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spk04: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sinclair Broadcast Group, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to the host, Executive Vice President and Chief Financial Officer, Lucy Rudishauser. Please go ahead.
spk05: Thank you, Operator. Participating on the call with me today are Chris Ripley, President and CEO, Rob Weisbord, President of Broadcast and Chief Operating Officer, and Steve Zenker, Vice President of Investor Relations. Before we begin, I want to remind everyone that slides and supplemental information for today's earnings call are available on our website, sbgi.net, on the investor information page, and on the earnings webcast page. I also want to remind you that today's call is a Sinclair-only call. As a result of the deconsolidation of Diamond Sports Group on March 1st, separate Diamond financials will be made available in a couple of weeks and a separate quarterly public call hosted. Now, Billie Jo McIntyre will make our forward-looking statement disclaimer.
spk00: Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports as filed with the SEC and included in our second quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our website and will remain available until our next quarterly earnings release. Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA, adjusted free cash flow, and leverage. The company considers adjusted EBITDA to be an indicator of operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors, and lenders as a measure of valuation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies' uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on its website, www.sbgi.net. Chris Ripley will now give you an update on the strategic direction of the company.
spk01: Thank you, Billy. Good morning, everyone. Over the years, Sinclair has evolved considerably from a large broadcaster that relied on advertising for the vast majority of its revenue to a far larger and more diversified company that we are today. We believe the diversity of our businesses embodies the future earnings power of our organization with revenue streams expected to come from a number of different areas, including certain investments that generate little to no revenue as of yet. In addition to the advertising and distribution revenues that make up the bulk of our current revenue generation, we believe other areas will be drivers of our business in the future. These include wireless data revenue from next gen ATFC 3.0 technology that will enable us to more fully utilize our spectrum. expansion of our national networks, and the build-out of our Compulse Marketing Services business, which utilizes new SaaS marketing technology that we have acquired and developed. What will not change is our company's steadfast belief in local media news and sports and the value they bring to our customers, viewers, and the communities in which we operate. In regards to second quarter results, we met our revenue expectations and exceeded our adjusted EBITDA guidance. Political advertising revenues were not only very strong, but they were the highest second quarter and year-to-date political revenue in our company's history. Year-to-date through the end of June, political revenue was over double 2018's political revenue for the same period, and up over 20% compared to 2020, which was a presidential election year. Rob and Lucy will talk more about the specifics and results. We expect political revenue to drive total ad sales for the remainder of the year, resulting in growth over last year. It is important to note that while we're not in a position to forecast the state of the economy through the end of the year or in 2023, we expect that a strong year in political advertising helps cushion against any possible downturn, in addition to discretionary levers on operating and capital expenditures that we can pull to mitigate such weaknesses. More than ever, consumers have more choices to view content, whether it's on traditional TV sets, mobile devices, social media, or other platforms. With our cumulative on-air and online audiences, we are poised to deliver our content how and where audiences choose to view and consume it. While overall video viewing is fragmenting, an opportunity going forward is engaging with users of our content directly, reaching and engaging audiences on all platforms and opening up incremental revenue opportunities. Digital is a big part of that equation. Digital viewing is growing with our current average monthly unique users of 80 to 90 million. We are well positioned as a holder of first party data to develop these additional revenue opportunities, especially when third party engagement tools like cookies go away. We have the ability to engage viewers beyond passive consumption, encourage interaction, and convert them to direct customers. And we can utilize our content, both newly developed and from our archives to drive these opportunities. This includes initiatives such as podcasts, digital newsletters, and other digital content as well as referring users to partner sites to make transactions. In all these cases, we are and will be able to learn more about our users through consented data gathering as a first party provider to enhance the user experience while opening up the door to additional revenue opportunities. The creation of new content continues to be a priority for our company. On the heels of the successful launch and extension of the National Desk franchise and our widely available NewsOn platform, we are looking at other