated financial statements.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Sinclair Broadcast Group, LLC ("SBG"), a Maryland limited liability company and a wholly owned subsidiary of Sinclair, Inc. ("Sinclair"), is a diversified media company with national reach and a strong focus on providing high-quality content on SBG's local television stations, digital platform, and, prior to the Deconsolidation (as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC), regional sports networks. The content, distributed through SBG's broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, other original programming produced by SBG and SBG owned networks, and, prior to the Deconsolidation, college and professional sports. Additionally, prior to the Reorganization (as defined below in Company Reorganization), SBG had interests in, owned, managed, and/or operated Tennis Channel, digital media companies, technical and software services companies, research and development companies for the advancement of broadcast technology, and other media and non-media related businesses and assets, including real estate, venture capital, private equity, and direct investments.
As of December 31, 2023, SBG had one reportable segment: local media. Prior to the Deconsolidation (as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC),SBG had one additional reportable segment, local sports. The local media segment consists primarily of SBG's 185 broadcast television stations in 86 markets, which SBG owns, provides programming and operating services pursuant to LMAs, or provides sales services and other non-programming operating services pursuant to other outsourcing agreements, such as JSAs and SSAs. These stations broadcast 640 channels as of December 31, 2023. For the purpose of this report, these 185 stations and 640 channels are referred to as SBG's stations and channels. The local sports segment consisted primarily of the Bally Sports network brands ("Bally RSNs"), the Marquee Sports Network ("Marquee") joint venture, and a minority equity interest in the Yankee Entertainment and Sports Network, LLC ("YES Network") through February 28, 2022. On March 1, 2022, the Bally RSNs, Marquee, and YES Network were deconsolidated from SBG's financial statements. See Deconsolidation of Diamond Sports Intermediate Holdings LLC below. Through February 28, 2022, the Bally RSNs and Marquee are referred to as "the RSNs." The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams in designated local viewing areas.
Principles of Consolidation
The consolidated financial statements include SBG's accounts and those of SBG's wholly-owned and majority-owned subsidiaries and VIEs for which SBG is the primary beneficiary. Noncontrolling interests represent a minority owner's proportionate share of the equity in certain of SBG's consolidated entities. Noncontrolling interests which may be redeemed by the holder, and the redemption is outside of SBG's control, are presented as redeemable noncontrolling interests. All intercompany transactions and account balances have been eliminated in consolidation.
SBG consolidates VIEs when SBG is the primary beneficiary. SBG is the primary beneficiary of a VIE when SBG has the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. See Note 13. Variable Interest Entities for more information on SBG's VIEs.
Investments in entities over which SBG has significant influence but not control are accounted for using the equity method of accounting. Income from equity method investments represents SBG's proportionate share of net income or loss generated by equity method investees.
Company Reorganization
On April 3, 2023, the company formerly known as Sinclair Broadcast Group, Inc., a Maryland corporation ("Old Sinclair"), entered into an Agreement of Share Exchange and Plan of Reorganization (the "Share Exchange Agreement") with Sinclair and Sinclair Holdings, LLC, a Maryland limited liability company ("Sinclair Holdings"). The purpose of the transactions contemplated by the Share Exchange Agreement was to effect a holding company reorganization in which Sinclair would become the publicly-traded parent company of Old Sinclair.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Effective at 12:00 am Eastern U.S. time on June 1, 2023 (the "Share Exchange Effective Time"), pursuant to the Share Exchange Agreement and Articles of Share Exchange filed with the Maryland State Department of Assessments and Taxation, the share exchange between Sinclair and Old Sinclair was completed (the "Share Exchange"). Immediately following the Share Exchange Effective Time, Old Sinclair converted from a Maryland corporation to a Maryland limited liability company named Sinclair Broadcast Group, LLC. On the day following the Share Exchange Effective Time, Sinclair Holdings became the intermediate holding company between Sinclair and SBG, and SBG transferred certain of its assets (the "Transferred Assets") to Sinclair Ventures, LLC, a new indirect wholly-owned subsidiary of Sinclair ("Ventures"). We refer to the Share Exchange and the related steps described above collectively as the "Reorganization." The Transferred Assets included technical and software services companies, intellectual property for the advancement of broadcast technology, and other media and non-media related businesses and assets including real estate, venture capital, private equity, and direct investments, as well as Compulse, a marketing technology and managed services company, and Tennis Channel and related assets.
As a result of the Reorganization, SBG's consolidated statement of operations the year ended December 31, 2023 includes five months of activity related to the Transferred Assets prior to the Reorganization. Subsequent to June 1, 2023, the assets and liabilities of the Transferred Assets are no longer included within SBG's consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with the Transferred Assets are referring to the periods prior to the Reorganization.
The Reorganization is considered a transaction between entities under common control and therefore the Transferred Assets were transferred from SBG to Ventures at a net book value of $1,147 million during the year ended December 31, 2023, which is recognized in SBG's consolidated statements of equity and redeemable noncontrolling interests as a dividend to SBG's parent.
Deconsolidation of Diamond Sports Intermediate Holdings LLC
On March 1, 2022, Old Sinclair's subsidiary Diamond Sports Intermediate Holdings, LLC, and certain of its subsidiaries (collectively "DSIH") completed a series of transactions (the "Transaction"). As part of the Transaction, the governance structure of DSIH was modified including changes to the composition of its Board of Managers, resulting in the SBG's loss of voting control. As a result, DSIH, whose operations represented the entirety of SBG's local sports segment, was deconsolidated from SBG's consolidated financial statements effective as of March 1, 2022 (the "Deconsolidation"). SBG's consolidated statement of operations for the year ended December 31, 2022 therefore includes two months of activity related to DSIH prior to the Deconsolidation. Subsequent to February 28, 2022, the assets and liabilities of DSIH are no longer included within SBG's consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with DSIH are referring to the periods prior to the Deconsolidation.
Upon Deconsolidation, SBG recognized a gain before income taxes of approximately $3,357 million, which is recorded within gain on deconsolidation of subsidiary in SBG's consolidated statements of operations for the year ended December 31, 2022. During the year ended December 31, 2023, we recorded an adjustment to the deconsolidation gain of $10 million. Subsequent to the Deconsolidation, SBG's equity ownership interest in DSIH is accounted for under the equity method of accounting. See Note 6. Other Assets for more information.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In October 2021, the FASB issued guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. ASU 2021-08 requires that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. SBG adopted this guidance during the first quarter of 2023. The impact of the adoption did not have a material impact on SBG's consolidated financial statements.
In November 2023, the FASB issued guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, applied retrospectively. Early adoption is permitted. SBG is currently evaluating the impact of this guidance.
In December 2023, the FASB issued guidance to enhance the transparency and decision usefulness of income tax disclosures, requiring annual disclosure of consistent categories and greater disaggregation of information in the rate reconciliation table; additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate); income taxes paid disaggregated by jurisdiction; and income or loss before income tax disaggregated between foreign and domestic. The guidance is effective for annual periods beginning after December 15, 2024, applied prospectively. Early adoption is permitted. SBG is currently evaluating the impact of this guidance.
Cash and Cash Equivalents
SBG consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
SBG regularly reviews accounts receivable and determine an appropriate estimate for the allowance for doubtful accounts based upon the impact of economic conditions on the merchant's ability to pay, past collection experience, and such other factors which, in management's judgment, deserve current recognition. In turn, a provision is charged against earnings in order to maintain the appropriate allowance level.
A rollforward of the allowance for doubtful accounts for the years ended December 31, 2023, 2022, and 2021 is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Balance at beginning of period | $ | 5 | | | $ | 7 | | | $ | 5 | |
| Charged to expense | 3 | | | 4 | | | 3 | |
| Net write-offs | (3) | | | (6) | | | (1) | |
| Transferred to Ventures | (1) | | | — | | | — | |
| Balance at end of period | $ | 4 | | | $ | 5 | | | $ | 7 | |
As of December 31, 2023, two customers accounted for 10% and 10%, respectively, of our accounts receivable, net. As of December 31, 2022, one customer accounted for 13% of SBG's accounts receivable, net. As of December 31, 2021, three customers accounted for 15%, 15%, and 12%, respectively, of SBG's accounts receivable, net. For purposes of this disclosure, a single customer may include multiple entities under common control.
Broadcast Television Programming
SBG has agreements with programming syndicators for the rights to television programming over contract periods, which generally run from one to three years. Contract payments are made in installments over terms that are generally equal to or shorter than the contract period. Pursuant to accounting guidance for the broadcasting industry, an asset and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement, and the program is available for its first showing or telecast. The portion of program contracts which becomes payable within one year is reflected as a current liability in the accompanying consolidated balance sheets.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The rights to this programming are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or fair value. Program contract costs are amortized on a straight-line basis except for contracts greater than three years which are amortized utilizing an accelerated method. Program contract costs estimated by management to be amortized in the succeeding year are classified as current assets. Payments of program contract liabilities are typically made on a scheduled basis and are not affected by amortization or fair value adjustments.
Fair value is determined utilizing a discounted cash flow model based on management's expectation of future advertising revenues, net of sales commissions, to be generated by the program material. SBG assesses program contract costs on a quarterly basis to ensure the costs are recorded at the lower of unamortized cost or fair value.
Sports Programming Rights
DSIH has multi-year program rights agreements that provided DSIH with the right to produce and telecast professional live sports games within a specified territory in exchange for a rights fee. Prior to the Deconsolidation, SBG amortized these rights as an expense over each season based upon contractually stated rates. Amortization was accelerated in the event that the stated contractual rates over the term of the rights agreement resulted in an expense recognition pattern that was inconsistent with the projected growth of revenue over the contractual term.
Impairment of Goodwill, Indefinite-lived Intangible Assets, and Other Long-lived Assets
SBG evaluates goodwill and indefinite lived intangible assets for impairment annually in the fourth quarter, or more frequently, if events or changes in circumstances indicate that an impairment may exist. SBG's goodwill has been allocated to, and is tested for impairment at, the reporting unit level. A reporting unit is an operating segment or a component of an operating segment to the extent that the component constitutes a business for which discrete financial information is available and regularly reviewed by management. Components of an operating segment with similar characteristics are aggregated when testing goodwill for impairment.
In the performance of SBG's annual assessment of goodwill for impairment, SBG has the option to qualitatively assess whether it is more likely than not that a reporting unit has been impaired. As part of this qualitative assessment, SBG weighs the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. SBG also considers the significance of the excess fair value over carrying value in prior quantitative assessments.
If SBG concludes that it is more likely than not that a reporting unit is impaired, or if SBG elects not to perform the optional qualitative assessment, SBG will determine the fair value of the reporting unit and compare it to the net book value of the reporting unit. If the fair value is less than the net book value, SBG will record an impairment to goodwill for the amount of the difference. SBG estimates the fair value of SBG's reporting units utilizing the income approach involving the performance of a discounted cash flow analysis. SBG's discounted cash flow model is based on SBG's judgment of future market conditions based on SBG's internal forecast of future performance, as well as discount rates that are based on a number of factors including market interest rates, a weighted average cost of capital analysis, and includes adjustments for lackmarket risk and company specific risk.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SBG's indefinite-lived intangible assets consist primarily of SBG's broadcast licenses and a trade name. For SBG's annual impairment test for indefinite-lived intangible assets, SBG has the option to perform a qualitative assessment to determine whether it is more likely than not that these assets are impaired. As part of this qualitative assessment SBG weighs the relative impact of factors that are specific to the indefinite-lived intangible assets as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. SBG also considers the significance of the excess fair value over carrying value in prior quantitative assessments. When evaluating SBG's broadcast licenses for impairment, the qualitative assessment is done at the market level because the broadcast licenses within the market are complementary and together enhance the single broadcast license of each station. If SBG concludes that it is more likely than not that one of SBG's broadcast licenses is impaired, SBG will perform a quantitative assessment by comparing the aggregate fair value of the broadcast licenses in the market to the respective carrying values. SBG estimates the fair values of SBG's broadcast licenses using the Greenfield method, which is an income approach. This method involves a discounted cash flow model that incorporates several variables, including, but not limited to, market revenues and long-term growth projections, estimated market share for the typical participant without a network affiliation, and estimated profit margins based on market size and station type. The model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. If the carrying amount of the broadcast licenses exceeds the fair value, then an impairment loss is recorded to the extent that the carrying value of the broadcast licenses exceeds the fair value.
SBG evaluates long-lived assets, including definite-lived intangible assets, for impairment if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. SBG evaluates the recoverability of long-lived assets by comparing the carrying amount of the assets within an asset group to the estimated undiscounted future cash flows associated with the asset group. An asset group represents the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. At the time that such evaluations indicate that the future undiscounted cash flows are not sufficient to recover the carrying value of the asset group, an impairment loss is determined by comparing the estimated fair value of the asset group to the carrying value. SBG estimates fair value using an income approach involving the performance of a discounted cash flow analysis.
During the years ended December 31, 2023, 2022, and 2021, SBG did not identify any indicators that goodwill, indefinite-lived or long-lived assets may not be recoverable. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for more information.
SBG believes it has made reasonable estimates and utilized appropriate assumptions in the performance of SBG's impairment assessments. If future results are not consistent with SBG's assumptions and estimates, including future events such as a deterioration of market conditions, loss of significant customers, and significant increases in discount rates, among other factors, SBG could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on SBG's consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows.
When factors indicate that there may be a decrease in value of an equity method investment, SBG assesses whether a loss in value has occurred. If that loss is deemed to be other than temporary, an impairment loss is recorded accordingly. For any equity method investments that indicate a potential impairment, SBG estimates the fair values of those investments using a combination of a market-based approach, which considers earnings and cash flow multiples of comparable businesses and recent market transactions, as well as an income approach involving the performance of a discounted cash flow analysis. See Note 6. Other Assets for more information.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following as of December 31, 2023 and 2022 (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Compensation and employee benefits | $ | 93 | | | $ | 100 | |
| Interest | 12 | | | 11 | |
| Programming related obligations | 156 | | | 151 | |
| Legal, litigation, and regulatory (a) | 504 | | | 10 | |
| Accounts payable and other operating expenses | 86 | | | 125 | |
| Total accounts payable and accrued liabilities | $ | 851 | | | $ | 397 | |
(a)See Note 12. Commitments and Contingencies for additional information regarding the litigation accruals recorded.
We expense these activities when incurred.
Income Taxes
SBG recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. SBG provides a valuation allowance for deferred tax assets if SBG determines that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating SBG’s ability to realize net deferred tax assets, SBG considers all available evidence, both positive and negative, including SBG’s past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, SBG must make certain judgments that are based on the plans and estimates used to manage SBG’s underlying businesses on a long-term basis. As of December 31, 2023 and 2022, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, and a substantial amount of SBG’s available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize SBG’s deferred tax assets which could have a material effect on SBG’s consolidated financial statements.
Management periodically performs a comprehensive review of SBG’s tax positions, and SBG records a liability for unrecognized tax benefits if such tax positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes. Significant judgment is required in determining whether positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what SBG has provided. See Note 11. Income Taxes, for further discussion of accrued unrecognized tax benefits.
Hedge Accounting
SBG entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of SBG's exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.90%, and SBG receives a floating rate of interest based on the Secured Overnight Financing Rate ("SOFR").
SBG has determined that the interest rate swap meets the criteria for hedge accounting. The initial value of the interest rate swap and any changes in value in subsequent periods is included in accumulated other comprehensive income, with a corresponding change recorded in assets or liabilities depending on the position of the swap. Gains or losses on the monthly settlement of the interest rate swap are reflected in interest expense in SBG's consolidated statements of operations. Cash flows related to the interest rate swap are classified as operating activities in SBG's consolidated statements of cash flows. See Interest Rate Swap within Note 7. Notes Payable and Commercial Bank Financing for further discussion.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Information — Statements of Cash Flows
During the years ended December 31, 2023, 2022, and 2021, SBG had the following cash transactions (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Income taxes paid | $ | 5 | | | $ | 18 | | | $ | 16 | |
| Income tax refunds | $ | 1 | | | $ | 158 | | | $ | 44 | |
| Interest paid | $ | 294 | | | $ | 387 | | | $ | 583 | |
Non-cash investing activities included property and equipment purchases of $5 million for each of the years ended December 31, 2023, 2022, and 2021 and the receipt of equipment with a fair value of $58 million in connection with completing the repack process as more fully described in Note 2. Acquisitions and Dispositions of Assets for the year ended December 31, 2021.
During the years ended December 31, 2022 and 2021, SBG received equity shares in investments valued at $3 million and $6 million respectively, in exchange for an equivalent value of advertising spots.
