On Wednesday, the Federal Communications Commission (FCC) ordered Sinclair Broadcasting Group to pay a $48 million civil penalty for its failed merger with Tribune Media. This is the largest fine the FCC has ever levied against a broadcast company. Sinclair has agreed to pay the fine which is double the next highest fine of $24 million paid by Univision in 2017. According to The New York Times, Chris Ripley, Sinclair chief executive, said the company is pleased with the resolution and is glad to be moving forward.
With Sinclair’s agreement to pay the fine and comply with the FCC, the FCC’s Consent Decree will close three investigations related to Sinclair’s disclosure of material information related to the proposed acquisition of TV stations owned by Tribune Media, whether the company had met obligations to negotiate retransmission consent agreements in good faith, and the company’s failure to identify the sponsor of content produced and supplied to Sinclair-owned and non-Sinclair-owned TV stations.
“Sinclair’s conduct during its attempt to merge with Tribune was completely unacceptable. Today’s penalty, along with the failure of the Sinclair/Tribune transaction, should serve as a cautionary tale to other licensees seeking Commission approval of a transaction in the future,” said FCC Chairman Ajit Pai in a May 6 statement. “On the other hand, I disagree with those who, for transparently political reasons, demand that we revoke Sinclair’s licenses. While they don’t like what they perceive to be the broadcaster’s viewpoints, the First Amendment still applies here.”
In December 2017, the FCC proposed a $13.4 million fine against Sinclair for failing to disclose paid programming sponsored by a third-party. The programming, which featured Huntsman Cancer Institute, was rebroadcast more than 1,700 times, and it was not labeled as paid programming. In the Consent Decree above, Sinclair admitted that it violated the FCC’s sponsorship identification rules.
The proposed merger started in May 2017 when Sinclair Broadcasting Group, the largest owner of local TV stations in the country, agreed to buy Tribune Media for $3.9 billion. This included the purchase of 42 television stations, Chicago’s WGN America and a minority stake in the Food Network. A coalition formed to fight the acquisition, saying it would impact the diversity of news coverage in local markets, could increase retransmission fees, and make it harder to compete for air time.
In July 2018, the FCC unanimously voted to send the proposed $3.9 billion merger to an administrative law judge for a ruling. At that time, the FCC said Sinclair had not fully disclosed material facts about the merger, nor was it transparent about pre-existing relationships. The following month, Tribune Media backed out of the deal and filed suit against Sinclair for breach of contract. In December 2018, Nexstar bought Tribune Media for $6.4 billion in an all-cash deal.
On Wednesday, Sinclair released its first quarter 2020 financials, reporting total revenue of $1.61 billion, a 123% increase year-over-year. Their net income was $123 million, or $1.35 diluted earnings per share, compared to $22 million, or $0.23 diluted earnings per share, for the first quarter of 2019. Except for a note in the fine print of the forward-looking statements, Sinclair did not draw attention to the FCC Consent Decree, nor did it mention the fine in its second quarter outlook.
Insider Take:
The financials alone explain why Sinclair is “pleased” with the resolution with the FCC. A $48 million fine would devastate most companies, but for Sinclair, this is only a fraction of their net income. In this case $48 million represents 39% of Sinclair’s net income for the first quarter. Yes, it is a loss and Sinclair publicly got its wrist slapped by the FCC, but Sinclair will continue long after the fine is paid. We hope this action has taught Sinclair to conduct its business more transparently in the future and that it will serve as a lesson to other companies in the future.