initiatives to utilize our vast resources around local news. I mentioned podcasting just a minute ago as one example. In the second quarter, we debuted the first in a new series of podcasts titled Missing Erica Baker. about the disappearance of a young child in Ohio. These podcasts take a deep dive into stories of local and national interest. Sinclair is in a prime position to produce such compelling storytelling thanks to our company-wide commitment to investigative reporting and teams of talented journalists across our expansive network of local news stations. We've been encouraged by our first podcast's performance so far with consumers giving the content favorable reviews. We are also developing new shows and series, including a debate show, a game show, and a docuseries based on noteworthy events covered by our local news stations. The new content will appear on one or multiple Ms. Sinclair platforms or might even be sold to third parties. Also, we recently rolled out the National Desk weather to our local newscasts. at 6 a.m. and 6 p.m. and on social media, and we plan to launch a morning show that will tap into the live coverage and weather content produced over the prior 24 hours. And we're working on gamification elements for our content. Expect to hear more about all these efforts as we progress through the year. We continue to make solid progress on our marketing technology platform from Pulse360. We have built a comprehensive proprietary platform that we believe is the only entity of its kind, focused exclusively on growing local agencies and local media companies, offering an omnichannel product that combines data-driven media planning, order management, fulfillment, and analytics into a single SaaS-based solution. The result is an experience for the client that is efficient, transparent, and more profitable as it eliminates the middleman and allows the client to keep more of the media margin. The platform offers not only broad access across Sinclair's diversified properties, but also from over 100 publishers with which we have partnerships, with a reach to over 90 million unique connected TV households. We believe the opportunity here is significant as we're offering an omnichannel solution that enables our partners to compete for the $240 billion in U.S. digital advertising budgets. And by owning our technology versus licensing, like many of our chief competitors, we believe we have a competitive advantage in making significant inroads in this marketplace. On the next-gen broadcasting front, another five Sinclair markets launched next-gen in the second quarter, making 10 thus far for the year and 32 overall. To date, next-gen TV is available in 60% of the households in Sinclair's licensed footprint. Meanwhile, 3.0 is advancing globally. Just this week, we announced that we entered into memorandums of understanding with two top Korean broadcast networks to collaborate on the development and implementation of of next-gen broadcast models and technologies in both the U.S. and Korea. Demonstrations of use cases for the technology are ongoing and include automotive video applications and enhanced GPS that takes the GPS precision from three meters down to three centimeters. We believe our joint efforts will allow for a greater efficiency in developing new business models around these future monetization opportunities. And finally, we continue to look for ways to best provide value to our shareholders. In addition to growth initiatives that I've touched upon, earlier in the year, we increased our quarterly dividend by 25%. And in June, we resumed our 10B51 share repurchase program, buying back another 500,000 shares or so through yesterday. This makes close to 39 million shares repurchased since the beginning of 2018, or 38% of our total shares outstanding. We also repurchased some of our STG notes at a discount in the open market, which Lucy will detail. And we continue to utilize our free cash flow to invest in attractive and strategic investments that we believe will enhance our business in the years ahead. Year to date, we've deployed 19 million investments and received distributions of 44 million. In 2021, those numbers were 125 million of investments and 48 million of distributions. And since 2017, we have made 303 million investments and received distributions of $269 million. And going back a bit further, these investments we have purchased since 2014 have generated an over 20% IRR to date. This diversified portfolio of investments made up of holdings in real estate, venture capital, and private equity, as well as strategic investments in companies, has an estimated market value as of June 30 of $764 million, or over $11 per share. Adding in our Bally's holdings, the Diamond AR facility, and Holden Company Cash, the estimated market value is over $1.2 billion, or over $17 per share. On the corporate social responsibility front, we announced the annual winners of our diversity scholarships awarded to high-achieving, diverse students seeking careers in the broadcast industry. This year, we opened it up to applicants nationwide and awarded $50,000 in scholarships. Since 2013, we've awarded over $250,000 to help bring more diversity to news and marketing teams throughout the country. Finally, we just finished up our Sinclair Cares Summer Hunger Relief fundraising campaign to help provide meals to needy families. The campaign helped provide approximately 1.8 million meals to children and families across the U.S. With that, I will turn it over to Rob to review the operational highlights for the quarter. Thanks, Chris.
