UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 20192020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 000-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
| Maryland | 52-1494660 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
10706 Beaver Dam Road
Hunt Valley,, MD21030
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Class A Common Stock, par value $ 0.01 per share | SBGI | The NASDAQ Stock Market LLC | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
At June 30, 2019,2020, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $3,515$951 million based on the closing sales price of $53.63$18.46 on the NASDAQ stock market on June 28, 2019,30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter. The determination of affiliate status is solely for the purposes of this report and shall not be construed as an admission for the purposes of determining affiliate status.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Number of shares outstanding as of | ||||||||
| Title of each class | February | |||||||
| Class A Common Stock | ||||||||
| Class B Common Stock | 24,727,682 | |||||||
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of our definitive Proxy Statement relating to our 20202021 Annual Meeting of Shareholders are incorporated by reference into Part III (Items 10,11,12,13, and 14) of this Annual Report on Form 10-K. We anticipate that our Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2019.
2020.
SINCLAIR BROADCAST GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20192020
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, contingencies, our dividend policy, and other non-historical statements. When we use anywords such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of thethese words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, we are making forward-looking statements. Although management believes that the expectations reflected in suchSuch forward-looking statements are based upon present expectationssubject to various risks, uncertainties and reasonable assumptions, ourassumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results couldto differ materially from those set forthindicated in these statements including, but not limited to, those listed below in summary form and as more fully described under Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk, as such factors may be updated from time to time in our periodic filings with the forward-looking statements. United States Securities and Exchange Commission (SEC), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings with the SEC. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all
SUMMARY OF RISK FACTORS
Our business is subject to numerous risks and uncertainties that could causeaffect our actual resultsability to differ materially from those presentedsuccessfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A. Risk Factors, before deciding whether to invest in our forward-looking statements:securities.
•The COVID-19 pandemic or the impactfuture outbreak or pandemic of changes in nationalany other highly infectious or contagious diseases, could have a material and regional economiesadverse effect on or cause disruption to our business or financial condition, results of operations and credit and capital markets;
cash flows, the potential impact of changes in tax law;
•If the activitiesrate of our competitors;
•We may not be able to renegotiate distribution agreements at terms comparable to or more favorable than our current agreements and service categories;networks with which we are affiliated currently, or in the future, may require us to share revenue from distribution agreements with them.
•We face intense, wide-ranging competition withfor viewers and advertisers.
•Competition from other broadcast television stations, radio stations, traditional and virtual multi-channel video programming distributors (MVPDs), internet and broadbandbroadcasters or other content providers and other print and media outlets servingchanges in the same markets;technology may cause a reduction in our advertising revenues and/or an increase in our operating costs.
•We depend on the performance of networks and syndicators that provide us with programming content, sports teams performance, as well as the performance of internally originated programming;
•Further change in the availability and cost of programming from networks and syndicators, as well as the cost of internally originated programming;
•Theft of our intellectual property may have a material negative effect on us and our results of operations, and we may become subject to infringement or other advertising restrictions, such as payola rules;claims relating to our consent or technology.
•We could be adversely affected by labor disputes and legislation and other union activity associatedactivity.
•The effects of the economic environment could require us to record an asset impairment of goodwill and indefinite-lived intangible assets.
•Unrelated third parties may bring claims against us based on the nature and content of information posted on our linear programming, social platforms and websites maintained by us.
•The Smiths exercise control over most matters submitted to a shareholder vote and may have interests that differ from other security holders. They may, therefore, take actions that are not in the interests of other security holders.
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•Our advertising revenue can vary substantially from period to period based on many factors beyond our control. This volatility affects our operating results and may reduce our ability to repay debt, or service our debt, or reduce the market value of our securities.
•We purchase television programming in advance based on expectations about future revenues. Actual revenues may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
•We internally originate television programming in advance based on expectations about future revenues. Actual revenues could fluctuate and may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
•We may lose a large amount of programming if a network terminates its affiliation or program service arrangement with film, acting, writing,us, we are not able to negotiate arrangements at terms comparable to or more favorable than our current agreements, or if networks make programming available through services other than our local affiliates, which could increase our costs and/or reduce our revenue.
•We may be subject to investigations or fines from governmental authorities, such as, but not limited to penalties related to violations of Federal Communications Commission's (FCC) indecency, children's programming, sponsorship identification, and other guildsFCC rules and professional sports leagues;policies, the enforcement of which has increased in recent years, and complaints related to such violations may delay our renewal applications with the FCC.
•Federal regulation of the broadcasting community’sindustry limits our operating flexibility, which may affect our ability to developgenerate revenue or reduce our costs.
•The FCC's multiple ownership rules and adopt a viable mobile digital broadcast television (mobile DTV) strategy and platform, such as the adoption of NEXTGEN TV (formerly known as ATSC 3.0) broadcast standard, and the consumer’s appetite for mobile television;
•Our local sports segment is substantially dependent on the popularity of the Major League Baseball (MLB), National Basketball Association (NBA), and National Hockey League (NHL) teams whose media rights we control.
•Our advertising revenue can vary substantially from period to period based on many factors beyond our control, which volatility may adversely affect our results of operations.
•We may be obligated to make certain payments to local teams during labor disputes.
•We may need to obtain FCC-regulated licenses for regional sports network video distribution.
•Our substantial debt could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
•We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
•Despite our current level of debt, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described herein.
•Our variable rate debt subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
•Commitments we have made to our lenders limit our ability to generate synergiestake actions that could increase the value of our securities and leverage new revenue opportunities;business or may require us to take actions that decrease the value of our securities and business.
•A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt and loss of assets securing our loans.
•The total assets, net income and attributable EBITDA of our subsidiary guarantors of the Diamond Sports Group, LLC (DSG) notes may decrease substantially if our existing subsidiary guarantors cease to be wholly-owned as a result of the issuance of equity of the subsidiaries to third parties.
•Our joint venture agreements contain provisions which may result in cash payments that would reduce our ability to renew contracts with leaguesrepay our obligations under our debt.
•Financial and sports teams;
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PART I
ITEM 1. BUSINESS
We are a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, regional and national sports networks, and digital platforms. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us. Additionally, we own digital media products that are complementary to our extensive portfolio of television station and RSNregional sports network related digital properties. Outside of our media related businesses, we operate technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other non-media related investments.
We are a Maryland corporation founded in 1986. Our principal executive offices are located at 10706 Beaver Dam Road, Hunt Valley, Maryland 21030. Our telephone number is (410) 568-1500 and our website address is www.sbgi.net. The information contained on, or accessible through, our website is not part of this annual report on Form 10-K and is not incorporated herein by reference.
Segments
As of December 31, 2019,2020, we have two reportable segments: local newsbroadcast and marketing services andlocal sports. Our local news and marketing servicesbroadcast segment is comprised of all of our television stations.stations, which are owned and/or operated by our wholly-owned subsidiary, Sinclair Television Group, Inc. (STG) and its direct and indirect subsidiaries. Our local sports segment is comprised of our regional sports networks.networks, which are owned and operated by our subsidiary, Diamond Sports Group, LLC (DSG) and its direct and indirect subsidiaries. We also earn revenues from our owned networks, original content, digital and internet services, technical services, and non-media investments. These businesses are included within other.
Broadcast
As of December 31, 2019,2020, our local news and marketing servicesbroadcast segment consists primarily of our broadcast television stations (stations).stations. We own, provide programming and operating services pursuant to local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as JSAsjoint sales agreements (JSAs) and SSAs)shared services agreements (SSAs)) to 191188 stations in 8988 markets. These stations broadcast 629628 channels, including 241240 channels affiliated with primary networks or program service providers comprised of: FOX (59)(57), ABC (41)(40), CBS (30)(31), NBC (24)(25), CW (48), and MyNetworkTV (MNT) (39). The other 388 channels broadcast programming from programming services including Antenna TV, Azteca, Bounce Network, CHARGE!, Comet, Dabl, Decades, Estrella TV, Get TV, Grit, Me TV, Movies!, Stadium, TBD, Telemundo, This TV, Unimas,UniMas, Univision, Weather, Nation, and two channels broadcasting independent programming. Solely for the purpose of this report, these 191188 stations and 629628 channels are referred to as “our” stations and channels, and the use of such term shall not be construed as an admission that we control such stations or channels. Refer to our Television Markets and Stations table later in this Item 1. for more information.
Our local news and marketing servicesbroadcast segment provides free over-the-air programming to television viewing audiences in the communities we serve through our local television stations. The programming that we provide on our primary channels consists of network provided programs, locally-produced news, local sporting events, programming from program service arrangements, syndicated entertainment programs, and internally originated programming. We provide live, local sporting events on many of our stations by acquiring the local television broadcast rights for these events.events or through our relationship with national networks.
We are one of the nation's largest producers of local news. We produce approximately 2,550more than 2,500 hours of news per week at 129130 stations in 8182 markets. During 2019,2020, our stations were awarded with 386356 journalism awards, including fourone National Edward R. Murrow awards.award.
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Our local news and marketing servicesbroadcast segment derives revenue primarily from the sale of advertising inventory on our television stations and fees received from traditional multi-channel video programming distributors (MVPDs), such as cable and satellite providers; virtual MVPDs (vMVPDs, and together with MVPDs, "Distributors"), which distribute multiple television channels through the internet without supplying their own data transport infrastructure; and other over-the-top (OTT) distributors that deliver live and on-demand programming over the internet, for the right to distribute our channels on their distribution platforms.platforms without a subscription with a Distributor. We also earn revenues by selling digital advertisements on third-party platforms and providing digital content to non-linear devices via websites, mobile, and social media advertisements. Our objective is to meet the needs of our advertising customers by delivering significant audiences in key demographics. Our strategy is to achieve this objective by providing quality local news programming, popular network, syndicated and live sports programs, and other original content to our viewing audience. We attract most of our national television advertisers through national marketing representation firms which have offices in New York City, Los Angeles, Chicago, Atlanta, and Dallas. Our local television advertisers are primarily attracted through the use of a local sales force at each of our television stations, which is comprised of approximately 700600 marketing consultants and 10090 local sales managers company-wide.
Our operating results are subject to cyclical fluctuations from political advertising. Political spending has been significantly higher in the even-number years due to the cyclicality of political elections. In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election. Because of the political election cyclicality, there has been a significant difference in our operating results when comparing even-numbered years’ performance to the odd numbered years’ performance. Additionally, our operating results are impacted by the number and importance of individual political races and issues discussed on a national level as well as those within the local communities we serve. We believe political advertising will continue to be an important advertising category in our industry. Political advertising levels may increase further as political-activism, around social, political, economic and environmental causes, continues to draw attention and Political Action Committees (PACs), including so-called Super PACs, continue to increase spending.
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Television Markets and Stations. As of December 31, 2019,2020, our local news and marketing servicesbroadcast segment owns and operates or provides programming and/or sales and other shared services to television stations in the following 89 markets as follows:88 markets:
| Market | Market Rank (a) | Number of Channels | Stations | Network Affiliation (b) | ||||||||||||||||||||||
| Washington, D.C. | 9 | 6 | WJLA, WDCO-CD, WIAV-CD | ABC | ||||||||||||||||||||||
| Seattle / Tacoma, WA | 12 | 6 | KOMO, KUNS | ABC | ||||||||||||||||||||||
| Minneapolis / St. Paul, MN | 14 | 4 | WUCW | CW | ||||||||||||||||||||||
| Portland, OR | 21 | 7 | KATU, KUNP | ABC | ||||||||||||||||||||||
| St. Louis, MO | 23 | 4 | KDNL | ABC | ||||||||||||||||||||||
| Raleigh / Durham, NC | 24 | 7 | WLFL, WRDC | CW, MNT | ||||||||||||||||||||||
| Pittsburgh, PA | 26 | 7 | WPGH, WPNT | FOX, MNT | ||||||||||||||||||||||
| Baltimore, MD | 28 | 8 | WBFF, WNUV(c), WUTB(d) | FOX, CW, MNT | ||||||||||||||||||||||
| Nashville, TN | 29 | 10 | WZTV, WNAB(d), WUXP | FOX, CW, MNT | ||||||||||||||||||||||
| Salt Lake City, UT | 30 | 10 | KUTV, KMYU, KJZZ, KENV(d) | CBS, MNT, IND | ||||||||||||||||||||||
| San Antonio, TX | 31 | 9 | KABB, WOAI, KMYS(d) | FOX, NBC, CW | ||||||||||||||||||||||
| Columbus, OH | 33 | 11 | WSYX, WTTE(c), WWHO(d) | ABC, CW, MNT, FOX | ||||||||||||||||||||||
| Asheville, NC / Greenville, SC | 35 | 9 | WLOS, WMYA(c) | ABC, MNT | ||||||||||||||||||||||
| Cincinnati, OH | 36 | 8 | WKRC, WSTR(d) | CBS, CW, MNT | ||||||||||||||||||||||
| Milwaukee, WI | 37 | 3 | WVTV | CW, MNT | ||||||||||||||||||||||
| Austin, TX | 38 | 2 | KEYE | CBS | ||||||||||||||||||||||
| West Palm Beach / Ft Pierce, FL | 39 | 13 | WPEC, WTVX, WTCN-CD, WWHB-CD | CBS, CW, MNT | ||||||||||||||||||||||
| Las Vegas, NV | 40 | 9 | KSNV, KVCW | NBC, CW, MNT | ||||||||||||||||||||||
| Grand Rapids / Kalamazoo / Battle Creek, MI | 41 | 3 | WWMT | CBS, CW | ||||||||||||||||||||||
| Harrisburg / Lancaster / Lebanon / York, PA | 42 | 4 | WHP | CBS, CW, MNT | ||||||||||||||||||||||
| Oklahoma City, OK | 44 | 7 | KOKH, KOCB | FOX, CW | ||||||||||||||||||||||
| Birmingham / Tuscaloosa, AL | 45 | 15 | WBMA-LD, WDBB(c), WTTO, WABM | ABC, CW, MNT | ||||||||||||||||||||||
| Norfolk, VA | 46 | 4 | WTVZ | MNT | ||||||||||||||||||||||
| Greensboro / High Point / Winston-Salem, NC | 47 | 7 | WXLV, WMYV | ABC, MNT | ||||||||||||||||||||||
| Providence, RI / New Bedford, MA | 52 | 4 | WJAR | NBC | ||||||||||||||||||||||
| Buffalo, NY | 53 | 7 | WUTV, WNYO | FOX, MNT | ||||||||||||||||||||||
| Fresno / Visalia, CA | 55 | 12 | KMPH, KMPH-CD, KFRE | FOX, CW | ||||||||||||||||||||||
| Richmond, VA | 56 | 5 | WRLH | FOX, MNT | ||||||||||||||||||||||
| Mobile, AL / Pensacola, FL | 57 | 12 | WEAR, WPMI(d), WJTC(d), WFGX | ABC, NBC, IND, MNT | ||||||||||||||||||||||
| Wilkes Barre / Scranton, PA | 58 | 10 | WOLF(c), WSWB(d), WQMY(c) | FOX, CW, MNT | ||||||||||||||||||||||
| Little Rock / Pine Bluff, AR | 59 | 4 | KATV | ABC | ||||||||||||||||||||||
| Albany, NY | 60 | 7 | WRGB, WCWN | CBS, CW | ||||||||||||||||||||||
| Tulsa, OK | 61 | 4 | KTUL | ABC | ||||||||||||||||||||||
| Dayton, OH | 65 | 8 | WKEF, WRGT(d) | ABC, FOX, MNT | ||||||||||||||||||||||
| Spokane, WA | 66 | 3 | KLEW | CBS | ||||||||||||||||||||||
| Des Moines, IA | 68 | 4 | KDSM | FOX | ||||||||||||||||||||||
| Green Bay / Appleton, WI | 69 | 8 | WLUK, WCWF | FOX, CW | ||||||||||||||||||||||
| Wichita, KS | 70 | 19 | KSAS, KOCW, KAAS, KAAS-LP, KSAS-LP, KMTW(c) | FOX, MNT | ||||||||||||||||||||||
| Roanoke / Lynchburg, VA | 71 | 4 | WSET | ABC | ||||||||||||||||||||||
| Omaha, NE | 72 | 7 | KPTM, KXVO(c) | FOX, CW, MNT | ||||||||||||||||||||||
| Flint / Saginaw / Bay City, MI | 73 | 11 | WSMH, WEYI(d), WBSF(d) | FOX, NBC, CW | ||||||||||||||||||||||
| Charleston / Huntington, WV | 75 | 8 | WCHS, WVAH(d) | ABC, FOX | ||||||||||||||||||||||
| Columbia, SC | 76 | 4 | WACH | FOX | ||||||||||||||||||||||
| Rochester, NY | 77 | 7 | WHAM(d), WUHF | ABC, FOX, CW | ||||||||||||||||||||||
| Portland, ME | 78 | 7 | WPFO(d), WGME | FOX, CBS | ||||||||||||||||||||||
| Toledo, OH | 80 | 4 | WNWO | NBC | ||||||||||||||||||||||
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| Market | Market Rank (a) | Number of Channels | Stations | Network Affiliation (b) | ||||
| Washington, DC | 7 | 4 | WJLA | ABC | ||||
| Seattle / Tacoma, WA | 13 | 6 | KOMO, KUNS | ABC | ||||
| Minneapolis / St. Paul, MN | 15 | 4 | WUCW | CW | ||||
| Portland, OR | 22 | 10 | KATU, KUNP, KUNP-LD | ABC | ||||
| St. Louis, MO | 23 | 4 | KDNL | ABC | ||||
| Pittsburgh, PA | 24 | 7 | WPGH, WPNT | FOX, MNT | ||||
| Baltimore, MD | 26 | 8 | WBFF, WNUV(c), WUTB(d) | FOX, CW, MNT | ||||
| Raleigh / Durham, NC | 27 | 7 | WLFL, WRDC | CW, MNT | ||||
| Nashville, TN | 28 | 10 | WZTV, WNAB(d), WUXP | FOX, CW, MNT | ||||
| Salt Lake City, UT | 30 | 10 | KUTV, KMYU, KENV(d), KJZZ | CBS, MNT, IND | ||||
| San Antonio, TX | 31 | 9 | KABB, KMYS(d), WOAI | FOX, NBC, CW | ||||
| Columbus, OH | 34 | 9 | WSYX, WTTE(c), WWHO(d) | ABC, FOX, CW, MNT | ||||
| Milwaukee, WI | 35 | 3 | WVTV | CW, MNT | ||||
| West Palm Beach / Fort Pierce, FL | 36 | 13 | WPEC, WTVX, WTCN-CA, WWHB-CA | CBS, CW, MNT | ||||
| Cincinnati, OH | 37 | 8 | WKRC, WSTR(d) | CBS, CW, MNT | ||||
| Asheville, NC / Greenville, SC | 38 | 9 | WLOS, WMYA(c) | ABC, MNT | ||||
| Las Vegas, NV | 39 | 8 | KSNV, KVCW | NBC, CW, MNT | ||||
| Austin, TX | 40 | 2 | KEYE | CBS | ||||
| Norfolk, VA | 42 | 4 | WTVZ | MNT | ||||
| Oklahoma City, OK | 43 | 7 | KOKH, KOCB | FOX, CW | ||||
| Birmingham / Tuscaloosa, AL | 44 | 15 | WBMA-LD, WDBB(c), WTTO, WABM | ABC, CW, MNT | ||||
| Grand Rapids / Kalamazoo / Battle Creek, MI | 45 | 3 | WWMT | CBS, CW | ||||
| Harrisburg / Lancaster / Lebanon / York, PA | 47 | 3 | WHP | CBS, CW, MNT | ||||
| Greensboro / High Point / Winston Salem, NC | 49 | 7 | WXLV, WMYV | ABC, MNT | ||||
| Buffalo, NY | 52 | 7 | WUTV, WNYO | FOX, MNT | ||||
| Richmond, VA | 54 | 5 | WRLH | FOX, MNT | ||||
| Fresno / Visalia, CA | 55 | 12 | KMPH, KMPH-CD, KFRE | FOX, CW | ||||
| Providence, RI / New Bedford, MA | 56 | 4 | WJAR | NBC | ||||
| Mobile, AL / Pensacola, FL | 57 | 12 | WEAR, WPMI(d), WFGX, WJTC(d) | ABC, NBC, MNT, IND | ||||
| Tulsa, OK | 58 | 4 | KTUL | ABC | ||||
| Albany, NY | 59 | 7 | WRGB, WCWN | CBS, CW | ||||
| Wilkes Barre / Scranton, PA | 60 | 10 | WOLF(c), WSWB(d), WQMY(c) | FOX, CW, MNT | ||||
| Little Rock / Pine Bluff, AR | 62 | 4 | KATV | ABC | ||||
| Dayton, OH | 63 | 8 | WKEF, WRGT(d) | ABC, FOX, MNT | ||||
| Lexington, KY (f) | 64 | 4 | WDKY | FOX | ||||
| Green Bay / Appleton, WI | 67 | 8 | WLUK, WCWF | FOX, CW | ||||
| Des Moines, IA | 68 | 4 | KDSM | FOX | ||||
| Roanoke / Lynchburg, VA | 69 | 4 | WSET | ABC | ||||
| Spokane, WA | 70 | 3 | KLEW | CBS | ||||
| Omaha, NE | 71 | 7 | KPTM, KXVO(c) | FOX, CW, MNT | ||||
| Wichita, KS | 72 | 19 | KSAS, KOCW, KAAS, KAAS-LP, KSAS-LP, KMTW(c) | FOX, MNT | ||||
| Market | Market Rank (a) | Number of Channels | Stations | Network Affiliation (b) | ||||
| Charleston / Huntington, WV | 74 | 7 | WCHS, WVAH(d) | ABC, FOX | ||||
| Columbia, SC | 75 | 4 | WACH | FOX | ||||
| Rochester, NY | 76 | 7 | WHAM(d), WUHF | ABC, FOX, CW | ||||
| Flint / Saginaw / Bay City, MI | 77 | 11 | WSMH, WEYI(d), WBSF(d) | FOX, NBC, CW | ||||
| Portland, ME | 79 | 7 | WGME, WPFO(d) | CBS, FOX | ||||
| Toledo, OH | 80 | 4 | WNWO | NBC | ||||
| Madison, WI | 81 | 4 | WMSN | FOX | ||||
| Harlingen / Weslaco / Brownsville / McAllen, TX (f) | 83 | 3 | KGBT | CBS | ||||
| Paducah, KY/ Cape Girardeau, MO | 84 | 8 | KBSI, WDKA | FOX, MNT | ||||
| Syracuse, NY | 87 | 7 | WTVH(d), WSTM, WSTQ-LP | CBS, NBC, CW | ||||
| Champaign / Springfield / Decatur, IL | 88 | 17 | WICS, WICD, WCCU(d), WRSP(d), WBUI(d) | ABC, FOX, CW | ||||
| Savannah, GA | 89 | 4 | WTGS | FOX | ||||
| Cedar Rapids, IA | 90 | 8 | KGAN, KFXA(d) | CBS, FOX | ||||
| Charleston, SC | 91 | 3 | WCIV | ABC, MNT | ||||
| Chattanooga, TN | 92 | 7 | WTVC, WFLI(d) | ABC, FOX, CW, MNT | ||||
| El Paso, TX | 93 | 8 | KDBC, KFOX | CBS, FOX, MNT | ||||
| Myrtle Beach / Florence, SC | 97 | 9 | WPDE, WWMB(c) | ABC, CW | ||||
| South Bend-Elkhart, IN | 98 | 2 | WSBT | CBS, FOX | ||||
| Tri-Cities, TN-VA | 99 | 7 | WEMT(d), WCYB | FOX, NBC, CW | ||||
| Greenville / New Bern / Washington, NC | 100 | 8 | WCTI, WYDO(d) | ABC, FOX | ||||
| Boise, ID | 102 | 8 | KBOI, KYUU-LD | CBS, CW Plus | ||||
| Reno, NV | 104 | 9 | KRXI, KRNV(d), KNSN (c) | FOX, NBC, MNT | ||||
| Johnstown / Altoona, PA | 106 | 4 | WJAC | NBC, CW Plus | ||||
| Lincoln and Hasting-Kearney, NE | 107 | 11 | KHGI, KHGI-CD, KWNB, KWNB-LD, KFXL, KHGI-LD | ABC, FOX | ||||
| Tallahassee, FL | 109 | 8 | WTWC, WTLF(d) | NBC, FOX, CW Plus | ||||
| Eugene, OR | 117 | 18 | KVAL, KCBY, KPIC(e), KMTR(d), KMCB(d), KTCW(d) | CBS, NBC, CW Plus | ||||
| Yakima / Pasco / Richland / Kennewick, WA | 118 | 18 | KIMA, KEPR, KORX, KUNW-CD, KVVK-CD | CBS, CW Plus | ||||
| Macon, GA | 119 | 3 | WGXA | ABC, FOX | ||||
| Peoria / Bloomington, IL | 120 | 1 | WHOI | Comet | ||||
| Traverse City / Cadillac, MI | 121 | 11 | WGTU(d), WGTQ(d), WPBN, WTOM, | ABC, NBC | ||||
| Bakersfield, CA | 125 | 8 | KBAK, KBFX-CD | CBS, FOX | ||||
| Corpus Christi, TX | 128 | 3 | KSCC, KTOV-LP, KXPX-LP | FOX | ||||
| Chico-Redding, CA | 131 | 14 | KRCR, KCVU(d), KRVU-LD, KUCO-LP, KKTF-LD | ABC, FOX, MNT | ||||
| Amarillo, TX | 132 | 8 | KVII, KVIH | ABC, CW Plus | ||||
| Medford / Klamath Falls, OR | 135 | 4 | KTVL | CBS, CW Plus | ||||
| Columbia / Jefferson City, MO | 137 | 4 | KRCG | CBS | ||||
| Beaumont / Port Arthur / Orange, TX | 143 | 8 | KFDM, KBTV(d) | CBS, FOX, MNT, CW Plus | ||||
| Sioux City, IA | 148 | 15 | KMEG(d), KPTH, KBVK-LP, KPTP-LD | CBS, FOX, MNT | ||||
| Albany, GA | 154 | 4 | WFXL | FOX | ||||
| Gainesville, FL | 156 | 8 | WGFL(c),WNBW(c), WYME-CD(c) | CBS, NBC, MNT | ||||
| Wheeling, WV / Steubenville, OH | 157 | 3 | WTOV | NBC, FOX | ||||
| Market | Market Rank (a) | Number of Channels | Stations | Network Affiliation (b) | ||||
| Missoula, MT | 163 | 6 | KECI, KCFW | NBC | ||||
| Abilene / Sweetwater, TX | 164 | 4 | KTXS, KTES-LD | ABC, CW Plus | ||||
| Quincy, IL / Hannibal, MO / Keokuk, IA | 174 | 3 | KHQA | ABC, CBS | ||||
| Butte / Bozeman, MT | 186 | 3 | KTVM | NBC | ||||
| San Angelo, TX | 195 | 3 | KTXE-LD | ABC, CW | ||||
| Eureka, CA | 197 | 10 | KAEF, KBVU(d), KECA-LD, KEUV-LP | ABC, FOX, CW, MNT | ||||
| Ottumwa, IA / Kirksville, MO | 201 | 3 | KTVO | ABC, CBS | ||||
| Total Television Channels | 629 | |||||||
| Market | Market Rank (a) | Number of Channels | Stations | Network Affiliation (b) | ||||||||||||||||||||||
| Madison, WI | 81 | 4 | WMSN | FOX | ||||||||||||||||||||||
| Paducah, KY / Cape Girardeau, MO | 84 | 8 | KBSI, WDKA | FOX, MNT | ||||||||||||||||||||||
| Harlingen / Weslaco / Brownsville / McAllen, TX | 85 | 2 | KGBT | TBD | ||||||||||||||||||||||
| Syracuse, NY | 87 | 6 | WTVH(d), WSTM | CBS, NBC, CW | ||||||||||||||||||||||
| Chattanooga, TN | 88 | 7 | WTVC, WFLI(d) | ABC, FOX, CW, MNT | ||||||||||||||||||||||
| Charleston, SC | 89 | 3 | WCIV | ABC, MNT | ||||||||||||||||||||||
| Champaign / Springfield / Decatur, IL | 90 | 17 | WICS, WICD, WRSP(d), WCCU(d), WBUI(d) | ABC, FOX, CW | ||||||||||||||||||||||
| Savannah, GA | 91 | 4 | WTGS | FOX | ||||||||||||||||||||||
| Cedar Rapids, IA | 92 | 8 | KGAN, KFXA(d) | CBS, FOX | ||||||||||||||||||||||
| El Paso, TX | 93 | 8 | KFOX, KDBC | FOX, CBS, MNT | ||||||||||||||||||||||
| South Bend-Elkhart, IN | 98 | 2 | WSBT | CBS, FOX | ||||||||||||||||||||||
| Myrtle Beach / Florence, SC | 99 | 9 | WPDE, WWMB(c) | ABC, CW | ||||||||||||||||||||||
| Tri-Cities, TN-VA | 100 | 7 | WEMT(d), WCYB | FOX, NBC, CW | ||||||||||||||||||||||
| Boise, ID | 101 | 8 | KBOI, KYUU-LD | CBS, CW Plus | ||||||||||||||||||||||
| Greenville / New Bern / Washington, NC | 102 | 8 | WCTI-TV, WYDO(d) | ABC, FOX | ||||||||||||||||||||||
| Reno, NV | 104 | 9 | KRXI, KRNV(d), KNSN(c) | FOX, NBC, MNT | ||||||||||||||||||||||
| Lincoln and Hastings-Kearney, NE | 105 | 9 | KHGI, KWNB, KWNB-LD, KHGI-CD, KFXL | ABC, FOX | ||||||||||||||||||||||
| Johnstown / Altoona, PA | 107 | 4 | WJAC | NBC, CW Plus | ||||||||||||||||||||||
| Tallahassee, FL | 108 | 8 | WTWC, WTLF(d) | NBC, FOX, CW Plus | ||||||||||||||||||||||
| Eugene, OR | 113 | 18 | KVAL, KCBY, KPIC(e), KMTR(d), KMCB(d), KTCW(d) | CBS, NBC, CW Plus | ||||||||||||||||||||||
| Yakima / Pasco / Richland / Kennewick, WA | 117 | 18 | KIMA, KEPR, KUNW-CD, KVVK-CD, KORX-CD | CBS, CW Plus | ||||||||||||||||||||||
| Traverse City / Cadillac, MI | 118 | 11 | WGTU(d), WGTQ(d), WPBN, WTOM | ABC, NBC | ||||||||||||||||||||||
| Macon, GA | 120 | 3 | WGXA | FOX, ABC | ||||||||||||||||||||||
| Peoria / Bloomington, IL | 123 | 1 | WHOI | TBD | ||||||||||||||||||||||
| Bakersfield, CA | 125 | 8 | KBFX-CD, KBAK | FOX, CBS | ||||||||||||||||||||||
| Corpus Christi, TX | 130 | 3 | KSCC | FOX, MNT | ||||||||||||||||||||||
| Amarillo, TX | 131 | 8 | KVII, KVIH | ABC, CW Plus | ||||||||||||||||||||||
| Chico-Redding, CA | 132 | 15 | KRCR-TV, KCVU(d), KRVU-LD, KKTF-LD, KUCO-LD | ABC, FOX, MNT | ||||||||||||||||||||||
| Medford / Klamath Falls, OR | 134 | 4 | KTVL | CBS, CW Plus | ||||||||||||||||||||||
| Columbia / Jefferson City, MO | 135 | 4 | KRCG | CBS | ||||||||||||||||||||||
| Beaumont / Port Arthur / Orange, TX | 144 | 8 | KFDM, KBTV(d) | CBS, CW Plus, FOX | ||||||||||||||||||||||
| Sioux City, IA | 148 | 14 | KPTH, KPTP-LD, KBVK-LP, KMEG(d) | FOX, MNT, CBS | ||||||||||||||||||||||
| Albany, GA | 154 | 4 | WFXL | FOX | ||||||||||||||||||||||
| Gainesville, FL | 160 | 8 | WGFL(c), WNBW(c), WYME-CD(c) | CBS, NBC, MNT | ||||||||||||||||||||||
| Missoula, MT | 161 | 6 | KECI-TV, KCFW | NBC | ||||||||||||||||||||||
| Wheeling, WV / Steubenville, OH | 163 | 3 | WTOV | NBC, FOX | ||||||||||||||||||||||
| Abilene / Sweetwater, TX | 165 | 4 | KTXS-TV, KTES-LD | ABC, CW Plus | ||||||||||||||||||||||
| Quincy, IL / Hannibal, MO / Keokuk, IA | 174 | 3 | KHQA | CBS, ABC | ||||||||||||||||||||||
| Butte / Bozeman, MT | 185 | 6 | KTVM-TV, KDBZ-CD | NBC | ||||||||||||||||||||||
| Eureka, CA | 193 | 10 | KAEF-TV, KBVU(d), KECA-LD, KEUV-LP | ABC, FOX, CW Plus, MNT | ||||||||||||||||||||||
| San Angelo, TX | 197 | 3 | KTXE-LD | ABC, CW Plus | ||||||||||||||||||||||
| Ottumwa, IA / Kirksville, MO | 200 | 3 | KTVO | ABC, CBS | ||||||||||||||||||||||
| Total Television Channels | 628 | |||||||||||||||||||||||||
(a)Rankings are based on the relative size of a station’s Designated Market Area (DMA) among the 210 generally recognized DMAs in the United States as estimated by Nielsen Media Research (Nielsen) as of September 2020.
