Sinclair Bets Big On Local Sports Gambling With $10.6B RSN Deal

In buying 21 regional pay-TV sports networks from Disney for $10.6 billion, Sinclair Broadcast Group has made a big bet on the potential for sports and sports gambling to help transform the company far beyond its over-the-air roots.

In partnering with Byron Allen of Entertainment Studios on the deal, Sinclair is positioning itself less for a toehold in the eroding pay-TV business than in diversifying its own distribution and getting ready for a future where gambling on sports is widely available and highly lucrative.

Investors certainly liked the deal. In early trading Monday, the stock was up big, rising 30 percent to more than $58 per share.

Sinclair previously partnered this year with the Chicago Cubs baseball team to create Marquee Sports Network, which will launch next year. Sinclair also joined the New York Yankees and Amazon in Disney's $3.5 billion sale of the YES Network. Disney was selling off 22 RSNs as part of divestiture requirements to complete its $71 billion purchase of most of 21st Century Fox.

Sinclair already owns The Tennis Channel, which holds rights to many of the major tennis tournaments held around the world.

And sports of all kinds – already a sticky, lucrative programming option given the willingness of fans to pay for access – is about to become even more lucrative with the increasing legalization of gambling.

As Sinclair CEO Christopher Ripley told me a few months ago, tennis is already the second-most wagered-upon sport in Europe, where gambling is widely legal. Soccer, of course, is No. 1.

Most of the tennis gambling "handle," or amounts wagered, comes from in-game "prop" bets (who will win the next game or set, or how many aces will a player serve) rather than overall match outcomes, Ripley said.

The company is already working on technology that could be used to power in-game betting on its broadcasts, Ripley said.

Tennis, with its numerous breaks and game-match-set structure, is ideal for lots of prop bets. But many popular American sports, most notably football and baseball, but even more fluid and fast-paced sports such as basketball, can also become a lucrative source of legal betting.

The company also owns other sports properties, including online service Stadium, Ring of Honor Wrestling and high school sports programming  on its local stations. 

“This acquisition is an extraordinary opportunity to diversify Sinclair’s content sources and revenue streams with high-quality assets that are driving live viewing,” Ripley said in announcing the deal. “We also see this as an opportunity to realize cross-promotional collaboration, and synergistic benefits related to programming and production.”

A U.S. Supreme Court decision has cleared the way for state-by-state legalization of gambling in the United States, and already New Jersey and a handful of other states have jumped in, with big paydays for the states involved.

The main holdup for further gambling expansion likely will be efforts by the major sports leagues, led by the NBA, to get a cut of the take. They're pushing provisions in legalization bills for so-called "integrity fees."

Those issues will almost certainly get worked out, given projections that legalized gambling across most of the U.S. could generate tens of billions of dollars.

And that's what Sinclair is betting on with the RSN acquisitions. Ripley told Reuters on Sunday that his company would be open to licensing some of the sports content it acquired in the deal to outlets such as Amazon, Disney and AT&T as those companies jostle for position in the increasingly competitive online-streaming space.

"There is only going to be more competition and more interest for key assets like this in the future," Ripley said. "We have an interest in as broad a distribution as possible."

Ripley called the RSN deal a bargain. It's certainly far below the estimates of $15 billion to $20 billion that most analysts had predicted for the portfolio. But it could be valuable for multiple reasons.

For instance, the company expects to profit from advertising about gambling, Ripley said.

He estimated industrywide, some $1.5 billion to $2 billion in new revenue would come in from sports book operators and other companies in the space.

Given broadcast advertising's cyclical nature – it yo-yos up and down on election-year and Olympics/World Cup spending – that could be a big deal, especially because other ad revenues have been flat or slightly down in recent years.

The deal could also be a big boost to Sinclair's recently launched STIRR service, which features local news and sports content from its broadcast stations that cover about 40 percent of the country, all mixed in with other ad-supported entertainment and news content from about 30 partners. Initial viewership results for STIRR have reportedly been well above internal projections, but the company has not released any details.

Adding the RSN content to STIRR's offerings, either directly as Viacom is doing on new acquisition Pluto.TV with limited versions of its cable properties, or as a premium upsell, could boost STIRR as well.

Sinclair also has been a big proponent of ATSC 3.0, the new broadcast technology now being rolled out around the country. Among other capabilities, ATSC 3.0 will allow broadcast groups to provide addressable, targeted advertising to viewers, and to offer new channels and data services within the same bandwidth they're now using for their main signal.

It's easy to imagine those data services including sports-related information tied to the RSN network's teams, as well as gambling information.

STIRR's focus on local news and sports represents a half-step toward an ATSC 3.0 future, but relying on widely available Internet-based technology. ATSC 3.0 itself is not expected to have a substantial impact until at least 2021 because of the challenges of both broadcaster rollout and consumer adoption of newly capable TVs, external streaming boxes and even mobile devices.

The RSN deal represents a big turnaround for Sinclair, which was blocked last year on regulatory grounds from completing a $3.9 billion acquisition of Tribune Media.

With 200 local stations, Sinclair has been the nation's biggest broadcast group, but regulators opposed the deal because they said it would give Sinclair too dominant a position in broadcasting.

Late in the year, rival station group Nexstar offered about $6 billion for Tribune, and appears likely to consummate the deal, making it the nation's largest station group. Sinclair, meanwhile, is laying its bets in a very different game.