spk07: Political ad revenues were certainly a big driver during the quarter, surpassing our most bullish expectations and setting a second quarter record for political revenues, including presidential election years. As Chris pointed out, combined with a strong first quarter, political revenues year-to-date are up more than 100% compared to 2018 and up over 20% versus 2020. We continue to expect strong third and fourth quarters for political spending, which are typically the largest quarters for political ad spend. I think it is fair to say that at this juncture, political revenue for 2022 could possibly approach the record level we had in 2020. The political strength in the quarter helped media revenues grow 5% over the prior year, which was within our guidance range. Core ad sales were down low single digits, coming in around the low end of our expectations on decreased revenues in the service category, particularly insurance and the sports betting category versus a year ago. In regards to our growth networks, Comet, Charge, and TBD, we're in the process of adding 13 million households to their combined coverage. The incremental rollout began late in the first quarter and will go through September. This will give the networks a total combined coverage of over 95 million households, a 7% increase in households over the end of last year. We expect the added audiences to drive impression-based sales. In Tennis Channel News, we are pleased with the viewing of this year's French Open, played from May 22nd to June 5th. The May 31st Rafael Nadal-Novak Djokovic match garnered 666,000 viewers. the most views ever for a Tennis Channel match, eclipsing the old record by 30%. Also during the French Open on May 31st, authenticated users made the Tennis Channel app the number three paid sports app, hitting an all-time high during that Nadal Djokovic instant classic. On the TennisChannel.com website, digital users grew double digits year over year as viewers found the French Open on the go. Tennis Channel also had another successful one live, with household impressions up over a million this year on Tennis Channel versus a year ago. And our new 24-7 T2 linear channel on Samsung TV Plus is reaching a brand new audience with over 700 live hours of tennis since its launch. I'll now turn it over to Lucy, who will delve deeper into the Sinclair financials.
spk05: Thank you, Rob. Given the deconsolidation of Diamond on March 1st of this year, and in order to have a meaningful discussion around comparative results and trends, the results I'm going to speak to are the Sinclair-only pro forma numbers for all periods, which excludes Diamond and excludes businesses sold in the prior 12 months. You can follow along with our slide deck or our financial supplements on our website. For actual results, including the periods the diamond was consolidated, please refer to this morning's earnings release. Media revenues for the quarter were up 6% versus the same period a year ago on a pro forma basis, driven by higher distribution and political ad revenues. And that was offset in part by the deferred management fee and lower core advertising as Rob discussed. Digital revenues increased 17% and the 831 million of media revenues was within the middle of our guidance range. Distribution revenue increased 4% versus last year, but fell short of our guidance range primarily due to higher than expected distributor churn. Subscriber return was mid single digit percents versus last year. Core advertising decreased low single digits in the second quarter compared to the same period a year ago and was close to the low end of our expectations. As Rob mentioned, we saw some weakness in the insurance category and some political crowd out. Total advertising revenues were very strong when including political, increasing 12% over last year and coming in at the upper end of the guidance range. Media expenses were 7% higher in this year's second quarter versus last year on higher network programming fees, digital expenses on the higher digital revenue, and timing of tennis tournaments. but were favorable to guidance with about half of the favorability related to timing with the expenses expected to be incurred in the back half of this year in part due to supply chain challenges and the other half the result of cost controls and open positions. Adjusted EBITDA for the quarter decreased 6% over the second quarter of last year on the diamond management fee deferral and the higher expenses, which were offset in part by the strength in political revenues and growth in net retrans. As compared to guidance, our 183 million of adjusted EBITDA more than exceeded the high end. Although adjusted free cash flow in the quarter came in lower than our guidance, this was due to a delay in a large IRS cash tax refund, which we're now expecting later this year. Excluding the delay of that refund, we were within our second quarter adjusted free cash flow guidance range. Adjusted free cash flow per share was $1.42 for the quarter, while diluted net loss per share was 17 cents. Our liquidity and balance sheet remained strong, with $420 million of cash at the end of the quarter. and with an undrawn revolver puts our liquidity at almost 1.1 billion at quarter end. Total debt at the end of the second quarter was 4.3 billion, and STG's first lien indebtedness ratio on a trailing eight quarters was 3.3 times, while total net leverage through the bonds was 4.1 times. In April, we closed on $750 million of new term loans that mature in 2029, with the proceeds used to redeem our 5 and 7, 8% senior notes that were set to mature in 2026, and to refinance the term B1 loans that were set to mature in early 2024. We also extended the maturity of 613 million of our revolving credit facility to 2027. Should a downturn in the economy occur, all of our near-term debt maturities have been addressed with our next maturity not until 2026. During the quarter, we repurchased in the open market 118 million face value of our senior notes due 2027 at a $14 million discount. We also repurchased 1.6 million common shares under a 10B51 stock buyback program, and an additional almost 500,000 shares since June 30th. Year to date, we have repurchased approximately 6% of our total shares outstanding for $114 million. Our total share count at the end of the quarter was approximately 70 million shares. Turning to our third quarter guidance, we expect another strong quarter for political, which is the main driver for media revenues, increasing approximately 10% to 12% versus the pro forma third quarter of last year. Third quarter court advertising is expected to be flat to down low single digit percents versus third quarter of last year pro forma. The downside of the range is driven by anticipated political crowd out, the absence of Olympics, and macroeconomic factors, while the high end is driven by growth of our digital revenues. Third quarter adjusted EBITDA is expected to be between 197 and 215 million compared to 190 million pro forma last year, with the increase primarily the result of higher political revenue, partially offset by the management fee deferral, higher network programming fees, technology and infrastructure upgrades, sales costs on the higher revenues, news content, and next gen initiatives. Adjusted free cash flow for the quarter is expected to be 162 to 182 million, or $2.32 to $2.60 per share. For the year, based on current assumptions and receipt of the delayed tax refund, We expect adjusted free cash flow per share of approximately $11.90 to $12.70 for 2022, excluding diamonds January and February results. And so with that, I would like to open it up to questions.