(b)We broadcast programming from the following providers on our channels and the channels of our JSA/LMA partners:
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| Affiliation | Number of Channels | Number of Markets | Expiration Dates (1) | |||||||||||||||||
| ABC | 40 | 30 | August 31, 2022 | |||||||||||||||||
| FOX | 57 | 42 | December 31, 2023 | |||||||||||||||||
| CBS | 31 | 24 | October 31, 2023 through December 31, 2024 | |||||||||||||||||
| NBC | 25 | 17 | December 31, 2021 | |||||||||||||||||
| CW | 48 | 37 | August 31, 2021 through August 31, 2024 | |||||||||||||||||
| MNT | 39 | 32 | August 31, 2021 | |||||||||||||||||
| Total Major Network Affiliates | 240 | |||||||||||||||||||
| Affiliation | Number of Channels | Number of Markets | Expiration Dates (1) | |||||||||||||||||
| Antenna TV | 23 | 21 | December 31, 2019 through January 1, 2024 | |||||||||||||||||
| Azteca | 2 | 1 | August 31, 2020 | |||||||||||||||||
| Bounce | 1 | 1 | August 31, 2019 | |||||||||||||||||
| Charge | 67 | 59 | (2) | |||||||||||||||||
| Comet | 90 | 74 | (2) | |||||||||||||||||
| DABL | 30 | 29 | October 31, 2022 | |||||||||||||||||
| Decades | 1 | 1 | January 31, 2022 | |||||||||||||||||
| Estrella | 1 | 1 | September 30, 2022 | |||||||||||||||||
| GetTV | 5 | 5 | June 30, 2017 | |||||||||||||||||
| Grit | 1 | 1 | December 31, 2019 | |||||||||||||||||
| IND | 2 | 2 | N/A | |||||||||||||||||
| MeTV | 19 | 15 | August 31, 2022 through August 1, 2024 | |||||||||||||||||
| Stadium | 52 | 48 | (2) | |||||||||||||||||
| TBD | 77 | 65 | (2) | |||||||||||||||||
| Telemundo | 1 | 1 | December 31, 2022 | |||||||||||||||||
| This TV | 1 | 1 | November 1, 2014 | |||||||||||||||||
| UniMas | 1 | 1 | December 31, 2021 | |||||||||||||||||
| Univision | 8 | 5 | December 31, 2021 through November 30, 2022 | |||||||||||||||||
| Weather | 6 | 4 | December 31, 2017 | |||||||||||||||||
| Total Other Affiliates | 388 | |||||||||||||||||||
| Total Television Channels | 628 | |||||||||||||||||||
| Affiliation | Number of Channels | Number of Markets | Expiration Dates (1) | |||
| ABC | 41 | 30 | August 31, 2022 | |||
| CBS | 30 | 25 | April 30, 2020 through December 31, 2021 | |||
| CW | 48 | 37 | August 31, 2021 through August 31, 2024 | |||
| FOX | 59 | 43 | December 31, 2020 through December 31, 2021 | |||
| MNT | 39 | 32 | August 31, 2020 | |||
| NBC | 24 | 17 | December 31, 2021 | |||
| Total Major Network Affiliates | 241 | |||||
(1)When we negotiate the terms of our network affiliations or program service arrangements, we generally negotiate on behalf of our owned stations affiliated with that entity simultaneously, except in certain circumstances. This results in substantially similar terms for our stations, including the expiration date of the network affiliations or program service arrangements. If the affiliation agreement expires, we may continue to operate under the existing affiliation agreement on the same terms and conditions until a new affiliation agreement is entered into.
| Affiliation | Number of Channels | Number of Markets | Expiration Dates (1) | |||
| Antenna TV | 22 | 20 | January 1, 2019 through January 1, 2021 | |||
| Azteca | 3 | 2 | February 28, 2018 through August 31, 2020 | |||
| Bounce Network | 1 | 1 | August 31, 2019 | |||
| CHARGE! | 66 | 58 | (2) | |||
| Comet | 90 | 75 | (2) | |||
| Dabl | 29 | 28 | October 1, 2022 | |||
| Estrella TV | 1 | 1 | September 30, 2020 | |||
| Get TV | 5 | 5 | June 30, 2017 | |||
| Grit | 1 | 1 | December 31, 2019 | |||
| Independent programming | 2 | 2 | N/A | |||
| Me TV | 18 | 15 | February 28, 2018 through August 31, 2021 | |||
| Movies! | 5 | 4 | November 1, 2019 through November 18, 2019 | |||
| Stadium | 53 | 48 | (2) | |||
| TBD | 74 | 64 | (2) | |||
| Telemundo | 1 | 1 | December 31, 2022 | |||
| This TV | 1 | 1 | November 1, 2014 through December 31, 2015 | |||
| Unimas | 1 | 1 | December 31, 2020 | |||
| Univision | 9 | 5 | February 29, 2020 | |||
| Weather | 6 | 4 | December 31, 2017 | |||
| Total Other Affiliates | 388 | |||||
| Total Television Channels | 629 | |||||
| (c)The license assets for these stations are currently owned by third parties. We provide programming, sales, operational, and administrative services to these stations pursuant to certain service agreements, such as LMAs. |
(e)We provide programming, sales, operational, and administrative services to this station, of which 50% is owned by a third party.
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Local sports
On August 23, 2019, we completed the acquisition of the controlling interests in 21 Regional Sports Networkcertain regional sports network brands and Fox College Sports (collectively, the Acquired RSNs) from theThe Walt Disney Company (Disney). See Note 2. Acquisitions and Dispositions of Assets within the Consolidated Financial Statements for further discussion. In February 2019, we announced a joint venture with the Chicago Cubs (Cubs) that owns and operates Marquee Sports Network (Marquee, and, collectively with the Acquired RSNs, the RSNs), a regional sports network based in Chicago, Illinois. Marquee debuted February 22, 2020 with the airing of the Cubs’ first Spring Training game and is the Chicago-region’s exclusive network for fans to view live Cubs games, exclusive Cubs content, and other local sports programming. On August 29, 2019 we acquired a 20%minority equity interest in the Yankee Entertainment and Sports Network (the YES Network)., a regional sports network based in New York, New York.
Through theour RSNs and the YES Network, we own equity interests in the largest collection of RSNsregional sports networks in the United States, broadcasting over 4,600approximately 4,800 professional sports games and producing over 24,000approximately 24,800 hours of new content each year. As a result of the modified sports seasons due to the COVID-19 pandemic, during the year ended December 31, 2020, our RSNs and the YES Network broadcast approximately 2,270 professional sports games and produced approximately 12,200 hours of new content. Our RSNs and the YES Network are located in attractive, highly-populated geographic areas of the United States with significant local viewership and 45 of the most exciting professional sports teams. WeOur RSNs are a premier destination for local sports viewership, with our premium live sports content reaching more than 61approximately 52 million subscribers nationally. Wenationally, excluding YES Network subscribers. Our RSNs and the YES Network have an extensive footprint that includes exclusive long-term agreements with 16 Major League Baseball (MLB) teams, 17 National Basketball Association (NBA) teams and 12 National Hockey League (NHL) teams. Within our RSNsports network portfolio are 2321 regional sports network brands (to be rebranded as 19 Bally Sports network brands), Marquee, and 16 networks of separate affiliation agreements.a minority equity interest in the YES Network. We generate revenues by distributing our networks to MVPDs and vMVPDs,Distributors, and from the sale of advertising inventory.
In connection with our agreement with Bally's Corporation (Bally's), our RSNs will be rebranded with the Bally Sports name. See Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 6. Other Assets within the Consolidated Financial Statements for further discussion. As of December 31, 2019,2020, our RSNs have relationships with the following professional teams:
teams.
| MLB Teams | NBA Teams | NHL Teams | ||||||||||||
| Arizona Diamondbacks | Atlanta Hawks | Anaheim Ducks | ||||||||||||
| Atlanta Braves | Charlotte Hornets | Arizona Coyotes | ||||||||||||
| Chicago Cubs | Cleveland Cavaliers | Carolina Hurricanes | ||||||||||||
| Cincinnati Reds | Dallas Mavericks | Columbus Blue Jackets | ||||||||||||
| Cleveland Indians | Detroit Pistons | Dallas Stars | ||||||||||||
| Detroit Tigers | Indiana Pacers | Detroit Red Wings | ||||||||||||
| Kansas City Royals | Los Angeles Clippers | Florida Panthers | ||||||||||||
| Los Angeles Angels | Memphis Grizzlies | Los Angeles Kings | ||||||||||||
| Miami Marlins | Miami Heat | Minnesota Wild | ||||||||||||
| Milwaukee Brewers | Milwaukee Bucks | Nashville Predators | ||||||||||||
| Minnesota Twins | Minnesota Timberwolves | St. Louis Blues | ||||||||||||
| San Diego Padres | New Orleans Pelicans | Tampa Bay Lightning | ||||||||||||
| St. Louis Cardinals | Oklahoma City Thunder | |||||||||||||
| Tampa Bay Rays | Orlando Magic | |||||||||||||
| Texas Rangers | Phoenix Suns | |||||||||||||
| San Antonio Spurs |
As of December 31, 2019,2020, we also hold a noncontrollingminority interest in the YES Network, which has long term agreements with the New York Yankees and Brooklyn Nets. We also own Fox College Sports which offers collegiate programming throughout the country.
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Other
Owned Networks and Content
We own and operate Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sport and tennis lifestyle shows; Tennis Magazine, the sport’s largest print publication; and Tennis.com (collectively, Tennis), the most visited online tennis platform in the world.
We also own and operate various networks carried on distribution platforms owned by us or others, including: Comet, our science fiction multicast network; CHARGE!, our adventure and action-based emerging network; TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America,America; and Stadium, a network that brings together professional sports highlights and college games.
Our internally developed content, in addition to our local news, includes Ring of Honor (ROH), our professional wrestling promotion,promotion; The National Desk hosted by Jan Jeffcoat (The National Desk); and Full Measure with Sharyl Attkisson (Full Measure), our national Sunday morning investigative and political analysis program, and America This Week with Eric Bolling.program.
Digital and Internet
In January 2019, we launched STIRR, a national free, ad-supported direct-to-consumer (DTC) streaming app, which offers live and on-demand content spanning entertainment, sports, and news. With more than 1.66 million app downloads in its firstto date, STIRR had a break-out year and over 100 channel offerings, STIRR offers accessexceeded expectations with viewership up significantly, doubling the number of average monthly users and minutes viewed for the full year compared to some of the most populara year ago. Driving this growth is STIRR’s local news entertainmentchannel, STIRR City, the addition of exclusive local on-demand rights, over 120 free TV channels, and digital first channels. In January 2020,two commercial free channels that cover both local and national elections and Covid-19 live press conferences from across the country. STIRR’s growth throughout the year enabled it also added an original channel "2020 LIVE" which will have continuous live coverage featuring campaign events from around the country, including town hall meetingsto reach critical mass for national and stump speeches.local advertisers.
We earn revenues from Compulse Integrated Marketing (Compulse), a full-service digital agency which uses our digital expertise, including our OTT advertising platform, CompulseOTT, to help businesses run social media, search, advertising, email marketing, web design, mobile marketing and creative services, and audience extension, and navigate and compete in a world of constant innovation and changes in consumer behavior. In August 2018, Compulse expanded its business with the launch of CompulseOTT, a new over-the-top advertising platform exclusively focused on OTT advertising.
DataSphere Technologies, provides marketing services to small businesses across the country and works in partnership with multiple media companies, including Sinclair. NewsON is a free, ad-supported app that provides instant access to live or on-demand local news broadcasts.broadcasts, including non-Sinclair affiliate partners. Sinclair Digital Ventures focuses on investment in emerging digital technologies, ad tech, and digital content companies that support, compliment,complement, or expand the Company's businesses.
In November 2020, we entered into agreements for a long-term, enterprise-wide strategic partnership with Bally's Corporation (Bally's) to combine Bally's vertically integrated, proprietary sports betting technology and expansive market access footprint with our premier portfolio of local broadcast stations, RSNs, Tennis Channel, STIRR and digital and over-the-air television network Stadium. This partnership is expected to enhance the gamification of live sports to provide audiences a first-of-its-kind interactive viewing experience and drive legalized sports betting monetization. In connection with the agreement, we also received various equity interests in Bally's. See Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 6. Other Assetswithin the Consolidated Financial Statements for further information.
Technical Services
We own subsidiaries which are dedicated to providing technical services to the broadcast industry, including: Acrodyne Technical Services, a provider of service and support for broadcast transmitters throughout the world; Dielectric, a designer and manufacturer of broadcast systems including all components from transmitter output to antenna; ONE Media, a technology innovator at the forefront of developing industry standards and related technologies for NEXTGEN TV, a broadcast standard encompassing a flexible and enhanced vision for broadcasting; and ONE Media 3.0, a wholly-owned subsidiary whose purpose is to develop business opportunities, products, and services associated with the NEXTGEN TV broadcast transmission standard and TV platform. We have also partnered with several other companies in the design and deployment of NEXTGEN TV services including: Saankhya Labs to develop NEXTGEN TV technologies to be used in consumer devices, and formeddevices; Cast.era, a joint venture with South Korea’s leading mobile operator, SK Telecom, focused onto develop wireless, cloud infrastructure for broadcasting, ultra-low latency OTT broadcasting, and targeted advertising.artificial intelligence technologies; and BitPath, a joint venture with Nexstar Media Group, to deploy and exploit datacasting models using NEXTGEN capabilities.
11
Non-media Investments
We own various non-media related investments across multiple asset classes including private equity, mezzanine financing, and real estate investments. Some of the largest investments include: Triangle Sign and Service (Triangle), a sign designer and fabricator; Jefferson Park, a mixed-use land development project in Frederick, MD; investments in sustainability initiatives; and a portfolio of apartment complexes.
Customers
In 2019,2020, the local newsbroadcast and marketing services andlocal sports segments had three customers, AT&T, Charter Communications, and Comcast, that individually exceeded 10% of consolidated revenue. Any disruption in our relationship with AT&T, Charter Communications, or Comcastthese customers could have a material adverse effect on the local news and marketingbroadcast segment, the local sports segment, and our results of operation.operations.
Operating Strategy
Programming to Attract Viewership. We seek to target our programming offerings to attract viewership, to meet the needs of the communities in which we serve, and to meet the needs of our advertising customers.
Our stations seek to broadcast live local and national sporting events that would appeal to a large segment of the local community. Moreover, our stations produce local news at 129130 stations in 8182 markets. See News below for further discussion. Our stations also seek to develop original programming or obtain, at attractive prices, popular syndicated programming that is complementary to each station’s network programming.
Television advertising prices are based on ratings information measured and distributed by Nielsen and Comscore. Except for its Household viewingRatings methodologies have been changing rapidly due to advancements in Set Meter Markets, Nielsen istechnology and changes in the manners in which viewers consume news, sports, and entertainment. Certain new methodologies are currently not accredited by the Media Rating Council (MRC), an independent organization that monitors rating services. As of December 31, 2019, Sinclair’s footprint includes 12 markets measured by Code Reader methodologyservices, and 47 markets measured by RPD+ methodology, which uses Set Top Box data. Neither of these methodologies are currently accredited by the Media Rating Council. Comscore is an alternative rating service provider that uses set-top box television measurements to provide us additional measurement information to the ratings services that Nielsen provides for most of our stations. Comscore's local television ratings service is alsomay not accredited by the MRC.reflect actual viewership levels.
Our RSNs intend to continue to invest in producing popular sports programming, and measure audience engagement and needs to determine what our sports fans value most and to continue to work to deliver premier sports content in the markets in which we operate.
Our RSNs intend to continue investing in improvingtechnologies that improve the viewer experience of our loyal sports fans by investing in technologiesand that will help tell the ‘‘story’’"story" of a sports game and make our offering more appealing to the viewer. These technologies could allow the viewer to control the camera angle, add customized audio tracks to the broadcast, integrate social media, overlay statistics, gaming or otherwise customize his or her experience. Additionally, our broad rights position us to benefit from new viewing technologies as they are developed, such as virtual, augmented and mixed reality. As these technological capabilities develop, we will invest in bringing them to our premium live sports content.
News. Through local news, our mission is to serve our communities by sharing relevant information to alert, protect, and empower our audiences. We believe that the production and broadcasting of local news is an important link to the community and an aid to a station’s efforts to expand its viewership. In addition, local news programming can provide access to advertising sources targeted specifically to local news viewers. Our news stations also produce content on digital platforms such as websites, mobile applications, OTT distributors, and social media. During the year ended December 31, 2019, 33%2020, 34% of our stations' net time sales were earned during the local news we produce each week.
Our local news initiatives are an important part of our strategy. We have entered into local news sharing arrangements in which we receive news in 10nine markets from other in-market broadcasters. We believe that, in the markets where we have news share arrangements, such arrangements generally provide both higher viewer ratings and revenues for the station receiving the news and generate a profit for the news share provider. Generally, both parties and the local community are beneficiaries of these arrangements.
In addition to our traditional local news stories, we have utilized our national reach and physical presence in the nation's capital to provide our local viewers with broader national news stories which are relevant to our local viewers.
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Our local news coverage is supported by our national news desk and Capitol Hill bureau. These teams focus on providing context and perspective to important stories in the daily news cycle. This content provides a significant point of difference with a focus on accountability reporting for our stations.reporting. Available on-air and online, the bureau not only expands our news presence, but gives our local station viewers an opportunity to hear the views of their members of Congress through programs such as "Connect to Congress," our weekly on-air and digital feature which provides an electronic video pathway for lawmakers to speak to their constituents. Our weekly investigative news program, Full Measure with Sharyl Attkisson, reinforces our mission to provide our fearless storytelling on significant topics of public importance.
In January 2021, we launched our original news program, The National Desk, on 68 of our stations, including MNT and CW, on STIRR, and across all of our news websites. The National Desk is hosted by award-winning anchor Jan Jeffcoat, who provides audiences with commentary-free news coverage from both a local and national perspective. Leveraging Sinclair’s expansive local news footprint, The National Desk elevates some of the most important stories occurring in cities and towns across the country. With reporters residing in the communities they cover, The National Desk has access to real stories from the perspectives of those they affect directly. The goal of The National Desk is to leverage these assets into a single news program for a national audience. The program also supplements expansive local coverage by bringing the most important national headlines to audiences.
We have a national investigative news unit consistingteam of 15 journalists, plus more than 50 reporters and 20 producers, which we30 local investigative reporters. We plan to continue to grow our investigative footprint, and to provide in-depth stories not covered elsewhere.
We also provide our viewers with "Town Halls," which bringsbring together our viewers to discuss major local and national topics. In 2018 we began producing the "Your Voice Your Future Opioid Town Hall" and in 2019 we produced 25 Town Halls on the opioids crisis. Sinclair is in its 8thThe year of producing award winning2020 was a unique year, yet productive. Overall, we produced 143 Town Halls. Our stations produced 53 debates, 16 hour long discussions on race relations, and 18 "COVID Town Halls", helping our viewers cope and decipher information to help their families through very difficult times. Since launching our commitment to give a voice to our viewers, our Town Halls Roundtableshave produced over 835 hours to address the needs of and Debates. Our "Your Voice Your Future" series produced 90 distinctive productions in 2019 educatingeducate our audience.
With more than 6 million app downloads to date, STIRR had a break-out year and empowering our viewersexceeded expectations with topicsviewership up significantly, doubling the number of average monthly users and minutes viewed for the full year compared to a year ago. Driving this growth is STIRR’s local news channel, STIRR City, the addition of exclusive local on-demand rights, over 120 free TV channels, and two commercial free channels that cover both local and national importance. Guestselections and Covid-19 live press conferences from all sides ofacross the political spectrum offered insight on topics covering opioids, education, school vaccinations, child abuse, crime & violence, health care, the nationally recognized “Seattle is Dying”, several local debates, and City in Crisis from our flagship station in Baltimore. In total we have produced close to 700 one-hour long productions, often with a studio audience, and always with audience participation. We continue Sinclair’s dedication in 2020 with over 150 Town Hall productions scheduled.
Sports. Live sports have remained highly popular with fans and advertisers. Sports programming generally elicits strong emotional responses and attracts a loyal and passionate following among fans. Our premium live sports programming typically attracts viewership demographics that are highly desirable to advertisers. Sports viewership among the key 25 to 54 year-old demographic is growing relativecontinues to outperform all other content. Every sports season is a new chapter in a story that has continued for decades and is popular across fans from multiple generations. As media has continued to trend toward on-demand consumption, sports events have remained an ‘‘appointment viewing’’ event. As such, live sports content is frequently the most watched programming in a local market on most nights. The acquisition
Through our RSNs and the YES Network, we own equity interests in the largest collection of regional sports networks in the United States, located in attractive, highly-populated geographic areas with significant local viewership and 45 of the most exciting professional sports teams. Our RSNs is in response to this strategy.are a premier destination for local sports viewership, with premium live sports content reaching approximately 52 million subscribers nationally, excluding YES Network subscribers. Our RSNs and the YES Network have an extensive footprint that includes exclusive long-term agreements with 16 Major League Baseball (MLB) teams, 17 National Basketball Association (NBA) teams and 12 National Hockey League (NHL) teams.
Tennis has certain telecast rights to the U.S. Open; Wimbledon;US Open, Wimbledon, Roland Garros (French Open);, Australian Open;Open, ATP World Tour Masters 1000, 500,events, WTA competitions, Fed Cup, Laver Cup and 250 events; WTA Premier, International, and Finals; Laverthe ATP Cup; Hopman Cup; ATP and WTA Pro Circuit; and College and Junior events and exhibitions. Our stations also broadcast programming and other content provided by Tennis and we provide access to certain events through our premium OTT offering, Tennis Channel Plus. Tennis also includes Tennis.com, the most visited online tennis platform in the world. Tennis' complementary offerings allowsallow us to provide greater and more in depth tennis content to consumers on TV, internet, and print.
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Additionally, some of our stations have the local television broadcast rights for certain sporting events, including MLB, NBA, NHL, National Football League (NFL), preseason, and certain other college and high school sports. Our CW and MyNetworkTVMNT stations generally face fewer preemption restrictions on broadcasting live local sporting events compared with our FOX, ABC, CBS, and NBC stations, which are required to broadcast a greater number of hours of programming supplied by the networks. In addition, our stations that are affiliated with FOX, ABC, CBS, and NBC have network arrangements to broadcast certain MLB, NBA, NHL, NFL, and Professional Golf Association (PGA) events, as well as other popular sporting events.
Control of Operating and Programming Costs. By employing a disciplined approach to managing programming acquisition and other costs, our stations have been able to achieve operating margins that we believe are very competitive within the television broadcast industry. We believe our national reach as of December 31, 20192020 of approximately 39% of the country provides us with a strong position to negotiate with programming providers and, as a result, the opportunity to purchase high quality programming at more favorable prices. Moreover, we emphasize control of each of our station’s programming and operating costs through program-specific profit analysis, detailed budgeting, regionalization of staff, and detailed long-term planning models. We also control our programming cost by creating original high-quality programming that is distributed on our broadcast platform.
Our RSNs manage our programming rights costs to improve margins and increase our cash flow. We intend to balance our portfolio to ensure that losing one team’s rights will not materially harm the overall product offering. We intend to maintain our disciplined approach to non-programming expense management by seeking opportunities to increase our efficiency without jeopardizing our commitment to provide high quality sports content to our customers. We will seek to emphasize high quality production at low cost with a continuous focus on technological advancements and managing the cost of on-air talent retention, overhead, and salaries and compensation.
Developing Local Franchises. We believe the greatest opportunity for a sustainable and growing customer base lies within our local communities. Therefore, we have focused on developing a strong local sales force, which is comprised of approximately 700600 marketing consultants and 10090 local sales managers company-wide. Excluding the acquired RSNs, political advertising revenue, distribution revenues, and other local revenues, 62%45% and 54%62% of net time sales were local for the years ended December 31, 20192020 and 2018,2019, respectively. Our goal is to grow our local revenues by increasing our market share, developing new business opportunities, and offering marketing solutions across our platforms.
Attract and Retain High Quality Management. We believe that much of our success is due to our ability to attract and retain highly-skilled and motivated managers at corporate, stations, RSNs, and other businesses. We provide a combination of base salary, long-term incentive compensation including equity awards and, where appropriate, cash bonus pay designed to be competitive with comparable employers in our industry. A significant portion of the compensation available to certain members of our senior management and our sales force is based on their achievement of certain performance goals. We also encourage station and network managers and employees to utilize our diverse business to grow in their careers while remaining in the Sinclair family via internal promotion and relocation.
Multi-Channel Broadcasting. FCC rules allow television broadcasters to transmit additional digital channels within the spectrum allocated to each FCC license holder. This provides our stations' viewers with additional programming alternatives at no additional cost to them. We may consider other alternative programming formats that we could air using our multi-channel digital spectrum space with the goal towards achieving higher profits and community service. As of December 31, 2019,2020, our stations have 438441 multi-channels in our digital spectrum.
Distribution Agreements. We have distribution agreements with MVPDs, vMVPDs,Distributors and other OTT distributors who compensate us for the right to retransmit our stations, RSNs, and other offerings on their respective distribution platforms. Our successful negotiations with MVPDsDistributors and other OTT distributors have created agreements that produce meaningful sustainable revenue streams. We intend to maintain the strong relationships with our linear MVPD partners. In addition, weDistributors and other OTT distributors and believe we are well-positionedour local news, sports and entertainment content positions us to continue to expand our vMVPD distribution.agreements within all of these distribution platforms. However, we cannot guarantee that some Distributors and other OTT distributors will not drop carriage of our channels. Many of our existing sports programming rights agreements include springing rights that automatically provide our RSNs with the rights to additional forms of distribution if the leagues permit their teams to exploit those distribution rights, enabling us to continue to adapt to changing consumption habits.
Improvement and Maintenance of Our Distribution Platforms. Our Acrodyne and Dielectric subsidiaries are leaders in servicing and manufacturing broadcast infrastructure. As a result, we maintain a strong infrastructure through which we provide high quality uninterrupted content on our stations. These subsidiaries are critical in both the repack of the broadcast spectrum and the buildout of the infrastructure behind the NEXTGEN TV for both our stations and other broadcasters.
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Developing New Business. We strive to develop new business models to complement or enhance our traditional television broadcast business. We have developed new ways to sell online, mobile text messaging, social media advertising, and audience extension services along with our traditional commercial broadcasting model. Additionally, we continue to leverage our national reach to provide new high-quality content to our local communities.
We continue to expand our digital distribution platforms through initiatives such as our video management system, which simplifies and automates our broadcast-to-digital streaming workflow and allows for dynamic replacement of broadcast ads with digital ads targeted to each individual viewer and allows us to ingest and redistribute content across our platform so that we can break news first. By using a single ad-serving system across all of our web sites, mobile apps, and other digital assets, we are able to streamline our sales workflow, optimize yield, and deliver comprehensive sales opportunities across our digital footprint. Additionally, we are deploying direct-to-consumer (DTC)DTC and OTT initiatives, such as STIRR, as well as our own content applications.
Additionally, we have continued to develop business opportunities, products, and services associated with NEXTGEN TV as discussed under Development of Next Generation Wireless Platform below.
Our RSNs seek to maximize growth in our advertising revenue. We believe that through higher quality non-game programming and multiplatform offerings, we will be able to drive incremental improvements in our RSN advertising revenues. We believe political advertising, which historically has been a relatively small portion of our RSN advertising revenue, could be an avenue to grow advertising dollars given our RSNs’ large viewing audiences. Our live sports content is appealing to both national and local advertisers and is diverse across industries. In addition, we believe that the revenues generated by legalizedlegalization of sports betting can generate both advertising and sponsorships, and we believe that we would be ableprovides incremental opportunities for the business to generate higher ratings and advertising spendingrevenue due to increased advertising spend from certain customers, increased viewer engagement expected from bettors.ratings, creation of the RSNs' digital app and optimization of digital impressions.
Many of our existing sports programming rights agreements include springing rights that automatically provide our RSNs with the rights to additional forms of distribution as soon as the leagues permit their teams to exploit those distribution rights. OnceAs more of our RSNs are permitted to expand into digital streaming, we expect to monetize our viewership by selling targeted advertising on our digital feeds and introduceby introducing our digital agency services to our RSN advertisers. We believe that our RSN portfolio is well-positioned to capitalize on the ongoing transition of the media world to digital and mobile viewing.
We believe that the legalization of sports betting provides incremental opportunities for the business to generate higher advertising revenue due to increased advertising spend from certain customers and from increased viewer engagement and ratings. In November 2020, we entered into agreements for a long-term strategic partnership with Bally's to combine Bally's vertically integrated, proprietary sports betting technology and expansive market access footprint with our premier portfolio of local broadcast stations and RSNs, STIRR, Tennis Channel and digital and over-the-air television network Stadium. This will create further gamification of live sports that will provide audiences a first-of-its-kind personalized and interactive viewing experience.
Strategic Realignment of Media Portfolio. We routinely review potential media acquisitions, dispositions, swaps, or develop original networks and content. We expect to remain acquisitive and continue to assess acquisition and investment opportunities to complement our existing stations, RSNs, and other businesses. As we evaluate potential acquisitions and investments, we intend to focus on making disciplined, accretive acquisitions and investments that will complement our existing portfolio of television stations and RSNs while providing increased scale. At any given time, we may be in discussions with one or more media owners.
Digital and Internet. Our digital properties, Compulse, STIRR, Datasphere, and NewsOn are innovative products and extensions of our core broadcast business that allow us to compete for digital, internet, network, and print impressions and revenues. We continue to seek additional opportunities to invest in emerging digital technologies, ad tech, and digital content companies that support and expand Sinclair'sour digital capabilities and non-linear footprint.
Development of Next Generation Wireless Platform. In 2017, the FCC approved the use of NEXTGEN TV, a next generation broadcast transmission standard. NEXTGEN TV is capable of merging broadcast and broadband content and data services using over-the-air spectrum and Internet-provided data connectivity, allowing a mature broadcast industry to reinvent itself due to its mobility, addressability, capacity, IP connectivity, and conditional access.
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NEXTGEN TV will allow us to use our spectrum for more than just video-formatted data as we do today. As a data-agnostic Internet Protocol (IP) based pipe, we also will be able to distribute data including text, audio, video, and software. While our one-to-many architecture will remain a strength, we will be able to deliver “the last mile” from program/data origination to the consumer's receiver device across a more robust system, connect legacy ATSC 1.0 televisions to NEXTGEN TV using broadcast hot spots and wi-fi functionality, and provide compatible data-offload service offerings in conjunction with certain 5G platforms. Among the many emerging opportunities are hyper-local news, weather, and traffic; dynamic ad insertion; geographic and demographic-targeted advertising; customizable content; better measurement and analytics; the ability to interface with devices connected to the Internet; flexibility to add streams as needed; substantially enhanced picture quality with immersive audio; connectivity to automobiles, including 3D mapping, telematics and infotainment; geo-location services; data wholesale models; and other content delivery networks. Conditional access capabilities also permit broadcasters to offer secure “skinny-bundle” pay services as well as various video-on-demand type offerings. In addition, NEXTGEN TV provides new emergency and information capabilities, including advanced alerting functions which can provide crucial rich media including evacuation routes and device wake-up features. All of these features will be available to mobile and portable devices, allowing us to reach viewers virtually anywhere. In January 2020, we announced the formation of Cast.era, a joint venture with SK Telecom, focused on cloud infrastructure for broadcasting, ultra-low latency OTT broadcasting, and targeted advertising.
In order to bring this technology to the market, we have partnered with technology leaders to develop broadcasting solutions and services in the U.S. and globally. We have also formed a joint venture with other broadcasters, SpectrumCo,BitPath, to promote spectrum efficiency and innovation, aggregate and monetize underutilized spectrum capacity over which to deliver national services, and create opportunities such as robust video and data exchange. We continue to work with other NEXTGEN TV stakeholders to build and test the single frequency network tower infrastructure, develop systems to allow the convergence of NEXTGEN TV and 5G data delivery, and design NEXTGEN TV receiver chips for mobile, portable and fixed devices. We expect the implementation and adoption of NEXTGEN TV to occur over the next three years. ThroughoutIn 2020, we and the industry will beginbegan deployment of NEXTGEN TV capabilities on some of our own television facilities and in conjunction with other station operators in our markets, as well as non-Sinclair markets. As of the end of January 2021, NEXTGEN TV had been launched in 12 of our markets. When completed, the country will have a lower-cost, world class wireless IP data distribution network capable of supporting multiple business models.
Monetization of Certain Intellectual Property Rights. We have developed, on our own and through our ONE Media, LLC joint venture, several NEXTGEN TV-related patents that we intend to monetize directly, through third-party agents, or through a patent pool designed to consolidate similar patents owned by independent licensors for licensing to equipment manufacturers.
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FEDERAL REGULATION OF TELEVISION BROADCASTING
The ownership, operation, and sale of television stations are subject to the jurisdiction of the FCC, which acts under the authority granted by the Communications Act of 1934, as amended (the Communications Act). Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations, and operating power of stations; issues, renews, revokes, and modifies station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, and employment practices of stations; and has the power to impose penalties for violations of its rules and regulations of the Communications Act.
The following is a summary of certain provisions of the Communications Act and specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules, and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.
License Grant and Renewal
Television stations operate pursuant to broadcasting licenses that are granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC. During certain periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public.
Although historically renewal of a license including those of the Company, is granted in the vast majority of cases, even when petitions to deny are filed, there can be no assurance that the license of any station will be renewed or, if renewed, that the renewal terms will be for the maximum term permitted.
All of our stations' most recent license renewal applications have been granted for the maximum term permitted. The nextcurrent television license renewal application cycle will beginbegan on June 1, 2020. On November 26, 2018, the American Cable Association (ACA) filed an informal request with the FCC seeking to require the early filing of renewal applications for the licenses of four of our stations, and an individual filed a similar informal request on July 22, 2019.2019 with respect to our Baltimore, MD station, WBFF(TV), and two Baltimore stations with which we have a JSA or LMA (WUTB(TV) and WNUV(TV)). The FCC dismissed both informal requests on April 29, 2020. The individual requestor filed an application for review of the FCC’s dismissal on May 22, 2020, which the FCC declined to act on prior to the ordinary June 1, 2020 renewal application filing deadline for the stations. On September 1, 2020, the same individual filed a petition to deny the license renewal applications of WBFF(TV), WUTB(TV), and WNUV(TV). We filed an opposition to ACA’s informal requestthe petition on December 10, 2018October 1, 2020 with respect to WBFF(TV), and an opposition to the individual’s informal request on August 1, 2019. These matters remainpetition remains pending and weat this time. We cannot predict whether or when the FCC will take action on these informal requests.the petition or what the outcome of such action will be. To date, we have timely filed all renewal applications due for our stations during this renewal application cycle.
Ownership Matters
General. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to permit the assignment or transfer of control of, or the grant or renewal of, a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of media properties, the “character” of the licensee and those persons holding “attributable” interests in that licensee and compliance with the Communications Act’s limitations on foreign ownership. The FCC has indicated that in order to approve an assignment or transfer of a broadcast license the FCC must make an affirmative determination that the proposed transaction serves the public interest, not merely that the transaction does not violate its rules or shares factual elements with other transactions previously approved by the FCC, and that it may deny a transaction if it determines that the transaction would not be in the public interest.
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The FCC generally applies its ownership limits to “attributable” interests held by an individual, corporation, partnership or other association. In the case of corporations holding, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable. In addition, pursuant to what is known as the equity-debt-plus rule, a major programming supplier or same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity. Further, the Communications Act generally prohibits foreign parties from having more than a 20% interest (voting or equity) in a broadcast licensee or more than a 25% interest in the parent of that licensee without receiving prior FCC approval to exceed these limits. Following a Declaratory Ruling in 2013 in which the CommissionFCC indicated that it was open to considering proposals for foreign investment in broadcast licenses that exceed the 25% benchmark on a case by case basis, on September 29, 2016, the FCC adopted a Report and Order which among other things, (i) simplified the foreign ownership approval process for broadcast licensees seeking to exceed the 25% benchmark and (ii) modified the methodology a licensee may use to determine compliance with the foreign ownership rules.