Revenue Recognition
The following table presents SBG's revenue disaggregated by type and segment for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2023 | Local media | | Other | | Eliminations | | Total | | |
| Distribution revenue | $ | 1,491 | | | $ | 76 | | | $ | — | | | $ | 1,567 | | | |
| Advertising revenue | 1,236 | | | 29 | | | (5) | | | 1,260 | | | |
| Other media, non-media, and intercompany revenue | 139 | | | 14 | | | (2) | | | 151 | | | |
| Total revenues | $ | 2,866 | | | $ | 119 | | | $ | (7) | | | $ | 2,978 | | | |
| | | | | | | | | |
| For the year ended December 31, 2022 | Local media | | Local sports | | Other | | Eliminations | | Total |
| Distribution revenue | $ | 1,531 | | | $ | 433 | | | $ | 179 | | | $ | — | | | $ | 2,143 | |
| Advertising revenue | 1,518 | | | 44 | | | 74 | | | (22) | | | 1,614 | |
| Other media, non-media, and intercompany revenue | 144 | | | 5 | | | 59 | | | (37) | | | 171 | |
| Total revenues | $ | 3,193 | | | $ | 482 | | | $ | 312 | | | $ | (59) | | | $ | 3,928 | |
| | | | | | | | | |
| For the year ended December 31, 2021 | Local media | | Local sports | | Other | | Eliminations | | Total |
| Distribution revenue | $ | 1,476 | | | $ | 2,620 | | | $ | 192 | | | $ | — | | | $ | 4,288 | |
| Advertising revenue | 1,230 | | | 409 | | | 93 | | | (41) | | | 1,691 | |
| Other media, non-media, and intercompany revenue | 181 | | | 27 | | | 67 | | | (120) | | | 155 | |
| Total revenues | $ | 2,887 | | | $ | 3,056 | | | $ | 352 | | | $ | (161) | | | $ | 6,134 | |
Distribution Revenue. SBG generates distribution revenue through fees received from Distributors for the right to distribute SBG's stations, other properties, and, prior to the Deconsolidation, the RSNs. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal or network programming is provided to SBG's customers ("as usage occurs") which corresponds with the satisfaction of SBG's performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. SBG's customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Advertising Revenue. SBG generates advertising revenue primarily from the sale of advertising spots/impressions within SBG's broadcast television, digital platforms, and, prior to the Deconsolidation, RSNs. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where SBG provides audience ratings guarantees, to the extent that there is a ratings shortfall, SBG will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of SBG's advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is due is not significant. In certain circumstances, SBG requires customers to pay in advance; payments received in advance of satisfying SBG's performance obligations are reflected as deferred revenue.
Practical Expedients and Exemptions. SBG expenses sales commissions when incurred because the period of benefit for these costs is one year or less. These costs are recorded within media selling, general and administrative expenses. In accordance with ASC 606, SBG does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) distribution arrangements which are accounted for as a sales/usage based royalty.
Arrangements with Multiple Performance Obligations. SBG's contracts with customers may include multiple performance obligations. For such arrangements, SBG allocates revenues to each performance obligation based on its relative standalone selling price, which is generally based on the prices charged to customers.
Deferred Revenues. SBG records deferred revenue when cash payments are received or due in advance of SBG's performance, including amounts which are refundable. SBG classifies deferred revenue as either current in other current liabilities or long-term in other long-term liabilities within SBG's consolidated balance sheets, based on the timing of when SBG expects to satisfy performance obligations. Deferred revenue was $171 million, $200 million, and $235 million as of December 31, 2023, 2022, and 2021, respectively, of which $124 million, $144 million, and $164 million as of December 31, 2023, 2022, and 2021, respectively, was reflected in other long-term liabilities in SBG's consolidated balance sheets. Deferred revenue recognized during the years ended December 31, 2023 and 2022 that was included in the deferred revenue balance as of December 31, 2022 and 2021 was $47 million and $62 million, respectively.
For the year ended December 31, 2023, two customers accounted for 11% and 10% of SBG's total revenues. For the year ended December 31, 2022, three customers accounted for 12%, 11%, and 10%, respectively, of SBG's total revenues. For the year ended December 31, 2021, three customers accounted for 19%, 18%, and 14%, respectively, of SBG's total revenues. For purposes of this disclosure, a single customer may include multiple entities under common control.
Advertising Expenses
Promotional advertising expenses are recorded in the period when incurred and are included in media production and other non-media expenses. Total advertising expenses, net of advertising co-op credits, were $9 million, $9 million, and $22 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Financial Instruments
Financial instruments, as of December 31, 2023 and 2022, consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued liabilities, stock options, warrants, and notes payable. The carrying amounts approximate fair value for each of these financial instruments, except for the notes payable. See Note 16. Fair Value Measurements for additional information regarding the fair value of notes payable.
Post-retirement Benefits
SBG maintains a supplemental executive retirement plan which was inherited upon the acquisition of certain stations. As of December 31, 2023, the estimated projected benefit obligation was $14 million, of which $1 million is included in accrued expenses and $13 million is included in other long-term liabilities in SBG's consolidated balance sheets. At December 31, 2023, the projected benefit obligation was measured using a 4.92% discount rate compared to a discount rate of 5.20% for the year ended December 31, 2022. For each of the years ended December 31, 2023 and 2022, SBG made $1 million in benefit payments. SBG recognized an actuarial loss of $0.3 million and gain of $3 million through other comprehensive income for the years ended December 31, 2023 and 2022, respectively. For each of the years ended December 31, 2023 and 2022, SBG recognized $1 million of periodic pension expense, reported in other expense, net in SBG's consolidated statements of operations.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain reclassifications have been made to prior years' consolidated financial statements to conform to the current year's presentation.
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS:
During the year ended December 31, 2021, SBG acquired certain businesses for an aggregate purchase price, net of cash acquired, of $10 million, including working capital adjustments and other adjustments. There were no acquisitions during the years ended December 31, 2023 and 2022.
The following summarizes the acquisition activity during the year ended December 31, 2021:
2021 Acquisitions
During the year ended December 31, 2021, SBG completed the acquisition of ZypMedia for approximately $7 million in cash. The acquired assets and liabilities were recorded at fair value as of the closing date of the transactions.
During the year ended December 31, 2021, SBG purchased 360IA, LLC for $5 million, with $2 million being paid in cash and the remaining to be paid in $1 million increments on each of the first three anniversaries following the closing date.
Financial Results of Acquisitions
The following tables summarize the results of the net revenues and operating loss included in the financial statements of SBG beginning on the acquisition date of each acquisition as listed below (in millions):
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Revenues: | | | | | |
| Other acquisitions in 2021 | $ | 25 | | | $ | 72 | | | $ | 8 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Operating Loss: | | | | | |
| Other acquisitions in 2021 | $ | (7) | | | $ | (7) | | | $ | (45) | |
| | | | | |
Dispositions
2021 Dispositions. In September 2021, SBG sold all of its radio broadcast stations, KOMO-FM, KOMO-AM, KPLZ-FM and KVI-AM in Seattle, WA, for consideration valued at $13 million. For the year ended December 31, 2021, SBG recorded a net loss of $12 million related to the sale, which is included within gain on asset dispositions and other, net of impairment in SBG's consolidated statements of operations, and was primarily related to the write-down of the carrying value of the assets to estimate the selling price.
In June 2021, SBG sold its controlling interest in Triangle Sign & Service, LLC ("Triangle") for $12 million. SBG recorded a gain on the sale of Triangle of $6 million, of which $3 million was attributable to noncontrolling interests, for the year ended December 31, 2021, which is included in the gain on asset dispositions and other, net of impairment and net (income) loss attributable to the noncontrolling interests, respectively, in SBG's consolidated statements of operations.
In February 2021, SBG sold two television broadcast stations, WDKA-TV in Paducah, KY and KBSI-TV in Cape Girardeau, MO, for an aggregate sale price of $28 million. SBG recorded a gain of $12 million for the year ended December 31, 2021, which is included within gain on asset dispositions and other, net of impairment in SBG's consolidated statements of operations.
Broadcast Incentive Auction. In 2012, Congress authorized the FCC to conduct so-called "incentive auctions" to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of their rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. SBG does not expect reassignment to new channels to have a material impact on its coverage. SBG has received notification from the FCC that 100 of its stations have been assigned to new channels. Legislation has provided the FCC with a $3 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. SBG expects that the reimbursements from the fund will cover the majority of its expenses related to the repack. SBG recorded gains related to reimbursements for the spectrum repack costs incurred of $8 million, $4 million, and $24 million for the years ended December 31, 2023, 2022, and 2021, respectively, which are recorded within gain on asset dispositions and other, net of impairment in SBG's consolidated statements of operations. For the years ended December 31, 2022 and 2021, capital expenditures related to the spectrum repack were $1 million and $12 million.
In December 2020, the FCC began a similar repacking process associated with a portion of the C-Band spectrum in order to free up this spectrum for the use of 5G wireless services. The repack is scheduled to be completed in two phases, the first ended on December 31, 2021 and the second ended on December 31, 2023. Prior to the Deconsolidation, DSG entered into an agreement with a communications provider in which they received equipment to complete the repack process at a maximum cost to DSG of $15 million. Prior to the Deconsolidation, for the year ended December 31, 2021, SBG recognized a gain of $43 million, which is recorded within gain on asset dispositions and other, net of impairment in SBG's consolidated statements of operations, equal to the fair value of the equipment that DSG received of $58 million, less the maximum cost to DSG of $15 million.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. STOCK-BASED COMPENSATION PLANS:
In June 1996, Old Sinclair's Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term Incentive Plan ("LTIP"). Under the LTIP, SBG issued restricted stock awards ("RSAs"), stock grants to its non-employee directors, stock-settled appreciation rights ("SARs"), and stock options. In June 2022, Old Sinclair's Board of Directors adopted, upon approval of the shareholders by proxy, the 2022 Stock Incentive Plan ("SIP"). Upon approval of the SIP, it succeeded the LTIP and no additional awards were granted under the LTIP. All outstanding awards granted under the LTIP will remain subject to their original terms. The purpose of the SIP is to provide stock-based incentives that align the interests of employees, consultants, and outside directors with those of the stockholders of Sinclair by motivating employees to achieve long-term results and rewarding them for their achievements, and to attract and retain the types of employees, consultants, and outside directors who will contribute to SBG's long-range success. The amounts presented here represent stock-based compensation associated with employees of SBG that were awarded and issued stock of Sinclair.
Additionally, SBG has the following arrangements that involve stock-based compensation: employer matching contributions for participants in Sinclair's 401(k) plan and an employee stock purchase plan ("ESPP"). Stock-based compensation expense has no effect on SBG's consolidated cash flows. For the years ended December 31, 2023, 2022, and 2021, SBG recorded stock-based compensation of $45 million, $50 million, and $60 million, respectively. Below is a summary of the key terms and methods of valuation of SBG's stock-based compensation awards:
Restricted Stock Awards
RSAs issued in 2023 have certain restrictions that generally lapse after two years at 100% or over two years at 50% and 50%, respectively. RSAs issued in 2022 and 2021 have certain restrictions that generally lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Sinclair Class A Common Stock may be freely traded on the open market. The fair value assumes the closing value of the stock on the measurement date.
The following is a summary of changes in unvested restricted stock:
| | | | | | | | | | | |
| | RSAs | | Weighted-Average Price |
| Unvested shares at December 31, 2022 | 477,721 | | | $ | 29.53 | |
| 2023 Activity: | | | |
| Granted | 1,438,990 | | | 15.54 | |
| Vested | (985,881) | | | 17.12 | |
| Forfeited (a) | (12,461) | | | 20.43 | |
| Transferred to Ventures | (84,211) | | | 15.52 | |
| Unvested shares at December 31, 2023 | 834,158 | | | $ | 21.62 | |
(a) Forfeitures are recognized as they occur.
SBG recorded compensation expense of $19 million for both of the years ended December 31, 2023 and 2022, respectively, and $21 million for the year ended December 31, 2021. The majority of the unrecognized compensation expense of $9 million as of December 31, 2023 will be recognized in 2024.
Stock Grants to Non-Employee Directors
Prior to the Reorganization, in addition to fees paid in cash to Old Sinclair non-employee directors, on the date of each annual meeting of Old Sinclair shareholders, each Old Sinclair non-employee director received a grant of unrestricted shares of Sinclair Class A Common Stock. Old Sinclair issued 80,496 shares in 2023, 60,732 shares in 2022, and 45,836 shares in 2021. SBG recorded expense of $1 million for the year ended December 31, 2023 and $2 million for each of the years ended December 31, 2022 and 2021, which was based on the average share price of the stock on the date of grant.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock-Settled Appreciation Rights
These awards entitle holders to the appreciation in Sinclair's Class A Common Stock over the base value of each SAR over the term of the award. The SARs have a 10-year term with vesting periods ranging from zero to four years. The base value of each SAR is equal to the closing price of Sinclair's Class A Common Stock on the date of grant. For the years ended December 31, 2023, 2022, and 2021, SBG recorded compensation expense of $7 million, $10 million, and $15 million, respectively.
The following is a summary of the 2023 activity:
| | | | | | | | | | | |
| | SARs | | Weighted-Average Price |
| Outstanding SARs at December 31, 2022 | 3,269,916 | | | $ | 30.16 | |
| 2023 Activity: | | | |
| Granted | 1,474,764 | | | 15.97 | |
| | | |
| | | |
| Outstanding SARs at December 31, 2023 | 4,744,680 | | | $ | 25.75 | |
As of December 31, 2023, there was no aggregate intrinsic value of the SARs outstanding and the outstanding SARs have a weighted average remaining contractual life of 8 years.
Valuation of SARS. Our SARs were valued using the Black-Scholes pricing model utilizing the following assumptions:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Risk-free interest rate | 4.4 | % | | 1.6 | % | | 0.6 | % |
| Expected years to exercise | 5 years | | 5 years | | 5 years |
| Expected volatility | 52.1 | % | | 49.6 | % | | 48.2 | % |
| Annual dividend yield | 6.8 | % | | 3.0 | % | | 2.5 | % |
The risk-free interest rate is based on the U.S. Treasury yield curve, in effect at the time of grant, for U.S. Treasury STRIPS that approximate the expected life of the award. The expected volatility is based on Sinclair's historical stock prices over a period equal to the expected life of the award. The annual dividend yield is based on Sinclair's annual dividend per share divided by Sinclair's share price on the grant date.
Options
As of December 31, 2023, there were options outstanding to purchase 375,000 shares of Sinclair Class A Common Stock. These options are fully vested and have a weighted average exercise price of $31.25 and a weighted average remaining contractual term of 2 years. As of December 31, 2023, there was no aggregate intrinsic value for the options outstanding. There was no grant, exercise, or forfeiture activity during the year ended December 31, 2023. There was no expense recognized during the years ended December 31, 2023, 2022, and 2021.
401(k) Match
The Sinclair, Inc. 401(k) Profit Sharing Plan and Trust ("the 401(k) Plan") is available as a benefit for SBG's eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount with a match calculation (the "Match"). The Match and any additional discretionary contributions may be made using Sinclair's Class A Common Stock, if the Sinclair Board so chooses. Typically, the Match is made using Sinclair's Class A Common Stock.
The value of the Match is based on the level of elective deferrals into the 401(k) Plan. The number of Sinclair's Class A Common shares granted under the Match is determined based upon the closing price on or about March 1st of each year for the previous calendar year’s Match. SBG recorded $17 million for each of the years ended December 31, 2023 and 2022 and $20 million for the year ended December 31, 2021 of stock-based compensation expense related to the Match.
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase Sinclair Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP was $1 million for the year ended December 31, 2023 and $2 million for each of the years ended December 31, 2022 and 2021.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is generally computed under the straight-line method over the following estimated useful lives:
| | | | | | | | |
| Buildings and improvements | | 10 - 30 years |
| Operating equipment | | 5 - 10 years |
| Office furniture and equipment | | 5 - 10 years |
| Leasehold improvements | | Lesser of 10 - 30 years or lease term |
| Automotive equipment | | 3 - 5 years |
| Property and equipment under finance leases | | Lease term |
Acquired property and equipment is depreciated on a straight-line basis over the respective estimated remaining useful lives.