spk04: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on a speakerphone, to provide optimum sound quality. Please hold just one moment while we poll for questions. Your first question is coming from Dan Kornos with the Benchmark Company. Please pose your question. Your line is live.
spk08: Great. Thanks. Good morning. Maybe we can just talk a little bit, I guess maybe for... Rob or Chris, just around the interplay between political and crowd out and what you're seeing just overall. Obviously, you know, Chris, in your prepared remarks, you mentioned no one has a crystal ball. Obviously, none of us do. That would be great. But just in terms of all the commentary we've heard out there just around, you know, national softening, we've heard that local has held up better. But if I pull out political from both years and exclude tennis from it looked like core was down a little bit worse just within the broadcast segment. So maybe just kind of talk through what you're seeing there. You gave some category color, but just sort of expectations maybe on, you know, how that trends or how that holds up based on either cancellations or what you're seeing in the marketplace.
spk07: Yeah, Dan, this is Rob. I'll take that. We're seeing retail medical categories. They were strong in the first quarter and continued to hold well with in second quarter as well. As mentioned, services, which is our largest category, saw some weakness due to the insurance subcategory within that category. Auto is now coming on a go-forwards basis. Annualized, it's come full circle with the chip shortage, so we expect it to have a new normalized look until the chip's supply is fixed. So that will not be a drain on our pace. Sports betting category will be down slightly. What we're seeing is it's crossed the 50% threshold. So dollars are moving the network. And where our opportunities are is when each state opens up. And we expect Ohio to open up. That's where we'll see the money coming in. Due to the fact that we've built out a robust digital portfolio, we believe that both on-air and digital will remain the buffer to keep us strong on a go-forward basis. We will see some spot weakness on the court just due to the record political that is coming in. And for the first half of the year, it's robust. We have many races coming. going on in our key markets that will drive our business for the rest of the year.
spk01: Dan, I'll just add to that. So when you think about Q2 core being down low single digits but having a record political quarter, insurance going through various issues, auto still not back, we're very pleased with that outcome. And then looking forward, Q3, we'll definitely have significant crowd out, but political will be tremendous again, as we anticipate. And then Q4, we'll have a half a quarter of political, but also we're going to be lapping the impact of the cyber event we had last quarter. So the year, in terms of core advertising revenue in general, looks very positive for going forward.
spk07: I'll add one last thing, Dan. We've done extensive training on how to settle through a down economy with our local sellers. And so they're having those conversations on a contiguous basis with our local and regional clients on how to get through a potential recession. So we think we're fortified to go forward.
spk08: Got it. And just to be clear, you're not seeing, at least at this time, any incremental cancellations or anything that would make you additionally concerned relative to what we've heard from maybe others?
spk07: No, it's some sporadic cancellations, but on the up front, through our Sinclair Sports Group itself, the House of Brands, we've seen linear at a mid to high increase on spot and 43% increase on our digital spend. So what was laying in during the upfront leads us to believe we will be okay.