Additional ownership rules as currently in effect are as follows:
Radio / Television Cross-Ownership Rule and Newspaper / Broadcast Cross-Ownership Rule. Until February 2018, the FCC’s rules (i) limited the combined number of television and radio stations a party could own in a market to up to two television stations and six radio stations, depending on the number of independent media voices in the market (radio/television cross ownership rule), and (ii) prohibited the common ownership of a radio or television broadcast station and a daily newspaper in the same market.market (newspaper/broadcast cross ownership rule). On November 20, 2017, the FCC released an Order on Reconsideration (Ownership Order on Reconsideration) that, among other changes, eliminated the Radio/Television Cross-Ownership Ruleradio/television cross-ownership rule and the Newspaper/Broadcast Cross-Ownership Rule.newspaper/broadcast cross-ownership rule. The rule changes adopted in the Ownership Order on Reconsideration became effective on February 7, 2018. Petitions for Review of the Ownership Order on Reconsideration were filed before the U.S. Court of Appeals for the Third Circuit and Sinclairwe filed to intervene in the proceeding. On September 23, 2019, the court vacated and remanded the Ownership Order on Reconsideration. Petitions for rehearing en banc were filed with the Third Circuit by the FCC and industry intervenors (including the Company) on November 7, 2019. The Third Circuit denied the petitions for rehearing on November 20, 2019 and the court’s mandate issued on November 29, 2019. On February 7,April 17, 2020, the FCC and industry intervenors (including us) filed applications to extend the time to file petitions for writ of certiorari with the U.S. Supreme Court, from February 18, 2020 to March 19, 2020, which applicationspetitions were granted on FebruaryOctober 2, 2020. The briefing schedule concluded on January 12, 2020.2021, and oral argument was heard on January 19, 2021. We cannot predict whether the Supreme Court will grant a writ of certiorari or what the outcome of the proceeding. While the proceeding would be. We do not currently own any daily newspapers.remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 2018, remain in effect.
National Ownership RuleRule.. The national television viewing audience reach cap is 39%. Under this rule, where an individual or entity has an attributable interest in more than one television station in a market, the percentage of the national television viewing audience encompassed within that market is only counted once. Additionally, because VHF stations (channels 2 through 13) historically covered a larger portion of the market than UHF stations (channels 14 through 51), only half of the households in the market area of any UHF station are included when calculating an entity’s national television viewing audience (commonly referred to as the UHF discount). On September 6, 2016, the FCC released a Report and Order eliminating the UHF discount (the “UHFUHF Discount Order”)Order), and on April 21, 2017, the CommissionFCC released an Order on Reconsideration (the “UHFUHF Discount Order on Reconsideration”)Reconsideration) to reinstate the UHF discount pending a future rulemaking to examine the UHF discount together with the national audience reach cap. The UHF discount was reinstated on June 15, 2017 and is currently in effect. A Petition for Review of the UHF Discount Order on Reconsideration was filed in the U.S. Court of Appeals for the D.C. Circuit on May 12, 2017, and was dismissed by the Court on July 25, 2018. On December 18, 2017, the CommissionFCC released a Notice of Proposed Rulemaking to examine the national audience reach cap, including the UHF discount. The rulemaking proceeding remains pending. We cannot predict the outcome of the rulemaking proceeding.
The majority of the stations we own and operate, or to which we provide programming services, are UHF. With the UHF discount, our current reach (for FCC purposes) is approximately 25% of U.S. households. See Item 1A. Risk Factors for further discussion of the risk related to the outcome of rules governing the UHF discount.
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Local Television (Duopoly)Ownership Rule. A party may own television stations in adjoining markets, even if there is a digital noise limited service contour overlap between the two stations’ broadcast signals, and generally may own two stations in the same market (local television ownership rule) only (i) if there is no digital overlap between the stations; or (ii) not more than one station is among the top-four rated stations in the market (the top-four rule). Prior to the Ownership Order on Reconsideration, the FCC did not allow a party to own more than one station in the same market if there was digital overlap between the stations unless and the market containing both of the stations would contain at least eight independently owned full-power television stations post-mergerpost-acquisition (the eight voices test). The Ownership Order on Reconsideration eliminated the eight voices test. The Ownership Order on Reconsiderationtest and also modified the top-four rule to permit parties to own up to two top-four rated stations in the same market on a case-by-case basis. Both rule changes became effective on February 7, 2018. Petitions for Review of the Ownership Order on Reconsideration, including the changes to the Local Television Rule, were filed before the U.S. Court of Appeals for the Third Circuit. On September 23, 2019, the courtThird Circuit vacated and remanded the Ownership Order on Reconsideration. Petitions for rehearing en banc were filed withOn September 23, 2019, the Third Circuit byvacated and remanded the FCC and industry intervenors (including the Company)Ownership Order on November 7, 2019.Reconsideration. The Third Circuit denied the petitions for rehearing on November 20, 2019 and the court’s mandate issued on November 29, 2019. On February 7, 2020, the FCC and industry intervenors filed applicationsCircuit’s decision was appealed to extend the time to file petitions for writ of certiorari with the Supreme Court, from February 18, 2020 to Marchwhich granted certiorari and heard oral argument on January 19, 2020, which applications were granted on February 12, 2020.2021. We cannot predict whether the Supreme Court will grant a writ of certiorari or what the outcome of the proceeding. While the proceeding would be.remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 2018, including the top-four rule and the eight voices test, remain in effect.
Local Marketing and Outsourcing Agreements
Certain of our stations have entered into agreements with other stations in the same market, through which we provide programming and operating services pursuant to time brokerage or local marketing agreements (LMAs)LMAs or provide sales services and other non-programming operating services pursuant to outsourcing agreements, such as joint sales agreements (JSAs)JSAs and shared services agreements (SSAs).SSAs. LMAs are attributable where a licensee holds an attributable interest in a television station and (i) programs more than 15% of the weekly broadcast hours and/or (ii) sells more than 15% of the weekly advertising time on another television station in the same market. LMAs existing prior to November 5, 1996, which include all of our LMAs, are currently grandfathered until further FCC action. Currently, all of our LMAs are grandfathered under the local television ownership rule because they were entered into prior to November 5, 1996. If the FCC were to eliminate the grandfathering of these LMAs, we would have to terminate or modify these LMAs.
In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviewsQuadrennial Regulatory Reviews of its media ownership rules and issued an order (Ownership Order) which left most of the existing multiple ownership rules intact, but amended the rules to provide for the attribution of JSAs where two television stations are located in the same market, and a party with an attributable interest in one station sells more than 15% of the advertising time per week of the other station. JSAs existing as of March 31, 2014 were grandfathered until October 1, 2025, at which point they would have to be terminated, amended or otherwise come into compliance with the JSA attribution rule. The subsequent Ownership Order on Reconsideration eliminated the JSA attribution rule. The rule changes adopted in the Ownership Order on Reconsideration became effective on February 7, 2018. Petitions for Review of the Ownership Order on Reconsideration, including the elimination of the JSA attribution rule, were filed before the U.S. Court of Appeals for the Third Circuit. On September 23, 2019, the courtCircuit vacated and remanded the Ownership Order on Reconsideration.,Reconsideration on appeal in September 2019, resulting in the reinstatement of the majority of the Ownership Order, including the JSA attribution rule. Petitions for rehearing en banc were filed with the Third Circuit by the FCC and industry intervenors (including the Company) on November 7, 2019. The Third Circuit denied the petitions for rehearing on November 20, 2019 and the court’s mandate issued on November 29, 2019. On February 7, 2020, the FCC and industry intervenors filed applicationsCircuit’s decision was appealed to extend the time to file petitions for writ of certiorari with the Supreme Court, formwhich granted certiorari and heard oral argument on January 19, 2021. While the proceeding remains pending before the Supreme Court, the FCC’s rules that were in effect prior to February 18, 2020 to March 19, 2020, which applications were granted on February 12, 2020.2018, including the JSA attribution rule, remain in effect. We cannot predict whether the Supreme Court will grant a writ of certiorari or what the outcome of the proceeding would be.proceeding. If we are required to terminate or modify our LMAs or JSAs, our business could be adversely affected in several ways, including losses on investments and termination penalties. For more information on the risks, see Changes in rules on local marketing agreements under "The FCC’sFCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets." within Item within Item 1A. Risk Factors andChanges in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 13. Commitments and Contingencies withinthe Consolidated Financial Statementsfor further discussion.
Antitrust Regulation. The Department of Justice (DOJ) and the Federal Trade Commission have increased their scrutiny of the television industry and have reviewed matters related to the concentration of ownership within markets (including LMAs and outsourcing agreements) even when ownership or the LMA or other outsourcing agreement in question is permitted under the laws administered by the FCC or by FCC rules and regulations. The DOJ takes the position that an LMA or other outsourcing agreement entered into in anticipation of a station’s acquisition with the proposed buyer of the station constitutes a change in beneficial ownership of the station which, if subject to filing under the Hart-Scott-Rodino Antitrust Improvements Act, cannot be implemented until the waiting period required by that statute has ended or been terminated.
On January 4, 2019, the Company received three civil investigative demands (CIDs) from the Antitrust Division of the DOJ. We believe the DOJ has similar civil investigative demands to other companies in our industry. In each CID, the DOJ requested that the Company produce certain documents and materials relating to JSAs in a specific DMA. We are cooperating and are in discussions with the DOJ regarding our responses to the CIDs. At this time, we are unable to predict the outcome of the CID process, including whether it will result in any action or proceeding against us.
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Satellite Carriage
The Satellite Home Viewer Act (SHVA), as extended by The Satellite Home Viewer Improvement Act of 1999 (SHVIA), the Satellite Home Viewer Extension and Reauthorization Act (SHVERA), the Satellite Television Extension and Localism Act of 2010 (STELA) and the Satellite Television Extension and Localism Act Reauthorization (STELAR) among other things, (i) allows satellite carriers to provide local television signals by satellite within a station market, and requires them to carry all local signals that asserted carriage rights in any market where they carry any local signals, (ii) requires all television stations to elect to exercise certain “must-carry” or “retransmission consent” rights in connection with their carriage by satellite carriers, and (iii) authorizes satellite delivery of distant network signals, significantly viewed signals and local low-power television station signals into local markets under defined circumstances. In adopting fiscal year 2020 appropriations legislation, Congress allowed STELAR to sunset on December 31, 2019 but made permanent STELAR’s (1) requirements that broadcasters and MVPDsDistributors negotiate retransmission content in good faith and (2) distant signal satellite license provisions for RVs,recreational vehicles, truckers, tailgaters and short markets. To qualify for the permanent license, satellite operators must deliverwere required to begin delivering local-into-local service in all currently “unserved” markets by the appropriations bill’s May 31, 2020 deadline.
Must-Carry / Retransmission Consent
Television broadcasters are required to make triennial elections to exercise either certain “must-carry” or “retransmission consent” rights in connection with their carriage by cable systems in each broadcaster’s local market. By electing to exercise must-carry rights, a broadcaster demands carriage and receives a specific channel on cable systems within its DMA. Must carry rights are not absolute and are dependent on a number of factors which may or may not be present in a particular case. Alternatively, if a broadcaster chooses to exercise retransmission consent rights, it can prohibit cable systems from carrying its signal or grant the appropriate cable system the authority to retransmit the broadcast signal for a fee or other consideration. We have elected to exercise our retransmission consent rights with respect to all of our stations. In February 2015, the FCC issued an order implementing certain statutorily required changes to its rules governing the duty to negotiate retransmission consent agreements in good faith. Under these rules, unless the stations are directly or indirectly under common de jure control as permitted under the FCC regulations, of the Commission, a station may not delegate authority to negotiate or approve a retransmission consent agreement to a station located in the same market or to a third party that negotiates together with another television station in the same market, nor may stations in the same market facilitate or agree to facilitate coordinated negotiation of retransmission consent terms for their stations in that market, including through the sharing of information.
Further, in September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee sports or entertainment event,” restrictions on online access to broadcast programming during negotiation impasses, broadcasters’ ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. On July 14, 2016, the FCC's then-Chairman Wheeler announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations of retransmission consent. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the full CommissionFCC will agree to terminate the Rulemaking without action.
Network Non-Duplication / Syndicated Exclusivity / Territorial Exclusivity
The FCC’s syndicated exclusivity rules allow local broadcast television stations to demand that cable operators black out syndicated non-network programming carried on “distant signals” (i.e., signals of broadcast stations, including so-called “superstations,” which serve areas substantially removed from the cable systems’ local community). The FCC’s network non-duplication rules allow local broadcast, network affiliated stations to require that cable operators black out duplicate network programming carried on distant signals. Both rules are subject to various exceptions and limitations. In a number of markets in which we own or program stations affiliated with a network, a station that is affiliated with the same network in a nearby market is carried on cable systems in our markets. Such significantly viewed signals are not subject to black out pursuant to the FCC’s network non-duplication rules. The carriage of two network stations on the same cable system could result in a decline of viewership, adversely affecting the revenues of our owned or programmed stations. In March 2014, the FCC issued a Report and Order and Further Notice of Proposed Rulemaking, requesting comments on whether it has authority to, and should, eliminate or modify its network non-duplication and/or syndicated exclusivity rules. This proceeding is pending and we cannot predict when or how the FCC will resolve that rulemaking.
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Digital Television
FCC rules provide that television broadcast licensees may use their digital television (DTV) channels for a wide variety of services such as HD television, multiple standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard and further subject to the requirement that broadcasters pay a fee of 5% of gross revenues from any DTV ancillary or supplementary service for which there is a subscription fee or for which the licensee receives a fee from a third party. These rules could impact the profitability related to ancillary or supplementary services provided as discussed within Development of Next Generation Wireless Platform under Operating Strategy above.
Programming and Operations
The Communications Act requires broadcasters to serve the “public interest.” The FCC has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. FCC licensees continue to be required, however, to present programming that is responsive to the needs and interests of their communities and to maintain certain records demonstrating such responsiveness. Complaints from viewers concerning a station’s programming may be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, television licensees have obligations to create and follow employment outreach programs, provide a minimum amount of programming for children, comply with rules relating to the emergency alert system (EAS), maintain an online public inspection file, and abide by regulations specifying requirements to provide closed captions for its programming. FCC licensees are, in general, responsible for the content of their broadcast programming, including that supplied by television networks. Accordingly, there is a risk of being fined as a result of our broadcast programming, including network programming.
Other Pending Matters
Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations, and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership, and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations, and affect our ability to acquire additional broadcast stations or finance such acquisitions.
On November 16, 2017, the FCC adopted a Report and Order and Further Notice of Proposed Rulemaking authorizing the voluntary deployment of NEXTGEN TV and adopting rules to afford broadcasters flexibility to deploy NEXTGEN TV based transmissions while minimizing impact on consumers and industry stakeholders and seeking comment on certain additional matters. The Report and Order took effect on March 5, 2018, except for certain rules that required approval from the Office of Management and Budget which became effective on July 17, 2018. The public comment periodOn June 3, 2020, the Commission adopted the Second Report and Order and Order on Reconsideration, providing additional guidance to broadcasters deploying NEXTGEN TV. Rule changes associated with the Second Report and Order and Order on Reconsideration became effective on August 17, 2020. On November 9, 2020, the National Association of Broadcasters filed a Petition for Declaratory Ruling and Petition for Rulemaking requesting that the FCC (1) clarify that its existing regulatory framework for the proposed rulemaking closed on March 20, 2018,hosting of simulcast primary programming streams also applies to simulcast multicast streams, and (2) expand the rulemaking remains pending. Theapplication of these rules to cover the transmission of ATSC 1.0 multicast streams regardless of whether those streams are simulcast in ATSC 3.0. We cannot predict whether the FCC released a Public Notice on May 23, 2019 announcing that itwill grant the petitions or what the outcome of such proceedings would begin accepting NEXTGEN TV applications on May 28, 2019.be.
Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct to consumerDTC offerings, direct television broadcast satellite service, Class A television service, the continued establishment of wireless cable systems and low power television stations, digital television technologies, the internet and mobility, and portability of our broadcast signal to hand-held devices.
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Congress authorized the FCC to conduct so-called “incentive auctions” to auction and re-purpose broadcast television spectrum for mobile broadband use. In the repacking process associated with the auction, the FCC reassigned some stations to new post-auction channels. Full-power and Class A stations arewere expected to complete the transition to their post-auction channels in one of ten phases between November 30, 2018 and July 3, 2020. As of December 31, 2020, all of our stations have transitioned to new channels, with two stations operating with special temporary authority at lower power. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. Congress allocated an additional $1 billion to the reimbursement fund in the FCC Reauthorization Act of 2018. See Broadcast Incentive Auction under Note 2. Acquisitions and Dispositions of Assets within the Consolidated Financial Statements for further discussion of our participation, results, and post-auction process.
On December 13, 2018, the FCC released a Notice of Proposed Rulemaking to initiate the 2018 Quadrennial Regulatory Review of the FCC’s broadcast ownership rules, pursuant to the statutory requirement that the FCC review its media ownership rules every four years to determine whether they remain “necessary in the public interest as the result of competition.” The NPRMproposed rulemaking generally seeks comment on, among other things, whether the, Local Radio Ownership Rule, the Local Television Ownership Rule,local television ownership rules (including the top-four rule and the Dual Network Ruleeight voices test), should be retained, modified, or eliminated. With respect to the Local Television Ownership Rulelocal television ownership rule specifically, among other things, the NPRMproposed rulemaking seeks comment on possible modifications to the rule’s operation, including the relevant product market, the numerical limit, the top-four prohibition; and the implications of multicasting, satellite stations, low power stations and the next generation standard. In addition, the NPRMproposed rulemaking examines further several diversity related proposals raised in the last quadrennial review proceeding.2014 Quadrennial Regulatory Review. The public comment period closed on May 29, 2019, and the rulemaking remains pending.
Other Considerations
The preceding summary is not a complete discussion of all provisions of the Communications Act or other congressional acts or of the regulations and policies of the FCC, or in some cases, the DOJ. For further information, reference should be made to the Communications Act, other congressional acts and regulations, and public notices circulated from time to time by the FCC, or in some cases, the DOJ. There are additional regulations and policies of the FCC and other federal agencies that govern political broadcasts, advertising, equal employment opportunity, and other matters affecting our business and operations.
ENVIRONMENTAL REGULATION
Prior to our ownership or operation of our facilities, substances or waste that are, or might be considered, hazardous under applicable environmental laws may have been generated, used, stored, or disposed of at certain of those facilities. In addition, environmental conditions relating to the soil and groundwater at or under our facilities may be affected by the proximity of nearby properties that have generated, used, stored, or disposed of hazardous substances. As a result, it is possible that we could become subject to environmental liabilities in the future in connection with these facilities under applicable environmental laws and regulations. Although we believe that we are in substantial compliance with such environmental requirements and have not in the past been required to incur significant costs in connection therewith, there can be no assurance that our costs to comply with such requirements will not increase in the future or that we will not become subject to new governmental regulations, including those pertaining to potential climate change legislation, that may impose additional restrictions or costs on us. We presently believe that none of our properties have any condition that is likely to have a material adverse effect on our consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.
COMPETITION
Our stations and RSNs compete for audience share and advertising revenue with other television stations and cable networks in their markets, as well as with other advertising media such as MVPDs,Distributors, other OTT distributors, cable networks, video on-demand, radio, newspapers, magazines, outdoor advertising, transit advertising, telecommunications providers, direct mail, internet, and other digital media.
Stations and RSNs compete for audience share primarily on the basis of program popularity, which has a direct effect on advertising rates.
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Our network affiliated stations are largely dependent upon the performance of network provided programs in order to attract viewers. Non-network time periods are programmed by the station primarily with syndicated programs purchased for cash, cash and barter, or barter-only, as well as through self-produced news, public affairs programs, live local sporting events, paid-programming, and other lifestyle and entertainment programming. We also compete for programming which involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Our stations compete for access to those programs against in-market broadcast station competitors for syndicated products and with national cable networks. Public broadcasting stations generally compete with commercial broadcasters for viewers, but not for advertising dollars.
Competition in the television broadcasting industry occurs primarily in individual DMAs. Generally, a television broadcasting station in one DMA does not compete with stations in other DMAs. Our stations are located in highly competitive DMAs. MVPDsDistributors can increase competition for viewership and advertising broadcast television stationadvertising inventory by carrying bringing into its market additional cable network channels inwithin the same DMA as the broadcast television stations. MVPDsDistributors sell advertising on these cable networks to local advertisers. These narrow cable network channels are typically low rated, and, as a result, advertisements are inexpensive to the local advertisers. MVPDsDistributors may also connect two or more cable systems together, also called an interconnect, which gives advertisers the option to reach more households in a market with a single buy. In addition, certain of our DMAs are overlapped by over-the-air stations from adjacent DMAs and MVPDsDistributors of stations from other DMAs, which tends to spread viewership and advertising expenditures over a larger number of television stations. In addition, there is significant increased competition with Google, Facebook, social media, OTT offerings and the multitude of other digital offerings that air video advertisements and sell programmatically to agencies and advertisers. MVPDsDistributor and digitalOTT offerings have the ability to either blanket the market or target their advertising which broadcast stations do not.
Because the loyalty of the sports viewing audience to a sports programming network is primarily driven by loyalty to a particular team or teams, access to adequate sources of sports programming is critical to the RSNs. The RSNs compete for telecast rights for teams or events with national or regional cable networks that specialize in or carry sports programming; television ‘‘superstations’’ which distribute sports and other programming by satellite; local and national commercial broadcast television networks; independent syndicators that acquire and resell such rights nationally, regionally and locally; mobile internet providers; and other OTT providers.distributors. Some of these competitors may own or control, or are owned or controlled by, sports teams, leagues or sports promoters, which gives them an advantage in obtaining telecast rights for such teams or sports. Distributors may also contract directly with the sports teams in their local service areas for the right to distribute games on their systems. The RSNs may also compete with Internet-based distributors of sports programming. The increasing amount of sports programming available on a national basis, including pursuant to national rights arrangements, as part of league-controlled sports networks (e.g., NBA TV and NHL Network), and in out-of-market packages (e.g., NBA’s League Pass and NHL Center Ice), may have an adverse impact on the RSNs' competitive position as they compete for distribution and for viewers.
The RSNs also compete with other programming networks to secure desired programming, although some of the RSNsRSN programming is generated internally through their efforts in original programming. Competition for programming will increase as the number of programming networks increases. Other programming networks that are affiliated with programming sources such as movie or television studios, film libraries or sports teams may have a competitive advantage over the RSNs in this area.
Advertising rates are based upon factors which include the size of the market in which the station and RSN operate; a program or team's popularity among the viewers that an advertiser wishes to attract; the number of advertisers competing for the available time; the demographic makeup of the market served by the station and RSN; the availability of alternative advertising media in the DMA; the aggressiveness and knowledge of the sales forces in the market to call on and understand their client’s need; and development of projects, features, and programs that tie advertiser messages to programming. We believe that our sales and programming strategies allow us to compete effectively for advertising revenues within the stations' and RSNs' markets.
Further, the competition of obtaining distribution is highly competitive. Our stations and RSNs face competition from other television stations and cable networks for the right to be carried by a particular distributor, and for the right to be carried on the service tier that will attract the most subscribers. Once one of our stations or RSNs obtains distribution, that network competes for viewers not only with the other channels available through the distributor, but also with over-the-air television, pay-per-view channels and video-on-demand channels, as well as online services, mobile services, radio, print, streaming services, and other sources of media and information, sporting events and entertainment. Important to our success in each area of competition the station and RSN faces are the price the station or RSN charges for its carriage; the quantity, quality and variety of programming offered and the effectiveness of its marketing efforts.
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Our stations' and RSNs' ability to successfully compete with other television stations and cable networks for distribution may be hampered because the distributors,Distributors, through which distribution is sought, may be affiliated with other television stations or cable networks. Those distributorsDistributors may place their affiliated television station or cable network on a more desirable tier, thereby giving the affiliated television station or cable network a competitive advantage over our stations' or RSNs' own programming.
Moreover, technology advances and regulatory changes affecting programming delivery through fiber optic lines, video compression, and new wireless uses could lower entry barriers for new video channels and encourage the further development of increasingly specialized “niche” programming. Telephone companies are permitted to provide video distribution services, on a common carrier basis, as “cable systems” or as “open video systems,” each pursuant to different regulatory schemes. Additionally, OTT services allow consumers to consume programming on-demand through access to the internetInternet and without a subscription with an MVPD.a Distributor. We continue to compete with the OTT services for viewership.
DTV technology allows our stations to provide viewers multiple channels of digital television over each of our existing standard digital channels, to provide certain programming in HD television format and to deliver other channels of information in the forms of data and programming to the internet, PCs, smart phones, tablet computers, and mobile and streaming devices. These additional capabilities may provide us with additional sources of revenue, as well as additional competition.
The financial success of our stations' and RSNs' also depends in part upon unpredictable and volatile factors beyond our control, such as viewer preferences, the strength of the advertising market, the quality and appeal of the competing programming and the availability of other entertainment activities.
We believe we compete favorably against other television stations and cable networks because of our management skill and experience, our ability historically to generate revenue share greater than our audience share, our network affiliations and program service arrangements, and our local program acceptance. In addition, we believe that we benefit from the operation of multiple broadcast and network properties, affording us certain non-quantifiable economies of scale and competitive advantages in the purchase of programming.
We believe that our ability to attract and retain the best employees is a cornerstone of our vision of connecting people with content everywhere. As of December 31, 2019,2020, we had approximately 11,80011,600 employees, including part-time and temporary employees. Approximately 1,6302,000 employees are represented by labor unions under certain collective bargaining agreements.
Corporate Culture
We have not experienced any significant labor problemsare committed to maintaining a safe, ethical, and considerharassment free workplace. We recognize that our overall labor relationssuccess as a team, and in our communications with one another, is grounded in our ability to trust team members to be good.fully engaged and to do the right thing. We support trusting relationships by offering clear guidance, structure, resources, and accountability. To this end, we maintain governance policies that apply to all of our directors, officers, and employees, including a code of business conduct and ethics, employee safety program, and no harassment and open-door policies. These policies are intended to help identify, provide mechanisms for reporting, and provide a framework for solving potential issues. These policies are reviewed and updated by management, together with the Board, as our needs grow and change and upon stakeholder feedback and changes in applicable laws, regulations, and stock exchange requirements.
We value and support diversity and inclusion at all levels. Diversity and inclusion have been fundamental from our very beginning and we take pride in being an equal opportunity employer. Diversity, inclusion, equal employment opportunity, and strong anti-discrimination policies go hand-in-hand and efforts related to one area complement other areas. Our Diversity and Inclusion Statement establishes clarity and alignment throughout our organization, at all levels, regarding how we connect with each other by embracing diversity and promoting inclusion among our employees, viewers, and customers. All employees are asked to honor the intent of our Diversity and Inclusion Statement in their daily activities and decisions and are required to take part in workplace diversity training.
Over several decades, our local television stations have built recruiting and outreach programs that encourage diversity in our workforce. Our activities are designed to ensure broad outreach to potential applicants by widely disseminating information concerning job vacancies, providing notification to community groups, attending diverse job fairs, participating in other various recruitment outreach activities, and providing training to managers on equal employment opportunity and illegal discrimination.
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Employee Engagement
We regularly gather feedback from employees to gain an understanding of and improve our employee experience and to foster an engaged workforce. This feedback is used to help create new, and refine existing, employee related programs and processes. Most recently, we gathered results from a company-wide Remote Work Survey in order to gain insights about our business during the COVID-19 pandemic. 90% of responding employees agreed that they have been well-supported during the COVID-19 pandemic.
Our Innovation project is a strategic lever that drives revenue, reduces waste, and engages employees to serve our customers and shareholders as a pioneer in the industry. We believe that the "next big idea" could come from anyone, anywhere and so, in 2020 began an effort to gather innovation ideas from employees company-wide. At our third annual Innovation Summit in November 2020, we brought together over 120 innovators to learn, expand our thinking, celebrate, and spark new and different ideas.
Health, Safety, and Wellness
The health, safety, and wellness of our employees is vital to our success. We maintain and continuously enhance affordable health care and recently reduced the waiting period for benefits to begin for new employees, improved paid time off benefits, and expanded the use of sick leave to allow for when employees cannot work due to child or dependent care issues. We continuously work to improve our practices, policies, and benefits to make meaningful impacts on our employees professional and personal lives. We also sponsor an employee assistance program aimed at enhancing the physical well-being, as well as the financial and mental well-being, of our employees.
In response to the COVID-19 pandemic, we implemented safety protocols to protect our employees, including many of our employees continuing to work remotely while employees who cannot work remotely continue to follow strict Center for Disease Control protocols such as physical distancing, monitoring and daily reporting on the health and symptoms of employees and members of the employees’ households, wearing face coverings, limiting interaction, and limiting non-essential travel.
Compensation
Our employee compensation includes market-competitive pay, a 401(k) plan, an employee stock purchase plan, healthcare benefits, paid time off and family leave, and employer paid life and disability insurance. We continue to improve upon our compensation offerings. Recently, we increased the number of hours of eligible vacation time rollover, increased our 401(k) match for all employees, and increased our minimum hourly wage to $15 for all applicable employees, including all employees whose minimum wage was previously tied to state and federal mandates. In response to the COVID-19 pandemic, we allowed eligible employees to cash out up to 40 vacation hours to assist with family hardships and we established a multimillion-dollar emergency fund to provide support to our RSN freelancers, as the cancellation of certain live sports deprived these freelancers of work.
PROTECTION OF THE ENVIRONMENT
Our business primarily relates to providing content to consumers digitally, which has minimal environmental impact, but we recognize that we all have a role to play in protecting the environment. We produce high quality news to increase our viewers' general awareness of environmental issues and programs by providing them information on how they can participate in improving environmental sustainability. Our corporate offices and stations participate in sustainability initiatives, such as proactively replacing lights with LED bulbs, reducing the use of paper products, and, whenever possible, recycling paper products and using automation systems to better manage HVAC systems. Additionally, in relation to the FCC's National Broadband Plan spectrum repack process and general updates, we have installed over 100 new, energy efficient television transmitters. These updated transmitters are typically 25% more energy efficient than the units that they replace and generate less waste heat, which allows for a reduction of air conditioning systems at the transmitter sites.
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AVAILABLE INFORMATION
We regularly use our website as a source of company information and it can be accessed at www.sbgi.net. We make available, free of charge through our website, our Annual Reportannual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically submitted to the SEC, who also makes these reports available at http://www.sec.gov. We intend to comply with the requirements of Item 5.05 of Form 8-K regarding amendments to and waivers under the code of business conduct and ethics applicable to our Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer by providing such information on our website within four days after effecting any amendment to, or granting any waiver under, that code, and we will maintain such information on our website for at least twelve months. In addition, a replay of each of our quarterly earnings conference calls is available on our website until the subsequent quarter’s earnings call. The information contained on, or otherwise accessible through, our website is not a part of this Annual Reportannual report on Form 10-K and is not incorporated herein by reference.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before investing in our securities. Our business is also subject to the risks that affect many other companies such as general economic conditions, geopolitical events, competition, technological obsolescence, and employee relations. The risks described below, along with risks not currently known to us or that we currently believe are immaterial, may impair our business operations and our liquidity in an adverse way.
Risks relating to our general operations
The COVID-19 pandemic or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations and cash flows, the economy, our advertisers, our leagues and teams, viewership, Distributors, and their subscribers.
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Over the course of 2020 and continuing into 2021, the COVID-19 pandemic and measures put in place to prevent the spread of the virushas had a significant negative impact on the global economy, including many industries in which our customers operate, curtailing advertising revenue. The pandemic has also resulted in disruptions to professional sports resulting in fewer games produced during the year, which negatively impacted advertising and distribution revenue.
The impact of COVID-19 on future periods will depend significantly on the duration and potential cyclicality of the health crisis, the related public policy actions taken by federal, state, and local governments to limit the length and severity of the global economic slowdown, and the timing for, and success of, the COVID-19 vaccination program. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations and cash flows due to, among other factors:
•the suspension, and possible cancellation, of some or all of the MLB, NBA and NHL seasons, and tennis tournaments;
•the requirement of our RSNs to pay professional sports team minimum rights fees, regardless of the number of games played in a season;
•the need to reimburse Distributor affiliation fees related to canceled professional sporting events;
•loss of advertising revenue due to postponement or cancellation of professional sporting events;
•loss of advertising revenue as advertisers may be more reluctant to purchase advertising spots/impressions due to reduced consumer spending as a result of shelter in place and stay at home orders;
•lack of liquidity and access to capital resources that may cause one or more Distributors or advertisers to be unable to meet their obligations to us or to otherwise seek modifications of such obligations;
•the significant disruption to the operations of the professional sports leagues and the macroeconomy caused by COVID-19 may result in the recognition of impairment charges on our goodwill and definite-lived intangible assets;
•we may be unable to access debt and equity capital on favorable terms, if at all, or a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions may affect our access to capital
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necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt, and increase our future interest expense;
•the financial impact of COVID-19 could negatively affect our future ability to pay dividends, and comply with financial and other covenants of the term loans and revolving credit agreements of STG and DSG (individually, the STG Bank Credit Agreement and the DSG Bank Credit Agreement, and together, the Bank Credit Agreements), the indentures governing STG’s and DSG’s outstanding notes, and the accounts receivable securitization facility (A/R Facility), and the failure to comply with such covenants could result in a default that accelerates the payment of such debt; and
•the interruption to global supply chains caused by COVID-19 could impact our ability to migrate off of various transition services provided by the seller of acquired assets which we rely upon to conduct our business in the local sports segment; and
•the potential negative impact on the health of our executive officers, employees or Board of Directors, particularly if a significant number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting access to our headquarters located in Hunt Valley, Maryland, could result in a deterioration in our ability to ensure business continuity during a disruption.
The extent to which COVID-19 impacts our operations and those of our sports team partners, Distributors and advertisers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.
A prolonged imposition of mandated closures or other social-distancing guidelines may adversely impact the ability of our sports team partners, Distributors and advertisers to generate sufficient revenues, and could force them to default on their obligations to us or result in their bankruptcy or insolvency. The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate adverse impact on us. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.
Our strategic acquisitions and investments could pose various risks and increase our leverage.
We have pursued and intend to selectively continue to pursue strategic acquisitions and investments, subject to market conditions, our liquidity, and the availability of attractive acquisition and investment candidates, with the goal of improving our business. We may not be able to identify other attractive acquisitions or investment targets, or we may not be able to fund additional acquisitions or investments in the future.
Acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our results of operations and could strain our human resources. For example, as a result of our acquisition of the Acquired RSNs in August 2019, we borrowed approximately $8.2 billion, substantially increasing our leverage and debt service requirements. Additionally, we may not be able to successfully implement effective cost controls, achieve expected synergies, or increase revenues as a result of an acquisition. In addition, future acquisitions may result in our assumption of unexpected liabilities, and may result in the diversion of management's attention from the operation of our core business.business and may limit our ability to generate higher returns elsewhere.