Property and equipment consisted of the following as of December 31, 2023 and 2022 (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Land and improvements | $ | 71 | | | $ | 72 | |
| Real estate held for development and sale | — | | | 19 | |
| Buildings and improvements | 287 | | | 300 | |
| Operating equipment | 894 | | | 873 | |
| Office furniture and equipment | 142 | | | 130 | |
| Leasehold improvements | 45 | | | 45 | |
| Automotive equipment | 64 | | | 63 | |
| Finance lease assets | 61 | | | 61 | |
| Construction in progress | 93 | | | 74 | |
| | 1,657 | | | 1,637 | |
| Less: accumulated depreciation | (965) | | | (909) | |
| | $ | 692 | | | $ | 728 | |
5. GOODWILL, INDEFINITE-LIVED INTANGIBLE ASSETS, AND OTHER INTANGIBLE ASSETS:
Goodwill, which arises from the purchase price exceeding the assigned value of the net assets of an acquired business, represents the value attributable to unidentifiable intangible elements being acquired. The change in the carrying amount of goodwill at December 31, 2023 and 2022 was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | Local media | | Other | | Consolidated |
| Balance at December 31, 2021 | $ | 2,016 | | | $ | 72 | | | $ | 2,088 | |
| | | | | |
| | | | | |
| | | | | |
| Balance at December 31, 2022 | $ | 2,016 | | | $ | 72 | | | $ | 2,088 | |
| Disposition | — | | | (6) | | | (6) | |
| | | | | |
| | | | | |
| Transferred to Ventures | — | | | (66) | | | (66) | |
| Balance at December 31, 2023 | $ | 2,016 | | | $ | — | | | $ | 2,016 | |
SBG's accumulated goodwill impairment was $3,029 million as of both December 31, 2023 and 2022.
For SBG's annual goodwill impairment tests related to its local media reporting unit in 2023, its other reporting units in 2022, and its local media and other reporting units in 2021, SBG concluded that it was more-likely-than-not that goodwill was not impaired for the reporting units in which we performed a qualitative assessment. The qualitative factors reviewed during SBG's annual assessments indicated stable or improving margins and favorable or stable forecasted economic conditions including stable discount rates and comparable or improving business multiples. Additionally, the results of prior quantitative assessments supported significant excess fair value over carrying value of SBG's reporting units. SBG did not have any indicators of impairment in any interim period in 2023 or 2022, and therefore did not perform interim impairment tests for goodwill during those periods.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For SBG's annual goodwill impairment test related to its local media reporting unit in 2022, SBG elected to perform a quantitative assessment and concluded that its fair value substantially exceeded its carrying value. The key assumptions used to determine the fair value of SBG's local media reporting unit consisted primarily of significant unobservable inputs (Level 3 fair value inputs), including discount rates, estimated cash flows, profit margins, and growth rates. The discount rate used to determine the fair value of SBG's local media reporting unit is based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television broadcasting company, and includes adjustments for market risk and company specific risk. Estimated cash flows are based upon internally developed estimates and growth rates and profit margins are based on market studies, industry knowledge, and historical performance.
As of December 31, 2023 and 2022, the carrying amount of SBG's indefinite-lived intangible assets was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Local media | | Other | | Consolidated |
| Balance at December 31, 2021 (a) | $ | 123 | | | $ | 27 | | | $ | 150 | |
| | | | | |
| | | | | |
| Balance at December 31, 2022 (a) (b) | $ | 123 | | | $ | 27 | | | $ | 150 | |
| | | | | |
| Transferred to Ventures | — | | | (27) | | | (27) | |
| Balance at December 31, 2023 (a) (b) | $ | 123 | | | $ | — | | | $ | 123 | |
(a)SBG's indefinite-lived intangible assets in its local media segment relate to broadcast licenses and SBG's indefinite-lived intangible assets in other relate to trade names.
(b)Approximately $14 million of indefinite-lived intangible assets relate to consolidated VIEs as of December 31, 2023 and 2022.
SBG did not have any indicators of impairment for its indefinite-lived intangible assets in 2023 or 2022, and therefore did not perform interim impairment tests during those periods. SBG performed its annual impairment tests for indefinite-lived intangibles in 2023 and 2022 and as a result of its qualitative assessments, SBG recorded no impairment.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the gross carrying amount and accumulated amortization of SBG's definite-lived intangibles (in millions):
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships (a) | $ | 817 | | | $ | (579) | | | $ | 238 | |
| | | | | |
| Network affiliation | $ | 1,435 | | | $ | (1,032) | | | $ | 403 | |
| Other | 21 | | | (15) | | | 6 | |
| Total other definite-lived intangible assets (a) (b) | $ | 1,456 | | | $ | (1,047) | | | $ | 409 | |
| | | | | |
| Total definite-lived intangible assets | $ | 2,273 | | | $ | (1,626) | | | $ | 647 | |
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 |
| | Gross Carrying Value | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | |
| Customer relationships (c) | $ | 1,103 | | | $ | (659) | | | $ | 444 | |
| | | | | |
| Network affiliation | $ | 1,436 | | | $ | (948) | | | $ | 488 | |
| Other | 34 | | | (20) | | | 14 | |
| Total other definite-lived intangible assets (b) (c) | $ | 1,470 | | | $ | (968) | | | $ | 502 | |
| | | | | |
| Total definite-lived intangible assets | $ | 2,573 | | | $ | (1,627) | | | $ | 946 | |
(a)During 2023, $142 million of customer relationships and $7 million of other definite-lived intangible assets were transferred to Ventures as part of the Reorganization, as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies.
(b)Approximately $33 million and $40 million of definite-lived intangible assets relate to consolidated VIEs as of December 31, 2023 and 2022, respectively.
(c)During 2022, SBG deconsolidated $3,330 million of customer relationships and $585 million of favorable sports contracts related to the Deconsolidation.
Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over their estimated useful lives. The definite-lived intangible assets are amortized over a weighted average useful life of 14 years for customer relationships and 15 years for network affiliations. The amortization expense of the definite-lived intangible and other assets for the years ended December 31, 2023, 2022, and 2021 was $148 million, $225 million, and $554 million, respectively, of which $4 million and $77 million as of December 31, 2022 and 2021, respectively, was associated with the amortization of favorable sports contracts prior to the Deconsolidation and is presented within media programming and production expenses in SBG's statements of operations. SBG analyzes specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets. There were no impairment charges recorded for the years ended December 31, 2023, 2022, and 2021, as there were no indicators of impairment.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in millions):
| | | | | |
| 2024 | $ | 129 | |
| 2025 | 123 | |
| 2026 | 122 | |
| 2027 | 109 | |
| 2028 | 83 | |
| 2029 and thereafter | 81 | |
| $ | 647 | |
6. OTHER ASSETS:
Other assets as of December 31, 2023 and 2022 consisted of the following (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Equity method investments (a) | $ | 1 | | | $ | 113 | |
| Other investments (a) | — | | | 442 | |
| Note receivable (a) | — | | | 193 | |
| Income tax receivable | 131 | | | 131 | |
| | | |
| Other | 52 | | | 85 | |
| Total other assets | $ | 184 | | | $ | 964 | |
(a)The note receivable, other investments, and certain of the equity method investments were transferred to Ventures as part of the Reorganization.
Equity Method Investments
Prior to the Reorganization, SBG had a portfolio of investments, including a number of entities that are primarily focused on the development of real estate and other media and non-media businesses. Subsequent to the Deconsolidation, SBG has an investment in DSIH that is accounted for under the equity method of accounting and, prior to the Deconsolidation, SBG had an investment in the YES Network. No investments were individually significant for the years ended December 31, 2023, 2022, and 2021.
Diamond Sports Intermediate Holdings LLC. Subsequent to the Deconsolidation, SBG's equity interest in DSIH is accounted for under the equity method of accounting. As of March 1, 2022, SBG reflected the investment in DSIH at fair value, which was determined to be nominal. For the year ended December 31, 2023, SBG recorded no equity method loss related to the investment because the carrying value of the investment is zero and SBG is not obligated to fund losses incurred by DSIH. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
YES Network Investment. Prior to the Deconsolidation, SBG accounted for its investment in the YES Network as an equity method investment, which was recorded within other assets in SBG's consolidated balance sheets, and in which SBG's proportionate share of the net income generated by the investment was included within income from equity method investments in SBG's consolidated statements of operations. SBG recorded income of $10 million and $41 million related to its investment for the years ended December 31, 2022 and 2021, respectively.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other Investments
SBG's investments, excluding equity method investments, are accounted for at fair value or, in situations where fair value is not readily determinable, SBG has the option to value investments at cost plus observable changes in value, less impairment. Additionally, certain investments are measured at net asset value ("NAV").
All of the investments measured at fair value and NAV were transferred to Ventures as part of the Reorganization. As of December 31, 2022, SBG held $234 million in investments measured at fair value and $190 million in investments measured at NAV. SBG recognized a fair value adjustment loss of $73 million, a loss of $145 million, and a loss of $42 million during the years ended December 31, 2023, 2022, and 2021, respectively, associated with these securities, which is reflected in other expense, net in SBG's consolidated statements of operations.
All of the investments accounted for utilizing the measurement alternative were transferred to Ventures as part of the Reorganization. Investments accounted for utilizing the measurement alternative were $18 million, net of $7 million of cumulative impairments, as of December 31, 2022. SBG recorded a $6 million impairment related to one investment during the year ended December 31, 2023, which is reflected in other expense, net in SBG's consolidated statements of operations. SBG recorded no impairments related to these investments for the years ended December 31, 2022 and 2021.
As of December 31, 2022, SBG's unfunded commitments related to certain equity investments totaled $128 million, including $88 million related to investments measured at NAV.
Note Receivable
SBG was party to an Accounts Receivable Securitization Facility ("A/R Facility"), held by Diamond Sports Finance SPV, LLC ("DSPV"), an indirect wholly-owned subsidiary of DSIH. Subsequent to the Deconsolidation, transactions related to the A/R Facility are no longer intercompany transactions and, therefore, are reflected in SBG's consolidated financial statements. There was no outstanding balance as of December 31, 2023 and an outstanding balance of $193 million as of December 31, 2022, which is recorded within other assets in SBG's consolidated balance sheets. On May 10, 2023, DSPV paid SBG approximately $199 million, representing the aggregate outstanding principal amount of the loans under the A/R Facility, accrued interest, and outstanding fees and expenses. The loans under the A/R Facility and cash received were transferred to Ventures as part of the Reorganization.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
Notes payable, finance leases, and commercial bank financing (including "finance leases to affiliates") consisted of the following as of December 31, 2023 and 2022 (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Bank Credit Agreement: | | | |
| Term Loan B-2, due September 30, 2026 (a) | $ | 1,215 | | | $ | 1,258 | |
| Term Loan B-3, due April 1, 2028 | 722 | | | 729 | |
| Term Loan B-4, due April 21, 2029 | 739 | | | 746 | |
| | | |
| STG Notes (b): | | | |
| 5.125% Unsecured Notes, due February 15, 2027 | 274 | | | 282 | |
| 5.500% Unsecured Notes, due March 1, 2030 | 485 | | | 500 | |
| 4.125% Senior Secured Notes, due December 1, 2030 | 737 | | | 750 | |
| Debt of variable interest entities | 7 | | | 8 | |
| Debt of non-media subsidiaries | — | | | 16 | |
| Finance leases | 20 | | | 23 | |
| Finance leases - affiliate | 7 | | | 9 | |
| Total outstanding principal | 4,206 | | | 4,321 | |
| Less: Deferred financing costs and discounts | (46) | | | (56) | |
| Less: Current portion | (34) | | | (35) | |
| Less: Finance leases - affiliate, current portion | (2) | | | (3) | |
| Net carrying value of long-term debt | $ | 4,124 | | | $ | 4,227 | |
(a)During the year ended December 31, 2023, STG repurchased $30 million aggregate principal amount of the Term Loan B-2 for consideration of $26 million. See Bank Credit Agreement below.
(b)During the year ended December 31, 2023, STG purchased $7 million, $15 million, and $13 million aggregate principal amount of the 5.125% Senior Notes due 2027 (the "5.125% Notes"), the 5.500% Senior Notes due 2030 (the "5.500% Notes"), and the 4.125% Senior Secured Notes due 2030 (the "4.125% Notes" and, collectively with the 5.125% Notes and 5.500% Notes, the notes are referred to as the "STG Notes"), respectively, in open market transactions for consideration of $6 million, $8 million, and $8 million, respectively. The STG Notes acquired during the year ended December 31, 2023 were canceled immediately following their acquisition. See STG Notes below.
Debt under the Bank Credit Agreement, notes payable, and finance leases as of December 31, 2023 matures as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | Notes and
Bank Credit Agreement | | Finance Leases | | Total |
| 2024 | $ | 31 | | | $ | 7 | | | $ | 38 | |
| 2025 | 28 | | | 7 | | | 35 | |
| 2026 | 1,204 | | | 7 | | | 1,211 | |
| 2027 | 292 | | | 4 | | | 296 | |
| 2028 | 699 | | | 2 | | | 701 | |
| 2029 and thereafter | 1,925 | | | 5 | | | 1,930 | |
| Total minimum payments | 4,179 | | | 32 | | | 4,211 | |
| Less: Deferred financing costs and discounts | (46) | | | — | | | (46) | |
| Less: Amount representing future interest | — | | | (5) | | | (5) | |
| Net carrying value of total debt | $ | 4,133 | | | $ | 27 | | | $ | 4,160 | |
Interest expense in SBG's consolidated statements of operationswas $305 million, $296 million, and $618 million for the years ended December 31, 2023, 2022, and 2021, respectively. Interest expense included amortization of deferred financing costs, debt discounts, and premiums of $10 million, $12 million, and $30 million for the years ended December 31, 2023, 2022, and 2021, respectively.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The stated and weighted average effective interest rates on the above obligations are as follows, for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted Average Effective Rate |
| | Stated Rate | | 2023 | | 2022 |
| Bank Credit Agreement: | | | | | | |
| Term Loan B-2 (a) | | SOFR plus 2.50% | | 7.98% | | 4.62% |
| Term Loan B-3 (a) | | SOFR plus 3.00% | | 8.35% | | 4.88% |
| Term Loan B-4 (b) | | SOFR plus 3.75% | | 9.77% | | 8.21% |
| Revolving Credit Facility (b) (c) | | SOFR plus 2.00% | | —% | | —% |
| STG Notes: | | | | | | |
| 5.125% Unsecured Notes | | 5.13% | | 5.33% | | 5.33% |
| 5.500% Unsecured Notes | | 5.50% | | 5.66% | | 5.66% |
| 4.125% Secured Notes | | 4.13% | | 4.31% | | 4.31% |
(a)The STG Term Loan B-2 converted to using the Secured Overnight Financing Rate ("SOFR") upon the complete phase-out of LIBOR on June 30, 2023 and was subject to customary credit spread adjustments set at the time of the rate conversion. The STG Term Loan B-3 has LIBOR to SOFR conversion terms, including the applicable credit spread adjustments, built into the existing agreement.
(b)Interest rate terms on the STG Term Loan B-4 and revolving credit facility include additional customary credit spread adjustments.
(c)STG incurs a commitment fee on undrawn capacity of 0.25%, 0.375%, or 0.50% if the first lien indebtedness ratio (as defined in the Bank Credit Agreement) is less than or equal to 2.75x, less than or equal to 3.0x but greater than 2.75x, or greater than 3.0x, respectively. The revolving credit facility is priced at SOFR plus 2.00%, subject to decrease if the specified first lien leverage ratio (as defined in the Bank Credit Agreement) is less than or equal to certain levels. As of December 31, 2023 and 2022, there were no outstanding borrowings, $1 million in letters of credit outstanding, and $649 million available under the revolving credit facility and the revolving credit facility matures on December 4, 2025. See Bank Credit Agreement below for further information.
SBG recorded a $23 million original issuance discount during the year ended December 31, 2022 and $4 million of debt issuance costs during the year ended December 31, 2021. Debt issuance costs and original issuance discounts and premiums are presented as a direct deduction from, or addition to, the carrying amount of an associated debt liability, except for debt issuance costs related to the revolving credit facility, which are presented within other assets in SBG's consolidated balance sheets.
Bank Credit Agreement
STG, a wholly owned subsidiary of SBG, has a syndicated credit facility which includes both revolving credit and issued term loans (the "Bank Credit Agreement").
The Bank Credit Agreement includes a financial maintenance covenant, the first lien leverage ratio (as defined in the Bank Credit Agreement), which requires such ratio not to exceed 4.5x, measured as of the end of each fiscal quarter. As of December 31, 2023, the STG first lien leverage ratio was below 4.5x. The financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the revolving credit facility, measured as of the last day of each quarter, is utilized under the revolving credit facility as of such date. Since there was no utilization under the revolving credit facility as of December 31, 2023, STG was not subject to the financial maintenance covenant under the Bank Credit Agreement. The Bank Credit Agreement contains other restrictions and covenants with which STG was in compliance as of December 31, 2023.
On April 1, 2021, STG amended the Bank Credit Agreement to raise additional term loans in an aggregate principal amount of $740 million ("Term Loan B-3"), with an original issuance discount of $4 million, the proceeds of which were used to refinance a portion of the Term Loan B-1 maturing in January 2024. The Term Loan B-3 matures in April 2028 and bears interest at SOFR plus 3.00%.