spk08: Got it. That's helpful. And then there's World Cup 2 later, which could help TV viewing. And then just sort of on the retran side, mid-singles is not, you know, that's sort of a little bit better, I think, than broader industry, which has been the trend for broadcast. Just any thoughts on sort of subtrends and or net retrends change in outlook for the balance of the year? Just want to, you know, get a sense of where you're guys headed at as you're looking going into 23.
spk05: Yes, I'll take that one, Dan. So, you know, we continue to forecast gross retrends to grow mid-single-digit percents this year, and that's assuming mid-single-digit percent subscriber churn, which is, you know, what we did see in second quarter and And then just, you know, while it's too early to provide any outlook for 23, what I will say is we have in the fourth quarter of this year, we have our ABC affiliates, which renew. And then on the distributor side, we have about just over 30% of our big four subscribers that renew in the back half of next year.
spk08: All right. That does it for me. Thanks very much. Glad to see I'm not entirely crazy when I say broadcast a little bit sticky. So thanks, guys. Thanks, Dan.
spk04: Your next question is coming from Stephen Cahal at Wells Fargo. Please pose your question. Your line is live.
spk06: Thank you. Maybe first just on political, could you add any more context to what drove such strong results in the second quarter? I assume it's a lot of primary activity, maybe some state referendums. It might be great to maybe help us think about it versus either 2018 or 2020 in terms of what was candidate money doing and what was issue or PAC money doing. And now that we're kind of through a lot of those primaries, Are you seeing the same sort of strength, you know, versus 18 or 20 kind of continue as you see the bookings come in for the third quarter? I mean, it just sounds like things are really, really strong. So just want to get as much color as we can there. And then, Lucy, I was wondering if you could just provide us with a little more color on the cash tax refunds. Does that impact your NOLs at all? Is it separate? And could any of that extend, and could you see anything like that in 2023 as well? Thank you.
spk05: Yes, and let me do the cash taxes first. So you have our forecast for this year, which is $138 million total for refunds. And so... What has not come in yet is 158 million of refunds, which the IRS has already approved. It's just held up in their processing. So we had that in our second quarter guidance, and that's now pushed into the back half of the year. And so that's just timing. And then, again, for 23, still too early to put out any kind of estimates for 23. You know, we do have a few, you know, some other additional audits that are in process with the IRS, but again, you know, too early to say outcome and timings of those.
spk01: But those audits, to be clear, do result in further returns. We just, they still are in process.
spk07: And on the political side, I'll set the macro first. It was estimated $5.7 billion was spent in 2018. The cross-screen media's most recent call is for $9 billion to be spent in 2022. So first half of the year, there were many issues that were driving it, as well as some of the primaries. But when we look at the issues on the ballot, We have religion issues, abortion issues, gambling issues, firearms amendment. We have abortion, marijuana for recreational, minimum wage, citizen voting, right to health and right to work. So we think all those factors are gonna drive and wherever else the issues pop up that we aren't seeing. And in Florida, Christie just announced that he's raised $20 million for the race there. So the money keeps coming in across the country. So that's why we're very robust in our estimates.
spk06: Thanks. And maybe just one quick follow-up. Are you able to update us on how many Valley shares are now owned at SPGI or STG and any progress on those performance warrants? Thanks.
spk01: We'll follow up in a second on the specific number. I don't have that at the tip of my fingers. But in terms of our performance metrics, which we believe are very low, and we have 10 years from the original date of the deal to achieve them, or rather Bally's achieving them in terms of total users, they have launched in six markets now. with their latest offering, which takes the technology from Europe and brings it to the U.S. And so they have made progress towards those objectives. Those are those performance levels. They have not reached them yet, and we continue to believe that they will be easily achieved within the span of time.
spk03: The number of shares is 12.8 million share equivalent. Yeah, sorry, 12.8 million. That's the total. It's not the amount subject to performance levels. Operator?
spk04: Your next question is coming from Aaron Watts at Deutsche Bank. Please pose your question. Your line is live.
spk09: Good morning, everyone. Two questions for me, I guess. First, Lucy, you were able to take advantage of discounted bond prices this past quarter. Could we see more of that? And hoping to hear your updated thoughts around leverage for the station group now. A question I ask in light of a large portion of the management fees from Diamond now being deferred that were previously paid in cash. Do you see that impacting leverage and where do you see leverage living over the near-term horizon?
