Sinclair Broadcast Group, Inc.
Sinclair Broadcast Group, Inc.
Sales: $46.4 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: SBGI
SICs: 4832 Radio Broadcasting Stations, 4833 Television Broadcasting Stations, 6719 Holding Companies, Not Elsewhere Classified, 7812 Motion Picture & Video Production
Headquartered in Baltimore, Maryland, Sinclair Broadcast Group, Inc. owns and/or provides programming services to television stations in 20 different markets and to radio stations in eight different markets around the country. The company is one of the largest broadcasting groups in the nation, with the television portion of the company’s business reaching approximately 15 percent of all U.S. households, and the radio portion ranked as one of the United States’ top-20 groups.
Sinclair’s Beginnings in the 1960s
What is now Sinclair Broadcasting started out as one man, Julian Smith, and an idea he had for a television station in Baltimore, Maryland. Smith, a Johns Hopkins-educated engineer, had worked for twenty years as an aerospace engineer. But in 1965, at the age of 45, he filed for an FCC license for a UHF television station in Baltimore. Although it was difficult at that time to receive anything other than local affiliates of the three major networks, Smith was not dissuaded. It took five years for him to receive his license from the FCC, and at that point he left his career in engineering to work in the television industry full-time. The company’s first television station, WBFF-TV Channel 45, finally went on the air in 1971.
Smith’s first son, Frederick, followed in his father’s footsteps by attending Johns Hopkins, but instead earned his degree in dentistry. Smith’s second son, David, dropped out of electronics school after only a few years. “I didn’t want to be a digit head; I wanted to be an entrepreneur,” he later claimed in a 1996 interview with Forbes magazine. Thus, at the age of 23, David Smith joined his father’s company. While his father was the visionary of the family, David became the money maker. Along with an engineer who had done work for their company, David became co-owner of Comark, a maker of television transmitters. The project’s smash success would later allow them to sell the enterprise for almost $5 million in 1986. Prior to that, in 1981, David left Comark to return to the family business when his father’s health began to fail. By then the company owned stations in Pittsburgh, Baltimore and Columbus.
Due to Julian Smith’s health problems, six outside investors—who owned nearly 50 percent of the company’s stock—decided they wanted him to end his involvement with the company. Julian Smith owned just 40 percent of the company’s shares. In 1986, however, David Smith was able to persuade one of the outsiders, who happened to hold a 10.2 percent share, to take the Smith’s side of the issue. The Smith family and their ally were now 50.2 percent owners, and were soon able to buy the other stock holders out with $20 million in cash and notes.
It was at this time, in 1986, that the name Sinclair Broadcast Group name was coined, and the company began its affiliation with the Fox Broadcasting Co. David Smith borrowed $15 million against the company so that he was able to buy his father’s interest in Sinclair. He first turned his attention to one of the company’s stations in Pittsburgh—WPTT—that had been losing money for years. Smith realized that he would either have to sell the station or buy up the competitors; he chose to buy. It was a risky move, but the decisions paid dividends in the long-run. Within a decade, his purchase was worth around $300 million.
Soon thereafter, Sinclair began acquiring more and more non-affiliate television stations from ABRY Communications LP. These five additional stations in Baltimore, MD; Milwaukee, WI; and Birmingham, AL helped make the Company an influential television station owner that, conversely, did not own a property in the top 10 market.
1990s Growth of the Market
Warner Brothers and Paramount began a mad scramble after Warner Brothers’ November, 1993 announcement that it would introduce its own WB Network the following summer. Independent stations were key to secure a fledgling network. The owners of these important independent stations included Sinclair, as well as Clear Channel TV, and Cannell Communications. The following year, in October 1994, Sinclair turned its own deal and bought WLFL-TV in Raleigh/Durham, North Carolina from Paramount Stations Group for an undisclosed amount. The station was then aligned with Paramount’s new broadcast network, which was scheduled to start in 1995. The Federal Communications Commission (FCC) was requested to investigate Sinclair’s purchase of the Raleigh/Durham television station, however, due to the fact that Sinclair already owned local station WRDC and the FCC regulations ban the ownership of more than one station in a given market. According to Sinclair, another entity—Communications Corp. of America—would retain control of WRDC, which it had reportedly purchased just two months earlier using a 98 percent equity investment from Sinclair.
In early 1995, Sinclair purchased non-license assets for television station WTVZ from Max Television Co. for $47 million. The company was operating under a lease management agreement, until the station’s federal license transfer was approved by the FCC license. At that point, Sinclair owned 11 television stations. Thus, in March of 1995, the company filed for clearance for an initial public stock offering of 3.75 million shares for $19-$21 a share. The proceeds of a possible $78.75 million were going be used to repay bank debt.