Certain acquisitions, such as television stations, are subject to the approval of the FCC and potentially, other regulatory authorities, such as the Department of Justice.DOJ. The need for FCC and other regulatory approvals could restrict our ability to consummate future transactions and potentially require us to divest certain television stations or businesses if the FCC or other regulatory authority believes that a proposed acquisition would result in excessive concentration in a market, even if the proposed combinations may otherwise comply with FCC ownership limitations or other regulation.regulations. There can be no assurance that future acquisitions will be approved by the FCC or other regulatory authorities, or that a requirement to divest existing stations or businessbusinesses will not have an adverse outcome on the transaction.
If the rate of decline in the number of subscribers to MVPDDistributor services increases or these subscribers shift to other services or bundles that do not include our programming networks, there may be a material adverse effect on our revenues.
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During the last few years, the number of subscribers to MVPDDistributor services in the United States has been declining.declining, and the rate accelerated in 2020, as technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume news, sports and other entertainment, including through the so-called “cutting the cord” and other consumption strategies. The Distributor subscriber decline has led to a decline in subscribers from some of our stations and networks. For example, subscribers of the Acquired RSNs fell by high single digits percent during the year ended December 31, 2020 on a same Distributor basis. In addition, distributorsDistributors have introduced, marketed and/or modified tiers or bundles of programming that have impacted the number of subscribers that receive our programming networks, including tiers or bundles of programming that exclude our programming networks.
If MVPDDistributor service offerings are not attractive to consumers for any reason (including due to pricing,(pricing, increased competition from OTT and DTC services, increased dissatisfaction with the quality of MVPDDistributor services, poor economic conditions or other factors), more consumers may (i) cancel their MVPDDistributor service subscriptions, or choose not to subscribe to traditional services, (ii) elect to instead subscribe to OTT services, which in some cases may be offered at lower prices, or (iii) elect to subscribe to MVPDsDistributors with smaller bundles of programming which may not include our programming networks, or (iv) elect not to subscribe to any subscription-based service. networks.
If the rate of decline in the number of MVPDDistributor service subscribers increases or if subscribers shift to OTT services or smaller bundles of programming that do not include our programming networks, this may have a material adverse effect on our revenues.
We may not be able to renegotiate retransmission consentdistribution agreements at terms comparable to or more favorable than our current agreements and networks with which we are affiliated are currently, or in the future, are expected to,and they may require us to share revenue from retransmission consentdistribution agreements with them.
As retransmission consentdistribution agreements expire, we may not be able to renegotiate such agreements at terms comparable to or more favorable than our current agreements. This may cause revenues and/or revenue growth from our retransmission consentdistribution agreements to decrease under the renegotiated terms despite the fact that our current retransmission consentdistribution agreements include automatic annual fee escalators. In addition, certain networks or program service providers with which our stations are affiliated are currently, or in the future are expected to, require us to share revenue from retransmission consentdistribution agreements with them as part of renewing expiring affiliation agreements or pursuant to certain rights contained in existing affiliation agreements. Generally, our retransmission consentdistribution agreements and agreements with networks or program service providers are for different lengths of time and expire in different periods. If we are unable to negotiate a retransmission consentdistribution agreement or the revenue received as part of those agreements declines over time, then we may be exposed to a reduction in or loss from retransmissiondistribution revenue net of revenue shared with networks and program service providers. We cannot predict the outcome or provide assurances as to the outcome of any future negotiations relating to our affiliationdistribution agreements or what impact, if any, they may have on our financial condition and results of operations. See Television Markets and Stations within Item 1. Business for a listing of current expirations of our affiliations agreements as of December 31, 2019.affiliation agreements.
We face intense, wide-ranging competition for viewers and advertisers.
We compete, in certain respects and to varying degrees, for viewers and advertisers with other programming networks, pay-per-view, video on demand, online streaming services, and other content offered by distributors. We also compete for viewers and advertisers with content offered over the Internet,OTT and DTC, mobile media, radio, motion picture, home video, stadiums and arenas, and other sources of information and entertainment and advertising services. Important competitive factors are the prices we charge for our programming networks, the quantity, quality (in particular, the performance of the sports teams whose media rights we control) and variety of the programming offered and the effectiveness of marketing efforts.
With respect to advertising services, factors affecting the degree and extent of competition include prices, reach and audience demographics, among others. Some of our competitors are large companies that have greater financial resources available to them than we do, which could impact our viewership and the resulting advertising revenues.
Rivals that may have greater resources than we have include:
•other local free over-the-air broadcast television and radio stations;
•Distributors, such as telecommunication companies, cable providers and direct broadcast satellite providers;
•print media providers such as newspapers, direct mail and periodicals;
•internet search engines, internet service providers, social media platforms, websites, and mobile applications;
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•OTT technologies;
•Distributor "skinny" packages;
•mobile television; and
•other emerging technologies.
Competition from other broadcasters or other content providers and changes in technology may cause a reduction in our advertising revenues and/or an increase in our operating costs.
New technology and the subdivision of markets
We cannot provide any assurances that we will remain competitive with these developing technologies.
We depend on the appeal of our programming, which may be unpredictable, and increased programming costs may have a material negative effect on our business and our results of operations.
We depend in part upon viewer preferences and audience acceptance of the programming on our stations and networks. These factors are often unpredictable and subject to influences that are beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment options. We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity. An increase in our costs associated with programming, including original programming, or a decrease in viewership of our programming, may materially negatively affect us and our results of operations.
In addition, we rely on third parties for broadcast, entertainment, news, sports and other programming for our stations and networks. We compete with other providers of programming to acquire the rights to distribute such programming. If we fail to continue to obtain broadcast, entertainment, news, sports and other programming for our stations and networks on reasonable terms for any reason, including as a result of competition, we could be forced to incur additional costs to acquire such programming or look for alternative programming, which may have a material negative effect on us and our results of operations.
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Further change in the current retransmission consent regulations could have an adverse effect on our business, financial condition and results of operations.
Distributors lobby to change the regulations under which retransmission consent is negotiated before both the U.S. Congress and the FCC in order to increase their bargaining leverage with television stations. On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking to reexamine its rules (1) governing the requirements for good faith negotiations between MVPDs and broadcasters, including implementing a prohibition on one station negotiating retransmission consent terms for another station under a local service agreement; (2) for providing advance notice to consumers in the event of dispute; and (3) to extend certain cable-only obligations to all MVPDs. The FCC also asked for comment on eliminating the network non-duplication and syndicated exclusivity protection rules, which may permit MVPDs to import out-of-market television stations in certain circumstances.
In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee sports or entertainment event,” restrictions on online access to broadcast programming during negotiation impasses, broadcasters’ ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. OnIn July 14, 2016, the FCC's then-Chairman Wheeler announced that the FCC would not, at that time, proceed to adopt additional rules governing good faith negotiations, however, the proceeding remains open.
As further described under Item 1. Business – Federal Regulation of Television Broadcasting, the FCC also has pending a Further Notice of Proposed Rulemaking which seeks additional comment on whether it has authority to, and should, eliminate or modify its network non-duplication and syndicated exclusivity rules.
The FCC rules governing “good faith” retransmission consent. No formal action has yet been taken on this proposed rulemaking, and we cannot predict ifconsent negotiations provide that it is a per se violation of the full Commission will agreestatutory duty to terminate the rulemaking without action.
The FCC released a NoticeFCC’s prohibition on the possible elimination or modification of Proposed Rulemaking on January 31, 2020 to amend itsthe network non-duplication and syndicated exclusivity protection rules and certain joint retransmission consent rulesnegotiations may affect our ability to implement Section 1003sustain our current level of distribution revenues or grow such revenues in the TVPA. Comments are duefuture and could have an adverse effect on or before March 5, 2020,our business, financial condition and reply comments are due on or before March 16, 2020.
Theft of our intellectual property may have a material negative effect on us and our results of operations, and we may become subject to infringement or other claims relating to our consent or technology.
Our success depends in part on our ability to maintain and monetize the material intellectual property rights in our programming, technology, digital and other content. Our intellectual property rights may be infringed upon by unauthorized usage of original broadcast content, RSN telecast feeds (including, without limitation, live and non-live content) and other content for which the RSNs and/or the applicable league/team hold copyright ownership or distribution rights. Such unauthorized usage may occur on any and all distribution platforms, including, without limitation, linear and streaming services. Additionally, our intellectual property rights may be further infringed upon by third-party unauthorized distribution of original broadcast content, game content and/or highlights on social media platforms on a live or near live basis. Third-party licensors of content may infringe upon our intellectual property rights by not complying with content distribution rules, local territory blackout rules and RSN distribution exclusivity windows.
Theft, misappropriation or the invalidity of our intellectual property or the intellectual property that is licensed to us by licensors (including sports teams) could have a material negative effect on us and our results of operations by potentially reducing the revenue that we are able to obtain from the legitimate sale and distribution of our content, undermining lawful and revenue-generating distribution channels, limiting our ability to control the marketing of our content and inhibiting our ability to recoup expenses or profit from the costs we incur creating our programming content. Litigation may be necessary to enforce our intellectual property rights or protect our trade secrets. Any litigation of this nature, regardless of outcome, could cause us to incur significant costs and could divert management's attention from the operation of our business.
While our programming personnel regularly monitor third-party streaming platforms and social media pages in an effort to identify intellectual property infringement and work closely with content distributors and leagues to notify content protection representatives to take the necessary steps to protect our and their intellectual property rights, those protective measures cannot ensure that theft, misappropriation or the invalidity of our intellectual property or the intellectual property that is licensed to us by licensors will not occur.
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In addition, from time to time, third parties may assert claims against us alleging intellectual property infringement or other claims relating to our programming, technology, digital or other content. If any such infringement claim results in the loss of certain of our intellectual property rights, it could have a materially negative impact our business and the results of our operations.
Cybersecurity risks, cyber incidents, data privacy, and other information technology failures could adversely affect us and disrupt our operations.
Our information technology systems are critically important to operating our business efficiently and effectively. We rely on our information technology systems to manage our data, communications, news, sports and advertising content, digital products, order entry, fulfillment, and other business processes. Despite our security measures (including, multi-factor authentication, security information and event management and firewalls and testing tools), network and information systems-related events, such as computer hackings, cyber threats, security breaches, viruses or other destructive or disruptive software, process breakdowns, or malicious or other activities could result in a disruption of our services and operations. These events could also result in, but are not limited to, the improper disclosure of personal data or confidential information, including through third parties which receive any of such information on a confidential basis for business purposes and could be subject to any of these events, and damage our reputation or require us to expend significant resources to remedy. The occurrence of any of these events, and the additional regulations relating to this area and the costs related thereto, could have a material adverse effect on us. While we maintain insurance to cover losses related to cybersecurity risks, such policies may not be sufficient to cover all losses,
We could be adversely affected by labor disputes and legislation and other union activity.
The cost of producing and distributing entertainment programming has increased substantially in recent years due to, among other things, the increasing demands of creative talent and industry-wide collective bargaining agreements. Although we generally purchase programming content from others rather than produce such content ourselves, our program suppliers engage the services of writers, directors, actors and on-air and other talent, trade employees, and others, some of whom are subject to these collective bargaining agreements. Approximately 1,6302,000 of our employees and freelance employees are represented by labor unions under collective bargaining agreements. If we or our program suppliers are unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages. Failure to renew these agreements, higher costs in connection with these agreements or a significant labor dispute could adversely affect our business by causing, among other things, delays in production that lead to declining viewers, a significant disruption of operations, and reductions in the profit margins of our programming and the amounts we can charge advertisers for time. Our stations and RSNs also broadcast certain professional sporting events, and our viewership may be adversely affected by player strikes or lockouts, which could adversely affect our advertising revenues and results of operations. The amounts paid under our sports rights agreements could be negatively impacted by rising professional player salaries, collective bargaining agreements or changes in the league mandated salary caps. Further, any changes in the existing labor laws, including the possible enactment of the Employee Free Choice Act, may further the realization of the foregoing risks.
The effects of the economic environment could require us to record an asset impairment of goodwill and indefinite-lived intangible assets.
We are required to analyze goodwill and certain other intangible assets for impairment. The accounting guidance establishes a method of testing goodwill and certain other intangible assets, such as broadcast licenses and customer relationships, for impairment on an annual basis, or on an interim basis if an event occurs that would reduce the fair value of a reporting unit or an indefinite-lived asset below its carrying value. For example, during the year ended December 31, 2020, with respect to our local sports segment, as a result of the loss of three Distributors, existing Distributors experiencing elevated levels of subscriber erosion which we believe was influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the then-current economic environment, the COVID-19 pandemic and related uncertainties, we recorded non-cash impairment charges of approximately $4,264 million. For additional information regarding impairments to our goodwill and broadcast licenses,intangible assets, see Valuation of Goodwill and Indefinite-Lived Intangible Assets under Critical Accounting Policies and Estimates within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within the Consolidated Financial Statements.
Unrelated third parties may bring claims against us based on the nature and content of information posted on websites maintained by us.
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We host internet services that enable individuals to exchange information, generate content, comment on our content, and engage in various online activities. The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally. Claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that may be posted online or generated by our users. Our defense of such actions could be costly and involve significant time and attention of our management and other resources.
Risks related to our concentrated voting stock ownership
The costSmiths exercise control over most matters submitted to a stockholder vote and may have interests that differ from other security holders. They may, therefore, take actions that are not in the interests of complyingother security holders.
As of December 31, 2020, David D. Smith, Frederick G. Smith, J. Duncan Smith, and Robert E. Smith hold shares representing approximately 81.1% of our common stock voting rights and, therefore, control the outcome of most matters submitted to a vote of our stockholders, including, but not limited to, electing directors, adopting amendments to our certificate of incorporation, and approving corporate transactions. The Smiths hold substantially all of the Class B Common Stock, which have ten votes per share. Our Class A Common Stock has only one vote per share. Future transfers by holders of Class B Common Stock will generally result in those shares converting to Class A Common Stock, subject to limited exceptions, such as transfers effected for estate planning purposes. The conversion of Class B Common Stock to Class A Common Stock will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Stock who retain their shares in the long term. In addition, the Smiths hold four of our board of directors' seats and, therefore, have the power to exert significant influence over our corporate management and policies. The Smiths have entered into a stockholders' agreement pursuant to which they have agreed to vote for each other as candidates for election to our board of directors until December 31, 2025.
Although in the past the Smiths have recused themselves from related person transactions, circumstances may occur in which the interests of the Smiths, as the controlling security holders, could be in conflict with governmental laws relatedthe interests of other security holders and the Smiths would have the ability to data privacy, information security and data protection may adversely affect our results of operations
(See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Item 13. Certain Relationships and Related Transactions, which will be included as part of our Proxy Statement for our 2021 Annual Meeting.)
Significant divestitures by the Smiths could cause them to privacy, information security and data protection. Any cybersecurity breachesown or control less than 51% of the voting power of our actual or perceivedshares, which in turn (i) could, as discussed under A failure to comply with covenants under debt instruments could result in a default under such legal obligations by us, or bydebt instruments, acceleration of amounts due under our third-party service providers or partners, could potentially harmdebt and loss of assets securing our business and we could be exposed to a risk of loss, litigation and/or regulatory fines or other action.
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Risks relating to our local news and marketing servicesbroadcast segment
Our advertising revenue can vary substantially from period to period based on many factors beyond our control. This volatility affects our operating results and may reduce our ability to repay indebtednessdebt or reduce the market value of our securities.
We rely on sales of advertising time for a significant portion of our local news and marketing servicesbroadcast segment revenues and, as a result, our operating results depend on the amount of advertising revenue we generate. If we generate less advertising revenue, it may be more difficult for us to repay debt and meet our indebtednessdebt service obligations, and the value of our business may decline. Our ability to sell advertising time depends on:
•the levels of automobileautomotive and services advertising, which historically have represented a large portion of our advertising revenue; for the year ended December 31, 2019, automobile2020 (a political year), services and servicesautomotive advertising represented 25%19% and 16%, respectively, of our advertising revenue and for the year ended December 31, 2019 (a non-political year), services and automotive advertising represented 22% and 25%, respectively, of our advertising revenue;
•the levels of political advertising, which are significantly higher in even-number years and elevated further every four years related to the presidential election (as was the case in 2020), historically have represented a large portion of our advertising revenue; for the year ended December 31, 2019,2020, political advertising represented 3%27% of our advertising revenue;
•the levels of political advertising, which are affected by political beliefs, public opinion, campaign finance laws, and the ability of political candidates and political action committees to raise and spend funds which are subject to seasonal fluctuations;
•the health of the economy in the areas where our television stations are located and in the nation as a whole;
•the popularity of our programming and that of our competition;
•the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;
•the effects of new rating methodologies;
•changes in the makeup of the population in the areas where our stations are located;
•the financial health of our underlying advertisers' businesses and demand for their products;
•the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as other broadcast television stations, radio stations, MVPDs,Distributors, internet and broadband content providers and other print, outdoor, social media, and media outlets serving in the same markets;
•OTT and other emerging technologies and their potential impact on cord-cutting;
•the impact of MVPDsDistributors and OTT distributors offering "skinny" programming bundles that may not include all programming of television broadcast stations and/or cable channels, such as Tennis Channel;
•changes in pricing and sellout levels;
•the financial health of our underlying customers' that we provide management services to;
•the effectiveness of our salespeople; and
•other factors that may be beyond our control.
There can be no assurance that our advertising revenue will not be volatile in the future or that such volatility will not have an adverse impact on our business, financial condition, or results of operations.
We purchase television programming in advance based on expectations about future revenues. Actual revenues may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
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One of our stations' most significant costs is network and syndicated programming. Our ability to generate revenue to cover this cost may affect the value of our securities. If a particular network or program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the cost.
We generally purchase syndicated programming content from others rather than producing such content ourselves, therefore, we have limited control over the costs of the programming. Often, we must purchase syndicated programming several years in advance and may have to commit to purchase more than one year's worth of programming. We may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred or before we have fully amortized the costs. We also receive programming from networks with which we have network affiliation agreements. Generally, the agreements are for several years. The popularity of networks can affect revenue earned on those channels. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. These factors are exacerbated during a weak advertising market.
We internally originate television programming in advance based on expectations about future revenues. Actual revenues could fluctuate and may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
The production of internally originated programming requires a large up-front investment and the revenues derived from the airing of internally originated programming primarily depends upon its acceptance by the public, which is difficult to predict. The commercial success of original content also depends upon the quality and acceptance of other competing content released into the marketplace at or near the same time, the availability of a growing number of alternative forms of entertainment, general economic conditions and their effects on consumer spending, and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. These factors are exacerbated during a weak advertising market.
We may lose a large amount of programming if a network terminates its affiliation or program service arrangement with us, we are not able to negotiate arrangements at terms comparable to or more favorable than our current agreements, or if networks make programming available through services other than our local affiliates, which could increase our costs and/or reduce our revenue.
The networks produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during programming and for cash fees. The amount and quality of programming provided by each network varies. See Television Markets and Stations within Item 1. Business for a detailed listing of our stations and channels as of December 31, 2019.2020.
As network affiliation agreements come up for renewal, we (or licensees of the stations we provide programming and/or sales services to), may not be able to negotiate terms comparable to or more favorable than our current agreements. The non-renewal or termination of any of our network affiliation agreements would prevent us from being able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences, resulting in reduced revenues. Upon the termination of any of our network affiliation agreements, we would be required to establish a new network affiliation agreement for the affected station with another network or operate as an independent station.
We cannot predict the outcome of any future negotiations relating to our affiliation agreements or what impact, if any, they may have on our financial condition and results of operations. In addition, the impact of an increase in reverse network compensation payments, under which we compensate the network for programming pursuant to our affiliation agreements, may have a negative effect on our financial condition or results of operations. See Television Markets and Stations within Item 1. Business for a listing of current expirations of our affiliations agreements as of December 31, 2019.affiliation agreements.
We may be subject to investigations or fines from governmental authorities, such as, but not limited to penalties related to violations of FCC indecency, children's programming, sponsorship identification, and other FCC rules and policies, the enforcement of which has increased in recent years, and complaints related to such violations may delay our renewal applications with the FCC.
We provide a significant amount of live news reporting that is provided by the broadcast networks or is controlled by our on-air news talent. Although both broadcast network and our on-air talent have generally been professional and careful in what they say, there is always the possibility that information may be reported that is inaccurate or even in violation of certain indecency rules promulgated by the FCC. In addition, entertainment and sports programming provided by broadcast syndicators and
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networks may contain content that is in violation of the indecency rules promulgated by the FCC. Because the interpretation by the courts and the FCC of the indecency rules is not always clear, it is sometimes difficult for us to determine in advance what may be indecent programming. We have insurance to cover some of the liabilities that may occur, but the FCC has enhanced its enforcement efforts relating to the regulation of indecency. Also, the FCC has various rules governing children's television programming, including commercial matter limitations.limitations, and sponsorship identification. We are subject to such rules regardless of whether the programming is produced by us or by third parties. Violation of the indecency, or children's programming or sponsorship identification rules could potentially subject us to penalties, license revocation, or renewal or qualification proceedings.For example, as described under Litigation within FCC Litigation Matters under Note 13. Commitments and Contingencies within the Consolidated Financial Statements, on May 22, 2020, the FCC released an Order and Consent Decree pursuant to which we agreed to pay $48 million and implement a four year compliance plan to resolve various matters. There can be no assurance that an incidentfuture incidents that may lead to significant fines or other penalties by the FCC can be avoided.
From time to time, we may be the subject of an investigation from governmental authorities. For example, as described more fully under The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets below. On January 4, 2019, the Company received three CIDs from the Antitrust Division of the DOJ relating to JSAs in a certain DMAs. We believe the DOJ has issued similar civil investigative demands to other companies in our industry. There can be no assurance that an investigation will not lead to an action or proceeding against us. In the event an action or proceeding is commenced, we may be subject to fines, penalties and changes in our business that could have a negative effect on our financial condition and results of operationsoperations.
Federal regulation of the broadcasting industry limits our operating flexibility, which may affect our ability to generate revenue or reduce our costs.
The FCC regulates our business,broadcast segment, just as it does all other companies in the broadcasting industry. We must obtain the FCC's approval whenever we need a new license, seek to renew, assign or modify a license, purchase a new station, sell an existing station, or transfer the control of one of our subsidiaries that hold a license. Our FCC licenses are critical to our broadcast segment operations; we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions in a timely manner, if at all. If licenses are not renewed or acquisitions are not approved, we may lose revenue that we otherwise could have earned.
In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including, but not limited to, technological changes in spectrum assigned to particular services) that could, directly or indirectly, materially and adversely affect the operation and ownership of our broadcast properties. (See Item 1. Business.)
The FCC's multiple ownership rules and federal antitrust regulation may limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets.
Television station ownership
As discussed in National Ownership Rule under Ownership Matters under Federal Regulation of Television Broadcasting within Item 1. Business, in AprilDecember 2017, the FCC adopted the UHF Discount Order on Reconsideration to restore the UHF discount, which reinstatement became effective in June 2017. A Petition to Review the UHF Discount Order on Reconsideration was filed with the U.S. Court of Appeals for the D.C. Circuit in May 2017, and dismissed by the Court in July 2018. On December 18, 2017, the Commission released a Notice of Proposed Rulemaking to examine the National Ownership Rule, including the UHF discount, which remains pending. We cannot predict the outcome of this rulemaking proceeding. Because we are near the 39% cap without application of the UHF discount, changes to the UHF discount or National Ownership Rule could limit our ability to acquire television stations in additional markets.
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oral argument on January 19, 2020, which applications were granted on February 12, 2020.2021. The Supreme Court’s decision remains pending. We cannot predict whether the Supreme Court will grant a writ of certiorari or what the outcome of the proceeding would be. If we are required to terminate or modify our JSAs, our business could be adversely affected in several ways, including losses on investments and termination penalties. See Note 14. Variable Interest Entities within the Consolidated Financial Statements for further discussion of our JSAs which we consolidate as variable interest entities.
As discussed in Other Pending Matters under Federal Regulation of Television Broadcasting within Item 1. Business, in December 2018, the FCC released a Notice of Proposed Rulemaking to initiate the 2018 Quadrennial Regulatory Review of the FCC's broadcast ownership rules. The NPRM seekssought comment on whether the Local Radio Ownership Rule, the Local Television Ownership Rule, and the Dual Network Rulecertain of its ownership rules continue to be necessary in the public interest or whether they should be modified or eliminated. With respectThis proceeding remains open. Changes to the Local Television Ownership Rule specifically, among other things, the NPRM seeks comment on possible modifications to the rule's operation, including the relevant product market, the numerical limit, the top-four prohibition; and the implications of multicasting, satellite stations, low power stations and the next generation standard. In addition, the NPRM examines further several diversity related proposals raisedthese rules could result in the last quadrennial review proceeding. The public comment period began on April 29, 2019,need to terminate or modify our LMAs, JSAs and reply comments were due by May 29, 2019. We cannot predict when the FCC will conclude the 2018 Quadrennial Regulatory Review or what the outcome of the proceeding will be.other outsourcing agreements.
On January 4, 2019, the Company received three CIDs from the Antitrust Division of the DOJ. In each CID, the DOJ requested that the Company produce certain documents and materials relating to JSAs in a specific DMA. We believe the DOJ has issued similar civil investigative demands to other companies in our industry. We are cooperating and are in discussions with the DOJ regarding our response to the CID. At this time, we are unable to predict the outcome of the CID process, including whether it will result in any action or proceeding against us.
See Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 13. Commitments and Contingencies within the Consolidated Financial Statements.
If we are required to terminate or modify our LMAs, JSAs and other outsourcing agreements, our business could be affected in the following ways:
•Loss of revenues. If the FCC requires us to modify or terminate existing arrangements, we would lose some or all of the revenues generated from those arrangements. We would lose revenue because we will have fewer demographic options, a smaller audience distribution and lower revenue share to offer to advertisers. •Increased costs. If the FCC requires us to modify or terminate existing arrangements, our cost structure would increase as we would potentially lose significant operating synergies and we may also need to add new employees. With termination of LMAs, we likely would incur increased programming costs because we will be competing with the separately owned station for syndicated programming. •Losses on investments. As part of certain of our arrangements, we own the non-license assets used by the stations with which we have arrangements. If certain of these arrangements are no longer permitted, we would be forced to sell these assets, restructure our agreements or find another use for them. If this happens, the market for such assets may not be as good as when we purchased them and, therefore, we cannot be certain of a favorable return on our original investments. •Termination penalties. If the FCC requires us to modify or terminate existing arrangements before the terms of the arrangements expire, or under certain circumstances, we elect not to extend the terms of the arrangements, we may be forced to pay termination penalties under the terms of certain of our arrangements. Any such termination penalties could be material. 36 • |
Alternative arrangements. If the FCC requires us to terminate the existing arrangements, we may enter into one or more alternative arrangements. Any such arrangements may be on terms that are less beneficial to us than the existing arrangements. |
Failure of owner / licensee to exercise control
The FCC requires the owner / licensee of a station to maintain independent control over the programming and operations of the station. As a result, the owners / licensees of those stations with which we have LMAsoutsourcing agreements can exert their control in ways that may be counter to our interests, including the right to preempt or terminate programming in certain instances. The preemption and termination rights cause some uncertainty as to whether we will be able to air all of the programming that we have purchased under our LMAs and therefore, uncertainty about the advertising revenue that we will receive from such programming. In addition, if the FCC determines that the owner / licensee is not exercising sufficient control, it may penalize the owner licensee by a fine, revocation of the license for the station or a denial of the renewal of that license. Any one of these scenarios, especially the revocation of or denial of renewal of a license, might result in a reduction of our cash flow or margins and an increase in our operating costs. In addition, penalties might also affect our qualifications to hold FCC licenses, putting our own licenses at risk.
The pendency and indeterminacy of the outcome of these ownership rules and the CIDs, which may limit our ability to provide services to additional or existing stations pursuant to licenses, LMAs, outsourcing agreements or otherwise, expose us to a certain amount of volatility, particularly if the outcomes are adverse to us. Further, resolution of these ownership rules and the CIDs has been and will likely continue to be a cost burden and a distraction to our management and the continued absence of a resolution may have a negative effect on our business.
We have invested and will continue to invest in new technology initiatives which may not result in usable technology or intellectual property.
We have heavily invested in the development of the NEXTGEN TV platforms as discussed in Development of Next Generation Wireless Platform under Operating Strategy within Item 1. Business. We do not know whether the outcome of our research and development will result in technology that will be usable on our distribution platform or available to license to third parties. Additionally, even if our efforts result in usable technology, we do not know whether it will be included within the NEXTGEN TV framework. Any failure to develop this technology could result in the loss of our investment. Our cost incurred related to the development of the NEXTGEN TV platform is recorded within non-media expenses within our consolidated statements of operations. Additionally, we have developed, on our own and through joint ventures, several NEXTGEN TV related patents that we will attempt to monetize directly, through third-party agents, or through a patent pool designed to consolidate similar patents owned by independent licensors for licensing to equipment manufacturers. We do not know whether our attempts at monetization will result in licensing arrangements that will be accepted by such equipment manufacturers or result in any royalty payments for our intellectual property rights.
Risks relating to our local sports segment
Our media rights agreements with various professional sports teams have varying durations and terms and we may be unable to renew those agreements on acceptable terms or such rights may be lost for other reasons.
Our ability to generate revenues is dependent upon media rights agreements with professional sports teams. As of December 31, 2019,2020, we had a weighted average remaining life of 10 years under our exclusive media rights agreements. Upon expiration, we may seek renewal of these agreements and, if we do, we may be outbid by competing programming networks or others for these agreements or the renewal costs could substantially exceed our costs under the current agreements. Even if we are to renew such agreements, our results of operations could be adversely affected if increases in sports programming rights costs outpace increases in affiliate feedistribution and advertising revenues. In addition, one or more of these sports teams may seek to establish their own programming network or join one of our competitor's networks or regional sports network and, in certain circumstances, we may not have an opportunity to bid for the media rights. Also, there is a risk that certain rights can be distributed via digital rights and the RSNs would not have the same monetization for such rights.
Moreover, the value of these agreements may also be affected by various league decisions and/or league agreements that we may not be able to control, including a decision to alter the number of games played during a season. The governing bodies of the MLB, NBA and NHL have imposed, and may impose in the future, various rules, regulations, guidelines, bulletins, directives, policies and agreements (collectively, “League Rules”), which could have a material negative effect on our business
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and results of operations. For example, the League Rules define the territories in which we may distribute games of the teams in the applicable league. Changes to the League Rules, or the adoption of new League Rules, could affect our media rights agreements with the various teams and as consequence have a material negative effect on our business and results of operations. For example, the leagues may give digital rights to other distributorsand/or may allocate more games for national feeds orto other distributorsDistributors, and/or may incentivize team participation in league-controlled sports networks.
The value of these media rights can also be affected, or we could lose such rights entirely, if a team is liquidated, undergoes reorganization in bankruptcy or relocates to an area where it is not possible or commercially feasible for us to continue to distribute programming for such team. Any loss or diminution in the value of rights could impact the extent of the sports coverage offered by us and could materially negatively affect us and our results of operations. In addition, our affiliation agreements with MVPDsDistributors typically include certain remedies in the event our networks fail to meet a minimum number of professional event telecasts, and, accordingly, any loss of rights could materially negatively affect our business and our results of operations.
Our local sports segment’s success depends on affiliate feesdistribution revenue we receive, the loss of which or renewal of which on less favorable terms may have a material negative effect on us and our results of operations.
Our local sports segment’s success is dependent upon the existence and terms of our agreements with MVPDs, OTTDistributors and other streamingOTT distributors. Our existing agreements for our programming networks expire at various dates. Given the relatively short-term nature of our existing agreements, a number of agreements with MVPDsDistributors are up for renewal and under negotiation at any given time. We cannot provide assurances that we will be able to renew these affiliationdistribution agreements or obtain terms as attractive as our existing agreements in the event of a renewal. For example, in recent years, we have been unable to negotiate renewals of distribution agreements on satisfactory terms with three significant Distributors. Our affiliation agreements with Dish Network Corporation (Dish), YouTube TV, and Hulu expired on July 26, 2019, October 1, 2020 and October 23, 2020, respectively. For the twelve months ended June 30, 2019, revenue from Dish and its OTT service, Sling TV, accounted for 12% of the Acquired RSNs distribution revenue. For the twelve months ended September 30, 2020, revenue from YouTube TV and Hulu accounted for a combined 9% of the local sports segment’s distribution revenue. In addition, some of the affiliation agreements also include so-called "most favored nations" provisions which require that certain terms (including, potentially, the material terms) of such agreements are no less favorable than those provided to any similarly situated MVPD.Distributors. If triggered, these most favored nations provisions could cause our payments or other obligationsthe amounts earned under thosethese agreements to increase,decrease, which could result in our inability to achieve the originally anticipated benefits of such agreements.
Distribution revenue constitutes the substantial majority of our local sports segment revenues. For the quarteryear ended December 31, 2019,2020, local sports segment affiliate feesdistribution revenue constituted 92% of our local sports segment revenue and 45%42% of our consolidated total revenue. Changes in affiliate fee revenuesdistribution revenue generally result from a combination of changes in rates and subscriber counts. As described under If the rate of decline in the number of subscribers to Distributor services increases or these subscribers shift to other services or bundles that do not include our programming networks, there may be a material negative effect on our distribution revenue. during the last few years, the number of subscribers to Distributor services in the United States has been declining. We believe the decline has resulted from technological advancements that have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume sports, including through the so-called “cutting the cord” and other consumption strategies. Reductions in the license fees that we receive per subscriber or in the number of subscribers for which we are paid, including as a result of a loss of, or reduction in carriage of, our programming networks, would adversely affect our affiliate feedistribution revenue. For example, distributorsDistributors may introduce, market and/or modify tiers of programming networks that could impact the number of subscribers that receive our programming networks, including tiers of programming that may exclude our networks. Any loss or reduction in carriage would also decrease the potential audience for our programming, which may adversely affect our advertising revenues. See "-If the rate of decline in the number of subscribers to MVPD services increases or these subscribers shift to other services or bundles that do not include our programming networks, there may be a material negative effect on our affiliate fee revenue." In some cases, subscribers may decide to "cut the cord" and not subscribe to MVPD or other streaming services, which would result in a decline in affiliate fees.
Our affiliationdistribution agreements generally require us to meet certain content criteria, such as minimum thresholds for professional event telecasts throughout the year on our networks. If we were unable to meet these criteria, we could become subject to remedies available to the distributors,Distributors, which may include fee reductions, rebates or refunds and/or termination of these agreements.Our ability to meet these requirements is primarily driven by the delivery of games by the professional sports leagues. The COVID-19 pandemic has resulted in significant disruptions to the normal operations of the professional sports leagues resulting in delays and uncertainty with respect to regularly scheduled games. For example, decisions made by the leagues during the second quarter of 2020 regarding the timing and format of the revised 2020 seasons have resulted, in some cases, in our inability to meet these minimum requirements and the need to reduce revenue based upon estimated rebates due to our distribution customers.