spk05: Yeah, so, you know, look, Erin, you know, we've, you know, here at the company, you know, we've been opportunistic over time, whether it's on the shares or the bond side. So you could see us continue to be opportunistic on that front. What I would say, when you think about our liquidity today, at the end of the quarter, which was almost $1.1 billion, and our total net leverage low force, which is in our target range, And then going into the back half of the year, which is when the height of the political season will take place, the cash tax refund comes in. We expect to end 2022 in a very strong balance sheet and liquidity position, both from leverage and liquidity. And so when you think about heading into 23, in a non-political cycle. And if there is any kind of a, you know, potential downturn in the economy, we feel very confident that we are, we would enter that period in a very strong position and very strong leverage levels. And then not to mention, you know, that we've, you know, we've strengthened the balance sheet further by taking out any of the near-term maturity. So if there, you know, ended up being any kind of financial, marketplace stress, we don't have any debt maturities to come up for another four years. So again, very strong position that we've been working towards for this year, strong free cash flow that we'll generate this year, and that'll put us into a very good position heading into 23.
spk09: Okay, great. That's really helpful. And then my second question is, It's been some time since I've asked about Tennis Channel, but you highlighted some themes, so I thought I could follow up. With Serena seemingly close to retirement and a couple of the big three men's players playing less or also sadly nearing the end of their professional careers, how is that impacting viewership throughout the year for the network and then also adoption of the app? And then kind of secondly, given how competitive competitive bidding for sports rights has gotten, can you remind us how long the key deals are locked up for at Tennis Channel? And then finally, is Tennis Channel generating positive EBITDA for you and does it fit strategically with the staging group going forward?
spk01: Sure. So, we have seen some rating declines recently with some of the bigger players playing less, as you mentioned. But we have a lot of optimism around the new crop of men that are coming through the system, and they're on the women's side, like Coco Gulf and Naomi Osaka. So there is a new generation of stars being born as we speak, and we think as they maturate into the process, that'll be good for viewership. And in terms of app and streaming, that has been a huge area for growth with Tennis. Authenticated streaming is up something like 200% this year. The S5 product, which does not include the main content on Tennis Channel, that'll be something... from end of 23, beginning of 24, that will roll out. But the extra content on PC Plus has reached new highs this year in terms of subscribers. So there's a huge opportunity on streaming, generally speaking, and not to mention T2 being a top three sports channel on Samsung TV. Once that one-year exclusivity is over, it's going to expand into other fast, channel platforms. It's also going to expand internationally. We have fast channels in some of our international markets, but the rest will also expand into the fast channel environment. So there's a lot of growth factors that we're very excited about for tennis. And your second question in terms of how long contracts are. It really varies all the way from 2022 all the way down to 2035. One of the things that we really like about tennis is that it's a fragmented industry. We don't rely on one single counterparty for our rights. We have multiple counterparties for our rights. And that means that Tennis Channel has a stronger position within the value chain as the aggregator within the space. And so we don't worry about necessarily any one rights deal when it comes to tennis because of that fragmented value chain. So it really is a good industry setup for us. And in terms of your question on EBITDA, it is... positive. I mean, it's more than paid for itself since the acquisition, Tennis Channel, but it's less than 10% of our total EBITDA within STG, SBG. But as I mentioned before, it really has multiple growth factors that we're quite excited about, including international, where it's in eight countries total, with more being added in the future. And in those countries, we're starting to add Live rights, like in Germany, Austria, Switzerland, we added the WTA rights. We'll start to do that in other territories. We'll have SBOD platforms and FAST platforms in these other countries. It has got a great multi-platform strategy with tennis.com being at the center of the digital strategy. That will go multi-language across the globe. Tennis, by the way, is spelled the same in just about every language that matters. It's strong on SVOD. It's strong on fast channels. And as I mentioned, at some point in the not-too-distant future, we'll also have a direct-to-consumer strategy here in the U.S. for the main product on Tennis Channel. And then lastly, it also is expanding into other sports. If you've watched Tennis Channel recently, you'll see pickleball coverage, which is the fastest growing sport in America. And we're going to get more involved in that sport as well as other lifestyle sports to continue to expand the amazing production capabilities that we've built out for Tennis Channel. So we couldn't be more excited about Tennis Channel in terms of its future. And, you know, it's not necessarily strategic to the television group, but it is a great asset that we think is worth an incredible amount of value.