Instead of the 3.75 million shares planned for Sinclair’s initial public offering on June 8, 1995, five million shares sold for $21 each, with stock prices closing up at $24.125. The larger-than-expected proceeds were slated to pay off the company’s significant interest expenses from the previous year, which totaled $25.4 million.
Nearly a year later, in the spring of 1996 Sinclair became the owner of WYZZ-TV in Bloomington/Peoria, Illinois. This acquisition was particularly noteworthy in that it gave Sinclair the distinction of becoming the second TV group to pass the former limit of national ownership of 12 stations. One month later, plans for a joint bid on Palmer Communications were announced by Sinclair and River City Television.
In just a matter of days after the joint bid announcement was made, Sinclair indicated that it had acquired privately-held River City Broadcasting of St. Louis for approximately $1.2 billion. This purchase, which included River City’s Sacramento Channel 13 (KOVR), made the company the country’s seventh-largest television owner, with a total of 29 stations and the capability to reach 14.82 percent of all U.S. households. Its stock soared 18 percent—to $32.25—in reaction to these developments. Also part of the agreement were River City’s 19 radio stations, which positioned Sinclair among the United States’ top 10 station owner/operators, with 34 stations in 27 different markets. Its affiliates included ABC, CBS, Fox and UPN. Financial information released after the announcement revealed that River City showed an operating loss for 1995 and had $525 million in liabilities.
The broadcasting assets of the two companies were combined, forming a new subsidiary known as Sinclair Communications Inc.. This newly-formed public company had a market value of approximately $2.3 billion, and was set to control multiple television and radio stations in approximately 15 cities around the country. After the completion of the merger, the new company was expected to aggressively pursue acquisition of multiple additional stations in other markets.
In July of 1997, Sinclair completed the acquisition of the Heritage Media Group, which included both television and radio properties. This arrangement increased Sinclair’s total holdings to 56 radio stations and 27 television stations. During the same time period, Sinclair worked with Glencairn Ltd. to develop more duopolies. A $1.2 billion deal was announced that year, and was slowly being realized as Sinclair exercised its option to buy one of Glencairn’s stations at a time to spread out the cost of the deal.
The Late-1990s: Legal Entanglements and Technology Advancements
As always, David Smith continued looking for new venues for his business. The latter half of 1996 brought about the concept of Supercast, which would provide what Sinclair calls “internet and internet-type information” to computers, but without a wired connection to the internet. Reportedly able to transmit data at seven times the conventional 14.4 kilobit computer modem, Supercast would receive the television signal with modem and antenna plugged directly into a PC expansion slot on a standard computer. Although Intel had already created a similar product, and other companies continually testing their versions, Sinclair still forged ahead.
The 1990s have been exciting years for the broadcasting industry and the passage of the Telecommunications Act of 1996 has been the single biggest catalyst for change within the television and radio industry. With even more regulatory changes predicted before the turn of the century, SBG is well equipped to meet the challenges posed by this dynamic regulatory environment.
Sinclair Broadcast Group and Comark Digital Services sponsored a DiviCom demonstration of live multi-channel DTB broadcast from the show floor at NAB ‘98. Unfortunately, however, it had become apparent that while the technology existed, implementation would not be practical as early as had been expected. Digital television would pose high costs to both broadcasters and consumers—high enough to make the project appear to be not worth it, for the time being. Furthermore, a shortage of trained individuals to build the digital transmitter towers existed, and more problems were posed by the hefty $3000-$5000 price tags that early HDTVs would carry.
Meanwhile, an enticing offer was made to Sinclair by Warner Brothers near the end of the decade which caused a major clamor due to the huge blow to United Paramount Network (UPN) that resulted. UPN was informed of the termination of their contract with Sinclair, when the company was offered an $84 million, 10-year deal to switch the affiliation of five major markets over to the Warner Brothers network. A dazed UPN had no comment on the subject until it filed a law suit against Sinclair for breaking a contract that bound the two companies until January of 2001. Sinclair replied by filing against UPN in return, stating that proper notification regarding the contract had been given to UPN.
A December 9, 1997 Maryland Court judgment was made in favor of Sinclair, stating that they had given “timely and proper notice” of UPN’s contract termination. Sinclair issued a press release of its plans to begin broadcasting WB Network programming effective January 16, 1998. A similar law suit was again filed by UPN. Sinclair announced, in reply, that the Los Angeles Superior Court had issued an Order staying UPN’s action against Sinclair, based on the previous Maryland Court judgment in Sinclair’s favor. With all legal obstacles cleared, Sinclair decided to cease its affiliation with UPN for four of its stations, and was prepared to turn at least six stations over to WB outlets in January, 1998.
