Marquee Sports Network, Sinclair Broadcasting Facing Big Financial Hurdles with Carriage Agreements

If you’ve been following our coverage of Marquee Sports Network’s less-than-spectacular launch and the broader issues faced by parent company Sinclair Broadcast Group, what follows probably won’t surprise you. Or maybe it will, since the latest report from Max Greve of Seeking Alpha sheds more light on just how dire the situation might be for Sinclair should their carriage negotiations go south.

We discussed last week how talks between Comcast and Marquee might actually drag into late spring or even early summer, well past the Opening Day target both sides have touted, because Sinclair’s other RSNs are up for renegotiation in June or subsequent months. Before that, we looked at a Bloomberg report that missing out on Comcast could see Marquee forfeit as much as $100 million in total revenue from the Chicago market alone, and that’s just one channel in which Sinclair has a 50% stake.

Factor in the potential for Comcast to drop RSNs entirely, an unlikely but not impossible scenario to contemplate, and Sinclair’s losses could be massive. Greve concluded that “[Sinclair’s] revenues barely equal costs as is, before any further revenue loss,” and that failure to maintain carriage on Comcast could result in zero net income for the company as a whole.

SBGI stock closed Monday at $19.83, a five-year low that is down more than 15% from the $23.44 it was at less than two weeks ago (see last link). Coronavirus fears are tanking the stock market in general, but Sinclair should be buoyed by massive political advertising. Then again, Mike Bloomberg dropping out figures to curtail some of that.

What I’m driving at is that Sinclair, and Marquee as one of the regional sports networks in its stable, has very little leverage here and may have to accept significantly reduced carriage terms from Comcast. After seeing how DISH Network has performed since dropping almost all sports channels from its platform, boasting increases in subscribers and net income, other big carriers may not be too keen on accommodating those expensive additions.

We saw something similar with YouTube TV, which almost dropped Sinclair programming altogether after contentious negotiations. That was resolved for the most part last week, though the new arrangement excludes YES Network and Fox Sports West and could signal bad news for Marquee. Bigger markets generally equal bigger fees, not to mention Marquee isn’t a wholly owned subsidiary and might be left to fend for itself like YES.

Maybe that’s actually a good thing, since the folks running negotiations for Marquee can distance themselves from those at Sinclair in order to work something out. Of course, that eliminates the whole idea of leveraging the broadcast giant’s robust array of local network affiliates and other nationwide channels. None of that really matters to Cubs fans at this point, since they’re just worried about whether and how they’ll be able to watch games (legally) through their televisions once the season starts.

Again, this shouldn’t be a big surprise to anyone who’s been monitoring it to for the last few weeks, though it does serve as an additional dose of reality to those who still believe Comcast is the one feeling the heat here. Could they lose subscribers to DirecTV, U-verse, or Hulu+Live if Marquee isn’t part of their programming my March 26? Sure, but they’re probably looking at DISH and wondering if maybe that isn’t a good thing in the long run.

Make no mistake, Sinclair and Marquee — and the Cubs, of course — are the parties at greatest risk should this matter not be resolved posthaste. Already in the hole due to the startup costs of the new network, now is not a time to dig the PR hole deeper. Also factoring is a far more diverse media landscape than the one in which the Cubs planted their flag with WGN all those decades ago.

The die-hards may wait patiently for Marquee, but others will move along quickly should their access remain limited into the season. It’s much harder to recapture a viewer who’s moved on than it is to keep them engaged the whole time, and that’s before you factor in the erosion of goodwill taking place.

Even more dire for the Cubs as a baseball team is the prospect that Marquee won’t have nearly the financial impact they were hoping for. While team officials have maintained publicly that it will take a few years for increased revenues to hit the bottom line in a meaningful way, a significant departure from the claim last May that “much larger” revenue would be “available immediately,” even modest budgetary impact is off the table if Comcast isn’t in the picture.

Taking that a step further, it’s possible Marquee will have to lower both near- and long-term financial projections even if they do meet their carriage goals. Based on what we’ve seen and heard to this point, it appears as though they may have to accept much lower subscriber fees than initially planned just to get the channel into more households. Or, you know, maybe they won’t and this all gets wrapped up in a couple weeks with full freight on the carriage cost.

But you do kind of wonder whether the reality of the situation and the anticipation of an uphill battle with Marquee played a role in reduced spending in free agency this past winter. In that same vein, it’s possible that getting Comcast on board would create a little more freedom for the front office moving forward. That’s all highly speculative and I’ll allow you to connect the dots there as you see fit, but the fact of the matter is that none of the reports we’ve gotten over the past month or more have been favorable for either Sinclair or Marquee.

Who’d have thunk it, huh? To be sure, though, one big move could turn the whole outlook around in a hurry and there’s still hope for that as of now.

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