In addition, under certain circumstances, an existing agreement may expire and we may have not finalized negotiations of either a renewal of that agreement or a new agreement for certain periods of time. For example, our affiliation agreement with Dish Network Corporation (Dish) expired on July 26, 2019. For the twelve months ended June 30, 2019, revenue from Dish and its OTT service, Sling TV, accounted for 12% of the sports segment’s affiliate fee revenues. While distributorsDistributors may continue to carry the
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services in certain of these circumstances until the execution of definitive renewal or replacement agreements (or until we or the distributorDistributor determine that carriage should cease), distributorsDistributors may instead elect to stop carrying, or "blackout," the services upon the expiration of an agreement. For example, upon the expiration of the Dish affiliation agreement, Dish stopped broadcasting Sinclair's RSNs and such blackout continues. While we continue to negotiate with Dish, we cannot predict whether we will reach an agreement or whether such agreement will be on terms as favorable to us as the terms of our prior agreement with Dish. Thus, we cannot predict how long the Dish blackout might last. Whether distributorsDistributors continue to carry the services or not during the renegotiation of our agreement with them, an expiration of an existing agreement without a renewal or replacement thereof may materially adversely affect our business.business results of operations or financial condition.
Occasionally, we may have disputes with distributorsDistributors over the terms of our agreements. If not resolved through business discussions, such disputes could result in litigation or actual or threatened termination of an existing agreement.
In addition, the pay television industry is highly concentrated, with a relatively small number of distributorsDistributors serving a significant percentage of pay television subscribers that receive our programming networks, thereby affording the largest distributorsDistributors significant leverage in their relationship with programming networks, including us. A substantial majority of our local sports segment affiliate feedistribution revenue comes from our top three distributors.Distributors. Further consolidation in the industry could reduce the number of distributorsDistributors available to distribute our programming networks and increase the negotiating leverage of certain distributors,Distributors, which could adversely affect our revenue. In some cases, if a distributorDistributor is acquired, the affiliationdistribution agreement of the acquiring distributorDistributor will govern following the acquisition. In those circumstances, the acquisition of a distributorDistributor that is a party to one or more affiliationdistribution agreements with us on terms that are more favorable to us than that of the acquirer could have a material negative impact on us and our results of operations.
Our joint venture arrangements are subject to a number of operational risks that could have a material adverse effect on our business, results of operations and financial condition.
We have invested in a number of our RSNs through joint ventures with certain teams, and we may form additional joint ventures in the future. As of December 31, 2019,2020, we were joint venture partners with six6 teams in the RSNs that distribute content for each respective team. The nature of the joint ventures requires us to consult with and share certain decision-making powers with unaffiliated third parties. Further, differences in economic or business interests or goals among joint venture participants could result in delayed decisions, failures to agree on major issues and even litigation. If these differences cause the joint ventures to deviate from their business or strategic plans, or if our joint venture partners take actions contrary to our policies, objectives or the best interests of the joint venture, our results could be adversely affected.
Our participation in joint ventures is also subject to the risks that:
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•certain corporate-wide or strategic transactions may also trigger other contractual rights held by a joint venture partner (including termination or liquidation rights) depending on how the transaction is structured, which could impact our ability to complete such transactions.
Our local sports segment is substantially dependent on the popularity of the MLB, NBA and NHL teams whose media rights we control.
Our local sports segment is dependent on the popularity of the MLB, NBA and NHL teams whose local media rights we control and, in varying degrees, those teams achieving on-field, on-court and on-ice success, which can generate fan enthusiasm, resulting in increased viewership and advertising revenues. Furthermore, success in the regular season may qualify a team for participation in the post-season, which generates increased interest in such team, thereby improving viewership and advertising revenues. Alternatively, if a team declines in popularity or fails to generate fan enthusiasm, this may negatively impact viewership and advertising revenues and the terms on which our affiliation agreements are renewed. There can be no assurance that any sports team will generate or maintain fan enthusiasm or compete in post-season play, and the failure to do so could result in a material negative effect on us and our results of operations.
Our advertising revenue can vary substantially from period to period based on many factors beyond our control, which volatility may adversely affect our results of operations.
We rely on sales of advertising time for a portion of our local sports segment revenues and, as a result, our operating results depend on the amount of advertising revenue we generate. Our ability to sell advertising time depends on:
•the success of the automotive industry,and service industries, which historically hashave provided a significant portion of our local sports segment advertising revenue;
•the health of the economy in the areas where our networks are located and in the nation as a whole;
•the popularity of our programming and that of our competition;
•the popularity of the sports teams with which we own rights;
•the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;
•the effects of new rating methodologies;
•changes in the makeup of the population in the areas where our networks are located;
•the financial health of our underlying advertisers' businesses and demand for their products;
•the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as radio stations, MVPDs, vMVPDs,Distributors, internet and broadband content providers and other print, outdoor, social media, Internet and media outlets serving in the same markets;
•OTT and other emerging technologies and their potential impact on cord-cutting;
•the impact of MVPDsDistributors and other OTT distributorsproviders not offering our networks or offering "skinny" programming bundles that may not include all programming of our networks;
•changes in pricing and sellout levels;
•the abilityeffectiveness of our salespeople to sell and market our content;sales people;
•our ability to compete with MVPDsDistributors that are selling the advertising time that we provide them, which they are able to bundle with other sports and other geographic locations; and
•advertisers' desire to message to our viewer demographic.demographic;
•our ability to successfully implement a DTC and gamification strategy;
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•our ability to successfully rebrand the RSNs;
•Bally's ability to pay for naming rights and advertising commitments, as well as successfully increase the value of their company;
•the effectiveness of the RSNs digital APP and ability to monetize impressions; and
•other factors that may be beyond our control.
There can be no assurance that our advertising revenue will not be volatile in the future or that such volatility will not have an adverse impact on us, our financial condition, or our results of operations.
We may be obligated to make certain payments to local teams during labor disputes.
We may be impacted by union relations of professional sports leagues. Each of the NBA, the NHL and MLB has experienced labor difficulties in the past and may have labor issues, such as players' strikes or management lockouts, in the future. For example, the NBA has experienced labor difficulties, including lockouts during the 1998-99 and 2011-12 seasons, resulting in a shortened regular season in each case. The NHL has also experienced labor difficulties, including lockouts during the 1994-95 and 2012-13 seasons, resulting in a shortened regular season in each case, and a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season. MLB has also experienced labor difficulties, including players' strikes during the 1972, 1981 and 1994 seasons, resulting in a shortened regular season in each case, and the loss of the entire post-season and the World Series in 1994.
Any labor disputes between professional sports leagues and players' unions may preclude us from airing or otherwise distributing scheduled games for which we have the rights to broadcast, resulting in decreased revenues, which would adversely affect our business, revenue and results of operations. In addition, any labor disputes between professional sports leagues and players' unions may result in us having to broadcast games with substitute players, which would adversely affect our business, revenue and results of operations. Although many of our current programming rights agreements with local teams account for labor disputes with certain pro rata reductions in the rights fees owed thereunder, we have a contractual obligation in some cases to continue paying a certain portion of such rights fees notwithstanding any labor dispute.
We may need to obtain FCC-regulated licenses for RSN video distribution.
Our RSNs require use of certain uplinks and downlink facilities for video distribution. Such facilities are licensed by the FCC and subject to FCC regulations. We do not currently own any such authorizations and have entered a transition services agreement whereby a third party, as the FCC-licensee of existing uplink and downlink licenses, provides services related to these authorizations. Upon termination or expiration of the transition services agreement, we may need to acquire such authorizations from the current licensee or obtain new authorizations. In either case, the Companywe would need to apply for and obtain prior FCC consent. From time to time, the FCC places limits or holds on applications related to such authorizations, and we cannot guarantee that the FCC will grant our applications.
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Risks relating to our indebtednessdebt
Our substantial indebtednessdebt could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
We have a high level of debt, totaling $12,438$12,551 million at December 31, 2019,2020, compared to the book value of shareholders' equitydeficit of $1,694$1,185 million on the same date.
Our high level of debt poses risks, including the following risks, particularly in periods of declining revenues:
•we may be unable to service our debt obligations, especially during negative economic, financial credit and market industry conditions;
•we may require a significant portion of our cash flow to pay principal and interest on our outstanding debt, especially during negative economic and market industry conditions;
•the amount available for joint ventures, working capital, capital expenditures, dividends and other general corporate purposes may be limited because a significant portion of cash flow is used to pay principal and interest on outstanding debt;
•if our affiliatedistribution and advertising revenues decline, we may not be able to service our debt;
•if we are unable to renew team sports media rights or renew on less favorable terms, we may not be able to service our debt;
•our lenders may not be as willing to lend additional amounts to us for future joint ventures, working capital needs, additional acquisitions or other purposes;
•rating agencies may downgrade our corporate family rating and/or debt ratings which could impair our ability to raise funds, refinance debt, or incur a higher financing cost;
•the cost to borrow from lenders may increase or market rates may increase;
•our ability to access the capital markets may be limited, and we may be unable to issue securities with pricing or other terms that we find attractive, if at all;
•if our cash flow were inadequate to make interest and principal payments, we might have to restructure or refinance our indebtednessdebt or sell an equity interest in one or more of our RSNs to reduce debt service obligations;
•we may be limited in our flexibility in planning for and reacting to changes in the industry in which we compete; and
•we may be more vulnerable to adverse economic conditions than less leveraged competitors and thus, less able to withstand competitive pressures.pressures; and
•we may not be able to comply with debt service requirements or other financial and affirmative and negative covenants.
Any of these events could reduce our ability to generate cash available for investment, repay, restructure or refinance our debt, seek additional debt or equity capital, make capital improvements or to respond to events that would enhance profitability.
We may not be able to generate sufficient cash to service all of our indebtednessdebt and may be forced to take other actions to satisfy our obligations under our indebtedness,debt, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.debt.
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If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of equity interests in our RSNs, other material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness.debt. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Sinclair Television Group, Inc. (STG)STG Bank Credit Agreement, the Diamond Sports Group, LLC (DSG)DSG Bank Credit Agreement, the A/R Facility, and each of the indentures that govern the STG and DSG notes will restrict our ability to dispose of assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtednessdebt when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
If we cannot make scheduled payments on our debt, we will be in default and holders of our indebtednessdebt could declare all outstanding principal and interest to be due and payable, the lenders under the STG Bank Credit Agreement, and the DSG Bank Credit Agreement, and the A/R Facility could terminate their commitments to loan us money, the lenders could foreclose against the assets securing their obligations and we, STG and/or DSG could be forced into bankruptcy or liquidation.
Despite our current level of indebtedness,debt, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described herein.
We and our subsidiaries may be able to incur significant additional indebtednessdebt in the future. Although the terms of the debt instruments to which we are subject contain restrictions on the incurrence of additional indebtedness,debt, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtednessdebt incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness.debt. If new debt is added to our current debt levels, the related risks that we and the guarantors now face could intensify.
Our variable rate indebtednessdebt subjects us to interest rate risk, which could cause our indebtednessdebt service obligations to increase significantly.
Interest rates may increase in the future. As a result, interest rates on the obligations under the STG Bank Credit Agreement, and the DSG Bank Credit Agreement, the A/R Facility, or other variable rate debt offerings could be higher or lower than current levels. As of December 31, 2019,2020, approximately $5,917$5,839 million principal amount of our debt relates to the STG Bank Credit Agreement, and the DSG Bank Credit Agreement, and the A/R Facility, in each case subject to variable interest rates. If interest rates increase, our debt service obligations on our variable rate indebtednessdebt would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness,debt, would correspondingly decrease.
Commitments we have made to our lenders limit our ability to take actions that could increase the value of our securities and business or may require us to take actions that decrease the value of our securities and business.
Our existing financing agreements prevent us from taking certain actions and require us to meet certain tests. These restrictions and tests may require us to conduct our business in ways that make it more difficult to repay unsecured debt or decrease the value of our securities and business. These restrictions and tests include the following:
•restrictions on the incurrence, assumption or guaranteeing of additional debt, or the issuance of disqualified stock or preferred stock;
•restrictions on our ability to guarantee and pledge our assets as security for indebtedness;debt;
•restrictions on our ability to prepay or redeem certain indebtedness;debt;
•restrictions on payment of dividends, the repurchase of stock and other payments relating to our capital stock;
•restrictions on some sales of certain assets and the use of proceeds from asset sales;
•restrictions on mergers and other acquisitions, satisfaction of conditions for acquisitions and a limit on the total amount of acquisitions without the consent of bank lenders;
•restrictions on permitted investments;
•restrictions on the lines of business we and our subsidiaries may operate; and
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•financial ratio and condition tests including, the ratio of total indebtednessdebt to consolidated EBITDA, as adjusted, the ratio of first lien indebtednessdebt to consolidated EBITDA, as adjusted, and the ratio of consolidated EBITDA, as adjusted, to fixed charges.
Future financing arrangements may contain additional restrictions and tests. In addition, the limited liability company agreement governing the terms of the Redeemable Subsidiary Preferred Equity will also restrictpreferred equity of Diamond Sports Holdings LLC'sLLC (DSH), an indirect parent of DSG and one of our indirect wholly-owned subsidiaries, that we issued in connection with the acquisition of the Acquired RSNs (Redeemable Subsidiary Preferred Equity), restricts DSH’s and its subsidiaries' ability to pay dividends and make distributions relating to our otherits capital stock, and future issuances of equity by DSH. All of these restrictive covenants may limit our ability to pursue our business strategies, prevent us from taking action that could increase the value of our securities or may require actions that decrease the value of our securities.
In addition, we may fail to meet the tests and thereby default on one or more of our obligations (particularly if the economy weakens and thereby reduces our advertising revenues). If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happens, we could be forced to sell assets or take other actions that could significantly reduce the value of our securities and business and we may not have sufficient assets or funds to pay our debt obligations.
A failure to comply with covenants under debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt and loss of assets securing our loans.
Certain of our debt agreements will contain cross-default provisions with other debt, which means that a default under certain of our debt instruments may cause a default under such other debt. As of the date of this Annual Report on Form 10-K,December 31, 2020, a default under the DSG Senior Notesnotes or DSG Bank Credit Agreement would not trigger a cross-default under the STG Bank Credit Agreement or the STG Senior Notes (as defined below),notes, or vice versa. In addition, as of December 31, 2020, a default under the A/R Facility would not trigger a default under the terms of any of our other debt.
If we breach certain of our debt covenants, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately take possession of the property securing such debt. In addition, if any other debtholder of either STG or DSG were to declare its loan due and payable as a result of a default, the holders of our outstanding notes, along with the lenders under therespective debt of STG (STG Bank Credit Agreement and theSTG notes) or DSG (DSG Bank Credit Agreement, DSG notes, and the A/R Facility), might be able to require us to pay those debts immediately.
As a result, any default under debt covenants could have a material adverse effect on our financial condition and our ability to meet our obligations.
The total assets, net income and attributable EBITDA of our subsidiary guarantors of the DSG Notesnotes may decrease substantially if our existing subsidiary guarantors cease to be wholly-owned as a result of the issuance of equity of the subsidiaries to third parties.
As of December 31, 2019,2020, we are joint venture partners with six teams in the RSNs that distribute content for each respective team. In connection with our efforts to renew our existing media rights agreements, we may enter into new agreements that provide our joint venture partners or other investors a minority equity interest in the RSNs that are currently wholly-owned. Such RSNs would not be wholly-owned by us, and because the indentures that govern the DSG Senior Notesnotes only requires wholly-owned subsidiaries to guarantee the DSG Senior Notes,notes, such RSNs would no longer be required to guarantee the DSG Senior Notes.notes. As a result, the total assets, net income and attributable EBITDA of our non-guarantor subsidiaries could increase substantially, which could have a materially adverse effect on our ability to meet our obligations under the DSG Senior Notes.notes.
Our joint venture agreements contain provisions which may result in cash payments that would reduce our ability to repay our obligations under our indebtedness.debt.
Our joint venture agreements contain certain provisions which may result in cash payments that would decrease our available cash and may reduce our ability to repay our obligations under our indebtedness.debt.
For example, as of December 31, 2019,2020, our joint venture agreements with three teams contained provisions by which we were or may become contractually obligated, at the team's option, to purchase a portion of or all of the team's equity interest in the joint venture at a pre-determined price. If additional teams exercise their put rights pursuant to the joint venture agreements, it would require us to make cash payments that would decrease our available cash and may reduce our ability to repay our obligations under our indebtedness,debt, including the Notes. In January 2020, oneDSG notes.
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General risk factors
Financial and economic conditions may have an adverse impact on our industry, business, and results of operations or financial condition.
Financial and economic conditions could have an adverse effect on the fundamentals of our business, results of operations, and/or financial condition. Poor economic and industry conditions could have a negative impact on our industry or the industry of those customers who advertise on our stations, including, among others, the automotive industry and service businesses, each of which is a significant source of our advertising revenue. Additionally, financial institutions, capital providers, or other consumers may be adversely affected. Potential consequences of any financial and economic decline include:
•the financial condition of those companies that advertise on our stations, sports networks, and digital platforms, including, among others, the automobile manufacturers and dealers, may be adversely affected and could result in a significant decline in our advertising revenue;
•our ability to pursue the divestiture of certain assets at attractive values may be limited;
•the possibility that our business partners, such as counterparties to our outsourcing and news share arrangements and parties to joint ventures with the RSNs, could be negatively impacted and our ability to maintain these teams exercised their rightbusiness relationships could also be impaired;
•our ability to sell theirrefinance our existing debt on terms and at interest rates we find attractive, if at all, may be impaired;
•our ability to make certain capital expenditures may be significantly impaired;
•our ability to pursue the Company for $376 million.acquisition of attractive assets may be limited if we are unable to obtain any necessary additional capital on favorable terms, if at all;
•content providers may cut back on the amount of content we can acquire to program the RSNs or stations; and
•the possibility of our distribution customers losing subscribers, thereby impacting our distribution revenues.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own and lease facilities consisting of offices, studios, sales offices, and tower and transmitter sites throughout the U.S. Our owned and leased transmitter and tower sites are located in areas to provide maximum signal coverage to our stations’ markets. We believe that all of our properties, both owned and leased, are generally in good operating condition, subject to normal wear and tear, and are suitable and adequate for our current business operations. We believe that no one property represents a material amount of the total properties owned or leased.
ITEM 3. LEGAL PROCEEDINGS
We are a party to lawsuits, claims, and regulatory matters from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions.
See Litigation withinunder Note 13. Commitments and Contingencies within the Consolidated Financial Statementsfor discussion related to certain class action lawsuits filed in United States District Court against the Company, Tribune Media Company, Tribune Broadcasting Company, LLC, Hearst Communications, Inc., Gray Television, Inc., Nexstar Media Group, Inc., Tegna, Inc. and other defendants that are unnamed.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A Common Stock is listed for trading on the NASDAQ stock market under the symbol "SBGI". Our Class B Common Stock is not traded on a public trading market or quotation system.
As of February 26, 2020,25, 2021, there are approximately 4340 shareholders of record of our Class A common stock.Common Stock. Many of our shares of Class A common stockCommon Stock are held by brokers and institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We intend to pay regular quarterly dividends to our stockholders, although all future dividends on our common shares,Common Stock, if any, will be at the discretion of our Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions, and other factors that the Board of Directors may deem relevant.
In February 2020,2021, we declared a quarterly cash dividend of $0.20 per share.
See Note 3. Stock-Based Compensation Plans within the Consolidated Financial Statements for discussion of our stock-based compensation plans.
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Comparative Stock Performance
The following line graph compares the yearly percentage change in the cumulative total shareholder return on our Class A Common Stock with the cumulative total return of the NASDAQ Composite Index and the cumulative total return of the NASDAQ Telecommunications Index (an index containing performance data of radio and television broadcast companies and communication equipment and accessories manufacturers) from December 31, 20142015 through December 31, 2019.2020. The performance graph assumes that an investment of $100 was made in the Class A Common Stock and in each Index on December 31, 20142015 and that all dividends were reinvested. Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) plus share price change for a period by the share price at the beginning of the measurement period.
| Company/Index/Market | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | Company/Index/Market | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | |||||||||||||||||||||||||||||||||||||||||||
| Sinclair Broadcast Group, Inc. | 100.00 | 121.60 | 127.48 | 147.74 | 105.39 | 135.98 | Sinclair Broadcast Group, Inc. | 100.00 | 104.84 | 121.50 | 86.67 | 111.83 | 110.82 | |||||||||||||||||||||||||||||||||||||||||||
| NASDAQ Composite Index | 100.00 | 106.96 | 116.45 | 150.96 | 146.67 | 200.49 | NASDAQ Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | |||||||||||||||||||||||||||||||||||||||||||
| NASDAQ Telecommunications Index | 100.00 | 97.52 | 102.36 | 127.62 | 127.16 | 142.60 | NASDAQ Telecommunications Index | 100.00 | 112.56 | 135.96 | 125.10 | 158.73 | 192.30 | |||||||||||||||||||||||||||||||||||||||||||
Stock Repurchases
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| Period | Total Number of Shares Purchased (a) | Average Price Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in millions) | ||||||||||
| Class A Common Stock: (b) | ||||||||||||||
| 10/01/19 – 10/31/19 | — | $ | — | — | $ | — | ||||||||
| 11/01/19 – 11/30/19 | 449,099 | $ | 35.54 | 449,099 | $ | 727 | ||||||||
| 12/01/19 – 12/31/19 | 113,194 | $ | 34.93 | 113,194 | $ | 723 | ||||||||
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31, 2020, 2019, 2018, 2017, 2016, and 20152016 have been derived from our audited consolidated financial statements.
The information below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere in this Annual Reportannual report on Form 10-K.
SINCLAIR BROADCAST GROUP, INC.
STATEMENTS OF OPERATIONS DATA
(In millions, except per share data)
| For the Years Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| Statements of Operations Data: | |||||||||||||||||||||||||||||
| Media revenues (a) | $ | 5,843 | $ | 4,046 | $ | 2,919 | $ | 2,567 | $ | 2,521 | |||||||||||||||||||
| Non-media revenues | 100 | 194 | 136 | 69 | 102 | ||||||||||||||||||||||||
| Total revenues | 5,943 | 4,240 | 3,055 | 2,636 | 2,623 | ||||||||||||||||||||||||
| Media programming and production expenses | 2,735 | 2,073 | 1,191 | 1,064 | 956 | ||||||||||||||||||||||||
| Media selling, general and administrative expenses | 832 | 732 | 630 | 534 | 502 | ||||||||||||||||||||||||
| Amortization of program contract costs | 86 | 90 | 101 | 116 | 128 | ||||||||||||||||||||||||
| Non-media expenses | 91 | 156 | 122 | 75 | 85 | ||||||||||||||||||||||||
| Depreciation of property and equipment | 102 | 97 | 105 | 97 | 98 | ||||||||||||||||||||||||
| Corporate general and administrative expenses | 148 | 387 | 111 | 113 | 74 | ||||||||||||||||||||||||
| Amortization of definite-lived intangible and other assets | 572 | 327 | 175 | 179 | 184 | ||||||||||||||||||||||||
| Impairment of goodwill and definite-lived intangible assets | 4,264 | — | — | — | — | ||||||||||||||||||||||||
| Gain on asset dispositions and other, net of impairment | (115) | (92) | (40) | (279) | (6) | ||||||||||||||||||||||||
| Operating (loss) income | (2,772) | 470 | 660 | 737 | 602 | ||||||||||||||||||||||||
| Interest expense including amortization of debt discount and deferred financing costs | (656) | (422) | (292) | (212) | (211) | ||||||||||||||||||||||||
| Loss on extinguishment of debt | (10) | (10) | — | (1) | (24) | ||||||||||||||||||||||||
| (Loss) gain from equity method investments | (36) | (35) | (61) | (14) | 1 | ||||||||||||||||||||||||
| Other income, net | 325 | 6 | 3 | 9 | 4 | ||||||||||||||||||||||||
| (Loss) income before income taxes | (3,149) | 9 | 310 | 519 | 372 | ||||||||||||||||||||||||
| Income tax benefit (provision) | 720 | 96 | 36 | 75 | (122) | ||||||||||||||||||||||||
| Net (loss) income | (2,429) | 105 | 346 | 594 | 250 | ||||||||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | (56) | (48) | — | — | — | ||||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | 71 | (10) | (5) | (18) | (5) | ||||||||||||||||||||||||
| Net (loss) income attributable to Sinclair Broadcast Group | $ | (2,414) | $ | 47 | $ | 341 | $ | 576 | $ | 245 | |||||||||||||||||||
| Earnings Per Common Share Attributable to Sinclair Broadcast Group: | |||||||||||||||||||||||||||||
| Basic earnings per share | $ | (30.20) | $ | 0.52 | $ | 3.38 | $ | 5.77 | $ | 2.62 | |||||||||||||||||||
| Diluted earnings per share | $ | (30.20) | $ | 0.51 | $ | 3.35 | $ | 5.72 | $ | 2.60 | |||||||||||||||||||
| Dividends declared per share | $ | 0.80 | $ | 0.80 | $ | 0.74 | $ | 0.72 | $ | 0.71 | |||||||||||||||||||
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| For the Years Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Statements of Operations Data: | |||||||||||||||||||
| Media revenues (a) | $ | 4,046 | $ | 2,919 | $ | 2,567 | $ | 2,521 | $ | 2,030 | |||||||||
| Non-media revenues | 194 | 136 | 69 | 102 | 96 | ||||||||||||||
| Total revenues | 4,240 | 3,055 | 2,636 | 2,623 | 2,126 | ||||||||||||||
| Media programming and production expenses | 2,073 | 1,191 | 1,064 | 956 | 733 | ||||||||||||||
| Media selling, general and administrative expenses | 732 | 630 | 534 | 502 | 432 | ||||||||||||||
| Depreciation and amortization (b) | 424 | 280 | 276 | 282 | 265 | ||||||||||||||
| Amortization of program contract costs and net realizable value adjustments | 90 | 101 | 116 | 128 | 125 | ||||||||||||||
| Non-media expenses | 156 | 122 | 75 | 85 | 84 | ||||||||||||||
| Corporate general and administrative expenses | 387 | 111 | 113 | 74 | 64 | ||||||||||||||
| Gain on asset dispositions and other, net of impairment | (92 | ) | (40 | ) | (279 | ) | (6 | ) | 1 | ||||||||||
| Operating income | 470 | 660 | 737 | 602 | 422 | ||||||||||||||
| Interest expense and amortization of debt discount and deferred financing costs | (422 | ) | (292 | ) | (212 | ) | (211 | ) | (191 | ) | |||||||||
| Loss from extinguishment of debt | (10 | ) | — | (1 | ) | (24 | ) | — | |||||||||||
| (Loss) income from equity method investments | (35 | ) | (61 | ) | (14 | ) | 1 | 1 | |||||||||||
| Other income, net | 6 | 3 | 9 | 4 | 2 | ||||||||||||||
| Income before income taxes | 9 | 310 | 519 | 372 | 234 | ||||||||||||||
| Income tax benefit (provision) | 96 | 36 | 75 | (122 | ) | (58 | ) | ||||||||||||
| Net income | 105 | 346 | 594 | 250 | 176 | ||||||||||||||
| Net income attributable to redeemable noncontrolling interests | (48 | ) | — | — | — | — | |||||||||||||
| Net income attributable to noncontrolling interests | (10 | ) | (5 | ) | (18 | ) | (5 | ) | (5 | ) | |||||||||
| Net income attributable to Sinclair Broadcast Group | $ | 47 | $ | 341 | $ | 576 | $ | 245 | $ | 171 | |||||||||
| Earnings Per Common Share Attributable to Sinclair Broadcast Group: | |||||||||||||||||||
| Basic earnings per share | $ | 0.52 | $ | 3.38 | $ | 5.77 | $ | 2.62 | $ | 1.81 | |||||||||
| Diluted earnings per share | $ | 0.51 | $ | 3.35 | $ | 5.72 | $ | 2.60 | $ | 1.79 | |||||||||
| Dividends declared per share | $ | 0.80 | $ | 0.74 | $ | 0.72 | $ | 0.71 | $ | 0.66 | |||||||||
| As of December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 1,333 | $ | 1,060 | $ | 681 | $ | 260 | $ | 150 | |||||||||
| Total assets | $ | 17,370 | $ | 6,572 | $ | 6,784 | $ | 5,963 | $ | 5,432 | |||||||||
| Total debt (c) | $ | 12,438 | $ | 3,893 | $ | 4,049 | $ | 4,204 | $ | 3,854 | |||||||||
| Redeemable noncontrolling interests | $ | 1,078 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Total equity | $ | 1,694 | $ | 1,600 | $ | 1,534 | $ | 558 | $ | 500 | |||||||||
| As of December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,259 | $ | 1,333 | $ | 1,060 | $ | 681 | $ | 260 | |||||||||||||||||||
| Total assets | $ | 13,382 | $ | 17,370 | $ | 6,572 | $ | 6,784 | $ | 5,963 | |||||||||||||||||||
| Total debt (c) | $ | 12,551 | $ | 12,438 | $ | 3,893 | $ | 4,049 | $ | 4,204 | |||||||||||||||||||
| Redeemable noncontrolling interests | $ | 190 | $ | 1,078 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Total (deficit) equity | $ | (1,185) | $ | 1,694 | $ | 1,600 | $ | 1,534 | $ | 558 | |||||||||||||||||||
(a)Media revenues include distribution revenue, advertising revenue, and other media related revenues.
(b)Depreciation and amortization includes depreciation and amortization of property and equipment and amortization of definite-lived intangible assets and other assets.
(c)Total debt is defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.“Forward-Looking Statements.” Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A. Risk Factors.
Overview
The following Management’s Discussion and Analysis provides qualitative and quantitative information about our financial performance and condition and should be read in conjunction with the other sections in this Annual Report,annual report, including Item 1. Business, Item 6. Selected Financial Data, and ourthe Consolidated Financial Statements including the accompanying notes to those statements. This discussion consists of the following sections:
Executive Overview — a description of our business, summary of significant events and financial highlights from 2019,2020 and so far in 2021, and information about industry trends;
Critical Accounting Policies and Estimates — a discussion of the accounting policies that are most important in understanding the assumptions and judgments incorporated in the consolidated financial statements and a summary of recent accounting pronouncements;
Results of Operations — a summary of the components of our revenues by category and by network affiliation or program service arrangement, a summary of other operating data and an analysis of our revenues and expenses for 2020, 2019, 2018, and 2017,2018, including comparisons between years and certain expectations for 2020;2021; and
Liquidity and Capital Resources — a discussion of our primary sources of liquidity, an analysis of our cash flows from or used in operating activities, investing activities and financing activities, a discussion of our dividend policy, and a summary of our contractual cash obligations and off-balance sheet arrangements.
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EXECUTIVE OVERVIEW
We are a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, regional sports networks,RSNs, and digital platforms. This content consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us. Additionally, we own digital and internet media products that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses, we operate technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other non-media related investments.
We have two reportable segments: local newsbroadcast and marketing services andlocal sports. Our local news and marketing servicesbroadcast segment is comprised of our television stations. Our local sports segment is comprised of our regional sports networks.RSNs. We also earn revenues from our owned networks, original content, digital and internet services, technical services, and non-media investments. These businesses are included within other. Corporate and unallocated expenses primarily include our costs to operate as a public company and to operate our corporate headquarters location. Other and corporate are not reportable segments.
STG, for which certain assets and results of operations are included in the local news and marketing servicesbroadcast segment and which is aone of our wholly owned subsidiary of Sinclair Broadcast Group, Inc. (SBG),subsidiaries, is the primary obligor under the STG Bank Credit Agreement, the STG 5.625% Notes, STG 5.125% Notes,unsecured notes due 2027, the STG 5.875% Notes, andunsecured notes due 2026, the STG 5.500% Notesunsecured notes due 2030, and the STG 4.125% secured notes due 2030 (the STG notes are collectively referred to as the “STG Senior Notes")STG Notes). SBG is a guarantor underWe and substantially all of STG’s subsidiaries (and not DSG nor any of its subsidiaries) are guarantors under the STG debt instruments. DSG, for which certain assets and results of operations are included in the local sports segment and which is a wholly owned subsidiaryone of SBG,our subsidiaries, is the primary obligor under the DSG Bank Credit Agreement, the DSG 5.375% Secured Notes,secured notes due 2026, the DSG 6.625% unsecured notes due 2027, and the DSG 6.625% Notes. Neither SBG,12.750% secured notes due 2026 (the DSG notes are collectively referred to as the DSG Notes). DSG’s wholly-owned subsidiaries (and not us, STG, or any of STG's subsidiaries is a guarantorsubsidiaries) are guarantors under any of the DSG debt instruments. Our Class A Common Stock and Class B Common Stock remain securities of SBG and not obligations or securities of STG or DSG.
For more information about our business, reportable segments, and our operating strategy, see Item 1. Business in this Annual Report.
Summary of Significant Events and Financial Highlights from 2019
Transactions
• |
In January 2020, a minority partner in one of our RSNs exercised theirits right to sell us the entirety of theirits non-controlling interest to the Company for $376 million.
•In November 2020, we entered into an agreement with Bally's for a long-term strategic partnership that combines Bally’s vertically integrated, proprietary sports betting technology and expansive market access footprint with our premier enterprise-wide portfolio of local broadcast stations, RSNs, Tennis Channel, Stadium, and STIRR.
•In February 2021, we sold our stations WDKA and KBSI, in Paducah, KY for $28 million.
•In February 2021, we acquired the remaining 73% interest we did not already own in Zyp Media, a leading demand-side platform specializing in executing local media campaigns for media companies and agencies in the United States.
Television and Digital Content
•In January 2019, the Company launched2020, STIRR, aour fast-growing, free ad-supported streaming app that includesservice, launched an original channel, "2020 LIVE", to offer a continuous stream of live election coverage, giving viewers live access to national news, sports, entertainmentdaily campaign event feeds from across the country, including town hall meetings and digital first channels, a robust video on demand library andstump speeches.
•In March 2020, STIRR launched a new channel dedicated to COVID-19 coverage, including live feeds of press conferences as well as other local channel featuring programming based on a user's location, ensuring that viewers can accessand national news.
•In April 2020, we made significant changes to the localcontent across three company-owned networks; Comet, Charge!, and TBD, including adding some of the most popular classic television series, as well as TBD's first-ever original series, The Link.
•In April 2020, our Nashville affiliate, WZTV FOX17, was named AP Outstanding News Operation in the state of Tennessee. The station was awarded the honor for its remarkable agility in chasing breaking news and lifestyle programming that is relevantdemonstrating a sustained commitment to their everyday life.public service.
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•In April 2019, Tennis Channel’s first full-length feature film, Strokes of Genius, was nominated for two Sports Emmy2020, we won four National Headliner Awards by the National Academy of Television Arts & Sciences. The program was a finalistand for the Outstanding Longsecond consecutive year, our Project Baltimore investigative reporting team received Investigative Reporters and Editors Inc. (IRE) recognition for exposing local education issues that reflected governmental neglect and lack of oversight.