On April 21, 2022, STG entered into the Fourth Amendment (the "Fourth Amendment") to the Bank Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto (the "Guarantors") and the lenders and other parties thereto.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Fourth Amendment, STG raised Term B-4 Loans (as defined in the Bank Credit Agreement) in an aggregate principal amount of $750 million, which mature on April 21, 2029 (the "Term Loan B-4"). The Term Loan B-4 was issued at 97% of par and bears interest, at STG’s option, at Term SOFR plus 3.75% (subject to customary credit spread adjustments) or base rate plus 2.75%. The proceeds from the Term Loan B-4 were used to refinance all of STG’s outstanding Term Loan B-1 due January 2024 and to redeem STG’s outstanding 5.875% senior notes due 2026. In addition, the maturity of $612.5 million of the total $650 million of revolving commitments under the Bank Credit Agreement were extended to April 21, 2027, with the remaining $37.5 million continuing to mature on December 4, 2025. For the year ended December 31, 2022, SBG capitalized an original issuance discount of $23 million associated with the issuance of the Term Loan B-4, which is reflected as a reduction to the outstanding debt balance and will be recognized as interest expense over the term of the outstanding debt utilizing the effective interest method. SBG recognized a loss on extinguishment of $10 million for the year ended December 31, 2022.
The Term Loan B-2, Term Loan B-3, and Term Loan B-4 amortize in equal quarterly installments in an aggregate amount equal to 1% of the original amount of such term loan, with the balance being payable on the maturity date.
During the year ended December 31, 2023, STG repurchased $30 million aggregate principal amount of the Term Loan B-2 for consideration of $26 million. SBG recognized a gain on extinguishment of $3 million for the year ended December 31, 2023.
In January 2024, STG repurchased $27 million aggregate principal amount of the Term Loan B-2 for consideration of $25 million.
STG Notes
During the year ended December 31, 2022, STG purchased $118 million aggregate principal amount of the 5.125% Notes in open market transactions for consideration of $104 million. The 5.125% Notes acquired during the year ended December 31, 2022 were canceled immediately following their acquisition. SBG recognized a gain on extinguishment of the 5.125% Notes of $13 million for the year ended December 31, 2022.
During the year ended December 31, 2023, STG purchased $7 million, $15 million, and $13 million aggregate principal amount of the 5.125% Notes, the 5.500% Notes, and the 4.125% Notes, respectively, in open market transactions for consideration of $6 million, $8 million, and $8 million, respectively. The STG Notes acquired during the year ended December 31, 2023 were canceled immediately following their acquisition. SBG recognized a gain on extinguishment of the STG Notes of $12 million for the year ended December 31, 2023.
The price at which STG may redeem the STG Notes is set forth in the respective indenture of the STG Notes. Also, if SBG sells certain assets or experiences specific kinds of changes of control, the holders of these STG Notes may require SBG to repurchase some or all of the outstanding STG Notes.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Debt of Variable Interest Entities and Guarantees of Third-party Obligations
SBG jointly, severally, unconditionally, and irrevocably guaranteed $2 million of debt of certain third parties as of both December 31, 2023 and 2022, all of which related to consolidated VIEs is included in our consolidated balance sheets. SBG provides a guarantee of certain obligations of a regional sports network subject to a maximum annual amount of $117 million with annual escalations of 4% for the next five years. As of December 31, 2023, SBG has determined that it is not probable that SBG would have to perform under any of these guarantees.
Interest Rate Swap
During the year ended December 31, 2023, we entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of our exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.9%, and we receive a floating rate of interest based on SOFR. See Hedge Accounting within Note 1. Nature of Operations and Summary of Significant Accounting Policies for further discussion. As of December 31, 2023, the fair value of the interest rate swap was an asset of $1 million, which is recorded in other assets in SBG's consolidated balance sheets.
Finance Leases
For more information related to our finance leases and affiliate finance leases see Note 8. Leases and Note 14. Related Person Transactions, respectively.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. LEASES:
SBG determines if a contractual arrangement is a lease at inception. SBG's lease arrangements provide SBG the right to utilize certain specified tangible assets for a period of time in exchange for consideration. SBG's leases primarily relate to building space, tower space, and equipment. SBG does not separate non-lease components from building and tower leases for the purposes of measuring lease liabilities and assets. SBG's leases consist of operating leases and finance leases which are presented separately in SBG's consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
SBG recognizes a lease liability and a right of use asset at the lease commencement date based on the present value of the future lease payments over the lease term discounted using SBG's incremental borrowing rate. Implicit interest rates within SBG's lease arrangements are rarely determinable. Right of use assets also include, if applicable, prepaid lease payments and initial direct costs, less incentives received.
SBG recognizes operating lease expense on a straight-line basis over the term of the lease within operating expenses. Expense associated with SBG's finance leases consists of two components, including interest on outstanding finance lease obligations and amortization of the related right of use assets. The interest component is recorded in interest expense and amortization of the finance lease asset is recognized on a straight-line basis over the term of the lease in depreciation of property and equipment.
SBG's leases do not contain any material residual value guarantees or material restrictive covenants. Some of SBG's leases include optional renewal periods or termination provisions which SBG assess at inception to determine the term of the lease, subject to reassessment in certain circumstances.
The following table presents lease expense SBG has recorded in SBG's consolidated statements of operations for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Finance lease expense: | | | | | |
| Amortization of finance lease asset | $ | 4 | | | $ | 3 | | | $ | 3 | |
| Interest on lease liabilities | 2 | | | 3 | | | 3 | |
| Total finance lease expense | 6 | | | 6 | | | 6 | |
| Operating lease expense (a) | 38 | | | 41 | | | 60 | |
| Total lease expense | $ | 44 | | | $ | 47 | | | $ | 66 | |
(a)Includes variable lease expense of $6 million for the year ended December 31, 2023 and $7 million for each of the years ended December 31, 2022 and 2021 and short-term lease expense of $1 million for the year ended December 31 2021.
The following table summarizes SBG's outstanding operating and finance lease obligations as of December 31, 2023 (in millions):
| | | | | | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | Total |
| 2024 | $ | 31 | | | $ | 7 | | | $ | 38 | |
| 2025 | 30 | | | 7 | | | 37 | |
| 2026 | 29 | | | 7 | | | 36 | |
| 2027 | 28 | | | 4 | | | 32 | |
| 2028 | 24 | | | 2 | | | 26 | |
| 2029 and thereafter | 78 | | | 5 | | | 83 | |
| Total undiscounted obligations | 220 | | | 32 | | | 252 | |
| Less imputed interest | (47) | | | (5) | | | (52) | |
| Present value of lease obligations | $ | 173 | | | $ | 27 | | | $ | 200 | |
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes supplemental balance sheet information related to leases as of December 31, 2023 and December 31, 2022 (in millions, except lease term and discount rate):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | |
| Lease assets, non-current | $ | 142 | | | $ | 12 | | (a) | $ | 145 | | | $ | 16 | | (a) |
| | | | | | | | |
| Lease liabilities, current | $ | 21 | | | $ | 6 | | | $ | 23 | | | $ | 6 | | |
| Lease liabilities, non-current | 152 | | | 21 | | | 154 | | | 26 | | |
| Total lease liabilities | $ | 173 | | | $ | 27 | | | $ | 177 | | | $ | 32 | | |
| | | | | | | | |
| Weighted average remaining lease term (in years) | 7.85 | | 5.26 | | 8.68 | | 5.76 | |
| Weighted average discount rate | 6.2 | % | | 7.9 | % | | 5.8 | % | | 8.0 | % | |
(a)Finance lease assets are reflected in property and equipment, net in SBG's consolidated balance sheets.
The following table presents other information related to SBG's leases for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 33 | | | $ | 35 | | | $ | 52 | |
| Operating cash flows from finance leases | $ | 2 | | | $ | 3 | | | $ | 3 | |
| Financing cash flows from finance leases | $ | 7 | | | $ | 6 | | | $ | 5 | |
| Leased assets obtained in exchange for new operating lease liabilities | $ | 25 | | | $ | 15 | | | $ | 50 | |
| Leased assets obtained in exchange for new finance lease liabilities | $ | — | | | $ | 1 | | | $ | 4 | |
9. PROGRAM CONTRACTS:
Future payments required under television program contracts as of December 31, 2023 were as follows (in millions):
| | | | | |
| 2024 | $ | 76 | |
| 2025 | 9 | |
| 2026 | 5 | |
| |
| |
| |
| Total | 90 | |
| Less: Current portion | (76) | |
| Long-term portion of program contracts payable | $ | 14 | |
Each future period’s film liability includes contractual amounts owed, but what is contractually owed does not necessarily reflect what we are expected to pay during that period. While we are contractually bound to make the payments reflected in the table during the indicated periods, industry protocol typically enables us to make film payments on a three-month lag. Included in the current portion amount are payments due in arrears of $13 million. In addition, we have entered into non-cancelable commitments for future television program rights aggregating to $14 million as of December 31, 2023.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. REDEEMABLE NONCONTROLLING INTERESTS:
SBG accounts for redeemable noncontrolling interests in accordance with ASC 480, Distinguishing Liabilities from Equity, and classifies them as mezzanine equity in SBG's consolidated balance sheets because their possible redemption is outside of the SBG's control. SBG's redeemable non-controlling interests consist of the following:
Redeemable Subsidiary Preferred Equity
On August 23, 2019, Diamond Sports Holdings, LLC ("DSH"), an indirect parent of DSG and indirect wholly-owned subsidiary of the Company, issued preferred equity ("the Redeemable Subsidiary Preferred Equity").
On February 10, 2023, SBG purchased the remaining 175,000 units of the Redeemable Subsidiary Preferred Equity for an aggregate purchase price of $190 million representing 95% of the sum of the remaining unreturned capital contribution of $175 million, and accrued and unpaid dividends up to, but not including, the date of purchase. SBG redeemed no Redeemable Subsidiary Preferred Equity during the years ended December 31, 2022 and 2021.
Dividends accrued during the years ended December 31, 2023, 2022, and 2021 were $3 million, $13 million, and $14 million, respectively, and are reflected in net loss (income) attributable to redeemable noncontrolling interests in SBG's consolidated statements of operations. Dividends accrued during 2023, 2022, and the 2nd, 3rd, and 4th quarters of 2021 were paid in kind and added to the liquidation preference. The balance, net of issuance costs, and the liquidation preference of the Redeemable Subsidiary Preferred Equity was $194 million and $198 million, respectively, as of December 31, 2022.
11. INCOME TAXES:
The provision (benefit) for income taxes consisted of the following for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Current provision (benefit) for income taxes: | | | | | |
| Federal | $ | 5 | | | $ | 6 | | | $ | (78) | |
| State | (5) | | | 3 | | | 2 | |
| | — | | | 9 | | | (76) | |
| Deferred (benefit) provision for income taxes: | | | | | |
| Federal | (331) | | | 868 | | | (93) | |
| State | (28) | | | 36 | | | (4) | |
| | (359) | | | 904 | | | (97) | |
| (Benefit) provision for income taxes | $ | (359) | | | $ | 913 | | | $ | (173) | |
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Adjustments: | | | | | |
| State income taxes, net of federal tax benefit (a) | 4.7 | % | | 2.0 | % | | (4.2) | % |
| Valuation allowance (b) | 33.5 | % | | 1.6 | % | | (1.5) | % |
| Noncontrolling interest (c) | 0.5 | % | | 0.2 | % | | 2.6 | % |
| Federal tax credits (d) | 0.6 | % | | (0.2) | % | | 10.6 | % |
| Net Operating Loss Carryback (e) | — | % | | — | % | | 7.5 | % |
| Other | (0.9) | % | | 0.7 | % | | (1.3) | % |
| Effective income tax rate | 59.4 | % | | 25.3 | % | | 34.7 | % |
(a)Included in state income taxes are deferred income tax effects related to certain acquisitions, intercompany mergers, tax elections, law changes and/or impact of changes in apportionment.
(b)SBG’s 2023 income tax provision includes a $212 million decrease related to the release of valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j). SBG’s 2022 income tax provision includes a net $56 million addition related to an increase in valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j) and primarily offset by a decrease in valuation allowance on certain state deferred tax assets resulting from the Deconsolidation of Diamond. SBG’s 2021 income tax provision includes a net $8 million addition related to an increase in valuation allowance associated with the federal interest expense carryforwards under the IRC Section 163(j) and primarily offset by a decrease in valuation allowance on certain state deferred tax assets as a result of the changes in estimate of the state apportionment.
(c)SBG's 2023, 2022, and 2021 income tax provisions include a $3 million benefit, a $9 million expense, and a $13 million benefit, respectively, related to noncontrolling interest of various partnerships.
(d)SBG's 2021 income tax provision included a benefit of $40 million related to investments in sustainability initiatives whose activities qualify for federal income tax credits through 2021.
(e)SBG's 2021 income tax provision included a benefit of $38 million as result of the CARES Act allowing for the 2020 federal net operating loss to be carried back to the pre-2018 years when the federal tax rate was 35%.
Temporary differences between the financial reporting carrying amounts and the tax bases of assets and liabilities give rise to deferred taxes. Total deferred tax assets and deferred tax liabilities as of December 31, 2023 and 2022 were as follows (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Deferred Tax Assets: | | | |
| Net operating losses: | | | |
| Federal | $ | 97 | | | $ | 14 | |
| State | 152 | | | 131 | |
| IRC Section 163(j) interest expense carryforward | 93 | | | 212 | |
| Investment in Bally's securities | 6 | | | 70 | |
| Tax Credits | 87 | | | 79 | |
| Other | 112 | | | 98 | |
| 547 | | | 604 | |
| Valuation allowance for deferred tax assets | (113) | | | (312) | |
| Total deferred tax assets | $ | 434 | | | $ | 292 | |
| | | |
| Deferred Tax Liabilities: | | | |
| Goodwill and intangible assets | $ | (334) | | | $ | (384) | |
| Property & equipment, net | (98) | | | (110) | |
| Investment in DSIH | (250) | | | (356) | |
| Other | (35) | | | (52) | |
| Total deferred tax liabilities | (717) | | | (902) | |
| Net deferred tax liabilities | $ | (283) | | | $ | (610) | |
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2023, SBG had approximately $462 million and $3,222 million of gross federal and state net operating losses, respectively. Except for those without an expiration date, these losses will expire during various years from 2024 to 2043, and some of them are subject to annual limitations under the IRC Section 382 and similar state provisions. As discussed in Income taxes under Note 1. Nature of Operations and Summary of Significant Accounting Policies, SBG establishes valuation allowance in accordance with the guidance related to accounting for income taxes. As of December 31, 2023, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences and a substantial portion of SBG’s available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies, current and cumulative losses, and projected future taxable income. Although realization is not assured for the remaining deferred tax assets, SBG believes it is more likely than not that they will be realized in the future. During the year ended December 31, 2023, SBG decreased its valuation allowance by $199 million to $113 million. The decrease was primarily due to the release of valuation allowance related to interest expense carryforwards under the IRC Section 163(j) offset by a change in judgement in the realizability of certain state deferred tax assets. During the year ended December 31, 2022, SBG increased its valuation allowance by $56 million to $312 million. The increase was primarily due to uncertainty in the realizability of deferred tax assets related to interest expense carryforwards under the IRC Section 163(j), offset by a change in judgement in the realizability of certain state deferred tax assets.
The following table summarizes the activity related to SBG's accrued unrecognized tax benefits (in millions):
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Balance at January 1, | $ | 17 | | | $ | 15 | | | $ | 11 | |
| Additions related to prior year tax positions | — | | | 2 | | | 1 | |
| Additions related to current year tax positions | 1 | | | 1 | | | 3 | |
| Reductions related to positions transferred to Ventures | (2) | | | — | | | — | |
| Reductions related to settlements with taxing authorities | (2) | | | — | | | — | |
| Reductions related to expiration of the applicable statute of limitations | (2) | | | (1) | | | — | |
| Balance at December 31, | $ | 12 | | | $ | 17 | | | $ | 15 | |
As of 2023, SBG is a subsidiary of Sinclair and is subject to U.S. federal income tax as part of the consolidated return. SBG is also subject to income tax of multiple state jurisdictions. SBG’s 2014 through 2020 federal tax returns are currently under audit, and several of SBG’s subsidiaries are currently under state examinations for various years. SBG does not anticipate that resolution of these matters will result in a material change to SBG’s financial statements. In addition, SBG believes that its liability for unrecognized tax benefits could be reduced by up to $1 million, in the next twelve months, as a result of expected statute of limitations expirations and resolution of examination issues and settlements with tax authorities.