In an effort to repay a debt to an outstanding revolving credit facility, 5.3 million common shares of Sinclair was made available for sale in September of 1997. With shares priced at $36.50 each, the offering was financed through underwriters led by Smith Barney Inc. Shortly after this offering, the company announced that it had completed the public offerings of approximately $150 million of Class A Common Stock and $150 million aggregate liquidation amount of Convertible Exchangeable Preferred Stock. Net proceeds to the company from these offerings were roughly $285.7 million.
Three more deals were completed in July of 1998, allowing Sinclair to announce that it had become one of the largest owners of radio and television stations in the United States. The largest of these purchases was Max Media Properties LLC of Virginia Beach—the owner of nine television stations and eight radio stations—and was acquired by Sinclair for a $252 million cash agreement. As the end of the decade approached, Sinclair’s goal was set at obtaining 100 TV stations and over 100 radio stations.
Chesapeake Television, Inc. (MD); Chesapeake Television Licensee, Inc. (DE); FSF-TV, Inc. (NC); KABB, Inc. (DE); KABB Licensee, Inc. (DE); KDNL, INC.(DE); KDNL Licensee, Inc. (DE); KSMO, Inc. (MD); KSMO Licensee, Inc. (DE); KUPN, Inc. (MD); KUPN Licensee, Inc. (DE); SCI -Indiana, Inc. (DE); SCI - Indiana Licensee, Inc. (DE); SCI -Sacramento, Inc. (DE); SCI - Sacramento, Inc. (DE); Sinclair Communications, Inc. (MD); Sinclair Radio of Albuquerque, Inc. (MD); Sinclair Radio of Albuquerque Licensee, Inc. (DE); Sinclair Radio of Buffalo, Inc. (MD); Sinclair Radio of Buffalo Licensee, Inc. (DE); Sinclair Radio of Greenville, Inc. (MD); Sinclair Radio of Greenville Licensee, Inc. (DE); Sinclair Radio of Los Angeles, Inc. (MD); Sinclair Radio of Los Angeles Licensee, Inc. (DE); Sinclair Radio of Memphis (MD); Sinclair Radio of Memphis Licensee, Inc. (DE); Sinclair Radio of Nashville, Inc. (MD); Sinclair Radio of Nashville Licensee, Inc. (DE); Sinclair Radio of New Orleans, Inc. (MD); Sinclair Radio of New Orleans Licensee, Inc. (DE); Sinclair Radio of St. Louis, Inc. (MD); Sinclair Radio of St. Louis Licensee, Inc. (DE); Sinclair Radio of Wilkes Barre, Inc. (MD); Sinclair Radio of Wilkes Barre Licensee, Inc. (DE); Superior Communications of Kentucky, Inc. (DE); Superior Communications of KY License, Inc. (DE); Superior Communications of Oklahoma, Inc. (OK); Superior Communications of OK License, Inc. (DE); Tuscaloosa Broadcasting, Inc. (MD); WCGV, Inc. (MD); WCGV Licensee, Inc. (DE); WDBB, Inc. (MD); WLFL, Inc. (MD); WLFL Licensee, Inc. (DE); WLOS, Inc. (MD); WLOS Licensee, Inc. (DE); WPGH, Inc. (MD); WPGH Licensee, Inc. (MD); WSMH, Inc. (MD); WSMH Licensee, Inc. (DE); WSTR, Inc. (MD); WSTR, Inc. Licensee (MD); WSYX, Inc. (MD); WTTE, Channel 28, Inc. (MD); WTTE, Channel 28 Licensee, Inc. (MD); WTTO, Inc. (MD); WTTO, Licensee, Inc. (DE); WTVZ, Inc. (MD); WTVZ, Licensee, Inc. (MD); WYZZ, Inc. (MD); WYZZ, Licensee, Inc. (DE).
Brodesser, Claude, et al., “Sinclair Broadcast Group, Inc. Switches Affiliation of Five Television Stations From the United Paramount Network to the Warner Brothers Network, Erasing UPN’s Former Distribution Advantage,” Media Week, July 21, 1997, p.2.
Foisie, Geoffrey, “Sinclair, Edwards Buy LMAs From ABRY,” Broadcasting and Cable, August 30, 1993, p. 31.
Gubernick, Lisa, “I Didn’t Want to be a Digit Head,” Forbes, September 9, 1996, pp. 80–84.
Lafayette, Jon, “Sinclair Plans Side-by-Side Digital Demonstration: Baltimore Will See 10801, 480P,” Electronic Media, June 8, 1998, p.39.
Leffall, J., “HDTV Demonstration Gets Imperfect Reception: Live Digital Screening Brings Mixed Reviews,” Baltimore Sun, June 11, 1998, p1C.
LeFranco, Robert, “Tough Customers,” Forbes, June 1, 1998, p.78. Peck, Jeanne, “Baltimore’s Sinclair Broadcast Group Seeks Approval to go Public,” Daily Press (Newport News ), March 30, 1995.