•In September 2020, we invested in Playfly Sports, Documentarya leading company in the management of exclusive college and Outstanding Musical Direction awards.high school sports and esport multi-media rights across the U.S.
•In July 2019, the Company released its Compulse360 offering, a new daily OTT reported platform for CompulseOTT, providing advertisers near real-time campaign evaluation so they can optimize their advertising efforts in-flight.
• |
In January 2019, the Company entered into a multi-year retransmission renewal with Mediacom for the carriage of the Company's stations, Tennis Channel,2021, we launched our headline news service The National Desk across our CW and the Company's emerging networks on its systems.
Distribution, Network and AT&T U-Verse of the Company's broadcast television stations and Tennis Channel, as well as carriage of Marquee. The companies also agreed to extend the existing carriage agreement for the Acquired RSNs as well as the YES Network through the same multi-year term.Teams
•In January 2020, the Companywe reached an agreement in principle to renew ten affiliation agreements with FOX Broadcasting Company.
•In February 2020, Marquee announced a carriage agreement with Hulu. Including Hulu and previously announced agreements with over-the topOTT platform AT&T TV Now and traditional MVPDs Charter, AT&T U-Verse, DirecTV, and Mediacom, Marquee has signed affiliationdistribution agreements with 43 Distributors and other OTT distributors.
•In March 2020, we reached an agreement with YouTube TV for continued carriage of 19 regional sports networks across the country.
•In June 2020, we signed a multi-year agreement with ViacomCBS to renew eight CBS network affiliations for our stations. ViacomCBS also reached agreements to renew the affiliations of two stations to which we provide services, WTVH in Syracuse, NY and WGFL in Gainesville, FL.
•In July 2020, we entered into multi-year content carriage agreements with Comcast for all of our television stations and RSNs in Comcast's cable television footprint, including Marquee and the YES Network, as well as continued distribution of the Tennis Channel.
•In August 2020, we entered into a multi-year media rights agreement with the Kansas City Royals beginning with the 2020 baseball season for Fox Sports Kansas City (to be rebranded as Bally Sports Kansas City) to continue as the television home of the Royals. In conjunction with this agreement, the Royals received a minority interest ownership percentage in Fox Sports Kansas City.
•As of September 1, 2020, Frontier Communications no longer carries the Acquired RSNs and the YES Network.
•In September 2020, we reported that YouTube TV would no longer carry our RSNs.
•In October 2020, we reported that Hulu would no longer carry our RSNs and the YES Network.
•In December 2020, we entered into a multi-year agreement with FOX Broadcasting Company that renewed FOX network affiliations for stations in 25 markets that reach approximately 11% of U.S. television households.
•In January 2021, we entered into a multi-year agreement with ViacomCBS across 13 CBS network affiliations reaching about 5% of the U.S. television households.
•In January 2021, we entered into a multi-year agreement with Verizon Communications, Inc., for the continued carriage on Verizon’s FiOS platform of our broadcast television stations and Tennis Channel.
•In February 2021, we entered into a multi-year media rights agreement with the Milwaukee Brewers, beginning with the 2021 baseball season, for FOX Sports Wisconsin (to be rebranded as Bally Sports Wisconsin) to continue as the television home of the Brewers.
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NEXTGEN TV
| • |
In January 2020, the Company andwe announced, with SK Telecom, announcedthe Cast.era a joint venture focused on cloud infrastructure for broadcasting, ultra-low latency OTT broadcasting, and targeted advertising.
•In January 2020, with significant support from our ONE Media 3.0 team, the International Telecommunications Union announced the approval of NEXTGEN TV for use internationally.
•In February 2020, the Companywe became a member of Pearl TV, a business organization of U.S. broadcast companies with a shared interest in exploring forward-looking broadcasting opportunities, including innovative ways of promoting local broadcast TV content and developing digital media and wireless platforms for the broadcast industry.
•In December 2020, ONE Media 3.0 launched NEXTGEN radio services, branded as “STIRR XT,” for delivery in Seattle using the NEXTGEN TV standard.
•As of the end of January 2021, we, in coordination with other broadcasters, and led by our joint venture, BitPath, have deployed NEXTGEN TV, powered by ATSC 3.0, in 12 of our markets:
| Month | Market | Number of Stations | SBG Stations | |||||||||||||||||
| May 2020 | Las Vegas, NV | 4 | KSNV (NBC), KVCW (CW) | |||||||||||||||||
| June 2020 | Pittsburgh, PA | 3 | WPGH (FOX), WPNT (MNT) | |||||||||||||||||
| June 2020 | Nashville, TN | 5 | WZTV (FOX), WUXP (MNT) | |||||||||||||||||
| June 2020 | Salt Lake City, UT | 4 | KUTV (CBS), KJZZ (IND) | |||||||||||||||||
| July 2020 | Portland, OR | 7 | KATU (ABC) | |||||||||||||||||
| October 2020 | Austin, TX | 4 | KEYE (CBS) | |||||||||||||||||
| October 2020 | Oklahoma City, OK | 5 | KOKH (FOX), KOCB (CW) | |||||||||||||||||
| October 2020 | Mobile, AL / Pensacola, FL | 6 | WEAR (ABC), WFGX (MNT) | |||||||||||||||||
| November 2020 | Norfolk, VA | 4 | WTVZ (MNT) | |||||||||||||||||
| November 2020 | Raleigh / Durham, NC | 5 | WLFL (CW), WRDC (MNT) | |||||||||||||||||
| December 2020 | Seattle / Tacoma, WA | 7 | KOMO (ABC), KUNS (Univision) | |||||||||||||||||
| January 2021 | Columbus, OH | 4 | WSYX (ABC/FOX) | |||||||||||||||||
Financing, Capital Allocation, and Shareholder Returns
•In January 2020, we redeemed 200,000 units of the Redeemable Subsidiary Preferred Equity for an aggregate redemption price equal to $200 million, plus accrued and unpaid dividends. •In May 2020, we purchased $2.5 million aggregate principal amount of the STG 5.875% unsecured notes in open market transactions for consideration of $2.3 million. The STG 5.875% unsecured notes acquired in May 2020 were canceled immediately following their acquisition. •In June 2020, we exchanged $66.5 million aggregate principal amount of the DSG 6.625% unsecured notes due 2027 for $31 million aggregate principal amount of the DSG 12.750% secured notes due 2026 and cash payments totaling $10 million, including accrued but unpaid interest. •In March 2020 and June 2020, we purchased a total of $15 million aggregate principal amount of DSG's 6.625% unsecured notes in open market transactions for consideration of $10 million. The DSG 6.625% unsecured notes acquired in March 2020 and June 2020 were canceled immediately following their acquisition. •In August 2020, the Board of Directors authorized an additional $500 million share repurchase authorization. •In August 2020, we redeemed 350,000 units of the Redeemable Subsidiary Preferred Equity for an aggregate redemption price equal to $350 million, plus accrued and unpaid dividends. •In September 2020, the Company's and DSG's indirect, wholly-owned subsidiary, Diamond Sports Finance SPV, LLC (DSPV), entered into the $250 million A/R Facility which matures on September 23, 2023. 52 •In December 2020, we issued $750 million aggregate principal amount of senior secured notes, which bear interest at a rate of 4.125% per annum and mature on December 1, 2030 (the STG 4.125% Secured Notes). The net proceeds of the STG 4.125% Secured Notes were used, plus cash on hand, to redeem $550 million aggregate principal amount of STG's 5.625% senior unsecured notes due 2024 (the STG 5.625% Notes) and to prepay $200 million outstanding under STG's term loan B under the STG Bank Credit Agreement. • |
For the year ended December 31, 2019,2020, we repurchased approximately 519 million shares of Class A Common Stock for $145$343 million.
•For the year ended December 31, 2019,2020, we paid dividends of $0.80 per share. In February 2020,2021, we declared a quarterly cash dividend of $0.20 per share.
Other Legal and Regulatory
•In March 2019,January 2020, we and Nexstar agreed to settle the Federal Communications Commission's administrative law judge dismissed with prejudiceoutstanding lawsuit between us and Tribune Media Company, which Nexstar acquired in September 2019. See Litigation under Note 13. Commitments and Contingencies within the July 2018 hearing designation order related toConsolidated Financial Statements for further discussion.
•In November 2020, we and the Company’s terminated acquisition of Tribune.plaintiffs settled the outstanding Derivative actions lawsuit. See Litigation under Note 13. Commitments and Contingencies within the Consolidated Financial Statements for further discussion.
Other Events
•In February 2020, the Companywe promoted Lucy Rutishauser to Executive Vice President & Chief Financial Officer, Del Parks to Executive Vice President & Chief Technology Officer, Don Thompson to Executive Vice President & Chief Human Resources Officer, Scott Shapiro to Senior Vice President/Chief Development Officer, Brian Bark to Senior Vice President/Chief Information Officer, and Don Roberts to VP/Sports Engineering and Production Systems.
•In March 2020, in direct response to the COVID-19 pandemic, we made available incremental payments to offer financial support to nearly 1,300 eligible freelancers who work across the RSNs, as the onset of the COVID-19 pandemic halted the production of live sports, depriving these freelancers of work.
•In April 2020, we entered into a new public service initiative, in partnership with the University of Maryland School of Medicine, to provide consumers with important and timely news and information about COVID-19.
•In June 2020, at our Annual Shareholders' Meeting, our shareholders re-elected all nine Directors, ratified the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020, and approved the proposed non-binding advisory vote on executive compensation.
•In June 2020, we selected ten winning applicants for our Broadcast Diversity Scholarship, awarding tuition assistance to students demonstrating a promising future in the broadcast industry.
•In June 2020, Jeff Krolik, President, RSNs, announced his retirement effective August 30, 2020. We announced in July 2020 that Steve Rosenberg, a broadcasting industry executive with over 30 years of experience, joined the Company and would take on the role of President of Local Sports, effective September 1, 2020.
•In July 2020, we announced that Scott Shapiro assumed the newly-created role of Chief Strategy Officer/Sports in addition to his current role as Chief Development Officer.
•In August 2020, we announced that we were named one of the Baltimore Business Journal's 2020 Best Places to Work award finalists.
•In September 2020, we announced the hiring of J.R. McCabe in the newly-created role of Chief Business Officer of D2C/Gamification.
•In October 2020, Lucy Rutishauser, our Executive Vice President and Chief Financial Officer, was named one of The Baltimore Sun's 2020 Women to Watch.
•In November 2020, we announced the hiring of John Zeigler in the newly-created role of Chief Marketing Officer.
•In December 2020, we produced the 'Rock the Red Kettle' special in partnership with Sony Music Nashville and The Salvation Army.
•In January 2021, we announced the hiring of Jeffrey Lewis as our Chief Compliance Officer, a newly-created position to supervise corporate compliance functions, including regulatory, code of conduct, competition, and privacy.
•In January 2021, we jointly revealed, with Bally's, the new Bally Sports logo and Bally Sports regional monikers for our owned and operated RSNs.
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•In February 2021, we began taking applications for our 2021 Diversity Scholarship, which has awarded $160,000 in scholarships over the last five years.
Industry Trends
•The FCC has permitted broadcast television stations to use their digital spectrum for a wide variety of services including multi-channel broadcasts. The FCC “must-carry” rules only apply to a station’s primary digital stream.
•The vMVPDs have continued to gain increasing importance and have quickly become a critical segment of the market. These vMVPDs offer a limited number of networks at a significantly lower price point as compared to the traditional cable offering.
•Political spending is significantly higher in the even-numbered years due to the cyclicality of political elections. In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election. 2020 proved to be a record year in political advertising.
•The traditional MVPD industry continuesFCC has permitted broadcast television stations to experienceuse their digital spectrum for a declinewide variety of services including multi-channel broadcasts. The FCC “must-carry” rules only apply to a station’s primary digital stream.
•Seasonal advertising increases within our broadcast segment occur in subscribers,the second and fourth quarters due to the anticipation of certain seasonal and holiday spending by consumers.
•Seasonal advertising increases within our local sports segment occur in the second and third quarters due to a higher volume of sports games being played during this time, particularly the MLB season.
•Broadcasters have found ways to increase returns on their news programming initiatives while continuing to maintain locally produced content through the use of news sharing arrangements.
•Advertising revenue related to the Olympics occurs in even numbered years, with the exception of this year which was postponed due to COVID-19, and the Super Bowl is partially offset by growth in subscribersaired on a different network each year. Both of vMVPDs.these popularly viewed events can have an impact on our advertising revenues.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, income taxes and variable interest entities, and transactions with related parties.entities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates have been consistently applied for all years presented in this report and in the past we have not experienced material differences between these estimates and actual results. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and such differences could be material.
We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a detailed discussion of the application of these and other accounting policies, see Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements.
The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties continue to impact our estimates related to, but not limited to, revenue recognition, goodwill and intangible assets, sports programming rights, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. See Distribution Revenue in Revenue Recognition, Sports Programming Rights, and Impairment of Goodwill, Intangibles, and Other Assets under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for further discussion on how COVID-19 has impacted distribution revenue, sports rights expense, and the value of goodwill and definite-lived intangible assets, respectively. Our estimates may further change in the future as the COVID-19 pandemic continues, new events occur, and additional information emerges, and such changes are recognized or disclosed in the consolidated financial statements.
Revenue Recognition. As discussed in Revenue Recognition under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we generate advertising revenue primarily from the sale of
advertising spots/impressions on our broadcast television, RSN, and digital platforms. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where we provide audience ratings guarantees; to the extent that there is a ratings shortfall, we will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of our advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is duerealized is not significant. In certain circumstances, we require customers to pay in advance; payments received in advance of satisfying our performance obligations are reflected as deferred revenue.
Certain of our distribution arrangements contain provisions that require the Company to deliver a minimum number of live professional sports games or tournaments during a defined period which usually corresponds with a calendar year. If the minimum threshold is not met, we may be obligated to refund a portion of the distribution fees received if shortfalls are not cured within a specified period of time. If we are unable to meet these minimum requirements, we reduce revenue based upon estimated rebates due to our distribution customers over the measurement period of the rebate. See Revenue Recognition within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
Impairment of Goodwill, Intangibles,Indefinite-Lived Intangible Assets, and Other Long-Lived Assets. We evaluate our goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate an impairment may exist. As of December 31, 2019,2020, our consolidated balance sheet includes $4,716$2,092 million and $158$171 million of
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goodwill and indefinite-lived intangible assets, respectively. We evaluate long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of our asset groups may not be recoverable.
In the performance of our annual goodwill and indefinite-lived intangible asset impairment assessments we have the option to qualitatively assess whether it is more likely-than-not that the respective asset has been impaired. If we conclude that it is more-likely-than-not that a reporting unit or an indefinite-lived intangible asset is impaired, we apply the quantitative assessment, which involves comparing the estimated fair value of the reporting unit or indefinite-lived intangible asset to its respective carrying value. See Impairment of Goodwill, Intangibles and Other Long-Lived Assets under Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within the Consolidated Financial Statements for further discussion of the significant judgments and estimates inherent in both qualitatively assessing whether impairment may exist and estimating the fair values of the reporting units and indefinite-lived intangible assets if a quantitative assessment is deemed necessary.
Our RSNs included in the local sports segment have been negatively impacted by the recent loss of three Distributors. In addition, our existing Distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic and related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenue and margins of our RSNs. As a result of these factors, we performed an impairment test of the RSN reporting units' goodwill and long-lived asset groups during the third quarter of 2020 which resulted in a non-cash impairment charge on goodwill of $2,615 million, customer relationships of $1,218 million, and other definite-lived intangible assets of $431 million, included within impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for more information. For our annual goodwill and indefinite-lived intangibles impairment tests related to our broadcast and other reporting units in 2020, 2019, 2018, and 2017,2018, we concluded that it was more-likely-than-not that goodwill was not impaired based on our qualitative assessments. For one reporting unit in 2019, we elected to perform a quantitative assessment and concluded that its fair value significantly exceeded the carrying value.
We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whetherin the fair valuesperformance of our reporting units and indefinite-lived intangible assets were less than their carrying values.impairment assessments. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions, orloss of significant customers, significant increases in discount rates, among other factors, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.
Program Contract Costs. As discussed in Broadcast Television Programmingunder Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we record an asset and corresponding liability for programming rights when the program is available for its first showing or telecast. These costs are expensed over the period in which an economic benefit is expected to be derived. To ensure the related assets for the programming rights are reflected in theour consolidated balance sheets at the lower of unamortized cost or estimated net realizablefair value, (NRV), management estimates future advertising revenue net of sales commissions, to be generated by the remaining program material available under the contract terms. Management’s judgment is required in determining the timing of expense for these costs, which is dependent on the economic benefit expected to be generated from the program and may significantly differ from the timing of related payments under the contractual obligation. If our estimates of future advertising revenues decline, amortization expense could be accelerated or NRVfair value adjustments may be required.
Sports Programming Rights. As discussed in Sports Programming Rights under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we have multi-year program rights agreements that provide the Companyus with the right to produce and telecast professional sports games within a specified territory in exchange for an annual rights fee. A prepaid asset is recorded for rights acquired related to future games upon payment of the contracted fee. The assets recorded for the acquired rights are classified as current or non-current based on the period when the games are expected to be aired. Liabilities are recorded for any program rights obligations that have been incurred but not yet paid at period end. We amortize these programingprogramming rights as an expense over each season based upon contractually stated rates. Amortization is accelerated in the event that the stated contractual rates over the term of the rights agreement results in an expense recognition pattern that is inconsistent with the projected growth of revenue over the contractual term.
Income Tax. As discussed in Income Taxes under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be
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realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2019 and 2018,2020, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, interest expense carryforwards under the Internal Revenue Code (IRC) Section 163(j) and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/basis differences, alternative tax strategies and projected future taxable income. As of December 31, 2019, a valuation allowance was provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, including the RSN impairment, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on ourthe consolidated financial statements.
Management periodically performs a comprehensive review of our tax positions, and we record a liability for unrecognized tax benefits whenif such tax positions doare more likely than not meetto be sustained upon examination based on their technical merits, including the “more-likely-than-not” threshold.resolution of any appeals or litigation processes. Significant judgment is required in determining whether a tax position meets the “more-likely-than-not” threshold,positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided. See Note 12. Income Taxes within the Consolidated Financial Statements, for further discussion of accrued unrecognized tax benefits.
Variable Interest Entities (VIEs). As discussed in Note 14. Variable Interest Entities within the Consolidated Financial Statements, we have determined that certain third-party licensees of stations for which we perform services pursuant to arrangements, including LMAs, JSAs, and SSAs, are VIEs and we are the primary beneficiary of those variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs. We have determined that certain RSN joint ventures are VIEs. We are the primary beneficiary of those RSN joint ventures because we have the power to direct the activities which significantly impact the economic performance of certain regional sports networks, including sales and certain operational services and because we absorb losses and returns that would be considered significant to the VIEs.
Transactions with Related Parties. We have determined that we conduct certain business-related transactions with related persons or entities. See Note 15. Related Person Transactions within the Consolidated Financial Statements for discussion of these transactions.
Recent Accounting Pronouncements
See Recent Accounting Pronouncements under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for a discussion of recent accounting policies and their impact on our financial statements.
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RESULTS OF OPERATIONS
Seasonality / Cyclicality
The operating results of our local news and marketing servicesbroadcast segment are usually subject to cyclical fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election.election (as was the case in 2020). Also, the second and fourth quarter operating results are usually higher than the first and third quarters’quarter operating results because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
The operating results of our local sports segment are usually subject to cyclical fluctuations based on the timing and overlap of the seasons for professional baseball, basketball,MLB, NBA, and hockey.NHL seasons. Usually, the second and third quarter operating results are higher than the first and fourth quarters.quarter operating results.
However, with the exception of political advertising, our usual seasonality and cyclicality, as described above, did not occur in 2020, and may not occur in 2021, for either segment due to the COVID-19 pandemic.
Consolidated Operating Data
The following table sets forth certain of our consolidated operating data for the years ended December 31, 2020, 2019, 2018, and 20172018 (in millions). For definitions of terms, see the footnotes to the table in Item 6. Selected Financial Data.
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Media revenues | $ | 5,843 | $ | 4,046 | $ | 2,919 | |||||||||||
| Non-media revenues | 100 | 194 | 136 | ||||||||||||||
| Total revenues | 5,943 | 4,240 | 3,055 | ||||||||||||||
| Media programming and production expenses | 2,735 | 2,073 | 1,191 | ||||||||||||||
| Media selling, general and administrative expenses | 832 | 732 | 630 | ||||||||||||||
| Depreciation and amortization expenses | 674 | 424 | 280 | ||||||||||||||
| Amortization of program contract costs | 86 | 90 | 101 | ||||||||||||||
| Non-media expenses | 91 | 156 | 122 | ||||||||||||||
| Corporate general and administrative expenses | 148 | 387 | 111 | ||||||||||||||
| Impairment of goodwill and definite-lived intangible assets | 4,264 | — | — | ||||||||||||||
| Gain on asset dispositions and other, net of impairment | (115) | (92) | (40) | ||||||||||||||
| Operating (loss) income | $ | (2,772) | $ | 470 | $ | 660 | |||||||||||
| Net (loss) income attributable to Sinclair Broadcast Group | $ | (2,414) | $ | 47 | $ | 341 | |||||||||||
The Impact of COVID-19 on our Results of Operations
Overview
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and by the end of the following day, each of the MLB, NBA, and NHL had suspended their seasons. On March 13, 2020, the United States declared a national state of emergency. Since that time, efforts to contain the spread of COVID-19 have intensified. Several countries, including the United States, have taken steps to restrict travel, temporarily close businesses and issue quarantine orders, and it remains unclear how long such measures will remain in place regionally.
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| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Media revenues | $ | 4,046 | $ | 2,919 | $ | 2,567 | |||||
| Non-media revenues | 194 | 136 | 69 | ||||||||
| Total revenues | 4,240 | 3,055 | 2,636 | ||||||||
| Media programming and production expenses | 2,073 | 1,191 | 1,064 | ||||||||
| Media selling, general and administrative expenses | 732 | 630 | 534 | ||||||||
| Depreciation and amortization | 424 | 280 | 276 | ||||||||
| Amortization of program contract costs and net realizable value adjustments | 90 | 101 | 116 | ||||||||
| Non-media expenses | 156 | 122 | 75 | ||||||||
| Corporate general and administrative expenses | 387 | 111 | 113 | ||||||||
| Gain on asset dispositions and other, net of impairments | (92 | ) | (40 | ) | (279 | ) | |||||
| Operating income | $ | 470 | $ | 660 | $ | 737 | |||||
| Net income attributable to Sinclair Broadcast Group | $ | 47 | $ | 341 | $ | 576 | |||||
Advertising revenue was negatively impacted due to COVID-19 starting in the late first quarter and throughout the year due to lower local and national net times sales. During the year ended December 31, 2020, as compared to the prior year, we saw decreases in several advertising categories, primarily as a result of the impact of the COVID-19 pandemic. These decreases were partially offset by an increase in political advertising revenue, primarily due to strong demand in the third and fourth quarters. Distribution revenue was negatively impacted by subscriber erosion experienced by certain Distributors resulting from the effects of COVID-19, among other factors. See Revenues under the Broadcast Segment sectionbelow for further discussion.
Local sports segment
In March 2020, the NBA and NHL each postponed their ongoing 2019-2020 seasons and the MLB postponed the start of its 2020 season. During various points in the third quarter, the NBA, NHL, and MLB all returned to operation under reduced game counts and were able to complete these modified seasons during the early part of the fourth quarter of 2020. During the fourth quarter of 2020, the NBA and NHL announced their plans for their 2020-2021 seasons, which included season start dates in December 2020 and January 2021, respectively, however both with reduced game counts. Due to these interruptions and modified seasons, advertising revenue was down in the second quarter of 2020 as compared to the first quarter of 2020. However, with the resumption of some events during the third quarter of 2020, advertising revenue increased to $124 million during the period as compared to $3 million in the second quarter of 2020. Distribution revenue was negatively impacted by subscriber erosion experienced by certain Distributors resulting from the effect of COVID-19, three Distributors dropping carriage of the RSNs and lower professional sports game counts due to COVID-19, which resulted in rebates to the Distributors, among other factors. The MLB has announced that they expect their 2021 season to begin on time in April 2021 and contain a full game schedule. The NBA and NHL have not announced their 2021-2022 season schedules yet. There can be no assurance that the MLB, NBA, or NHL will complete full or abbreviated seasons in the future. Any reduction in the actual number of games played by the leagues may have an adverse impact on our operations and the cash flows of our local sports segment. See Distribution Revenue in Revenue Recognition and Sports Programming Rights under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for further discussion on how COVID-19 has impacted distribution revenue and sports rights expense, respectively, including the need for us to provide rebates to our Distributors as well as seek rebate from or reduce future payments to certain of the sports teams.
Business continuity
Within the United States, our business has been designated an essential business, which allows us to continue to serve our customers, however, the COVID-19 pandemic has disrupted our operations. Certain of our facilities have experienced temporary disruptions as a result of the COVID-19 pandemic, and we cannot predict whether our facilities will experience more significant disruptions in the future and how long these disruptions will last. The COVID-19 pandemic has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. Furthermore, reductions in our workforce may become necessary as a result of declines in our business caused by the COVID-19 pandemic. If we take such actions, we cannot assure that we will be able to rehire our workforce once our business has recovered.
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BROADCAST SEGMENT
The following table sets forth our revenue and expenses for our local news and marketing servicesbroadcast segment, previously referred to as our broadcastlocal news and marketing services segment, for the years ended December 31, 2020, 2019, 2018, and 20172018 (in millions):
| Percent Change Increase / (Decrease) | |||||||||||||||
| 2019 | 2018 | 2017 | ‘19 vs.‘18 | ‘18 vs.‘17 | |||||||||||
| Revenue: | |||||||||||||||
| Distribution revenue | $ | 1,341 | $ | 1,186 | $ | 1,033 | 13% | 15% | |||||||
| Advertising revenue | 1,268 | 1,484 | 1,315 | (15)% | 13% | ||||||||||
| Other media revenue (a) | 46 | 45 | 46 | 2% | (2)% | ||||||||||
| Media revenues | $ | 2,655 | $ | 2,715 | $ | 2,394 | (2)% | 13% | |||||||
| Operating Expenses: | |||||||||||||||
| Media programming and production expenses | $ | 1,173 | $ | 1,081 | $ | 965 | 9% | 12% | |||||||
| Media selling, general and administrative expenses | 552 | 530 | 470 | 4% | 13% | ||||||||||
| Amortization of program contract costs and net realizable value adjustments | 90 | 101 | 116 | (11)% | (13)% | ||||||||||
| Corporate general and administrative expenses | 144 | 100 | 101 | 44% | (1)% | ||||||||||
| Depreciation and amortization expenses | 245 | 251 | 244 | (2)% | 3% | ||||||||||
| Gain on asset dispositions and other, net of impairment | (62 | ) | (100 | ) | (226 | ) | (38)% | (56)% | |||||||
| Operating income | $ | 513 | $ | 752 | $ | 724 | (32)% | 4% | |||||||
| Percent Change Increase / (Decrease) | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | ‘20 vs.‘19 | ‘19 vs.‘18 | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Distribution revenue | $ | 1,414 | $ | 1,341 | $ | 1,186 | 5% | 13% | |||||||||||||||||||||
| Advertising revenue | 1,364 | 1,268 | 1,484 | 8% | (15)% | ||||||||||||||||||||||||
| Other media revenue (a) | 144 | 81 | 45 | 78% | 80% | ||||||||||||||||||||||||
| Media revenues | $ | 2,922 | $ | 2,690 | $ | 2,715 | 9% | (1)% | |||||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||||||||
| Media programming and production expenses | $ | 1,257 | $ | 1,173 | $ | 1,081 | 7% | 9% | |||||||||||||||||||||
| Media selling, general and administrative expenses | 553 | 553 | 530 | —% | 4% | ||||||||||||||||||||||||
| Amortization of program contract costs | 83 | 90 | 101 | (8)% | (11)% | ||||||||||||||||||||||||
| Corporate general and administrative expenses | 119 | 144 | 100 | (17)% | 44% | ||||||||||||||||||||||||
| Depreciation and amortization expenses | 239 | 246 | 252 | (3)% | (2)% | ||||||||||||||||||||||||
| Gain on asset dispositions and other, net of impairment | (118) | (62) | (100) | 90% | (38)% | ||||||||||||||||||||||||
| Operating income | $ | 789 | $ | 546 | $ | 751 | 45% | (27)% | |||||||||||||||||||||
(a) - ExcludesIncludes $100 million and $35 million for the years ended December 31, 2020 and 2019, respectively, of intercompany revenue related to certain services provided to the local sports segment and other under a management services agreement as itagreements, which is eliminated in consolidation.
Revenues
Distribution revenue. Distribution revenue, which includes payments from MVPDs, virtual MVPDs, and OTT distributorsDistributors for our broadcast signals, increased $73 million in 2020 and $155 million in 2019 when compared to the same periodperiods in 2018.2019 and 2018, respectively. The increase wasis primarily due to an increase in rates, partially offset by a decrease in subscribers.
Advertising revenue decreased $216 million in 2019 when compared to 2018. The decrease is primarily related to a decrease in political advertising revenue of $221 million, as 2018 was a political year. These decreases were partially offset by increases in certain categories, notably home products and services.
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The following table sets forth our primary types of programming and their approximate percentages of advertising revenue, excluding digital revenue, for the periods presented:
Percent of Advertising Revenue (Excluding Digital) for the Twelve Months Ended December 31, | |||||
| 2019 | 2018 | 2017 | |||
| Local news | 33% | 34% | 32% | ||
| Syndicated/Other programming | 29% | 28% | 30% | ||
| Network programming (a) | 24% | 25% | 25% | ||
| Sports programming | 11% | 10% | 10% | ||
| Paid programming | 3% | 3% | 3% | ||
| Percent of Advertising Revenue (Excluding Digital) for the Twelve Months Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Local news | 34% | 33% | 34% | ||||||||||||||
| Syndicated/Other programming | 27% | 29% | 28% | ||||||||||||||
| Network programming | 24% | 24% | 25% | ||||||||||||||
| Sports programming | 12% | 11% | 10% | ||||||||||||||
| Paid programming | 3% | 3% | 3% | ||||||||||||||
The following table sets forth our affiliate percentages of advertising revenue for the years ended December 31, 2020, 2019, 2018, and 2017:2018:
| # of | Percent of Advertising Revenue for the Twelve Months Ended December 31, | ||||||
| Channels (a) | 2019 | 2018 | 2017 | ||||
| ABC | 41 | 30% | 29% | 29% | |||
| FOX | 59 | 25% | 24% | 25% | |||
| CBS | 30 | 20% | 20% | 20% | |||
| NBC | 24 | 13% | 16% | 13% | |||
| CW | 48 | 6% | 6% | 7% | |||
| MNT | 39 | 4% | 4% | 5% | |||
| Other (b) | 388 | 2% | 1% | 1% | |||
| Total | 629 | ||||||
| # of | Percent of Advertising Revenue for the Twelve Months Ended December 31, | ||||||||||||||||||||||||||||||||||
| Channels (a) | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
| ABC | 40 | 28% | 30% | 29% | |||||||||||||||||||||||||||||||
| FOX | 57 | 25% | 25% | 24% | |||||||||||||||||||||||||||||||
| CBS | 31 | 22% | 20% | 20% | |||||||||||||||||||||||||||||||
| NBC | 25 | 15% | 13% | 16% | |||||||||||||||||||||||||||||||
| CW | 48 | 5% | 6% | 6% | |||||||||||||||||||||||||||||||
| MNT | 39 | 4% | 4% | 4% | |||||||||||||||||||||||||||||||
| Other | 388 | 1% | 2% | 1% | |||||||||||||||||||||||||||||||
| Total | 628 | ||||||||||||||||||||||||||||||||||
(a)We broadcast other programming from the following providers on our channels including: Antenna TV, Azteca, Bounce Network, CHARGE!, Comet, Dabl, Decades, Estrella TV, Get TV, Grit, Me TV, Stadium, TBD, Telemundo, This TV, UniMas, Univision, and Weather. Other Media Revenue. For the years ended December 31, 2020 and 2019, other media revenue increased $63 million and $36 million, respectively, when compared to the same periods in 2019 and 2018. The increase is primarily due to $100 million and $35 million, respectively, in intercompany revenue from the local sports and other segments related to providing certain services under a management services agreement, which are eliminated in our consolidated results. 61 |
Expenses
Media programming and production expenses. Media programming and production expenses increased $84 million during 2020 compared to 2019, primarily related to an increase in fees pursuant to network affiliation agreements of $105 million. This increase was partially offset by a $16 million decrease in advertising costs, $3 million decrease in employee compensation costs and travel expenses, and a $2 million decrease in network and programming expenses due to COVID-19 broadcasting cancellations.
Media programming and production expenses increased $92 million during 2019 compared to 2018, which is primarily related to increases in feesfess pursuant to network affiliation agreements.
Media selling, general and administrative expenses. Media selling, general and administrative expenses remained flat during 2020 compared to 2019, primarily due to a $12 million increase in national sales commissions, partially offset by a $6 million decrease in regulatory costs, a $4 million decrease in travel and entertainment expenses due to the COVID-19 pandemic, and a $2 million decrease in employee compensation costs and travel expenses.
Media selling, general and administrative expenses increased $22$23 million during 2019 compared to 2018. The increase is primarily due to a $13 million increase in third-party fulfillment costs from our digital business due to higher revenues and product mix, a $6 million increase related to a regulatory cost, and a $10 million increase related to employee compensation cost.costs. These increases were partially offset by aan $11 million decrease in national sales commissions.
Amortization of program contract costs and net realizable value adjustments.costs. The amortization of program contract costs decreased $7 million during 2020 compared to 2019, and is primarily related to the timing of amortization on long-term contracts and reduced renewal costs, partially offset by amortization related to new programming.
The amortization of program contract costs decreased $11 million during 2019 compared to 2018. The decrease is primarily due to $11 million related to the timing of amortization on long term contracts and reduced renewal costs.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
Depreciation and amortization expenses. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets decreased $7 million during 2020 compared to 2019, primarily related to depreciation and amortization related to assets retired during 2020.
Depreciation of property and equipment and amortization of definite-lived intangibles and other assets decreased $6 million during 2019 compared to 2018, primarily related to $3 million of depreciation and amortization related to assets retired during 2019.
Gain on asset dispositions and other, net of impairments. During 20192020 and 2018,2019, we recorded a gain of $90 million and $62 million, and $6 million, respectively, primarily related to reimbursements from the FCCFCC's National Broadband Plan spectrum repack.repack process. For the year ended 2020, we recorded a gain of $29 million related to the sale of KGBT-TV and WDKY-TV. For the year ended 2018, we recorded a gain of $83 million associated with the sale of broadcast spectrum in the FCC broadcast incentive auction. See Broadcast Incentive AuctionDispositions within Note 2. Acquisitions and Dispositions of Assets within the Consolidated Financial Statementsfor further discussiondiscussion.
