Sinclair Station Strategy Sinks Sale

Standard

Alleging that Sinclair Broadcasting had “failed to make sufficient efforts” for a $3.9 billion transaction to be approved by government regulators, Tribune Media has pulled the plug on a much-publicized “deal.” In play were 42 major-market TV stations that Sinclair would have added to its over 170 small and mid-market broadcast outlets. This would have given Sinclair a “voice” in nearly 72% of the country.

Normally, the deal might have slipped passed full public notice. But, a series of news stories and videos revealed that Sinclair had just orchestrated an attack not only on the local sovereignty of news departments at its current station holdings, but also on the national issue of Freedom of the Press.  (See our previous blogs.)

Sinclair arrogantly had played its “trump” card by forcing a “hive-mind” on news anchors. They were ordered to deviate from local coverage to issue verbatim conservative political messages— not as editorials, but as part of news broadcasts.

There would be a spotlight on this deal that Sinclair probably wished hadn’t been turned on.

Deal Should Have Been a Breeze

From the viewpoint of the Trump-era Federal Communication Commission, the deal should have been a breeze. As the LA Times put it:

“The Sinclair-Tribune merger was subject to approval from the FCC and the Department of Justice. By all that is holy, it should have been a slam-dunk. Under its President Trump-appointed chairman, Ajit Pai, the FCC had signaled a hands-off policy on a raft of regulatory principles.

From the DOJ’s standpoint, the deal had all the hallmarks of a merger Trump would find especially gratifying.”

So, how did we get to the point that the deal not only fell through, but Tribune is now suing Sinclair?

President Donald Trump has enabled a movement of entitlement among his supporters. Just because he is POTUS, there are people and organizations that believe they “can get away with anything.” Just look at the headlines of how many people associated with the current administration are having criminal actions lodged at them for misdeeds. Whether incurred since 2016 or prior, it doesn’t matter. It still goes to character.

Working for and with the President means you should act, live and be accountable to a higher standard.

You know, with great power comes great responsibility.

Sinclair, feeling entitled as a Trump supporter, brazenly did not want to comply with FCC regulations. It went so far as to defy the section of the merger agreement which anticipated a divestiture of stations in 10 markets (where it would otherwise end up with multiple stations).

Again quoting the LA Times article:

“DOJ official told representatives of both companies that if Sinclair would only follow through on divestitures in the 10 key markets, ‘We would be done.’ In other words, DOJ would greenlight the deal. Instead, Sinclair offered to divest in only three and threatened to sue the DOJ if that wasn’t good enough. It wasn’t.”

Divestitures Doom Deal

Sinclair had indicated it would sell Tribune’s WGN-TV in Chicago. And it had a ready buyer: local car dealership businessman Steven Fader, who was offering $60 million. But, after a bit of checking it turned out that:

  • Fader oddly had no previous broadcasting experience or interests.
  • This price was suspiciously far below what other stations in the same market were valued at.
  • Sinclair Chairman David Smith coincidentally sat on that same car-dealership board where Fader served as chief executive.

This is where it gets tricky; I will quote the Wall Street Journal so as to not present it incorrectly.

“If Sinclair were to maintain ownership of WGN-TV what it would receive in distribution fees from pay-TV distributors would be less than what WGN-TV receives now. That’s because as acquirer, Sinclair’s “rate card” would be used for WGN-TV. However, if the license was transferred to an owner with no other broadcast properties or pre-existing rate card, the WGN-TV fees would stay in place, a person familiar with the matter said. Because WGN-TV has a heavy load of sports programming, it commands higher average fees from pay-TV distributors who carry it.”

The FCC felt that because of the close tie between Smith & Fader in this case, this (and other) spinoff proposals would still leave Sinclair in practical control of those stations “in violation of the law.”

Another divestiture would have been with WPIX in New York. Here, Sinclair again surprisingly had a ready buyer: Cunningham Broadcasting Corporation (CBC). Upon closer look, though, it turned out to that:

  • Sinclair was already managing several Cunningham stations
  • CBC had millions of dollars in debt guaranteed by Sinclair
  • Up until just recently, CBC had been controlled by the estate of the late mother of David Smith, Sinclair’s executive chairman.

See a pattern? So did the FCC.

In fact, the commission openly suggested that the sale proposals smacked of “potential… misrepresentation or lack of candor.” That cast sufficient doubt, the FCC said, on whether granting any Sinclair applications would “be in the public interest.”

The FCC’s only option was to then refer the deal to an administrative law judge. Because Tribune was looking for a quick turnover, the delay would be unacceptable and would kill the deal. But that wasn’t the end of it.

Tribune has now decided to sue Sinclair for bad faith. This is taken from the Complaint for Damages court document, item 7:

Tribune legal document

Tribune now seeks, through this action, to “recover all losses incurred as a result of Sinclair’s misconduct, including but not limited to approximately $1 billion of lost premium to Tribune’s stockholders and additional damages in an amount to be proven at trial.”

There will be other suitors for the Tribune stations. No need to weep for the company. The cause for celebration is that in this case, despite expected biased tweeted interference from Trump, the regulatory agencies did their jobs. The “system” worked.

And, among the beneficiaries were Freedom of the press and Freedom of speech.

(Your thoughts are ALWAYS welcome. Turn this into a conversation either here or on my Twitter account @amssvs)

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