spk07: So, Aaron, also I'll add is that there's always a cycle of generations. Serena, up until Wimbledon, hadn't played for 12 months, and you had a You had the U.S. Open story with the British Emerita Condu, who's now playing in D.C. right now. You have Carlos Alvarez, who is the next generation Spaniard coming up and is considered to be more advanced than where Rafa was. Now, Rafa has had an incredible career, so you don't know where that career is going, but Even in Indian Wells, which is considered the fifth major, an American, Taylor Fritz, won that tournament. So there is a next generation coming up on both sides, the women and men, that people will be tuned to, and they'll be the next idols of all the kids that are playing across the country.
spk09: Yeah, share your enthusiasm about the younger crop. Appreciate all the details and the time. Thank you.
spk04: Thank you. Your next question is coming from Barton Crockett at Rosenblatt Securities. Please pose your question. Your line is live.
spk10: Okay. Thank you. I was wondering if you could talk a little bit more about what you're seeing in pacing so far in the third quarter. I understand you're talking about what your guidance reflects, but how does that kind of outlook compare to what you're seeing right now? And just more generally, with all this nervousness about the macro, I know you talked about insurance. I don't know if that's macro related. To what degree are you seeing macroeconomic headwinds or not in your ads business?
spk03: Yeah, I could give you some color.
spk07: I mean, we're pacing the outlook we're pretty confident with is, again, with the extensive political, it artificially will tighten up our supply, which will lead to to obviously increased rates corresponding with the diminished inventory. And on the macro level, like I said, we're coming around the corner. So we'll have apples to apples pace with the chip shortage. So we'll have some normalized environmental pace with auto, which have been a drag for the last several quarters. Again, we're selling through this tough economy, and local advertisers continue to be strong. And in the up-fronts, we saw strong activity. Again, I'm not ready to call where the economy is going to go long-term, but due to the strength of all our digital assets that we've built in a portfolio that sells cross-platform, we feel we're in a good position.
spk01: And I'll just add to that, despite significantly more political coming in in Q3, what's embedded in our guidance is not really any material reduction in the core advertising performance that's on Q2. So I think that is a pretty strong statement right there. And whatever weakness we have seen, like in insurance, That certainly is driven by some macro concerns. A lot of insurance companies ended up having reduced profitability due to various environmental disasters and whatnot that have hit their underwriting profitability. That's pretty unique to insurance. The auto situation is pretty unique to auto given the chip shortage. So we're not really seeing broad macro pullbacks in the advertising market. It's more industry-specific based on various supply chain issues or industry-specific issues.
spk10: Okay. And then if I could just follow up on one category that you guys had highlighted, which was sports betting. It sounds like from what you're saying that the pressure there is really allocation of dollars to national networks because they're now at large enough in presence and footprint for sports betting to do that. I just want to make sure I understood that correctly. And then, you know, it sounds like you're saying that the growth driver from here is going to be new markets opening up like Ohio. But then it sounds like over time that that movie will be, you know, here today, gone tomorrow as it moves to national. So I'm just wondering, because this has been seen as a big growth category, you know, not just for openings, but overall. How should we feel about sports betting as a growth category for local TV from here, do you think?
spk07: Yeah, I think it's flattened. The cost of acquisition has gone over $1,000, and I think we have to wait because of my subjective opinion and what's been on the street is that there'll be some consolidation because of the cost to acquire an active better. And so... From the broadcast side, they might buy some high-profile sports, but we see it flattening. But when we get into our sports segment in a couple weeks, it's much more robust in the sports segment.
spk01: So, look, I'd add on to sports betting. Like, in a new category like this, there's always ups and downs and volatility. But bigger picture, this is a category that did not exist a few years ago. And it's set to become somewhere, you know, I don't know where maturity will be, somewhere between 5% and 10% of our total mix. You know, that's a pretty significant category that didn't exist three years ago. And, you know, I think that it will end up maturing and end up being, you know, a 5% to 10% category, which is huge. The other thing I, you know, interesting sort of tidbit on this on sports betting is that on the RSN side, it continues to grow and be incredibly strong. So there's the, that is, you know, any of the, you know, sort of points that Rob made about national and that, you know, would not be applicable to the RSNs as they're sort of a tailor-made fit for sports betting.