12. COMMITMENTS AND CONTINGENCIES:
Litigation
SBG is party to lawsuits, claims, and regulatory matters from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. Except as noted below, SBG does not believe the outcome of these matters, individually or in the aggregate, will have a material effect on SBG's financial statements.
FCC Litigation Matters. On May 22, 2020, the Federal Communications Commission ("FCC") released an Order and Consent Decree pursuant to which the Company agreed to pay $48 million to resolve the matters covered by a Notice of Apparent Liability for Forfeiture ("NAL") issued in December 2017 proposing a $13 million fine for alleged violations of the FCC's sponsorship identification rules by the Company and certain of its subsidiaries, the FCC's investigation of the allegations raised in the Hearing Designation Order issued in connection with the Company's proposed acquisition of Tribune, and a retransmission related matter. The Company submitted the $48 million payment on August 19, 2020. As part of the consent decree, the Company also agreed to implement a 4-year compliance plan. Two petitions were filed on June 8, 2020 seeking reconsideration of the Order and Consent Decree. The Company filed an opposition to the petitions on June 18, 2020, and the petitions remain pending.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On September 1, 2020, one of the individuals who filed a petition for reconsideration of the Order and Consent Decree filed a petition to deny the license renewal application of WBFF(TV), Baltimore, MD, and the license renewal applications of two other Baltimore, MD stations with which the Company has a JSA or LMA, Deerfield Media station WUTB(TV) and Cunningham Broadcasting Corporation ("Cunningham") station WNUV(TV). The Company filed an opposition to the petition on October 1, 2020. On January 18, 2024, a motion was filed to request substitution of the petitioner, who is deceased. On January 29, 2024, the Company filed (1) an opposition to the motion for substitution and (2) a motion to dismiss the petition to deny the renewal applications. An opposition was filed to the motion to dismiss on February 5, 2024, and the Company timely filed its reply on February 13, 2024, and the matter remains pending.
On September 2, 2020, the FCC adopted a Memorandum Opinion and Order and NAL against the licensees of several stations with whom the Company has LMAs, JSAs, and/or SSAs in response to a complaint regarding those stations' retransmission consent negotiations. The NAL proposed a $0.5 million penalty for each station, totaling $9 million. The licensees filed a response to the NAL on October 15, 2020, asking the Commission to dismiss the proceeding or, alternatively, to reduce the proposed forfeiture to $25,000 per station. On July 28, 2021, the FCC issued a forfeiture order in which the $0.5 million penalty was upheld for all but one station. A Petition for Reconsideration of the forfeiture order was filed on August 7, 2021. On March 14, 2022, the FCC released a Memorandum Opinion and Order and Order on Reconsideration, reaffirming the forfeiture order and dismissing (and in the alternative, denying) the Petition for Reconsideration. The Company is not a party to this forfeiture order; however, SBG's consolidated financial statements include an accrual of additional expenses of $8 million for the above legal matters during the year ended December 31, 2021, as SBG consolidates these stations as VIEs.
On September 21, 2022, the FCC released an NAL against the licensees of a number of stations, including 83 SBG stations and several stations with whom SBG has LMAs, JSAs, and/or SSAs, for violation of the FCC's limitations on commercial matter in children’s television programming related to KidsClick network programming distributed by the Company in 2018. The NAL proposed a fine of $2.7 million against the Company, and fines ranging from $20,000 to $26,000 per station for the other licensees, including the LMA, JSA, and/or SSA stations, for a total of $3.4 million. As of December 31, 2023, SBG has accrued $3.4 million. On October 21, 2022, the Company filed a written response seeking reduction of the proposed fine amount, and the matter remains pending.
Other Litigation Matters. On November 6, 2018, the Company agreed to enter into a proposed consent decree with the Department of Justice ("DOJ"). This consent decree resolves the DOJ's investigation into the sharing of pacing information among certain stations in some local markets. The DOJ filed the consent decree and related documents in the U.S. District Court for the District of Columbia on November 13, 2018. The U.S. District Court for the District of Columbia entered the consent decree on May 22, 2019. The consent decree is not an admission of any wrongdoing by the Company and does not subject the Company to any monetary damages or penalties. The Company believes that even if the pacing information was shared as alleged, it would not have impacted any pricing of advertisements or the competitive nature of the market. The consent decree requires the Company to adopt certain antitrust compliance measures, including the appointment of an Antitrust Compliance Officer, consistent with what the DOJ has required in previous consent decrees in other industries. The consent decree also requires the Company's stations not to exchange pacing and certain other information with other stations in their local markets, which the Company's management had already instructed them not to do.
The Company is aware of twenty-two putative class action lawsuits that were filed against the Company following published reports of the DOJ investigation into the exchange of pacing data within the industry. On October 3, 2018, these lawsuits were consolidated in the Northern District of Illinois. The consolidated action alleges that the Company and thirteen other broadcasters conspired to fix prices for commercials to be aired on broadcast television stations throughout the United States and engaged in unlawful information sharing, in violation of the Sherman Antitrust Act. The consolidated action seeks damages, attorneys' fees, costs and interest, as well as injunctions against adopting practices or plans that would restrain competition in the ways the plaintiffs have alleged. The Court denied the defendants' motion to dismiss on November 6, 2020. Discovery commenced shortly after that and is continuing. Under the current schedule set by the Court, fact discovery is scheduled to close 90 days after a Special Master completes his review of the plaintiffs' objections to the defendant's privilege claims. That privilege review is ongoing. On August 18, 2023, the defendants filed objections to the Special Master’s First Report and Recommendations with the Court. The Court overruled the defendants’ objections on January 31, 2024. The Special Master has not indicated when he expects to complete his privilege review. On December 8, 2023, the Court granted final approval of the settlements the plaintiffs had reached with four of the original defendants (CBS, Fox, Cox Media, and ShareBuilders), who agreed to pay a total of $48 million to settle the plaintiffs' claims against them. The Company and the other non-settling defendants continue to believe the lawsuits are without merit and intend to vigorously defend themselves against all such claims.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On July 19, 2023, as part of the ongoing bankruptcy proceedings of DSG, an independently managed and unconsolidated subsidiary of Sinclair, DSG and its wholly-owned subsidiary, Diamond Sports Net, LLC, filed a complaint (the "DSG Litigation"), under seal, in the United States Bankruptcy Court for the Southern District of Texas naming certain subsidiaries of Sinclair, including SBG and STG, David D. Smith, Sinclair's Executive Chairman, Christopher S. Ripley, Sinclair's President and Chief Executive Officer, Lucy A. Rutishauser, Sinclair's Executive Vice President & Chief Financial Officer, and Scott Shapiro, Sinclair's Executive Vice President, Corporate Development and Strategy, as defendants.
In the complaint, plaintiffs challenge a series of transactions involving SBG and certain of its subsidiaries, on the one hand, and DSG and its subsidiaries, on the other hand, since SBG acquired the former Fox Sports regional sports networks from The Walt Disney Company in August 2019. The complaint alleges, among other things, that the management services agreement (the "MSA") entered into by STG and DSG was not fair to DSG and was designed to benefit STG and SBG; that the Bally's Corporation ("Bally's") transaction in November 2020 through which Bally's acquired naming rights to certain regional sports networks was not fair to DSG and was designed to benefit STG and SBG; and that certain distributions made by DSG that were used to pay down preferred equity of DSH, were inappropriate and were conducted at a time when DSG was insolvent. The complaint alleges that SBG and its subsidiaries (other than DSG and its subsidiaries) received payments or indirect benefits of approximately $1.5 billion as a result of the alleged misconduct. The complaint asserts a variety of claims, including certain fraudulent transfers of assets, unlawful distributions and payments, breaches of contracts, unjust enrichment and breaches of fiduciary duties. The plaintiffs are seeking, among other relief, avoidance of fraudulent transfers and unlawful distributions, and unspecified monetary damages to be determined. The defendants believe the allegations in this lawsuit are without merit and intend to vigorously defend against plaintiffs' claims.
On January 17, 2024, Sinclair announced that it had agreed, subject to definitive documentation and final court approval, to a global settlement and release of all claims associated with the Diamond Litigation, which settlement includes an amendment to the MSA. The settlement terms include, among other things, DSG’s dismissal with prejudice of its $1.5 billion litigation against Sinclair and all other defendants, along with the full and final satisfaction and release of all claims in that litigation against all defendants, including Sinclair and its subsidiaries, in exchange for Sinclair’s cash payment to DSG of $495 million. The cash payment will be funded by cash on hand at Ventures and STG, and/or a loan backed by Ventures. Under the terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity going forward. As of December 31, 2023, we have accrued $495 million, exclusive of any potential offsetting benefits to be received, related to the above matter, which is recorded within accounts payable and accrued liabilities in SBG's consolidated balance sheets and corporate general and administrative expenses in in SBG's consolidated statements of operations.
The settlement is subject to definitive documentation. On February 26, 2024, the court approved the settlement, subject to Sinclair and DSG completing definitive documentation.
Sinclair has entered into the settlement, without admitting any fault or wrongdoing. If the settlement does not receive final court approval, Sinclair remains committed to vigorously defending against the claims asserted in the litigation.
Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap
Certain of SBG's stations have entered into what have commonly been referred to as local marketing agreements or LMAs. One typical type of LMA is a programming agreement between two separately owned television stations serving the same market, whereby the licensee of one station programs substantial portions of the broadcast day and sells advertising time during such programming segments on the other licensee’s station subject to the latter licensee’s ultimate editorial and other controls. SBG believes these arrangements allow it to reduce SBG's operating expenses and enhance profitability.
In 1999, the FCC established a local television ownership rule that made certain LMAs attributable. The FCC adopted policies to exempt from attribution "legacy" LMAs that were entered into prior to November 5, 1996 and permitted the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review. The FCC stated it would conduct a case-by-case review of legacy LMAs and assess the appropriateness of extending the exemption periods. The FCC did not initiate any review of legacy LMAs in 2004 or as part of its subsequent quadrennial reviews. SBG does not know when, or if, the FCC will conduct any such review of legacy LMAs. Currently, all of SBG's LMAs are exempt from attribution under the local television ownership rule because they were entered into prior to November 5, 1996. If the FCC were to eliminate the exemption for these LMAs, SBG would have to terminate or modify these LMAs.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the "totality of the circumstances test" for good-faith negotiations of retransmission consent. The proposed rulemaking seeks comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a "marquee sports or entertainment event," restrictions on online access to broadcast programming during negotiation impasses, broadcasters' ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters' ability to invoke the FCC's exclusivity rules during service interruptions. On July 14, 2016, the FCC’s Chairman at the time announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations of retransmission consent but did not formally terminate the rulemaking. No formal action has yet been taken on this Proposed Rulemaking, and SBG cannot predict if the FCC will terminate the rulemaking or take other action.
On November 20, 2017, the FCC released an Ownership Order on Reconsideration that eliminated or revised several media ownership rules. Among other things, the Order on Reconsideration (1) retained the “Top-Four Prohibition” (which generally restricts common ownership of two top-four rated stations in a market) but introduced a process by which entities could seek a waiver of the Top-Four Prohibition on a case-by-case basis; (2) eliminated the “Eight-Voices Test” that previously allowed common ownership of two stations in a single market only if eight or more independently-owned television stations would remain in the market (allowing common ownership of up to two stations in a market as long as such ownership does not violate the Top-Four Prohibition), and (3) eliminated the JSA attribution rule. The Ownership Order on Reconsideration was vacated and remanded by the U.S. Court of Appeals for the Third Circuit in September 2019, but the Supreme Court ultimately reversed the Third Circuit’s decision on April 1, 2021 and the Ownership Order on Reconsideration became effective on June 30, 2021.
On December 18, 2017, the FCC released a Notice of Proposed Rulemaking to examine the FCC’s national ownership cap, including the UHF discount. The UHF discount allows television station owners to discount the coverage of UHF stations when calculating compliance with the FCC's national ownership cap, which prohibits a single entity from owning television stations that reach, in total, more than 39% of all the television households in the nation. All but 34 of the stations SBG currently owns and operates, or to which SBG provides programming services are UHF. SBG cannot predict the outcome of the rulemaking proceeding. With the application of the UHF discount counting all of SBG's present stations SBG reaches approximately 24% of U.S. households. Changes to the national ownership cap could limit SBG's ability to make television station acquisitions.
On December 13, 2018, the FCC released a Notice of Proposed Rulemaking to initiate the 2018 Quadrennial Regulatory Review of the FCC’s broadcast ownership rules. With respect to the local television ownership rule specifically, among other things, the Notice of Proposed Rulemaking sought comment on possible modifications to the rule’s operation, including the relevant product market, the numerical limit, the Top-Four Prohibition; and the implications of multicasting, satellite stations, low power television ("LPTV") stations and the Next Generation broadcasting standard. On December 22, 2023, the FCC completed its 2018 Quadrennial Regulatory Review (the "2018 Ownership Order"). The 2018 Ownership Order declined to loosen or eliminate any of the existing television ownership rules and expanded the Top-Four Prohibition to multicast streams and LPTV stations, each of which were not previously considered as part of the local television ownership rules. The expanded rule prohibits a broadcaster with a top-four-rated television station from acquiring the network affiliation of another top-four rated station in the market and airing that second top-four network on a multicast stream or commonly owned LPTV station under certain circumstances. Affiliation arrangements existing as of the release of the 2018 Ownership Order that would otherwise violate the expanded Top-Four Prohibition will not be subject to divestiture, but such arrangements will not be transferrable or assignable. The 2018 Ownership Order also revised the methodology for determining whether a station is rated among the top-four stations in the market, retained the SSA disclosure requirement, and declined to attribute SSAs or JSAs. The 2018 Ownership Order’s expansion of the Top-Four Prohibition to multicast streams and LPTV stations may affect the Company’s ability to acquire programming or to sell or acquire stations due to the need to divest grandfathered affiliations.
On December 22, 2022, the FCC released a Public Notice to initiate the 2022 Quadrennial Regulatory Review, seeking comment on the Local Radio Ownership Rule, the Local Television Ownership Rule, and the Dual Network Rule and the proceeding remains pending. We cannot predict the outcome of that rulemaking proceeding. Changes to these rules could impact our ability to make radio or television station acquisitions.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. VARIABLE INTEREST ENTITIES:
Certain of SBG's stations provide services to other station owners within the same respective market through agreements, such as LMAs, where SBG provides programming, sales, operational, and administrative services, and JSAs and SSAs, where SBG provides non-programming, sales, operational, and administrative services. In certain cases, SBG has also entered into purchase agreements or options to purchase the license related assets of the licensee. SBG typically owns the majority of the non-license assets of the stations, and in some cases where the licensee acquired the license assets concurrent with SBG's acquisition of the non-license assets of the station, SBG has provided guarantees to the bank for the licensee's acquisition financing. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. Based on the terms of the agreements and the significance of SBG's investment in the stations, SBG is the primary beneficiary when, subject to the ultimate control of the licensees, SBG has the power to direct the activities which significantly impact the economic performance of the VIE through the services SBG provides and SBG absorbs losses and returns that would be considered significant to the VIEs. The fees paid between SBG and the licensees pursuant to these arrangements are eliminated in consolidation.
A subsidiary of DSIH is a party to a joint venture associated with Marquee. Marquee is party to a long term telecast rights agreement which provides the rights to air certain live game telecasts and other content, which SBG guarantees. In connection with a prior acquisition, SBG became party to a joint venture associated with one other regional sports network. DSIH participated significantly in the economics and had the power to direct the activities which significantly impacted the economic performance of these regional sports networks, including sales and certain operational services. As of March 1, 2022, as a result of the Deconsolidation, SBG no longer consolidates these regional sports networks. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
The carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in SBG's consolidated balance sheets as of December 31, 2023 and 2022 were as follows (in millions):
| | | | | | | | | | | |
| | 2023 | | 2022 |
| ASSETS | | | |
| Current assets: | | | |
| | | |
| Accounts receivable, net | 23 | | | 47 | |
| | | |
| Other current assets | 3 | | | 3 | |
| | | |
| Total current asset | 26 | | | 50 | |
| | | |
| | | |
| Property and equipment, net | 11 | | | 10 | |
| | | |
| Goodwill and indefinite-lived intangible assets | 15 | | | 15 | |
| | | |
| Definite-lived intangible assets, net | 33 | | | 40 | |
| | | |
| Total assets | $ | 85 | | | $ | 115 | |
| | | |
| LIABILITIES | | | |
| Current liabilities: | | | |
| | | |
| | | |
| | | |
| Total current liabilities | 14 | | | 15 | |
| | | |
| Long-term liabilities: | | | |
| Notes payable, finance leases, and commercial bank financing, less current portion | 6 | | | 7 | |
| | | |
| Program contracts payable, less current portion | — | | | 1 | |
| Other long-term liabilities | 3 | | | 3 | |
| Total liabilities | $ | 23 | | | $ | 26 | |
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The amounts above represent the combined assets and liabilities of the VIEs described above, for which we are the primary beneficiary. Total liabilities associated with certain outsourcing agreements and purchase options with certain VIEs, which are excluded from above, were $130 million as of both December 31, 2023 and 2022, as these amounts are eliminated in consolidation. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. As of December 31, 2023, all of the liabilities are non-recourse to us except for the debt of certain VIEs. See Debt of Variable Interest Entities and Guarantees of Third-party Obligations under Note 7. Notes Payable and Commercial Bank Financing for further discussion. The risk and reward characteristics of the VIEs are similar.