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LOCAL SPORTS SEGMENT
Our local sports segment, previously referred to as our sports segment, reflects the results of our 21 regional sports network brands acquired during the year ended December 31, 2019, Marquee,RSNs and a 20%minority equity interest in the YES Network. The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of 45 professional sports teams.
The following table sets forth our revenue and expenses for our local sports segment for the period from August 23, 2019 toyears ended December 31, 2020 and 2019 (in millions):
| 2019 | |||
| Revenue: | |||
| Distribution revenue | $ | 1,029 | |
| Advertising revenue | 103 | ||
| Other media revenue | 7 | ||
| Media revenue | $ | 1,139 | |
| Operating Expenses: | |||
| Media programming and production expenses | $ | 769 | |
| Media selling, general and administrative expenses (a) | 55 | ||
| Depreciation and amortization expenses | 157 | ||
| Corporate general and administrative | 93 | ||
| Operating income | $ | 65 | |
| Income from equity method investments | $ | 18 | |
| 2020 | 2019 (b) | ||||||||||||||||
| Revenue: | |||||||||||||||||
| Distribution revenue | $ | 2,472 | $ | 1,029 | |||||||||||||
| Advertising revenue | 196 | 103 | |||||||||||||||
| Other media revenue | 18 | 7 | |||||||||||||||
| Media revenue | $ | 2,686 | $ | 1,139 | |||||||||||||
| Operating Expenses: | |||||||||||||||||
| Media programming and production expenses | $ | 1,361 | $ | 769 | |||||||||||||
| Media selling, general and administrative expenses (a) | 243 | 90 | |||||||||||||||
| Depreciation and amortization expenses | 410 | 157 | |||||||||||||||
| Corporate general and administrative | 10 | 93 | |||||||||||||||
| Impairment of goodwill and definite-lived intangible assets | 4,264 | — | |||||||||||||||
| Operating (loss) income (a) | $ | (3,602) | $ | 30 | |||||||||||||
| Income from equity method investments | $ | 6 | $ | 18 | |||||||||||||
| Other income, net | $ | 160 | $ | 10 | |||||||||||||
(a) - ExcludesIncludes $98 million and $35 million for the years ended December 31, 2020 and 2019, respectively, of intercompany expense related to certain servicedservices provided by the local news and marketing servicesbroadcast segment under a management services agreement, as itwhich is eliminated in consolidation.
(b)Represents the activity from the closing date of the acquisition of the Acquired RSNs of August 23, 2019 through December 31, 2019.
Media revenue. Media revenue was $2,686 million and $1,139 million for the yearyears ended December 31, 2020 and 2019, respectively, and is primarily derived from distribution and advertising revenue. The increase was primarily due to the results of the Acquired RSNs being included for the whole period of the current year, versus a partial period in the prior year, as the acquisition of the Acquired RSNs closed on August 23, 2019. Distribution revenue is generated through fees received from MVPDsDistributors for the right to distribute our RSNs. As discussed under Distribution Revenue in Revenue Recognition under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, decisions made by the leagues during 2020 regarding the timing and format of their seasons have resulted, in some cases, in our inability to meet minimum requirements for delivery of live games and the need to reduce revenue based upon estimated rebates due to our Distributors. As a result, for the year ended December 31, 2020, we reduced revenue and accrued corresponding rebates to Distributors of $420 million. See Subsequent Events under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. We expect distribution revenue to increase during 2021 as compared to 2020, primarily due to $420 million in rebate accruals in 2020 and increases in contractual rates, offset in part by dropped carriage by three Distributors and continued elevated subscriber churn.
Advertising revenue is primarily generated from sales of commercial timeadvertising spots/impressions within the regional sports networks'RSNs' programming. Due to the interruptions and modified seasons, advertising revenue decreased in the second quarter of 2020 as compared to the first quarter of 2020. However, with the resumption of some events during the third quarter of 2020, advertising revenue increased to $124 million for the third quarter of 2020, as compared to $3 million in the second quarter of 2020. Advertising revenue decreased in the fourth quarter of 2020 as compared to the third quarter of 2020 due to the postponement of the start of the NBA and NHL seasons. We expect advertising revenue to increase during 2021 compared to 2020, primarily due to a higher number of games scheduled to be played in each of the seasons of the MLB, NBA, and NHL. The extent of this increase will depend on the actual number of games played and other macro-economic factors associated with the COVID-19 pandemic. See discussion under The Impact of COVID-19 on our Results of Operations for further discussion.
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Media programming and production expenses. Media programming and production expenses were $1,361 million and $769 million for the yearyears ended December 31, 2020 and 2019, respectively, and are primarily related to $673$1,078 million and $637 million, respectively, of amortization of our sports programming rights with MLB, NBA, and NHL teams and the costs of producing and distributing content for our brands including live games, pre-game and post-game shows, and backdrop programming. The increase was primarily due to the results of the Acquired RSNs being included for the whole period of the current year, versus a partial period in the prior year, as the acquisition of the Acquired RSNs closed on August 23, 2019. We expect media programming and production expenses to increase during 2021 compared to 2020, primarily due to the expectation of a higher number of games scheduled to be played in each of the seasons of the MLB, NBA, and NHL. The extent of this increase will depend on the number of actual games played and other macro-economic factors associated with the COVID-19 pandemic. See discussion under The Impact of COVID-19 on our Results of Operations for further discussion.
Media selling, general, and administrative expenses. Media selling, general, and administrative expenses were $55$243 million and $90 million for the yearyears ended December 31, 2020 and 2019, respectively, and are primarily related to $98 million and $35 million, respectively, of management services agreement fees paid to the broadcast segment and eliminated in consolidation, employee compensation cost, advertising expenses, and advertising expenses.consulting fees.
Depreciation and amortization. Depreciation and amortization expense was $410 million and $157 million for the years ended December 31, 2020 and 2019, respectively, and is primarily related to the amortization of definite-lived intangible assets and other assets.
Impairment of goodwill and definite-lived intangible assets. For the year ended December 31, 20192020, we recorded a total impairment loss of $4,264 million relating to goodwill and is related todefinite-lived intangible assets of $2,615 million and $1,649 million, respectively. See further discussion in Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within the depreciation of definite-lived assets and other assets.Consolidated Financial Statements.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
Other income, net. See explanation under Corporate and Unallocated Expenses.
Income from equity method investments. IncomeFor the years ended December 31, 2020 and 2019, respectively, we recognized income from equity method investments for the year ended December 31, 2019 wasof $6 million and $18 million, andrespectively. The income is primarily related to our investmentminority ownership interest in the YES which was acquired in August 2019.Network.
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OTHER
The following table sets forth our revenues and expenses for our owned networks and content, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, other) for the years ended December 31, 2020, 2019, 2018, and 20172018 (in millions):
| Percent Change Increase / (Decrease) | |||||||||||||||
| 2019 | 2018 | 2017 | ‘19 vs.‘18 | ‘18 vs.‘17 | |||||||||||
| Revenue: | |||||||||||||||
| Distribution revenue | $ | 130 | $ | 113 | $ | 107 | 15% | 6% | |||||||
| Advertising revenue | 109 | 75 | 54 | 45% | 39% | ||||||||||
| Other media revenues | 13 | 16 | 12 | (19)% | 33% | ||||||||||
| Media revenues | $ | 252 | $ | 204 | $ | 173 | 24% | 18% | |||||||
| Non-media revenues | $ | 194 | $ | 136 | $ | 69 | 43% | 97% | |||||||
| Operating Expenses: | |||||||||||||||
| Media expenses | $ | 256 | $ | 210 | $ | 163 | 22% | 29% | |||||||
| Non-media expenses | $ | 156 | $ | 122 | $ | 75 | 28% | 63% | |||||||
| Corporate general and administrative expenses | $ | 1 | $ | 1 | $ | 1 | —% | —% | |||||||
| (Gain) loss on asset dispositions and other, net of impairments | $ | (4 | ) | $ | 60 | $ | (53 | ) | n/m | n/m | |||||
| Operating income (loss) | $ | 15 | $ | (82 | ) | $ | 25 | 118% | (428)% | ||||||
| Loss from equity method investments | $ | (53 | ) | $ | (61 | ) | $ | (14 | ) | (13)% | n/m | ||||
| Percent Change Increase / (Decrease) | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | ‘20 vs.‘19 | ‘19 vs.‘18 | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Distribution revenue | $ | 199 | $ | 130 | $ | 113 | 53% | 15% | |||||||||||||||||||||
| Advertising revenue | 131 | 110 | 75 | 19% | 47% | ||||||||||||||||||||||||
| Other media revenues | 7 | 13 | 16 | (46)% | (19)% | ||||||||||||||||||||||||
| Media revenues | $ | 337 | $ | 253 | $ | 204 | 33% | 24% | |||||||||||||||||||||
| Non-media revenues (a) | $ | 114 | $ | 217 | $ | 146�� | (47)% | 49% | |||||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||||||||
| Media expenses (c) | $ | 254 | $ | 257 | $ | 210 | (1)% | 22% | |||||||||||||||||||||
| Non-media expenses (b) | $ | 98 | $ | 168 | $ | 128 | (42)% | 31% | |||||||||||||||||||||
| Amortization of program contract costs | $ | 3 | $ | — | $ | — | n/m | n/m | |||||||||||||||||||||
| Corporate general and administrative expenses | $ | 1 | $ | 1 | $ | 1 | —% | —% | |||||||||||||||||||||
| Loss (gain) on asset dispositions and other, net of impairments | $ | 3 | $ | (4) | $ | 60 | n/m | n/m | |||||||||||||||||||||
| Operating income (loss) | $ | 65 | $ | 26 | $ | (78) | (150)% | (133)% | |||||||||||||||||||||
| Loss from equity method investments | $ | (42) | $ | (53) | $ | (61) | (21)% | (13.1) | |||||||||||||||||||||
n/m — not meaningful
(a)Non-media revenues for the years ended December 31, 2020, 2019, and 2018 include $14 million, $23 million, and $10 million, respectively, of intercompany revenues related to certain services and sale provided to the broadcast segment, which are eliminated in consolidation.
(b)Non-media expenses for the years ended December 31, 2020, 2019, and 2018 include $7 million, $12 million, and $6 million, respectively, of intercompany expenses related to certain services and sales provided by the broadcast segment, which are eliminated in consolidation.
(c)Media expenses for the year ended December 31, 2020 includes $2 million of intercompany expense primarily related to certain services provided by the broadcast segment under a management services agreement, which is eliminated in consolidation.
Revenue. Media revenue increased $48$84 million duringand $49 million for the years ended December 31, 2020 and 2019, respectively, when compared to 2018.the same period in the prior year. The increase for both periods is primarily related to an increase in distribution and advertising revenue related to our owned networks. Non-media revenue increased $58decreased $103 million during 2020 compared to 2019, whenand is primarily related to a decrease in broadcast equipment sales due to the winding down of the FCC's National Broadband Plan spectrum repack process. Non-media revenue increased $71 million during 2019 compared to 2018 and is primarily related to an increase in broadcast equipment sales and services related to the FCC's National Broadband Plan repack process, partially offset by decreased sales from our real estate development projects.
Expenses. Media revenue increased by $31expenses decreased $3 million during 20182020 compared to 2017.2019. The increasedecrease is primarily related to an increase in advertising revenue mostly related to the expansion of our non-broadcast digital initiatives and certain owned networks, and an increase in Tennis distribution revenues.networks. Non-media revenue increased $67expenses decreased $70 million during 2018 when2020 compared to 20172019, and is primarily related to an increasea decrease in the cost of goods related to broadcast equipment sales, partially offset by a decrease associated with the sale of a consolidated investment in an alarm monitoring business in March 2017.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
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Table of $53 million related to the sale of Alarm. See Alarm Funding Sale under Note 2. Acquisitions and Dispositions of Assets within our consolidated financial statements.Contents
CORPORATE AND UNALLOCATED EXPENSES
The following table presents our corporate and unallocated expenses for the years ended December 31, 2020, 2019, 2018, and 20172018 (in millions):
Percent Change Increase/ (Decrease) | |||||||||||||||
| 2019 | 2018 | 2017 | ‘19 vs.‘18 | ‘18 vs.‘17 | |||||||||||
| Corporate general and administrative expenses | $ | 387 | $ | 111 | $ | 113 | 249% | (2)% | |||||||
| Interest expense and amortization of debt discount and deferred financing costs | $ | 422 | $ | 292 | $ | 212 | 45% | 38% | |||||||
| Loss from extinguishment of debt | $ | 10 | $ | — | $ | 1 | n/m | n/m | |||||||
| Income tax benefit | $ | 96 | $ | 36 | $ | 75 | 167% | (52)% | |||||||
| Net income attributable to redeemable noncontrolling interests | $ | (48 | ) | $ | — | $ | — | n/m | n/m | ||||||
| Net income attributable to noncontrolling interests | $ | (10 | ) | $ | (5 | ) | $ | (18 | ) | 100% | (72)% | ||||
| Percent Change Increase/ (Decrease) | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | ‘20 vs.‘19 | ‘19 vs.‘18 | |||||||||||||||||||||||||
| Corporate general and administrative expenses | $ | 148 | $ | 387 | $ | 111 | (62)% | 249% | |||||||||||||||||||||
| Interest expense including amortization of debt discount and deferred financing costs | $ | 656 | $ | 422 | $ | 292 | 55% | 45% | |||||||||||||||||||||
| Loss on extinguishment of debt | $ | (10) | $ | (10) | $ | — | —% | n/m | |||||||||||||||||||||
| Other income, net | $ | 325 | $ | 6 | $ | 3 | n/m | 100% | |||||||||||||||||||||
| Income tax benefit | $ | 720 | $ | 96 | $ | 36 | 650% | 167% | |||||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | $ | (56) | $ | (48) | $ | — | 17% | n/m | |||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | $ | 71 | $ | (10) | $ | (5) | (810)% | 100% | |||||||||||||||||||||
n/m — not meaningful
Corporate general and administrative expenses. The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses decreased in total by $239 million during 2020 compared to 2019. The decrease is primarily due to a $258 million decrease in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 13. Commitments and Contingencies within the Consolidated Financial Statements and the acquisition of the Acquired RSNs, partially offset by a $20 million increase in employee compensation cost.
Corporate general and administrative expenses increased in total by $276 million induring 2019 compared to 2018. The increase is primarily due to a $187 million increase in legal, litigation, and regulatory costs, primarily related to the acquisition of the Acquired RSNs, $73 million in consulting fees and transaction costs, primarily related to the financing of the acquisition of the Acquired RSNs, and a $14 million increase in employee compensation cost.
We expect corporate general and administrative expenses to decreaseremain flat in 20202021 compared to 2019 primarily as a result of lower transaction, legal, litigation, and regulatory costs.2020.
Interest expense. The table above and explanations that follows cover total consolidated interest expense. Interest expense increased by $234 million during 2020 compared to 2019. The increase is primarily due to an increase of $257 million of interest expense associated with acquisition related financing related to the Acquired RSNs which was outstanding for a partial period in 2019 versus the full year in 2020. The increase is partially offset by net decreases in STG interest expense due to refinancing of existing debt and decreases in LIBOR.
Interest expense increased by $130 million induring 2019 compared to 2018. The increase is primarily related to $211 million of acquisition related financing related to the acquisition of the Acquired RSNs, of which $189 million related to the DSG Senior Notes and DSG Bank Credit Agreement, and $22 million related to a new term loan facility at STG. See Note 7. Notes Payable and Commercial Bank Financing within ourthe Consolidated Financial Statements for further discussion. The increase was partially offset by $79 million in financing ticking fees for the year ended December 31, 2018, associated with the proposed Tribune acquisition, which was subsequently terminatedabandoned in August 2018.
Other income, net. Other income, net increased by $319 million during 2020 when compared to 2019. The increase is primarily due to a $158 million increase in the value of investments recorded at fair value and a measurement adjustment gain of $159 million related to certain variable payment obligations assumed in connection with the RSN acquisition. See Note 6. Other Assets and Note 13. Commitments and Contingencies within the Consolidated Financial Statements. for further information
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Income tax benefit. The 2020 income tax benefit (provision)for our pre-tax loss of $3,149 million resulted in an effective tax rate of 22.9%. The 2019 income tax benefit for our pre-tax income of $9 million resulted in an effective tax rate of (1,103.4)%. The decrease in the effective tax rate from 2019 to 2020 is primarily due to substantially magnified impact of 2019 discrete items as a result of negligible 2019 pre-tax income.
The 2018 income tax benefit for our pre-tax income (including the effects of noncontrolling interest) of $306 million resulted in an effective tax rate of (11.7)%. The increase in the effective tax rate from 2018 to 2019 is primarily due to greatersubstantially magnified impact of federal tax credits related to investments in sustainability initiatives and2019 discrete items as a result of negligible 2019 benefit related to a change in the treatment of the gain from the sale of certain broadcast spectrum in connection with the Broadcast Incentive Auction.pre-tax income.
As of December 31, 2019,2020, we had a net deferred tax liabilityasset of $407$197 million as compared to a net deferred tax liability of $413$407 million as of December 31, 2018.2019. The decreasechange from a net deferred tax liability to a net deferred tax asset primarily relates to an increase in deferredthe 2020 impairment charge related to goodwill and certain definite-lived intangible assets of our RSNs. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within the Consolidated Financial Statements for further information.
As of December 31, 2020, we had $11 million of gross unrecognized tax assets associated with settlement and other accruals, partially offset by an increase in deferredbenefits. Of this total, $11 million (net of federal effect on state tax liabilities resulting from certain partnership activity.
issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rate. As of December 31, 2019, we had $11 million of gross unrecognized tax benefits. Of this total, $10 million (net of federal effect on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rate. As of December 31, 2018, we had $7 million of gross unrecognized tax benefits. Of this total, $6 million (net of federal effect on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rate. We recognized $1$0.3 million and $0.3$1 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 20192020 and 2018,2019, respectively. See Note 12. Income Taxes within the Consolidated Financial Statements for further information. See Note 12. Income Taxes within the Consolidated Financial Statements for further information.
Net income attributable to redeemable noncontrolling interests. NetFor the years ended December 31, 2020 and 2019, net income attributable to redeemable noncontrolling interests was $56 million and $48 million, for the year ended December 31, 2019 whichrespectively, and is primarily related to dividends accrued and distributed related to ourthe Redeemable Subsidiary Preferred Equity.Equity
Net loss (income) attributable to noncontrolling interests. For the years ended December 31, 2020 and 2019, net loss and net income attributable to the noncontrolling interests was $71 million and $10 million, respectively. The net loss is primarily related to the portion of the non-cash impairment charge on customer relationships, other definite-lived intangible assets and goodwill that is attributable to the noncontrolling interests, partially offset by income attributable to the noncontrolling interest.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019,2020, we had net working capital of approximately $1,779$2,183 million, including $1,333$1,259 million in cash and cash equivalent balances. Borrowing capacity under our STG Revolving Credit Facility and DSG Revolving Credit Facility was $649 million and $650 million, respectively, as of December 31, 2019. Cash on hand, cash generated by our operations, and borrowing capacity under the STG Bank Credit Agreement and DSG Bank Credit AgreementAgreements are used as our primary sources of liquidity.
On April 30, 2019, we paidSeptember 23, 2020, DSPV entered into the A/R Facility, which matures on September 23, 2023, in fullorder to enable DSG to raise incremental funding for the remaining principalongoing business needs of the local sports segment. The maximum funding availability under the A/R Facility is the lesser of $250 million and the sum of the lowest aggregate loan balance since November 1, 2020 plus $50 million. The amount of actual availability under the A/R Facility is subject to change based on the level of eligible receivables sold by certain indirect wholly owned subsidiaries of DSG identified therein (Originators) to DSPV and certain reserves. Eligibility of the receivables is determined by a variety of factors, including, but not limited to, credit ratings of the Originators’ customers, customer concentration levels, and certain characteristics of the accounts receivable being transferred. As of December 31, 2020, the total commitment was $227 million and the balance of $92 million of Term Loan A-2 debtthe loans under the STG Revolving CreditA/R Facility due July 31, 2021.
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The Bank Credit Agreements each include a financial maintenance covenant, the first lien leverage ratio (as defined in the respective Bank Credit Agreements), which requires such applicable ratio not to exceed 4.5x and 6.25x, measured as of the end of each fiscal quarter, for STG and DSG, respectively. The respective financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the respective Revolving Credit Facility, measured as of the last day of each quarter, is utilized under such Revolving Credit Facility as of such date. Since there was no utilization under either of the Revolving Credit Facilities as of December 31, 2020, neither STG nor DSG was subject to the respective financial maintenance covenant under their applicable Bank Credit Agreement. As of December 31, 2020, the STG first lien leverage ratio was below 4.5x and the DSG first lien leverage ratio exceeded 6.25x. We expect that DSG's first lien leverage ratio will remain above 6.25x for at least the next 12 months, which will restrict our ability to fully utilize the DSG Revolving Credit Facility. We do not currently expect to have more than the 35% of the capacity of the DSG Revolving Credit Facility outstanding as of any quarterly measurement date during the next 12 months, therefore we do not expect DSG will be subject to the financial maintenance covenant. The Bank Credit Agreements contain other restrictions and covenants which the respective entities were in compliance with as of December 31, 2020 and expect to be over the next 12 months.
In December 2020, STG issued $750 million aggregate principal amount of 4.125% secured notes which mature on December 1, 2030. The net proceeds of the STG Term Loan B-2a loans4.125% secured notes were used, plus cash on hand, to redeem all of STG's $550 million aggregate principal amount of 5.625% unsecured notes due 2024 for a redemption price including accrued and replacingunpaid interest, and a call premium, of $571 million and to prepay $200 million outstanding under STG's existing revolving credit facilityterm loan B with a new $650January 2024 stated maturity date.
In June 2020, DSG exchanged $66.5 million five-year revolving credit facility. On August 23, 2019,aggregate principal amount of its 6.625% unsecured notes due 2027 for $31 million aggregate principal amount of its 12.750% secured notes due 2026 and cash payments totaling $10 million, including accrued but unpaid interest.
In May 2020, we entered intopurchased $2.5 million aggregate principal amount of the DSG Bank Credit Agreement, raising $3,300STG 5.875% unsecured notes in open market transactions for consideration of $2.3 million. In March 2020 and June 2020, we purchased a total of $15 million aggregate principal amount of the DSG Term Loans and obtaining a $650 million five-year revolving credit facility. On August 23, 2019,6.625% unsecured notes in open market transactions for consideration of $10 million.
During the year ended December 31, 2020, we issued preferred equityredeemed 550,000 units of Diamond Sports Holdings for $1,025 million. See DSG Senior Notes, STG Bank Credit Agreement, and DSG Bank Credit Agreement under Note 7. Notes Payable and Commercial Bank Financing, and the Redeemable Subsidiary Preferred Equity under Note 10. Redeemable Noncontrolling Interests, within our Consolidated Financial Statements for further discussion.
In January 2020, a minority partner in one of our RSNs exercised theirits right to sell us the entirety of theirits non-controlling interest, to the Companywhich we purchased for $376 million. This transaction closed in January 2020.
We anticipate that existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the STG Bank Credit AgreementAgreements and DSG Bank Credit AgreementA/R Facility will be sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve12 months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and resulting effect on the economy, our advertisers, Distributors, and their subscribers, could affect our liquidity and our first lien leverage ratio which could affect our ability to access the full borrowing capacity under the Bank Credit Agreements. For our long-term liquidity needs, in addition to the sources described above, we may rely upon various sources, such as but not limited to, the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of interests in the RSNs or non-core assets. However, there can be no assurance that additional financing or capital or buyers of our non-core assets will be available, or that the terms of any transactions will be acceptable or advantageous to us.
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Sources and Uses of Cash
The following table sets forth our cash flows for the years ended December 31, 2020, 2019, 2018, and 20172018 (in millions):
| 2020 | 2019 | 2018 | |||||||||||||||
| Net cash flows from operating activities | $ | 1,548 | $ | 916 | $ | 647 | |||||||||||
| Cash flows used in investing activities: | |||||||||||||||||
| Acquisition of property and equipment | $ | (157) | $ | (156) | $ | (105) | |||||||||||
| Acquisition of businesses, net of cash acquired | (16) | (8,999) | — | ||||||||||||||
| Spectrum repack reimbursements | 90 | 62 | 6 | ||||||||||||||
| Proceeds from the sale of assets | 36 | 8 | 2 | ||||||||||||||
| Purchases of investments | (139) | (452) | (48) | ||||||||||||||
| Other, net | 27 | 7 | 27 | ||||||||||||||
| Net cash flows used in investing activities | $ | (159) | $ | (9,530) | $ | (118) | |||||||||||
| Cash flows (used in) from financing activities: | |||||||||||||||||
| Proceeds from notes payable and commercial bank financing | $ | 1,819 | $ | 9,956 | $ | 4 | |||||||||||
| Repayments of notes payable, commercial bank financing, and finance leases | (1,739) | (1,236) | (167) | ||||||||||||||
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | — | 985 | — | ||||||||||||||
| Repurchase of outstanding Class A Common Stock | (343) | (145) | (221) | ||||||||||||||
| Dividends paid on Class A and Class B Common Stock | (63) | (73) | (74) | ||||||||||||||
| Dividends paid on redeemable subsidiary preferred equity | (36) | (33) | — | ||||||||||||||
| Redemption of redeemable subsidiary preferred equity | (547) | (297) | — | ||||||||||||||
| Debt issuance costs | (19) | (199) | (1) | ||||||||||||||
| Distributions to redeemable noncontrolling interests | (383) | (5) | — | ||||||||||||||
| Other, net | (149) | (66) | (6) | ||||||||||||||
| Net cash flows (used in) from financing activities | $ | (1,460) | $ | 8,887 | $ | (465) | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net cash flows from operating activities | $ | 916 | $ | 647 | $ | 432 | |||||
| Cash flows (used in) from investing activities: | |||||||||||
| Acquisition of property and equipment | $ | (156 | ) | $ | (105 | ) | $ | (84 | ) | ||
| Acquisition of businesses, net of cash acquired | (8,999 | ) | — | (271 | ) | ||||||
| Spectrum repack reimbursements and auction proceeds | 62 | 6 | 311 | ||||||||
| Proceeds from the sale of assets | 8 | 2 | 195 | ||||||||
| Purchases of investments | (452 | ) | (48 | ) | (63 | ) | |||||
| Distributions from investments | 7 | 24 | 32 | ||||||||
| Other, net | — | 3 | (6 | ) | |||||||
| Net cash flows (used in) from investing activities | $ | (9,530 | ) | $ | (118 | ) | $ | 114 | |||
| Cash flows (used in) from financing activities: | |||||||||||
| Proceeds from notes payable and commercial bank financing | $ | 9,956 | $ | 4 | $ | 166 | |||||
| Repayments of notes payable, commercial bank financing, and finance leases | (1,236 | ) | (167 | ) | (340 | ) | |||||
| Proceeds from the sale of Class A Common Stock | — | — | 488 | ||||||||
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | 985 | — | — | ||||||||
| Repurchase of outstanding Class A Common Stock | (145 | ) | (221 | ) | (30 | ) | |||||
| Dividends paid on Class A and Class B Common Stock | (73 | ) | (74 | ) | (71 | ) | |||||
| Dividends paid on redeemable subsidiary preferred equity | (33 | ) | — | — | |||||||
| Redemption of redeemable subsidiary preferred equity | (297 | ) | — | — | |||||||
| Debt issuance costs | (199 | ) | (1 | ) | (1 | ) | |||||
| Distributions to noncontrolling interests | (32 | ) | (9 | ) | (22 | ) | |||||
| Other, net | (39 | ) | 3 | — | |||||||
| Net cash flows from (used in) financing activities | $ | 8,887 | $ | (465 | ) | $ | 190 | ||||
Operating Activities
Net cash flows from operating activities increased during the year ended December 31, 2020 compared to the same period in 2019. The increase is primarily related to the results of the Acquired RSNs being included for the entire period in 2020 versus a partial period in the prior year, as the acquisition closed on August 23, 2019, partially offset by a corresponding increase in interest expense on debt incurred in connection with the acquisition of the Acquired RSNs.
Net cash flows from operating activities increased during the year ended December 31, 2019 compared to the same period in 2018. The increase is primarily due to the acquisition of the Acquired RSNs in August 2019 and higher distribution revenues.
Investing Activities
Net cash flows used in investing activities decreased during the year ended December 31, 2020 compared to the same period in 2019. The decrease is primarily related to the acquisition of the Acquired RSNs and equity interest in the YES Network during the third quarter of 2019, partially offset by the sale of WDKY-TV during the third quarter of 2020 and KGBT-TV during the first quarter of 2020 as well as higher spectrum repack reimbursements.
Net cash flows used in investing activities increased during the year ended December 31, 2019 compared to the same period in 2018. The increase is primarily related to the acquisition of the Acquired RSNs in August 2019, and an increase in net cash invested in debt and equity investments, primarily related to our investment in YES.the YES Network.
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Financing Activities
Net cash flows from investingfinancing activities decreased during the year ended December 31, 2018,2020 compared to the same period in 2017.2019. The decrease is primarily duerelated to financing inflows during the prior year associated with the issuance of debt and Redeemable Subsidiary Preferred Equity for the acquisition of the Acquired RSNs. During the year ended December 31, 2020, net cash flows used in financing activities primarily related to the proceeds received in 2017 fromredemption of Redeemable Subsidiary Preferred Equity, payments on our term loans, the spectrum auctionredemption of the STG 5.625% unsecured notes, and the salerepurchases of Alarm. This decrease wasClass A Common Stock, partially offset by the decreaseproceeds from loans under the A/R Facility and the issuance of cash paid related to the acquisition of businesses.
Net cash flows from financing activities increased during the year ended December 31, 2019 compared to the same period in 2018. The increase is primarily related to the issuance of debt and redeemable subsidiary preferred equitythe Redeemable Subsidiary Preferred Equity for the acquisition of the Acquired RSNs, offset by the redemption of the STG 5.375% Notesunsecured notes in August 2019, the STG 6.625% Notesunsecured notes in November 2019, and the redeemable subsidiary preferred equityRedeemable Subsidiary Preferred Equity in December 2019. See Note 7. Notes Payable and Commercial Bank Financing and Note 10. Redeemable Noncontrolling Interests within ourthe Consolidated Financial Statements for further discussion.
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Contractual Obligations
We have various contractual obligations which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts are not recognized as liabilities in our consolidated financial statements but are required to be disclosed. For example, we are contractually committed to acquire future programming.
The following table reflects a summary of our contractual cash obligations as of December 31, 20192020 and the future periods in which such obligations are expected to be settled in cash (in millions):
CONTRACTUAL OBLIGATIONS
| Total | 2020 | 2021-2022 | 2023-2024 | 2025 and thereafter | |||||||||||||||
| Notes payable, finance leases and commercial bank financing (a) | $ | 17,031 | $ | 730 | $ | 1,453 | $ | 3,174 | $ | 11,674 | |||||||||
| Operating leases | 339 | 51 | 76 | 54 | 158 | ||||||||||||||
| Programming rights and content (b) | 17,798 | 2,575 | 4,095 | 2,913 | 8,215 | ||||||||||||||
| Programming services (c) | 208 | 91 | 77 | 37 | 3 | ||||||||||||||
| Other (d) | 450 | 130 | 146 | 64 | 110 | ||||||||||||||
| Total contractual cash obligations | $ | 35,826 | $ | 3,577 | $ | 5,847 | $ | 6,242 | $ | 20,160 | |||||||||
| Total | 2021 | 2022-2023 | 2024-2025 | 2026 and thereafter | |||||||||||||||||||||||||
| Notes payable, finance leases and commercial bank financing (a) | $ | 16,157 | $ | 622 | $ | 1,410 | $ | 2,275 | $ | 11,850 | |||||||||||||||||||
| Operating leases | 306 | 46 | 68 | 50 | 142 | ||||||||||||||||||||||||
| Programming rights and content (b) | 17,168 | 2,832 | 4,391 | 3,033 | 6,912 | ||||||||||||||||||||||||
| Programming services (c) | 103 | 50 | 49 | 3 | 1 | ||||||||||||||||||||||||
| Other (d) | 459 | 183 | 133 | 61 | 82 | ||||||||||||||||||||||||
| Total contractual cash obligations | $ | 34,193 | $ | 3,733 | $ | 6,051 | $ | 5,422 | $ | 18,987 | |||||||||||||||||||
(a)Includes interest on debt and finance leases, including finance leases payable to related parties. Estimated interest on our variable rate debt has been calculated at an effective weighted interest rate of 3.11% as of December 31, 2020. Variable rate debt represents $6 billion of our $13 billion total face value of debt as of December 31, 2020. See Note 7. Notes Payable and Commercial Bank Financing within the Consolidated Financial Statements for further discussion of the changes to notes payable, finance leases, and commercial bank financing during 2020 and Note 15. Related Person Transactions within the Consolidated Financial Statements for further discussion of related parties.
(b)Our programming rights and content includes contractual amounts owed through the expiration date of the underlying agreement for the local sports segment's sports programming rights of $14.7 billion, active and future television program contracts, network programming, and additional advertising inventory in various dayparts. Active television program contracts are included in the balance sheet as an asset and liability while future television program contracts are excluded until the cost is known, the program is available for its first showing or telecast, and the licensee has accepted the program. Industry protocol typically enables us to make payments for television program contracts on a three-month lag, which differs from the contractual timing within the table. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and reflected in the table above based on current subscriber amounts.
(c)Includes obligations related to rating service fees, music license fees, market research, weather, and news services.
(d)Other includes obligations related to post-retirement benefits, guaranteed payments under a deferred purchase price liability, maintenance and support, other corporate contracts, other long-term liabilities, commitments to contribute capital to various non-media private equity investments, and LMA and outsourcing agreements. Excluded from the table are estimated amounts due pursuant to LMAs and outsourcing agreements where we consolidate the counter-party. The fees that we are required to pay under these agreements total $3 million and $0.4 million for the periods 2021 and 2022-2023, respectively. Certain station related operating expenses are paid by the licensee and reimbursed by us under the LMA agreements. Certain of these expenses that are in connection with contracts are included in the table above.
Off Balance Sheet Arrangements
Off balance sheet arrangements as defined by the SEC means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the registrant is a party, under which the registrant has: obligations under certain guarantees or contracts; retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangements; obligations under certain derivative arrangements; and obligations arising out of a material variable interest in an unconsolidated entity. As of December 31, 2019,2020, we do not have any material off balance sheet arrangements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and consider entering into derivative instruments primarily for the purpose of reducing the impact of changing interest rates on our floating rate debt and to reduce the impact of changing fair market values on our fixed rate debt. See Note 7. Notes Payable and Commercial Bank Financing within the Consolidated Financial Statements for further discussion. We did not have any outstanding derivative instruments during the three years ended December 31, 2020, 2019, 2018, and 2017.2018.