spk07: The other thing to think of is as we, progress through the year, we'll be adding game centers to the broadcast websites, and that'll be opportunities for sponsorships and, again, to increase our first-party data as well. So we believe in a lean forward strategy, so communication, broadcast, and on our sports side will become prevalent.
spk10: Okay, that's helpful. Thank you.
spk04: Your next question is coming from Edward Riley at EF Hutton. Please pose your question. Your line is live.
spk02: Hey, guys. Thanks for taking my question. Just to piggyback on Aaron's question, I was wondering if you could give some more color on the strength in digital by platform.
spk03: Yeah.
spk07: Look, we believe, obviously, our station websites with monthly averaging between 80 and 90 million uniques gives us a huge opportunity to launch many different business opportunities from that gamification to e-commerce to marketing affiliates to launching some of our own products that will be sold directly to our core audiences as well. As we said, we had a record audience on tennischannel.com during the French Open. So our whole thesis is that we are going to give our audience an opportunity to receive our content where they want it, how they want it. So we feel really strongly about that. And then Compulse, our SaaS business, There's a major focus on growing that business and being a dominant player in the local space.
spk02: Have you found it challenging to acquire additional customers given kind of the macro weakness here for Compos specifically?
spk07: No, because, you know, we don't believe so because of the SaaS business. People will be in there. You've seen this. percentage of budgets going to CTV. And so, especially during the political crowd out, we expect money to be shifting that would have gone to some of the core going to digital expenditures.
spk01: And the other thing to remember about Compulse 360 is that it's unique in that it offers transparency and flow-through pricing in a marketplace that's dominated by arbitrage pricing. And so as people seek to make, to have more transparency, to be more efficient, to keep more of the media margin for themselves, Compulse answers all those questions and does so in an automated, you know, efficient way. So that value proposition is very, very strong. I think it will only get stronger as, you know, as things potentially get tighter.
spk03: Great. Thank you.
spk04: Your next question is coming from David Hamburger with Morgan Stanley. Please pose your question. Your line is live.
spk11: Hi, thanks. Just a couple questions. I noticed that DSG management fee deferral resulted in $16 million of reduced revenue in the quarter. I was wondering, is that a good run rate that we should think about going forward for that number? And then can you tell us kind of, you mentioned it also in the EBITDA results, you know, what sort of margins? should we expect on that fee?
spk05: Yeah, so on the management fee, because, again, we're booking on a cash basis as opposed to the total. So I would, you know, I think you're going to be safe if you just build in a similar run rate, which was, you know, about the $10 million for each of the quarters going forward.
spk11: And what sort of margins? for EBITDA purposes should we be thinking about on that?
spk01: It's pretty much 100% flow through. Yeah.
spk11: Okay. Yeah. Okay, great. And then just to reconcile kind of the cash, I know that the DSG AR facility of about 400 million was about 163 million drawn last quarter. Can you tell us how much that either a decrease or increase in that outstanding
spk03: affected Sinclair's cash balances. Sinclair, the counterparty to the AR. It increased, I think.
spk01: How much was it? It's around $200 million, I think.
spk05: Oh, the total? The total, yeah. About $193, I think. Hold on a minute, David. We just didn't have that number handy. But that, you know, that number, that AR facility is not in our cash number, right?
spk11: No, I know, but you're the counterparty.
spk05: Yeah, so it went from $163 million drawn at the end of last quarter to $193 million drawn this quarter. And again, that's going to fluctuate based on their AR that's outstanding.
spk11: Okay. And I know usually you give You know, a kind of, and then the question was asked before is maybe elaborate a little bit. You know, you have the deferred tax asset, you know, from Diamond and the refunds, I guess, is more of just a timing issue. How much remains, you know, in terms of the deferred tax asset that you are holding on Sinclair's balance sheet as a result?
spk03: Because I know Diamond was deconsolidated for accounting purposes, but I think for tax purposes, you're still... Sure.
spk01: Look, there's... We don't have that. We can follow up, David, with what that number is, but there's still significant tax benefits flowing through from that ownership.
spk11: Okay. Thank you very much. Okay.
spk03: Thank you.
spk04: There are no further questions in queue at this time. I would now like to turn the floor back over to the President and Chief Executive Officer, Chris Ripley, for any closing comments.
spk01: Thank you all for joining us today. If you should need more information or have additional questions, please don't hesitate to give us a call.
spk04: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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