Other VIEs
Prior to the Reorganization, SBG had several investments in entities which are considered VIEs. However, SBG did not participate in the management of these entities, including the day-to-day operating decisions or other decisions which would allow SBG to control the entity, and therefore, SBG was not considered the primary beneficiary of these VIEs. SBG's investments in these VIEs for which SBG was not the primary beneficiary were transferred to Ventures as part of the Reorganization.
The carrying amounts of SBG's investments in these VIEs for which SBG was not the primary beneficiary were $187 million as of December 31, 2022 and are included in other assets in SBG's consolidated balance sheets. The income and loss related to equity method investments and other equity investments are recorded in income from equity method investments and other expense, net, respectively, in SBG's consolidated statements of operations. SBG recorded gains of $37 million, $58 million, and $37 million for the years ended December 31, 2023, 2022, and 2021, respectively, related to these investments.
In conjunction with the Transaction, the composition of the DSIH board of managers was modified resulting in SBG's loss of voting control over DSIH. SBG holds substantially all of the equity of DSIH and provides certain management and general and administrative services to DSIH. However, it was determined that SBG is not the primary beneficiary because SBG lacks the ability to control the activities that most significantly drive the economics of the business. The carrying amount of SBG's investment in DSIH is zero and there is no obligation for SBG to provide additional financial support. Prior to the Reorganization, SBG was also party to the A/R Facility held by an indirect wholly-owned subsidiary of DSIH which had an outstanding balance of approximately $193 million as of December 31, 2022. See Note Receivable within Note 6. Other Assets. The amounts drawn under the A/R facility represent our maximum loss exposure. The loans under the A/R Facility were transferred to Ventures as part of the Reorganization.
14. RELATED PERSON TRANSACTIONS:
Transactions With SBG's Indirect Controlling Shareholders
David, Frederick, J. Duncan, and Robert Smith (collectively, "the Sinclair controlling shareholders") are brothers and hold substantially all of the Sinclair Class B Common Stock and some of the Sinclair Class A Common Stock. SBG engaged in the following transactions with them and/or entities in which they have substantial interests:
Leases. Certain assets used by SBG and SBG's operating subsidiaries are leased from entities owned by the Sinclair controlling shareholders. Lease payments made to these entities were $6 million for both the years ended December 31, 2023 and 2022 and $5 million for the year ended December 31, 2021.
Finance leases payable related to the aforementioned relationships were $7 million, net of $1 million interest, and $9 million, net of $1 million interest, as of December 31, 2023 and 2022, respectively. The finance leases mature in periods through 2030. For further information on finance leases to affiliates, see Note 7. Notes Payable and Commercial Bank Financing.
Charter Aircraft. SBG leases aircraft owned by certain controlling shareholders. For all leases, we incurred aggregate expenses of $0.2 million, $0.4 million and $1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cunningham Broadcasting Corporation
Cunningham owns a portfolio of television stations, including: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; WDBB-TV Birmingham, Alabama; WBSF-TV Flint, Michigan; WGTU-TV/WGTQ-TV Traverse City/Cadillac, Michigan; WEMT-TV Tri-Cities, Tennessee; WYDO-TV Greenville, North Carolina; KBVU-TV/KCVU-TV Eureka/Chico-Redding, California; WPFO-TV Portland, Maine; KRNV-DT/KENV-DT Reno, Nevada/Salt Lake City, Utah; and KTXD-TV in Dallas, Texas (collectively, the Cunningham Stations). Certain of SBG's stations provide services to these Cunningham Stations pursuant to LMAs or JSAs and SSAs. See Note 13. Variable Interest Entities, for further discussion of the scope of services provided under these types of arrangements.
All of the non-voting stock of the Cunningham Stations is owned by trusts for the benefit of the children of the Sinclair controlling shareholders. SBG consolidates certain subsidiaries of Cunningham with which SBG has variable interests through various arrangements related to the Cunningham Stations.
The services provided to WNUV-TV, WMYA-TV, WTTE-TV, WRGT-TV and WVAH-TV are governed by a master agreement which has a current term that expires on July 1, 2028 and there is one additional 5-year renewal terms remaining with final expiration on July 1, 2033. SBG also executed purchase agreements to acquire the license related assets of these stations from Cunningham, which grant SBG the right to acquire, and grant Cunningham the right to require SBG to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of these individual subsidiaries of Cunningham. Pursuant to the terms of this agreement SBG is obligated to pay Cunningham an annual fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue or (ii) $6 million. The aggregate purchase price of these television stations increases by 6% annually. A portion of the fee is required to be applied to the purchase price to the extent of the 6% increase. The cumulative prepayments made under these purchase agreements were $65 million and $61 million as of December 31, 2023 and 2022, respectively. The remaining aggregate purchase price of these stations, net of prepayments, was $54 million for both the years ended December 31, 2023 and 2022. Additionally, SBG provides services to WDBB-TV pursuant to an LMA, which expires April 22, 2025, and have a purchase option to acquire for $0.2 million. SBG paid Cunningham, under these agreements, $12 million, $10 million, and $11 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The agreements with KBVU-TV/KCVU-TV, KRNV-DT/KENV-DT, WBSF-TV, WDBB-TV, WEMT-TV, WGTU-TV/WGTQ-TV, WPFO-TV, and WYDO-TV expire between April 2025 and November 2029, and certain stations have renewal provisions for successive eight-year periods.
As SBG consolidates the licensees as VIEs, the amounts SBG earns or pays under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported in SBG's consolidated statements of operations. SBG's consolidated revenues include $140 million, $159 million, and $144 million for the years ended December 31, 2023, 2022, and 2021, respectively, related to the Cunningham Stations.
SBG has an agreement with Cunningham to provide master control equipment and provide master control services to a station in Johnstown, PA with which Cunningham has an LMA that expires in June 2025. Under the agreement, Cunningham paid SBG an initial fee of $1 million and pays SBG $0.3 million annually for master control services plus the cost to maintain and repair the equipment. In addition, SBG has an agreement with Cunningham to provide a news share service with the Johnstown, PA station for an annual fee of $0.6 million which increases by 3% on each anniversary and which expires in November 2024.
SBG has multi-cast agreements with Cunningham Stations in the Eureka/Chico-Redding, California; Tri-Cities, Tennessee; Anderson, South Carolina; Baltimore, Maryland; Portland, Maine; Charleston, West Virginia; Dallas, Texas; and Greenville, North Carolina markets. In exchange for carriage of these networks in their markets, SBG paid $2 million, $1 million, and $2 million for the years ended December 31, 2023, 2022, and 2021, respectively, under these agreements.
MileOne Autogroup, Inc.
SBG sells advertising time to certain operating subsidiaries of MileOne Autogroup, Inc. ("MileOne"), including automobile dealerships, body shops, and an automobile leasing company. David Smith has a controlling interest in, and is a member of the Board of Directors of, MileOne. SBG received payments for advertising totaling less than $0.1 million for each of the years ended December 31, 2023 and 2022 and $0.1 million for the year December 1, 2021.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Leased Property by Real Estate Ventures
Certain of SBG's real estate ventures have entered into leases with entities owned by members of the Smith Family. Total rent received under these leases was $1 million for each of the years ended December 31, 2023, 2022, and 2021.
Sinclair, Inc.
Subsequent to the Reorganization, Sinclair is the sole member of SBG. See Company Reorganization within Note 1. Nature of Operations and Summary of Significant Accounting Policies for further discussion.
SBG recorded revenue of $5 million for the year ended December 31, 2023 within the local media segment related to sales services provided by SBG to Sinclair, and certain of its direct and indirect subsidiaries.
SBG recorded expenses of $6 million for the year ended December 31, 2023 within the local media segment related to digital advertising services provided by Sinclair, and certain of its direct and indirect subsidiaries, to SBG.
SBG made cash distributions of $554 million to Sinclair, and certain of its direct and indirect subsidiaries, for the year ended December 31, 2023.
SBG received cash payments of $72 million from Sinclair, and certain of its direct and indirect subsidiaries, for the year ended December 31, 2023.
As of December 31, 2023, SBG had a receivable from Sinclair, and certain of its direct and indirect subsidiaries, of $3 million, included within prepaid expenses and other current assets in SBG's consolidated balance sheets.
Diamond Sports Intermediate Holdings LLC
Subsequent to February 28, 2022, SBG's equity interest in DSIH is accounted for as an equity method investment.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Management Services Agreement. In 2019, SBG entered into a management services agreement with DSG, a wholly-owned subsidiary of DSIH, in which SBG provides DSG with affiliate sales and marketing services and general and administrative services. The contractual annual amount due from DSG for these services during the fiscal year ended December 31, 2023 is $78 million, which is subject to increases on an annual basis. Additionally, the agreement contains an incentive fee payable to SBG calculated based on certain terms contained within new or renewed distribution agreements with Distributors. As a condition to the Transaction, DSG will defer the cash payment of a portion of its management fee payable to SBG over the next four years. Pursuant to this agreement, excluding the amounts deferred as part of the Transaction, the local media segment recorded $49 million and $60 million of revenue for the years ended December 31, 2023 and 2022 related to both the contractual and incentive fees, of which $24 million was eliminated in consolidation prior to the Deconsolidation for the year ended December 31, 2022. SBG will not recognize the portion of deferred management fees as revenue until such fees are determined to be collectible. The terms of this agreement are subject to change depending upon the outcome of the settlement with DSG discussed in Note 12. Commitments and Contingencies.
Distributions. DSIH made distributions to DSH for tax payments on the dividends of the Redeemable Subsidiary Preferred Equity of $7 million for the year ended December 31, 2022.
Note receivable. For the year ended December 31, 2023, SBG received payments totaling $203 million related to the note receivable associated with the A/R facility, including $199 million from DSPV on May 10, 2023, representing the aggregate outstanding principal amount of the loans under the A/R Facility, accrued interest, and outstanding fees and expenses. For the year ended December 31, 2022, SBG received payments totaling $60 million from DSPV and funded an additional $40 million related to the note receivable associated with the A/R facility.
SBG recorded revenue of $11 million and $15 million for the years ended December 31, 2023 and 2022, respectively, within the local media segment and other related to certain other transactions between DSIH and SBG.
Other Equity Method Investees
YES Network. In August 2019, YES Network, which was accounted for as an equity method investment prior to the Deconsolidation, entered into a management services agreement with SBG, in which SBG provides certain services for an initial term that expires on August 29, 2025. The agreement will automatically renew for two 2-year renewal terms, with a final expiration on August 29, 2029. Pursuant to the terms of the agreement, the YES Network paid SBG a management services fee of $1 million and $6 million for the years ended December 31, 2022 and 2021, respectively.
DSIH has a minority interest in certain mobile production businesses. Prior to the Deconsolidation, SBG accounted for these as equity method investments. DSIH made payments to these businesses for production services totaling $5 million and $45 million for the years ended December 31, 2022 and 2021, respectively.
SBG has a minority interest in a sports marketing company, which SBG accounts for as an equity method investment. Payments to this business for marketing services totaling $2 million and $17 million for the years ended December 31, 2022 and 2021, respectively.
Sports Programming Rights
Affiliates of six professional teams had non-controlling equity interests in certain of DSIH's regional sports networks. DSIH paid $61 million and $424 million, net of rebates, for the years ended December 31, 2022 and 2021, respectively, under sports programming rights agreements covering the broadcast of regular season games associates with these professional teams. Prior to the Deconsolidation, these payments were recorded in SBG's consolidated statements of operations and cash flows.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Employees
Jason Smith, an employee of the SBG, is the son of Frederick Smith, who is a Vice President of SBG and a member of SBG's Board of Managers. Jason Smith received total compensation of $0.8 million, $0.6 million, and $0.2 million, consisting of salary and bonus, for the years ended December 31, 2023, 2022, and 2021, respectively, consisting of salary and bonus, and was granted 2,239 shares of restricted stock, vesting over two years, during the year December 31, 2021.
Ethan White, an employee of SBG, is the son-in-law of J. Duncan Smith, who is a Vice President of SBG and a member of SBG's Board of Managers. Ethan White received total compensation of $0.2 million, consisting of salary and bonus, for the year ended December 31, 2023 and $0.1 million, consisting of salary and bonus, for each of the years ended December 31, 2022 and 2021, and was granted 1,252 shares of restricted stock, vesting over two years, during the year ended December 31, 2023.
Amberly Thompson, an employee of the Company, is the daughter of Donald Thompson, who is an Executive Vice President and Chief Human Resources Officer of SBG. Amberly Thompson received total compensation of $0.2 million, $0.1 million, and $0.2 million, consisting of salary and bonus, for the years ended December 31, 2023, 2022, and 2021, respectively.
Edward Kim, an employee of the company, is the brother-in-law of Christopher Ripley, who is the President and Chief Executive Officer of the SBG. Edward Kim received total compensation of $0.2 million, consisting of salary, for each of the years ended December 31, 2023, 2022, and 2021 and was granted 516 and 302 shares of restricted stock, vesting over two years, during the years ended December 31, 2023 and 2022, respectively.
Frederick Smith is the brother of David Smith, Executive Chairman of SBG and a member of SBG's Board of Managers, and J. Duncan Smith. Frederick Smith received total compensation of $1 million for each of the years ended December 31, 2023, 2022, and 2021, consisting of salary, bonus, and earnings related to Frederick Smith’s participation in the Company's deferred compensation plan. J. Duncan Smith is the brother of David Smith and Frederick Smith. J. Duncan Smith received total compensation of $1 million for each of the years ended December 31, 2023, 2022, and 2021, consisting of salary and bonus.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT DATA:
During the year ended December 31, 2023, SBG modified its segment reporting to align with the new organizational structure of SBG discussed within Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies. The segment information within the comparative periods have been recast to reflect this new presentation. During the year ended December 31, 2023, SBG measured segment performance based on operating income (loss). For the year ended December 31, 2023, SBG had one reportable segment: local media. Prior to the Deconsolidation on March 1, 2022, SBG had one additional reportable segment: local sports. SBG's local media segment includes SBG's television stations, original networks and content and provides these through free over-the-air programming to television viewing audiences for stations in markets located throughout the continental United States, as well as distributes the content of these stations to MVPDs for distribution to their customers in exchange for contractual fees. Prior to the Deconsolidation, the local sports segment provided viewers with live professional sports content and included the Bally RSNs, Marquee, and SBG's investment in the YES Network. Other and corporate are not reportable segments but are included for reconciliation purposes. Other primarily consists of tennis, non-broadcast digital and internet solutions, technical services, and non-media investments. Corporate costs primarily include SBG's costs to operate the parent company of its subsidiaries. All of SBG's businesses are located within the United States.
Segment financial information is included in the following tables for the years ended December 31, 2023, 2022, and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | | Local media | | Other & Corporate | | Eliminations | | Consolidated |
| Goodwill | | $ | 2,016 | | | $ | — | | | $ | — | | | $ | 2,016 | |
| Assets | | 4,750 | | | 87 | | | — | | | 4,837 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 | | Local media | | Other & Corporate | | Eliminations | | Consolidated |
| Goodwill | | $ | 2,016 | | | $ | 72 | | | $ | — | | | $ | 2,088 | |
| Assets | | 5,554 | | | 1,150 | | | — | | | 6,704 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2023 | | Local media | | Other & Corporate (d) | | Eliminations | | Consolidated |
| Revenue | | $ | 2,866 | | (a) | $ | 119 | | | $ | (7) | | (c) | $ | 2,978 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 243 | | | 10 | | | (1) | | | 252 | |
| | | | | | | | |
| Amortization of program contract costs | | 80 | | | — | | | — | | | 80 | |
| Corporate general and administrative expenses | | 134 | | | 520 | | | — | | | 654 | |
| Loss on deconsolidation of subsidiary | | — | | | 10 | | | — | | | 10 | |
| (Gain) loss on asset dispositions and other, net of impairment | | (14) | | (b) | 12 | | | — | | | (2) | |
| Operating income (loss) | | 227 | | (b) | (529) | | | — | | | (302) | |
| Interest expense including amortization of debt discount and deferred financing costs | | 305 | | | — | | | — | | | 305 | |
| Income from equity method investments | | — | | | 31 | | | — | | | 31 | |
| Capital expenditures | | 86 | | | 4 | | | — | | | 90 | |
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2022 | | Local media | | Local sports (e) | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | | $ | 3,193 | | (a) | $ | 482 | | | $ | 312 | | | $ | (59) | | (c) | $ | 3,928 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 243 | | | 54 | | | 28 | | | (4) | | | 321 | |
| Amortization of sports programming rights (f) | | — | | | 326 | | | — | | | — | | | 326 | |
| Amortization of program contract costs | | 90 | | | — | | | — | | | — | | | 90 | |
| Corporate general and administrative expenses | | 117 | | | 1 | | | 42 | | | — | | | 160 | |
| Gain on deconsolidation of subsidiary | | — | | | — | | | (3,357) | | (g) | — | | | (3,357) | |
| Gain on asset dispositions and other, net of impairment | | (17) | | (b) | — | | | (47) | | | — | | | (64) | |
| Operating income (loss) | | 591 | | (b) | (4) | | | 3,393 | | | — | | | 3,980 | |
| Interest expense including amortization of debt discount and deferred financing costs | | 226 | | | 72 | | | 6 | | | (8) | | | 296 | |
| Income from equity method investments | | — | | | 10 | | | 46 | | | — | | | 56 | |
| Capital expenditures | | 96 | | | 2 | | | 7 | | | — | | | 105 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2021 | | Local media | | Local sports | | Other & Corporate | | Eliminations | | Consolidated |
| Revenue | | $ | 2,887 | | | $ | 3,056 | | | $ | 352 | | | $ | (161) | | (c) | $ | 6,134 | |
| Depreciation of property and equipment and amortization of definite-lived intangible assets and other assets | | 248 | | | 316 | | | 30 | | | (3) | | | 591 | |
| Amortization of sports programming rights (f) | | — | | | 2,350 | | | — | | | — | | | 2,350 | |
| Amortization of program contract costs | | 93 | | | — | | | — | | | — | | | 93 | |
| Corporate general and administrative expenses | | 148 | | | 10 | | | 12 | | | — | | | 170 | |
| Gain on asset dispositions and other, net of impairment | | (23) | | (b) | (43) | | (b) | (5) | | | — | | | (71) | |
| Operating income (loss) | | 388 | | (b) | (317) | | (b) | 24 | | | — | | | 95 | |
| Interest expense including amortization of debt discount and deferred financing costs | | 183 | | | 436 | | | 13 | | | (14) | | | 618 | |
| Income (loss) from equity method investments | | — | | | 49 | | | (4) | | | — | | | 45 | |
| Capital expenditures | | 52 | | | 16 | | | 12 | | | — | | | 80 | |
(a)Includes $55 million and $39 million for the year ended December 31, 2023 and 2022, respectively, of revenue for services provided by local media under management services agreements after the Deconsolidation, which is not eliminated in consolidation.
(b)Local Media includes gains of $8 million, $4 million, and $24 million related to reimbursements for spectrum repack costs for the years ended December 31, 2023, 2022, and 2021, respectively. Local sports includes $43 million related to the fair value of equipment that we received for the C-Band spectrum repack for the year ended December 31, 2021. See Note 2. Acquisitions and Dispositions of Assets.
(c)Includes $26 million and $111 million,of revenue for the years ended December 31, 2022 and 2021, respectively, for services provided by local media, which are eliminated in consolidation.
(d)Represents the activity in tennis, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, "Other") prior to the Reorganization on June 1, 2023 and the activity in corporate prior and subsequent to the Reorganization. See Company Reorganization within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
(e)Represents the activity prior to the Deconsolidation on March 1, 2022.
(f)The amortization of sports programming rights is included within media programming and production expenses on our consolidated statements of operations.
(g)Represents the gain recognized on the Deconsolidation.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE MEASUREMENTS:
Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value. The following is a brief description of those three levels:
•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table sets forth the face value and fair value of our financial assets and liabilities as of December 31, 2023 and 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | Face Value | | Fair Value | | Face Value | | Fair Value |
| Level 1: | | | | | | | |
| Investments in equity securities (a) | N/A | | $ | — | | | N/A | | $ | 6 | |
| Money market funds | N/A | | $ | 309 | | | N/A | | $ | 741 | |
| Deferred compensation assets | N/A | | $ | — | | | N/A | | $ | 41 | |
| Deferred compensation liabilities | N/A | | $ | — | | | N/A | | $ | 35 | |
| | | | | | | |
| Level 2: | | | | | | | |
| Investments in equity securities (a) (b) | N/A | | $ | — | | | N/A | | $ | 153 | |
| Interest rate swap (c) | N/A | | $ | 1 | | | N/A | | $ | — | |
| STG (d): | | | | | | | |
| 5.500% Senior Notes due 2030 | $ | 485 | | | $ | 362 | | | $ | 500 | | | $ | 347 | |
| 5.125% Senior Notes due 2027 | $ | 274 | | | $ | 248 | | | $ | 282 | | | $ | 230 | |
| 4.125% Senior Secured Notes due 2030 | $ | 737 | | | $ | 521 | | | $ | 750 | | | $ | 560 | |
| Term Loan B-2, due September 30, 2026 | $ | 1,215 | | | $ | 1,124 | | | $ | 1,258 | | | $ | 1,198 | |
| Term Loan B-3, due April 1, 2028 | $ | 722 | | | $ | 595 | | | $ | 729 | | | $ | 692 | |
| Term Loan B-4, due April 21, 2029 | $ | 739 | | | $ | 602 | | | $ | 746 | | | $ | 709 | |
| | | | | | | |
| Debt of variable interest entities (d) | $ | 7 | | | $ | 7 | | | $ | 8 | | | $ | 8 | |
| Debt of non-media subsidiaries (a) (d) | $ | — | | | $ | — | | | $ | 16 | | | $ | 16 | |
| | | | | | | |
| Level 3: | | | | | | | |
| Investments in equity securities (a) (e) | N/A | | $ | — | | | N/A | | $ | 75 | |
N/A - Not applicable
(a)The debt of non-media subsidiaries and the investments in equity securities were transferred to Ventures as part of the Reorganization.
(b)Consists of unrestricted warrants to acquire marketable common equity securities. The fair value of the warrants are derived from the quoted trading prices of the underlying common equity securities less the exercise price.
(c)SBG entered into an interest rate swap effective February 7, 2023 and terminating on February 28, 2026 in order to manage a portion of SBG's exposure to variable interest rates. The swap agreement has a notional amount of $600 million, bears a fixed interest rate of 3.90%, and SBG receives a floating rate of interest based on SOFR. The fair value of the interest rate swap was an asset as of December 31, 2023. See Hedge Accounting within Note 1. Nature of Operations and Summary of Significant Accounting Policies and Interest Rate Swap within Note 7. Notes Payable and Commercial Bank Financing.
(d)Amounts are carried in SBG's consolidated balance sheets net of debt discount and deferred financing costs, which are excluded in the above table, of $46 million and $56 million as of December 31, 2023 and 2022, respectively.
(e)On November 18, 2020, SBG entered into a commercial agreement with Bally's and received warrants and options to acquire common equity in the business. During the years ended December 31, 2023, 2022, and 2021, SBG recorded a fair value adjustment loss of $25 million, loss of $112 million, and loss of $50 million, respectively, related to these interests. The fair value of the warrants is primarily derived from the quoted trading prices of the underlying common equity. The fair value of the options is derived utilizing the Black Scholes valuation model. The most significant inputs include the trading price of the underlying common stock, the exercise price of the options, which range from $30 to $45 per share, and a DLOM of 25%. There are certain restrictions surrounding the sale and ownership of common stock and the Company has agreed not to sell any shares beneficially owned prior to the first anniversary of the agreement.share. The Company is also precluded from owning more than 4.9% of the outstanding common shares of Bally's, inclusive of shares obtained through the exercise of the warrants and options described above. See Note 6. Other Assets for further discussion.were transferred to Ventures as part of the Reorganization.
SINCLAIR BROADCAST GROUP, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the changes in financial assets measured at fair value on a recurring basis and categorized as Level 3 under the fair value hierarchy (in millions):
| | | | | |
| Options and Warrants |
| |
| |
| |
| |
Fair valueValue at December 31, 20192021 | $ | 0282 | |
Acquisition | 199 | |
| Measurement adjustments | 133 (112) | |
| Transfer to Level 2 | (95) | |
Fair valueValue at December 31, 20202022 | 75 | |
| Measurement Adjustments | (25) | |
| Transfer to Ventures | (50) | |
| Fair Value at December 31, 2023 | $ | 332— | |
19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:
Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under STG's Bank Credit Agreement, 5.875% unsecured notes, 5.125% unsecured notes, 5.500% unsecured notes and 4.125% secured notes. Our Class A Common Stock and Class B Common Stock as of December 31, 2020, were obligations or securities of SBG and not obligations or securities of STG. SBG is a guarantor under STG's Bank Credit Agreement, 5.875% unsecured notes, 5.125% unsecured notes, 5.500% unsecured notes, and 4.125% secured notes. As of December 31, 2020, our consolidated total debt of $12,551 million included $4,405 million of debt related to STG and its subsidiaries of which SBG guaranteed $4,366 million.
SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have fully and unconditionally guaranteed, subject to certain customary automatic release provisions, all of STG’s obligations. Those guarantees are joint and several. There are certain contractual restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of dividends or loans.
The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations and comprehensive income, and consolidated statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis.17. SUBSEQUENT EVENTS:
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2020
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group,
Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| Cash and cash equivalents | $ | 0 | | | $ | 458 | | | $ | 0 | | | $ | 801 | | | $ | 0 | | | $ | 1,259 | |
| Accounts receivable, net | 0 | | | 0 | | | 558 | | | 502 | | | 0 | | | 1,060 | |
| Other current assets | 7 | | | 46 | | | 372 | | | 560 | | | (87) | | | 898 | |
| Total current assets | 7 | | | 504 | | | 930 | | | 1,863 | | | (87) | | | 3,217 | |
| | | | | | | | | | | |
| Property and equipment, net | 1 | | | 33 | | | 706 | | | 109 | | | (26) | | | 823 | |
| | | | | | | | | | | |
| Investment in equity of consolidated subsidiaries | 430 | | | 3,549 | | | 0 | | | 0 | | | (3,979) | | | 0 | |
| Restricted cash | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 3 | |
| Goodwill | 0 | | | 0 | | | 2,082 | | | 10 | | | 0 | | | 2,092 | |
| Indefinite-lived intangible assets | 0 | | | 0 | | | 156 | | | 15 | | | 0 | | | 171 | |
| Definite-lived intangible assets, net | 0 | | | 0 | | | 1,256 | | | 4,409 | | | (41) | | | 5,624 | |
| Other long-term assets | 139 | | | 1,718 | | | 280 | | | 1,569 | | | (2,254) | | | 1,452 | |
| Total assets | $ | 577 | | | $ | 5,804 | | | $ | 5,410 | | | $ | 7,978 | | | $ | (6,387) | | | $ | 13,382 | |
| | | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | 19 | | | $ | 70 | | | $ | 247 | | | $ | 284 | | | $ | (87) | | | $ | 533 | |
| Current portion of long-term debt | 0 | | | 13 | | | 5 | | | 41 | | | (1) | | | 58 | |
| Other current liabilities | 1 | | | 2 | | | 134 | | | 306 | | | 0 | | | 443 | |
| Total current liabilities | 20 | | | 85 | | | 386 | | | 631 | | | (88) | | | 1,034 | |
| | | | | | | | | | | |
| Long-term debt | 700 | | | 4,337 | | | 33 | | | 8,460 | | | (1,037) | | | 12,493 | |
| Investment in deficit of consolidated subsidiaries | 1,118 | | | 0 | | | 0 | | | 0 | | | (1,118) | | | 0 | |
| Other long-term liabilities | 12 | | | 121 | | | 1,445 | | | 710 | | | (1,438) | | | 850 | |
| Total liabilities | 1,850 | | | 4,543 | | | 1,864 | | | 9,801 | | | (3,681) | | | 14,377 | |
| | | | | | | | | | | |
| Redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | 190 | | | 0 | | | 190 | |
| Total Sinclair Broadcast Group (deficit) equity | (1,273) | | | 1,261 | | | 3,546 | | | (2,098) | | | (2,710) | | | (1,274) | |
| Noncontrolling interests in consolidated subsidiaries | 0 | | | 0 | | | 0 | | | 85 | | | 4 | | | 89 | |
| Total liabilities, redeemable noncontrolling interests, and equity | $ | 577 | | | $ | 5,804 | | | $ | 5,410 | | | $ | 7,978 | | | $ | (6,387) | | | $ | 13,382 | |
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2019
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| Cash and cash equivalents | $ | 0 | | | $ | 357 | | | $ | 3 | | | $ | 973 | | | $ | 0 | | | 1,333 | |
| Accounts receivable, net | 0 | | | 0 | | | 561 | | | 571 | | | 0 | | | 1,132 | |
| Other current assets | 5 | | | 41 | | | 264 | | | 188 | | | (50) | | | 448 | |
| Total current assets | 5 | | | 398 | | | 828 | | | 1,732 | | | (50) | | | 2,913 | |
| | | | | | | | | | | |
| Property and equipment, net | 1 | | | 31 | | | 659 | | | 96 | | | (22) | | | 765 | |
| | | | | | | | | | | |
| Investment in consolidated subsidiaries | 2,270 | | | 3,558 | | | 0 | | | 0 | | | (5,828) | | | 0 | |
| Goodwill | 0 | | | 0 | | | 2,091 | | | 2,625 | | | 0 | | | 4,716 | |
| Indefinite-lived intangible assets | 0 | | | 0 | | | 144 | | | 14 | | | 0 | | | 158 | |
| Definite-lived intangible assets | 0 | | | 0 | | | 1,426 | | | 6,598 | | | (47) | | | 7,977 | |
| Other long-term assets | 82 | | | 1,611 | | | 279 | | | 618 | | | (1,749) | | | 841 | |
| Total assets | $ | 2,358 | | | $ | 5,598 | | | $ | 5,427 | | | $ | 11,683 | | | $ | (7,696) | | | $ | 17,370 | |
| | | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | 142 | | | $ | 109 | | | $ | 286 | | | $ | 296 | | | $ | (51) | | | $ | 782 | |
| Current portion of long-term debt | 0 | | | 27 | | | 4 | | | 41 | | | (1) | | | 71 | |
| Other current liabilities | 0 | | | 1 | | | 133 | | | 147 | | | 0 | | | 281 | |
| Total current liabilities | 142 | | | 137 | | | 423 | | | 484 | | | (52) | | | 1,134 | |
| | | | | | | | | | | |
| Long-term debt | 700 | | | 4,348 | | | 32 | | | 8,317 | | | (1,030) | | | 12,367 | |
| Other liabilities | 13 | | | 53 | | | 1,418 | | | 547 | | | (934) | | | 1,097 | |
| Total liabilities | 855 | | | 4,538 | | | 1,873 | | | 9,348 | | | (2,016) | | | 14,598 | |
| | | | | | | | | | | |
| Redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | 1,078 | | | 0 | | | 1,078 | |
| Total Sinclair Broadcast Group equity | 1,503 | | | 1,060 | | | 3,554 | | | 1,069 | | | (5,684) | | | 1,502 | |
| Noncontrolling interests in consolidated subsidiaries | 0 | | | 0 | | | 0 | | | 188 | | | 4 | | | 192 | |
| Total liabilities, redeemable noncontrolling interests, and equity | $ | 2,358 | | | $ | 5,598 | | | $ | 5,427 | | | $ | 11,683 | | | $ | (7,696) | | | $ | 17,370 | |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| Net revenue | $ | 0 | | | $ | 100 | | | $ | 3,081 | | | $ | 2,946 | | | $ | (184) | | | $ | 5,943 | |
| | | | | | | | | | | |
| Media programming and production expenses | 0 | | | 3 | | | 1,284 | | | 1,519 | | | (71) | | | 2,735 | |
| Selling, general and administrative | 18 | | | 122 | | | 658 | | | 279 | | | (97) | | | 980 | |
| Impairment of goodwill and definite-lived intangible assets | 0 | | | 0 | | | 0 | | | 4,264 | | | 0 | | | 4,264 | |
| Depreciation, amortization and other operating expenses | 2 | | | 8 | | | 211 | | | 525 | | | (10) | | | 736 | |
| Total operating expenses | 20 | | | 133 | | | 2,153 | | | 6,587 | | | (178) | | | 8,715 | |
| | | | | | | | | | | |
| Operating (loss) income | (20) | | | (33) | | | 928 | | | (3,641) | | | (6) | | | (2,772) | |
| | | | | | | | | | | |
| Equity in (loss) earnings of consolidated subsidiaries | (2,409) | | | 877 | | | 0 | | | — | | | 1,532 | | | 0 | |
| Interest expense | (13) | | | (191) | | | (3) | | | (474) | | | 25 | | | (656) | |
| Other income (expense) | 27 | | | 4 | | | (41) | | | 303 | | | (14) | | | 279 | |
| Total other (expense) income | (2,395) | | | 690 | | | (44) | | | (171) | | | 1,543 | | | (377) | |
| | | | | | | | | | | |
| Income tax benefit | 1 | | | 51 | | | 3 | | | 665 | | | 0 | | | 720 | |
| Net (loss) income | (2,414) | | | 708 | | | 887 | | | (3,147) | | | 1,537 | | | (2,429) | |
| Net income attributable to the redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | (56) | | | 0 | | | (56) | |
| Net loss attributable to the noncontrolling interests | 0 | | | 0 | | | 0 | | | 71 | | | 0 | | | 71 | |
| Net (loss) income attributable to Sinclair Broadcast Group | $ | (2,414) | | | $ | 708 | | | $ | 887 | | | $ | (3,132) | | | $ | 1,537 | | | $ | (2,414) | |
| Comprehensive (loss) income | $ | (2,414) | | | $ | 707 | | | $ | 887 | | | $ | (3,154) | | | $ | 1,537 | | | $ | (2,437) | |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| Net revenue | $ | 0 | | | $ | 35 | | | $ | 2,841 | | | $ | 1,487 | | | $ | (123) | | | $ | 4,240 | |
| | | | | | | | | | | |
| Media programming and production expenses | 0 | | | 0 | | | 1,238 | | | 894 | | | (59) | | | 2,073 | |
| Selling, general and administrative | 147 | | | 147 | | | 663 | | | 202 | | | (40) | | | 1,119 | |
| Depreciation, amortization and other operating expenses | 0 | | | (20) | | | 278 | | | 334 | | | (14) | | | 578 | |
| Total operating expenses | 147 | | | 127 | | | 2,179 | | | 1,430 | | | (113) | | | 3,770 | |
| | | | | | | | | | | |
| Operating (loss) income | (147) | | | (92) | | | 662 | | | 57 | | | (10) | | | 470 | |
| | | | | | | | | | | |
| Equity in earnings of consolidated subsidiaries | 165 | | | 577 | | | 0 | | | 0 | | | (742) | | | 0 | |
| Interest expense | (5) | | | (216) | | | (4) | | | (216) | | | 19 | | | (422) | |
| Other income (expense) | 2 | | | (7) | | | (53) | | | 24 | | | (5) | | | (39) | |
| Total other income (expense) | 162 | | | 354 | | | (57) | | | (192) | | | (728) | | | (461) | |
| | | | | | | | | | | |
| Income tax benefit (provision) | 32 | | | 66 | | | (21) | | | 19 | | | 0 | | | 96 | |
| Net income (loss) | 47 | | | 328 | | | 584 | | | (116) | | | (738) | | | 105 | |
| Net income attributable to the redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | (48) | | | 0 | | | (48) | |
| Net income attributable to the noncontrolling interests | 0 | | | 0 | | | 0 | | | (10) | | | 0 | | | (10) | |
| Net income (loss) attributable to Sinclair Broadcast Group | $ | 47 | | | $ | 328 | | | $ | 584 | | | $ | (174) | | | $ | (738) | | | $ | 47 | |
| Comprehensive income (loss) | $ | 47 | | | $ | 327 | | | $ | 584 | | | $ | (116) | | | $ | (738) | | | $ | 104 | |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2018
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| Net revenue | $ | 0 | | | $ | 0 | | | $ | 2,856 | | | $ | 293 | | | $ | (94) | | | $ | 3,055 | |
| | | | | | | | | | | |
| Media programming and production expenses | 0 | | | 0 | | | 1,131 | | | 141 | | | (81) | | | 1,191 | |
| Selling, general and administrative | 10 | | | 100 | | | 613 | | | 20 | | | (2) | | | 741 | |
| Depreciation, amortization and other operating expenses | 0 | | | 5 | | | 258 | | | 207 | | | (7) | | | 463 | |
| Total operating expenses | 10 | | | 105 | | | 2,002 | | | 368 | | | (90) | | | 2,395 | |
| | | | | | | | | | | |
| Operating (loss) income | (10) | | | (105) | | | 854 | | | (75) | | | (4) | | | 660 | |
| | | | | | | | | | | |
| Equity in earnings of consolidated subsidiaries | 348 | | | 724 | | | 0 | | | 0 | | | (1,072) | | | 0 | |
| Interest expense | 0 | | | (285) | | | (4) | | | (18) | | | 15 | | | (292) | |
| Other income (expense) | 2 | | | (2) | | | (58) | | | 0 | | | 0 | | | (58) | |
| Total other income (expense) | 350 | | | 437 | | | (62) | | | (18) | | | (1,057) | | | (350) | |
| | | | | | | | | | | |
| Income tax benefit (provision) | 2 | | | 90 | | | (62) | | | 6 | | | 0 | | | 36 | |
| Net income (loss) | 342 | | | 422 | | | 730 | | | (87) | | | (1,061) | | | 346 | |
| | | | | | | | | | | |
| Net income attributable to the noncontrolling interests | 0 | | | 0 | | | 0 | | | (5) | | | 0 | | | (5) | |
| Net income (loss) attributable to Sinclair Broadcast Group | $ | 342 | | | $ | 422 | | | $ | 730 | | | $ | (92) | | | $ | (1,061) | | | $ | 341 | |
| Comprehensive income (loss) | $ | 347 | | | $ | 422 | | | $ | 730 | | | $ | (87) | | | $ | (1,065) | | | $ | 347 | |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2020
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES | $ | (119) | | | $ | (75) | | | $ | 864 | | | $ | 875 | | | $ | 3 | | | $ | 1,548 | |
| | | | | | | | | | | |
| CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES: | | | | | | | | | | | |
| Acquisition of property and equipment | 0 | | | (8) | | | (130) | | | (26) | | | 7 | | | (157) | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | (16) | | | 0 | | | 0 | | | (16) | |
| | | | | | | | | | | |
| Proceeds from the sale of assets | 0 | | | 0 | | | 36 | | | 0 | | | 0 | | | 36 | |
| Purchases of investments | (43) | | | (8) | | | (43) | | | (45) | | | 0 | | | (139) | |
| | | | | | | | | | | |
| Spectrum repack reimbursements | 0 | | | 0 | | | 90 | | | 0 | | | 0 | | | 90 | |
| Other, net | 1 | | | 0 | | | (2) | | | 28 | | | 0 | | | 27 | |
| Net cash flows (used in) from investing activities | (42) | | | (16) | | | (65) | | | (43) | | | 7 | | | (159) | |
| | | | | | | | | | | |
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | | | | | | | | | | | |
| Proceeds from notes payable and commercial bank financing | 0 | | | 1,398 | | | 0 | | | 421 | | | 0 | | | 1,819 | |
| Repayments of notes payable, commercial bank financing and finance leases | 0 | | | (1,434) | | | (4) | | | (301) | | | 0 | | | (1,739) | |
| Dividends paid on Class A and Class B Common Stock | (63) | | | 0 | | | 0 | | | 0 | | | 0 | | | (63) | |
| | | | | | | | | | | |
| Repurchase of outstanding Class A Common Stock | (343) | | | 0 | | | 0 | | | 0 | | | 0 | | | (343) | |
| Dividends paid on redeemable subsidiary preferred equity | 0 | | | 0 | | | 0 | | | (36) | | | 0 | | | (36) | |
| Redemption of subsidiary preferred equity | 0 | | | 0 | | | 0 | | | (547) | | | 0 | | | (547) | |
| Debt issuance costs | 0 | | | (11) | | | 0 | | | (8) | | | 0 | | | (19) | |
| Distributions to noncontrolling interests | 0 | | | 0 | | | 0 | | | (32) | | | 0 | | | (32) | |
| Distributions to redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | (383) | | | 0 | | | (383) | |
| Increase (decrease) in intercompany payables | 565 | | | 239 | | | (798) | | | 4 | | | (10) | | | 0 | |
| Other, net | 2 | | | 0 | | | 0 | | | (119) | | | 0 | | | (117) | |
| Net cash flows from (used in) financing activities | 161 | | | 192 | | | (802) | | | (1,001) | | | (10) | | | (1,460) | |
| | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 0 | | | 101 | | | (3) | | | (169) | | | 0 | | | (71) | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | 0 | | | 357 | | | 3 | | | 973 | | | 0 | | | 1,333 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | 0 | | | $ | 458 | | | $ | 0 | | | $ | 804 | | | $ | 0 | | | $ | 1,262 | |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2019
(In million)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES | $ | (5) | | | $ | (210) | | | $ | 734 | | | $ | 396 | | | $ | 1 | | | $ | 916 | |
| | | | | | | | | | | |
| CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES: | | | | | | | | | | | |
| Acquisition of property and equipment | 0 | | | (4) | | | (152) | | | (11) | | | 11 | | | (156) | |
| Acquisition of businesses, net of cash acquired | 0 | | | 0 | | | 0 | | | (8,999) | | | 0 | | | (8,999) | |
| Proceeds from the sale of assets | 0 | | | 0 | | | 0 | | | 8 | | | 0 | | | 8 | |
| Purchases of investments | (6) | | | (39) | | | (54) | | | (353) | | | 0 | | | (452) | |
| | | | | | | | | | | |
| Spectrum repack reimbursements | 0 | | | 0 | | | 62 | | | 0 | | | 0 | | | 62 | |
| Other, net | 0 | | | 3 | | | (1) | | | 5 | | | 0 | | | 7 | |
| Net cash flows (used in) from investing activities | (6) | | | (40) | | | (145) | | | (9,350) | | | 11 | | | (9,530) | |
| | | | | | | | | | | |
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | | | | | | | | | | | |
| Proceeds from notes payable and commercial bank financing | 0 | | | 1,793 | | | 0 | | | 8,163 | | | 0 | | | 9,956 | |
| Repayments of notes payable, commercial bank financing and finance leases | 0 | | | (1,213) | | | (4) | | | (19) | | | 0 | | | (1,236) | |
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | 0 | | | 0 | | | 0 | | | 985 | | | 0 | | | 985 | |
| Dividends paid on Class A and Class B Common Stock | (73) | | | 0 | | | 0 | | | 0 | | | 0 | | | (73) | |
| Dividends paid on redeemable subsidiary preferred equity | 0 | | | 0 | | | 0 | | | (33) | | | 0 | | | (33) | |
| Repurchases of outstanding Class A Common Stock | (145) | | | 0 | | | 0 | | | 0 | | | 0 | | | (145) | |
| Redemption of redeemable subsidiary preferred equity | 0 | | | 0 | | | 0 | | | (297) | | | 0 | | | (297) | |
| Debt issuance costs | 0 | | | (25) | | | 0 | | | (174) | | | 0 | | | (199) | |
| Distributions to noncontrolling interests | 0 | | | 0 | | | 0 | | | (27) | | | 0 | | | (27) | |
| Distributions to redeemable noncontrolling interests | 0 | | | 0 | | | 0 | | | (5) | | | 0 | | | (5) | |
| Increase (decrease) in intercompany payables | 227 | | | (905) | | | (601) | | | 1,291 | | | (12) | | | 0 | |
| Other, net | 2 | | | (5) | | | 0 | | | (36) | | | 0 | | | (39) | |
| Net cash flows from (used in) financing activities | 11 | | | (355) | | | (605) | | | 9,848 | | | (12) | | | 8,887 | |
| | | | | | | | | | | |
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 0 | | | (605) | | | (16) | | | 894 | | | 0 | | | 273 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | 0 | | | 962 | | | 19 | | | 79 | | | 0 | | | 1,060 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | 0 | | | $ | 357 | | | $ | 3 | | | $ | 973 | | | $ | 0 | | | $ | 1,333 | |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2018
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sinclair
Broadcast
Group, Inc. | | Sinclair
Television
Group, Inc. | | Guarantor
Subsidiaries
and KDSM,
LLC | | Non-
Guarantor
Subsidiaries | | Eliminations | | Sinclair
Consolidated |
| NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES | $ | (9) | | | $ | (253) | | | $ | 936 | | | $ | (40) | | | $ | 13 | | | 647 | |
| | | | | | | | | | | |
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | | | | | | | | | | |
| Acquisition of property and equipment | 0 | | | (7) | | | (98) | | | (4) | | | 4 | | | (105) | |
| | | | | | | | | | | |
| Spectrum repack reimbursements | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | | 6 | |
| Proceeds from the sale of assets | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 2 | |
| Purchases of investments | (2) | | | (14) | | | (29) | | | (3) | | | 0 | | | (48) | |
| | | | | | | | | | | |
| Other, net | 6 | | | 0 | | | 3 | | | 18 | | | 0 | | | 27 | |
| Net cash flows from (used in) investing activities | 4 | | | (21) | | | (116) | | | 11 | | | 4 | | | (118) | |
| | | | | | | | | | | |
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | | | | | | | | | | | |
| Proceeds from notes payable and commercial bank financing | 0 | | | 0 | | | 0 | | | 4 | | | 0 | | | 4 | |
| Repayments of notes payable, commercial bank financing and finance leases | 0 | | | (148) | | | (4) | | | (15) | | | 0 | | | (167) | |
| Debt issuance costs | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | (1) | |
| | | | | | | | | | | |
| Dividends paid on Class A and Class B Common Stock | (74) | | | 0 | | | 0 | | | 0 | | | 0 | | | (74) | |
| Repurchase of outstanding Class A Common Stock | (221) | | | 0 | | | 0 | | | 0 | | | 0 | | | (221) | |
| Distributions to noncontrolling interests | 0 | | | 0 | | | 0 | | | (9) | | | 0 | | | (9) | |
| Increase (decrease) in intercompany payables | 297 | | | 738 | | | (1,117) | | | 100 | | | (18) | | | 0 | |
| Other, net | 3 | | | 0 | | | (3) | | | 2 | | | 1 | | | 3 | |
| Net cash flows from (used in) financing activities | 5 | | | 590 | | | (1,124) | | | 81 | | | (17) | | | (465) | |
| | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 0 | | | 316 | | | (304) | | | 52 | | | 0 | | | 64 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | 0 | | | 646 | | | 323 | | | 27 | | | 0 | | | 996 | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | 0 | | | $ | 962 | | | $ | 19 | | | $ | 79 | | | $ | 0 | | | $ | 1,060 | |
QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended |
| | 3/31/2020 | | 6/30/2020 | | 9/30/2020 | | 12/31/20 |
| Total revenues | $ | 1,609 | | | $ | 1,283 | | | $ | 1,539 | | | $ | 1,512 | |
| Operating income (loss) | $ | 327 | | | $ | 492 | | | $ | (4,216) | | | $ | 625 | |
| Net income (loss) | $ | 151 | | | $ | 273 | | | $ | (3,367) | | | $ | 514 | |
| Net income (loss) attributable to Sinclair Broadcast Group | $ | 123 | | | $ | 252 | | | $ | (3,256) | | | $ | 467 | |
| Basic earnings (loss) per common share | $ | 1.36 | | | $ | 3.13 | | | $ | (43.53) | | | $ | 6.32 | |
| Diluted earnings (loss) per common share | $ | 1.35 | | | $ | 3.12 | | | $ | (43.53) | | | $ | 6.27 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended |
| | 3/31/2019 | | 6/30/2019 | | 9/30/2019 | | 12/31/19 |
| Total revenues | $ | 722 | | | $ | 771 | | | $ | 1,125 | | | $ | 1,622 | |
| Operating income (loss) | $ | 93 | | | $ | 106 | | | $ | (6) | | | $ | 277 | |
| Net income (loss) | $ | 23 | | | $ | 43 | | | $ | (49) | | | $ | 88 | |
| Net income (loss) attributable to Sinclair Broadcast Group | $ | 21 | | | $ | 42 | | | $ | (60) | | | $ | 44 | |
| Basic earnings (loss) per common share | $ | 0.23 | | | $ | 0.46 | | | $ | (0.65) | | | $ | 0.47 | |
| Diluted earnings (loss) per common share | $ | 0.23 | | | $ | 0.45 | | | $ | (0.65) | | | $ | 0.47 | |