During the year ended December 31, 2019, we entered into an amended and restated STG Bank Credit Agreement and the DSG Bank Credit Agreement. We are exposed to risk from the changing interest rates of our variable rate debt issued under these credit
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are filed as exhibits to this report, are listed under Item 15(a)(1) and (2) and are incorporated by reference in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in and/or disagreements with accountants on accounting and financial disclosure during the year ended December 31, 2019.2020.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of December 31, 2019.2020.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The term “internal control over financial reporting,” as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of our Chief Executive and Chief Financial Officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made in accordance with authorizations of management or our Board of Directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.
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Assessment of Effectiveness of Disclosure Controls and Procedures
Based on the evaluation of our disclosure controls and procedures as of December 31, 2019,2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 20192020 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment, management has concluded that, as of December 31, 2019,2020, our internal control over financial reporting was effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 20192020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in our Proxy Statement for the 20202021 Annual Meeting of shareholdersStockholders under the captions, “Directors, Executive Officers and Key Employees,” “Delinquent Section 16(a) Reports,” “Code of Business Conduct and Ethics” and “Corporate Governance,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20192020 and is incorporated by reference in this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our Proxy Statement for the 20202021 Annual Meeting of shareholdersStockholders under the captions, “Compensation Discussion and Analysis”, “Director Compensation for 2019,2020,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20192020 and is incorporated by reference in this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in our Proxy Statement for the 20202021 Annual Meeting of shareholdersStockholders under the caption, “Security Ownership of Certain Beneficial Owners and Management,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20192020 and is incorporated by reference in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in our Proxy Statement for the 20202021 Annual Meeting of shareholdersStockholders under the captions, “Related Person Transactions” and “Director Independence,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20192020 and is incorporated by reference in this report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our Proxy Statement for the 20202021 Annual Meeting of shareholdersStockholders under the caption, “Disclosure of Fees Charged by Independent Registered Public Accounting Firm,” which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 20192020 and is incorporated by reference in this report.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
The following financial statements required by this item are submitted in a separate section beginning on page F-1 of this report.
| Sinclair Broadcast Group, Inc. Financial Statements: | Page: | |||||||
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(a) (2) Financial Statements Schedules
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the accompanying notes.
(a) (3) Exhibits
The following exhibits are filed with this report:
| EXHIBIT NO. | EXHIBIT DESCRIPTION | |||||||
| 2.1 | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 4.4 | ||||||||
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| EXHIBIT DESCRIPTION | ||||||||
| 4.7 | ||||||||
| 4.8** | ||||||||
| 4.9 | ||||||||
| 4.10 | ||||||||
| 4.11 | ||||||||
| 10.2* | ||||||||
| 10.3* | ||||||||
| 10.4* | ||||||||
| 10.5* | ||||||||
| 10.6* | ||||||||
| 10.7* | ||||||||
| 10.8* | ||||||||
| 10.9* | ||||||||
| 10.13** | ||||||||
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| EXHIBIT DESCRIPTION | ||||||||
| 10.16* | ||||||||
| 10.22 | ||||||||
| 10.23 | ||||||||
| 10.24 | ||||||||
| 10.25 | ||||||||
| 10.26 | ||||||||
| 10.27 | ||||||||
| 10.29** | ||||||||
| 10.30** | ||||||||
| 10.31 | ||||||||
| 10.32** | ||||||||
| 10.33 | ||||||||
| 10.34 | ||||||||
| 10.35** | ||||||||
| 10.36 | ||||||||
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| EXHIBIT NO. | EXHIBIT DESCRIPTION | |||||||
| 10.37 | ||||||||
| 10.38** | ||||||||
| 10.39 | ||||||||
| 10.40 | ||||||||
| 10.41 | ||||||||
| 10.42 | ||||||||
| 21** | ||||||||
| 23** | ||||||||
| 24 | ||||||||
| 31.1*** | ||||||||
| 31.2*** | ||||||||
| 32.1*** | ||||||||
| 32.2*** | ||||||||
| 99.1 | ||||||||
| 101 | The Company's Consolidated Financial Statements and related Notes for the year ended December, 31, | |||||||
* Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
** Filed herewith.
*** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
(b) Exhibits
The exhibits required by this Item are listed under Item 15 (a) (3).
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ITEM 16. FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 2nd1st day of March 2020.2021.
| SINCLAIR BROADCAST GROUP, INC. | ||||||||
| By: | /s/ Christopher S. Ripley | |||||||
| Christopher S. Ripley | ||||||||
| President and Chief Executive Officer | ||||||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below under the heading “Signature” constitutes and appoints Christopher S. Ripley as his true and lawful attorney-in-fact each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities to sign any or all amendments to this 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or their substitutes, each acting alone, may lawfully do or cause to be done in virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Signature | Title | Date | ||||||||||||
| /s/ Christopher S. Ripley | President and Chief Executive Officer | |||||||||||||
| Christopher S. Ripley | March 1, 2021 | |||||||||||||
| /s/ Lucy A. Rutishauser | Executive Vice President and Chief Financial Officer | |||||||||||||
| Lucy A. Rutishauser | March | |||||||||||||
| /s/ David R. Bochenek | Senior Vice President and Chief Accounting Officer | |||||||||||||
| David R. Bochenek | March | |||||||||||||
| /s/ David D. Smith | Chairman of the Board and Executive Chairman | |||||||||||||
| David D. Smith | March | |||||||||||||
| /s/ Frederick G. Smith | ||||||||||||||
| Frederick G. Smith | Director | March | ||||||||||||
| /s/ J. Duncan Smith | ||||||||||||||
| J. Duncan Smith | Director | March | ||||||||||||
| /s/ Robert E. Smith | ||||||||||||||
| Robert E. Smith | Director | March | ||||||||||||
| /s/ Lawrence E. McCanna | ||||||||||||||
| Lawrence E. McCanna | Director | March | ||||||||||||
| /s/ Daniel C. Keith | ||||||||||||||
| Daniel C. Keith | Director | March | ||||||||||||
| /s/ Martin R. Leader | ||||||||||||||
| Martin R. Leader | Director | March | ||||||||||||
| /s/ Howard E. Friedman | ||||||||||||||
| Howard E. Friedman | Director | March | ||||||||||||
| /s/ Benson E. Legg | ||||||||||||||
| Benson E. Legg | Director | March | ||||||||||||
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SINCLAIR BROADCAST GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Sinclair Broadcast Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Sinclair Broadcast Group, Inc. and its subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, and the related consolidated statements of operations, of comprehensive income, of equity and redeemable noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2019,2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that (i) relatesrelate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.they relate.
As described in Note 2Notes 1 and 5 to the consolidated financial statements, the Company completedCompany’s consolidated goodwill balance was $2,092 million as of December 31, 2020, and the impairment charge related to the Regional Sports Networks acquisitionNetwork reporting units was $2,615 million. Management evaluates goodwill for impairment annually in 2019, which resultedthe fourth quarter, or more frequently if events or changes in $5.4 billion of customer relationship intangible assets being recorded, primarily relating to MVPD customer relationships. Management estimatedcircumstances indicate that an impairment may exist. If management concludes it is more likely than not that a reporting unit is impaired, the fair value of the MVPD customer relationships intangible assets acquired usingreporting unit is determined by management and compared to the net book value of the reporting unit. If the fair value is less than the net book value, an impairment to goodwill for the amount of the difference is recorded by management. The interim goodwill impairment test was performed during the third quarter of 2020 due to the negative impacts by the recent loss of certain distributors in the local sports segment , and resulted in an impairment charge of $2,615 million to the goodwill associated with the Regional Sports Network Reporting Units included within the local sports segment. Fair value of the Company’s reporting units is estimated utilizing an income approach which involvedinvolving the useperformance of significant estimatesa discounted cash flow analysis. The more sensitive inputs used by management in the discounted cash flow analysis include projected revenues and assumptions with respect to the projected revenue, projected margins, andas well as the discount raterates used to calculate the present value of future cash flows.
The principal considerations for our determination that performing procedures relating to the valuationgoodwill impairment assessment of the MVPD customer relationships intangible assets acquired in the Regional Sports Networks acquisitionNetwork Reporting Units is a critical audit matter are there was(i) the significant judgment by management when developing the fair value measurement of the MVPD customer relationships intangible assets. This in turn led toreporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidencemanagement’s significant assumptions related to the significant assumptions used by management, including projected revenuerevenues and margins, and the discount rate. Therate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting,management’s goodwill impairment assessment, including controls over management’s valuation of the MVPD customer relationships intangible assets and controls over the development of the assumptions related to the valuation of the intangible assets, including projected revenue and the discount rate.Company’s Regional Sports Network Reporting units. These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for estimatingdeveloping the fair value estimate of the MVPD customer relationships intangible assets, (iii)reporting units; (ii) evaluating the appropriateness of the income approach used to value the intangible assets, (iv)management’s valuation model; (iii) testing the completeness accuracy, and relevanceaccuracy of underlying data used in the income approach,valuation model; and (v)(iv) evaluating the significant assumptions used by management which includedrelated to the projected revenuerevenues and margins and the discount rate. Evaluating management’s assumptions related to projected revenues and margins involved evaluating whether the reasonableness ofassumptions used by management were reasonable considering (i) the projected revenue used in the fair value estimate involved considering thecurrent and past performance of the acquired business, as well as economicreporting units, (ii) the consistency with external market and industry forecasts. The discount rate was evaluated by consideringdata, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the cost of capital of comparable businesses as well as other industry factors.audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company's incomeCompany’s valuation approach and the discount rate significant assumption.rate.
F-3
Impairment Assessment of certain Definite-Lived Intangible Assets within the Regional Sports Network Asset Groups
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated customer relationship and other definite-lived intangibles balance was $4,286 million and $1,338 million, respectively, as of December 31, 2020, and the impairment charge related to the Regional Sports Network Asset Groups was $1,218 million and $431 million to customer relationships and other definite-lived intangibles, respectively. Management periodically evaluates long-lived assets, which includes definite-lived intangible assets, for impairment and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Recoverability of long-lived intangible assets are evaluated by management by measuring the carrying amount of the assets within an asset group against the estimated undiscounted future cash flows associated with that asset group. At the time that such evaluations indicate that the future undiscounted cash flows of certain long-lived intangible assets are not sufficient to recover the carrying value of such assets, the assets are tested for impairment by comparing their estimated fair value to the carrying value. As a result of the loss of certain distributors, management performed an impairment test of the Regional Sports Network asset groups during the third quarter of 2020, which indicated certain Regional Sports Network asset groups had carrying values in excess of the future undiscounted cash flows. At that time the impairment loss was measured as the amount by which the carrying value of the asset group exceeded the fair value. The calculated impairment was then allocated to the definite-lived intangible assets based upon relative fair value. Fair value of the Company’s asset groups is determined based upon a discounted cash flow analysis which uses the present value of projected cash flows. The more significant inputs used in the cash flow analyses relate to projected revenues and margins in both the undiscounted and discounted cash flow analyses, and the discount rate used to present value future cash flows in the discounted cash flow analysis.
The principal considerations for our determination that performing procedures relating to the impairment assessment of certain definite-lived intangible assets within the Regional Sports Network asset groups is a critical audit matter are (i) the significant judgment by management when developing the estimated future undiscounted and discounted cash flows expected to be generated by certain assets within the Regional Sports Network asset groups; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenues and projected margins in both the undiscounted and discounted cash flow analyses, and the discount rate in the discounted cash flow analysis, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment assessment of definite-lived intangible assets, including controls over the Company’s valuation of certain assets in the Regional Sports Network asset groups. These procedures also included, among others, (i) testing management’s process for developing the undiscounted and discounted cash flows expected to be generated by the assets groupings; (ii) testing the completeness and accuracy of underlying data used in the valuation; and (iii) evaluating the significant assumptions used by management related to projected revenues and projected margins in both the undiscounted and discounted cash flow analyses, and the discount rate in the discounted cash flow analysis. Evaluating management’s assumptions related to projected revenues and projected margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the asset group, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rate assumption.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
March 2, 20201, 2021
We have served as the Company’s auditor since 2009.
F-4
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| As of December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 1,259 | $ | 1,333 | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $5 and $8, respectively | 1,060 | 1,132 | |||||||||
| Income taxes receivable | 230 | 103 | |||||||||
| Prepaid sports rights | 498 | 113 | |||||||||
| Prepaid expenses and other current assets | 170 | 232 | |||||||||
| Total current assets | 3,217 | 2,913 | |||||||||
| Property and equipment, net | 823 | 765 | |||||||||
| Operating lease assets | 197 | 223 | |||||||||
| Deferred tax assets | 197 | 0 | |||||||||
| Restricted cash | 3 | 0 | |||||||||
| Goodwill | 2,092 | 4,716 | |||||||||
| Indefinite-lived intangible assets | 171 | 158 | |||||||||
| Customer relationships, net | 4,286 | 5,979 | |||||||||
| Other definite-lived intangible assets, net | 1,338 | 1,998 | |||||||||
| Other assets | 1,058 | 618 | |||||||||
| Total assets (a) | $ | 13,382 | $ | 17,370 | |||||||
| LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 533 | $ | 782 | |||||||
| Current portion of notes payable, finance leases, and commercial bank financing | 58 | 71 | |||||||||
| Current portion of operating lease liabilities | 34 | 38 | |||||||||
| Current portion of program contracts payable | 92 | 88 | |||||||||
| Other current liabilities | 317 | 155 | |||||||||
| Total current liabilities | 1,034 | 1,134 | |||||||||
| Notes payable, finance leases, and commercial bank financing, less current portion | 12,493 | 12,367 | |||||||||
| Operating lease liabilities, less current portion | 198 | 217 | |||||||||
| Program contracts payable, less current portion | 30 | 39 | |||||||||
| Deferred tax liabilities | 0 | 407 | |||||||||
| Other long-term liabilities | 622 | 434 | |||||||||
| Total liabilities (a) | 14,377 | 14,598 | |||||||||
Commitments and contingencies (See Note 13) | 0 | 0 | |||||||||
| Redeemable noncontrolling interests | 190 | 1,078 | |||||||||
| Shareholders' Equity: | |||||||||||
| Class A Common Stock, $0.01 par value, 500,000,000 shares authorized, 49,252,671 and 66,830,110 shares issued and outstanding, respectively | 1 | 1 | |||||||||
| Class B Common Stock, $0.01 par value, 140,000,000 shares authorized, 24,727,682 and 24,727,682 shares issued and outstanding, respectively, convertible into Class A Common Stock | 0 | 0 | |||||||||
| Additional paid-in capital | 721 | 1,011 | |||||||||
| (Accumulated deficit) retained earnings | (1,986) | 492 | |||||||||
| Accumulated other comprehensive loss | (10) | (2) | |||||||||
| Total Sinclair Broadcast Group shareholders’ (deficit) equity | (1,274) | 1,502 | |||||||||
| Noncontrolling interests | 89 | 192 | |||||||||
| Total (deficit) equity | (1,185) | 1,694 | |||||||||
| Total liabilities, redeemable noncontrolling interests, and equity | $ | 13,382 | $ | 17,370 | |||||||
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 1,333 | $ | 1,060 | |||
| Accounts receivable, net of allowance for doubtful accounts of $8 and $2, respectively | 1,132 | 599 | |||||
| Current portion of program contract costs | 58 | 64 | |||||
| Income taxes receivable | 103 | — | |||||
| Prepaid expenses and other current assets | 287 | 61 | |||||
| Total current assets | 2,913 | 1,784 | |||||
| Program contract costs, less current portion | 5 | 11 | |||||
| Property and equipment, net | 765 | 683 | |||||
| Operating lease assets | 223 | — | |||||
| Goodwill | 4,716 | 2,124 | |||||
| Indefinite-lived intangible assets | 158 | 158 | |||||
| Customer relationships, net | 5,979 | 772 | |||||
| Other definite-lived intangible assets, net | 1,998 | 855 | |||||
| Other assets | 613 | 185 | |||||
| Total assets (a) | $ | 17,370 | $ | 6,572 | |||
| LIABILITIES , REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 782 | $ | 330 | |||
| Income taxes payable | — | 23 | |||||
| Current portion of notes payable, finance leases, and commercial bank financing | 71 | 43 | |||||
| Current portion of operating lease liabilities | 38 | — | |||||
| Current portion of program contracts payable | 88 | 93 | |||||
| Other current liabilities | 155 | 84 | |||||
| Total current liabilities | 1,134 | 573 | |||||
| Notes payable, finance leases, and commercial bank financing, less current portion | 12,367 | 3,850 | |||||
| Operating lease liabilities, less current portion | 217 | — | |||||
| Program contracts payable, less current portion | 39 | 50 | |||||
| Deferred tax liabilities | 407 | 413 | |||||
| Other long-term liabilities | 434 | 86 | |||||
| Total liabilities (a) | 14,598 | 4,972 | |||||
Commitments and contingencies (See Note 13) | |||||||
| Redeemable noncontrolling interests | 1,078 | — | |||||
| Shareholders' Equity: | |||||||
| Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 66,830,110 and 68,897,723 shares issued and outstanding, respectively | 1 | 1 | |||||
| Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 24,727,682 and 25,670,684 shares issued and outstanding, respectively, convertible into Class A Common Stock | — | — | |||||
| Additional paid-in capital | 1,011 | 1,121 | |||||
| Retained earnings | 492 | 518 | |||||
| Accumulated other comprehensive loss | (2 | ) | (1 | ) | |||
| Total Sinclair Broadcast Group shareholders’ equity | 1,502 | 1,639 | |||||
| Noncontrolling interests | 192 | (39 | ) | ||||
| Total equity | 1,694 | 1,600 | |||||
| Total liabilities, redeemable noncontrolling interests, and equity | $ | 17,370 | $ | 6,572 | |||
The accompanying notes are an integral part of these consolidated financial statements.
(a)Our consolidated total assets as of December 31, 2020 and 2019 include total assets of variable interest entities (VIEs) of $233 million and $228 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of December 31, 2020 and 2019 F-5 |
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 2018 AND 20172018
(In millions, except share and per share data)
| 2019 | 2018 | 2017 | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| REVENUES: | REVENUES: | |||||||||||||||||||||||||||
| Media revenues | $ | 4,046 | $ | 2,919 | $ | 2,567 | Media revenues | $ | 5,843 | $ | 4,046 | $ | 2,919 | |||||||||||||||
| Non-media revenues | 194 | 136 | 69 | Non-media revenues | 100 | 194 | 136 | |||||||||||||||||||||
| Total revenues | 4,240 | 3,055 | 2,636 | Total revenues | 5,943 | 4,240 | 3,055 | |||||||||||||||||||||
| OPERATING EXPENSES: | OPERATING EXPENSES: | |||||||||||||||||||||||||||
| Media programming and production expenses | 2,073 | 1,191 | 1,064 | Media programming and production expenses | 2,735 | 2,073 | 1,191 | |||||||||||||||||||||
| Media selling, general and administrative expenses | 732 | 630 | 534 | Media selling, general and administrative expenses | 832 | 732 | 630 | |||||||||||||||||||||
| Amortization of program contract costs and net realizable value adjustments | 90 | 101 | 116 | |||||||||||||||||||||||||
| Amortization of program contract costs | Amortization of program contract costs | 86 | 90 | 101 | ||||||||||||||||||||||||
| Non-media expenses | 156 | 122 | 75 | Non-media expenses | 91 | 156 | 122 | |||||||||||||||||||||
| Depreciation of property and equipment | 97 | 105 | 97 | Depreciation of property and equipment | 102 | 97 | 105 | |||||||||||||||||||||
| Corporate general and administrative expenses | 387 | 111 | 113 | Corporate general and administrative expenses | 148 | 387 | 111 | |||||||||||||||||||||
| Amortization of definite-lived intangible and other assets | 327 | 175 | 179 | Amortization of definite-lived intangible and other assets | 572 | 327 | 175 | |||||||||||||||||||||
| Impairment of goodwill and definite-lived intangible assets | Impairment of goodwill and definite-lived intangible assets | 4,264 | 0 | 0 | ||||||||||||||||||||||||
| Gain on asset dispositions and other, net of impairment | (92 | ) | (40 | ) | (279 | ) | Gain on asset dispositions and other, net of impairment | (115) | (92) | (40) | ||||||||||||||||||
| Total operating expenses | 3,770 | 2,395 | 1,899 | Total operating expenses | 8,715 | 3,770 | 2,395 | |||||||||||||||||||||
| Operating income | 470 | 660 | 737 | |||||||||||||||||||||||||
| Operating (loss) income | Operating (loss) income | (2,772) | 470 | 660 | ||||||||||||||||||||||||
| OTHER INCOME (EXPENSE): | OTHER INCOME (EXPENSE): | |||||||||||||||||||||||||||
| Interest expense and amortization of debt discount and deferred financing costs | (422 | ) | (292 | ) | (212 | ) | ||||||||||||||||||||||
| Loss from extinguishment of debt | (10 | ) | — | (1 | ) | |||||||||||||||||||||||
| Interest expense including amortization of debt discount and deferred financing costs | Interest expense including amortization of debt discount and deferred financing costs | (656) | (422) | (292) | ||||||||||||||||||||||||
| Loss on extinguishment of debt | Loss on extinguishment of debt | (10) | (10) | 0 | ||||||||||||||||||||||||
| Loss from equity method investments | (35 | ) | (61 | ) | (14 | ) | Loss from equity method investments | (36) | (35) | (61) | ||||||||||||||||||
| Other income, net | 6 | 3 | 9 | Other income, net | 325 | 6 | 3 | |||||||||||||||||||||
| Total other expense, net | (461 | ) | (350 | ) | (218 | ) | Total other expense, net | (377) | (461) | (350) | ||||||||||||||||||
| Income before income taxes | 9 | 310 | 519 | |||||||||||||||||||||||||
| (Loss) income before income taxes | (Loss) income before income taxes | (3,149) | 9 | 310 | ||||||||||||||||||||||||
| INCOME TAX BENEFIT | 96 | 36 | 75 | INCOME TAX BENEFIT | 720 | 96 | 36 | |||||||||||||||||||||
| NET INCOME | 105 | 346 | 594 | |||||||||||||||||||||||||
| NET (LOSS) INCOME | NET (LOSS) INCOME | (2,429) | 105 | 346 | ||||||||||||||||||||||||
| Net income attributable to the redeemable noncontrolling interests | (48 | ) | — | — | Net income attributable to the redeemable noncontrolling interests | (56) | (48) | 0 | ||||||||||||||||||||
| Net income attributable to the noncontrolling interests | (10 | ) | (5 | ) | (18 | ) | ||||||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP | $ | 47 | $ | 341 | $ | 576 | ||||||||||||||||||||||
| Net loss (income) attributable to the noncontrolling interests | Net loss (income) attributable to the noncontrolling interests | 71 | (10) | (5) | ||||||||||||||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP | NET (LOSS) INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP | $ | (2,414) | $ | 47 | $ | 341 | |||||||||||||||||||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP: | EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP: | |||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.52 | $ | 3.38 | $ | 5.77 | Basic earnings per share | $ | (30.20) | $ | 0.52 | $ | 3.38 | |||||||||||||||
| Diluted earnings per share | $ | 0.51 | $ | 3.35 | $ | 5.72 | Diluted earnings per share | $ | (30.20) | $ | 0.51 | $ | 3.35 | |||||||||||||||
| Weighted average common shares outstanding (in thousands) | 92,015 | 100,913 | 99,844 | |||||||||||||||||||||||||
| Weighted average common and common equivalent shares outstanding (in thousands) | 93,185 | 101,718 | 100,789 | |||||||||||||||||||||||||
| Basic weighted average common shares outstanding (in thousands) | Basic weighted average common shares outstanding (in thousands) | 79,924 | 92,015 | 100,913 | ||||||||||||||||||||||||
| Diluted weighted average common and common equivalent shares outstanding (in thousands) | Diluted weighted average common and common equivalent shares outstanding (in thousands) | 79,924 | 93,185 | 101,718 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 2018 AND 20172018
(In millions)
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 105 | $ | 346 | $ | 594 | |||||
| Adjustments to post-retirement obligations, net of taxes | (1 | ) | 1 | (1 | ) | ||||||
| Comprehensive income | 104 | 347 | 593 | ||||||||
| Comprehensive income attributable to redeemable noncontrolling interests | (48 | ) | — | — | |||||||
| Comprehensive income attributable to noncontrolling interests | (10 | ) | (5 | ) | (18 | ) | |||||
| Comprehensive income attributable to Sinclair Broadcast Group | $ | 46 | $ | 342 | $ | 575 | |||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net (loss) income | $ | (2,429) | $ | 105 | $ | 346 | |||||||||||
| Adjustments to post-retirement obligations, net of taxes | (1) | (1) | 1 | ||||||||||||||
| Share of other comprehensive loss of equity method investments | (7) | 0 | 0 | ||||||||||||||
| Comprehensive (loss) income | (2,437) | 104 | 347 | ||||||||||||||
| Comprehensive income attributable to redeemable noncontrolling interests | (56) | (48) | 0 | ||||||||||||||
| Comprehensive loss (income) attributable to noncontrolling interests | 71 | (10) | (5) | ||||||||||||||
| Comprehensive (loss) income attributable to Sinclair Broadcast Group | $ | (2,422) | $ | 46 | $ | 342 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-7
| Sinclair Broadcast Group Shareholders | |||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | (Accumulated Deficit) Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
| Shares | Values | Shares | Values | ||||||||||||||||||||||||||||||
| BALANCE, December 31, 2016 | 64,558,207 | $ | 1 | 25,670,684 | $ | — | $ | 844 | $ | (256 | ) | $ | (1 | ) | $ | (30 | ) | $ | 558 | ||||||||||||||
| Issuance of common stock, net of issuance costs | 12,000,000 | — | — | — | 488 | — | — | — | 488 | ||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.72 per share) | — | — | — | — | — | (71 | ) | — | — | (71 | ) | ||||||||||||||||||||||
| Repurchases of Class A Common Stock | (997,300 | ) | — | — | — | (30 | ) | — | — | — | (30 | ) | |||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | 510,238 | — | — | — | 19 | — | — | — | 19 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | (22 | ) | (22 | ) | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||
| Net income | — | — | — | — | — | 576 | — | 18 | 594 | ||||||||||||||||||||||||
| BALANCE, December 31, 2017 | 76,071,145 | $ | 1 | 25,670,684 | $ | — | $ | 1,321 | $ | 249 | $ | (2 | ) | $ | (34 | ) | $ | 1,535 | |||||||||||||||
| Sinclair Broadcast Group Shareholders | |||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
| Shares | Values | Shares | Values | ||||||||||||||||||||||||||||||
| BALANCE, December 31, 2017 | 76,071,145 | $ | 1 | 25,670,684 | $ | — | $ | 1,321 | $ | 249 | $ | (2 | ) | $ | (34 | ) | $ | 1,535 | |||||||||||||||
| Cumulative effect of adoption of new accounting standard | — | — | — | — | — | 2 | — | — | 2 | ||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.74 per share) | — | — | — | — | — | (74 | ) | — | — | (74 | ) | ||||||||||||||||||||||
| Repurchases of Class A Common Stock | (7,761,529 | ) | — | — | — | (221 | ) | — | — | — | (221 | ) | |||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | 588,107 | — | — | — | 21 | — | — | — | 21 | ||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | 341 | — | 5 | 346 | ||||||||||||||||||||||||
| BALANCE, December 31, 2018 | 68,897,723 | $ | 1 | 25,670,684 | $ | — | $ | 1,121 | $ | 518 | $ | (1 | ) | $ | (39 | ) | $ | 1,600 | |||||||||||||||
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 2018 AND 20172018
(In millions, except share data)
| Sinclair Broadcast Group Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Values | Shares | Values | ||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2017 | 76,071,145 | $ | 1 | 25,670,684 | $ | 0 | $ | 1,321 | $ | 249 | $ | (2) | $ | (34) | $ | 1,535 | |||||||||||||||||||||||||||||||||||||
| Cumulative effect of adoption of new accounting standard | — | — | — | — | — | 2 | $ | — | $ | — | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.74 per share) | — | — | — | — | — | (74) | — | — | (74) | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A Common Stock | (7,761,529) | — | — | — | (221) | — | — | — | (221) | ||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | 588,107 | — | — | — | 21 | — | — | — | 21 | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | (10) | (10) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 341 | — | 5 | 346 | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2018 | 68,897,723 | $ | 1 | 25,670,684 | $ | 0 | $ | 1,121 | $ | 518 | $ | (1) | $ | (39) | $ | 1,600 | |||||||||||||||||||||||||||||||||||||
| Sinclair Broadcast Group Shareholders | ||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||
| Shares | Values | Shares | Values | |||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2018 | $ | — | 68,897,723 | $ | 1 | 25,670,684 | $ | — | $ | 1,121 | $ | 518 | $ | (1 | ) | $ | (39 | ) | $ | 1,600 | ||||||||||||||||||
| Issuance of redeemable subsidiary preferred equity, net of issuance costs | 985 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | — | — | — | — | — | (73 | ) | — | — | (73 | ) | ||||||||||||||||||||||||||
| Class B Common Stock converted into Class A Common Stock | — | 943,002 | — | (943,002 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Repurchases of Class A Common Stock | — | (4,555,487 | ) | — | — | — | (145 | ) | — | — | — | (145 | ) | |||||||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | — | 1,544,872 | — | — | — | 35 | — | — | — | 35 | ||||||||||||||||||||||||||||
| Noncontrolling interests acquired in a business combination | 380 | — | — | — | — | — | — | — | 248 | 248 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | (38 | ) | — | — | — | — | — | — | — | (27 | ) | (27 | ) | |||||||||||||||||||||||||
| Redemption of redeemable subsidiary preferred equity, net of fees | (297 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||||
| Net income | 48 | — | — | — | — | — | 47 | — | 10 | 57 | ||||||||||||||||||||||||||||
| BALANCE, December 31, 2019 | $ | 1,078 | 66,830,110 | $ | 1 | 24,727,682 | $ | — | $ | 1,011 | $ | 492 | $ | (2 | ) | $ | 192 | $ | 1,694 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In millions, except share data)
| Sinclair Broadcast Group Shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interest | Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Values | Shares | Values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2018 | $ | 0 | 68,897,723 | $ | 1 | 25,670,684 | $ | 0 | $ | 1,121 | $ | 518 | $ | (1) | $ | (39) | $ | 1,600 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of redeemable subsidiary preferred equity, net of issuance costs | 985 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | — | — | — | — | — | (73) | — | — | (73) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class B Common Stock converted into Class A Common Stock | — | 943,002 | — | (943,002) | — | — | — | — | — | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A Common Stock | — | (4,555,487) | — | — | — | (145) | — | — | — | (145) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | — | 1,544,872 | — | — | — | 35 | — | — | — | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests acquired in a business combination | 380 | — | — | — | — | — | — | — | 248 | 248 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | (38) | — | — | — | — | — | — | — | (27) | (27) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of redeemable subsidiary preferred equity, net of fees | (297) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (1) | — | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 48 | — | — | — | — | — | 47 | — | 10 | 57 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2019 | $ | 1,078 | 66,830,110 | $ | 1 | 24,727,682 | $ | 0 | $ | 1,011 | $ | 492 | $ | (2) | $ | 192 | $ | 1,694 | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In millions, except share data)
| Sinclair Broadcast Group Shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Class A Common Stock | Class B Common Stock | Additional Paid-In Capital | (Accumulated Deficit) Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Values | Shares | Values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2019 | $ | 1,078 | 66,830,110 | $ | 1 | 24,727,682 | $ | 0 | $ | 1,011 | $ | 492 | $ | (2) | $ | 192 | $ | 1,694 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared and paid on Class A and Class B Common Stock ($0.80 per share) | — | — | — | — | — | — | (64) | — | — | (64) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A Common Stock | — | (19,418,934) | — | — | — | (343) | — | — | — | (343) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock issued pursuant to employee benefit plans | — | 1,841,495 | — | — | — | 53 | — | — | — | 53 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests issued | 22 | — | — | — | — | — | — | — | — | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | — | (32) | (32) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to redeemable noncontrolling interests | (419) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of redeemable subsidiary preferred equity, net of fees | (547) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (8) | — | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | 56 | — | — | — | — | — | (2,414) | — | (71) | (2,485) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2020 | $ | 190 | 49,252,671 | $ | 1 | 24,727,682 | $ | 0 | $ | 721 | $ | (1,986) | $ | (10) | $ | 89 | $ | (1,185) | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-10
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 2018 AND 20172018
(In millions)
| 2020 | 2019 | 2018 | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||
| Net (loss) income | $ | (2,429) | $ | 105 | $ | 346 | |||||||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | |||||||||||||||||
| Impairment of goodwill and definite-lived intangible assets | 4,264 | 0 | 0 | ||||||||||||||
| Amortization of sports programming rights | 1,078 | 637 | 0 | ||||||||||||||
| Amortization of definite-lived intangible and other assets | 572 | 327 | 175 | ||||||||||||||
| Depreciation of property and equipment | 102 | 97 | 105 | ||||||||||||||
| Amortization of program contract costs | 86 | 90 | 101 | ||||||||||||||
| Stock-based compensation | 52 | 33 | 26 | ||||||||||||||
| Deferred tax benefit | (604) | (5) | (103) | ||||||||||||||
| Gain on asset disposition and other, net of impairment | (119) | (62) | (19) | ||||||||||||||
| Loss from equity method investments | 36 | 35 | 61 | ||||||||||||||
| Net (gain) loss from investments | (152) | 6 | 1 | ||||||||||||||
| Distributions from investments | 27 | 6 | 4 | ||||||||||||||
| Sports programming rights payments | (1,345) | (578) | 0 | ||||||||||||||
| Loss on extinguishment of debt | 10 | 10 | 0 | ||||||||||||||
| Measurement adjustment gain on variable payment obligations | (159) | 0 | 0 | ||||||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||||||||
| Decrease (increase) in accounts receivable | 70 | 70 | (37) | ||||||||||||||
| Decrease (increase) in prepaid expenses and other current assets | 48 | (27) | (10) | ||||||||||||||
| (Decrease) increase in accounts payable and accrued and other current liabilities | (3) | 334 | 24 | ||||||||||||||
| Net change in net income taxes payable/receivable | (127) | (127) | 49 | ||||||||||||||
| Decrease in program contracts payable | (96) | (94) | (108) | ||||||||||||||
| Increase (decrease) in other long-term liabilities | 198 | (1) | 0 | ||||||||||||||
| Other, net | 39 | 60 | 32 | ||||||||||||||
| Net cash flows from operating activities | 1,548 | 916 | 647 | ||||||||||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES: | |||||||||||||||||
| Acquisition of property and equipment | (157) | (156) | (105) | ||||||||||||||
| Acquisition of businesses, net of cash acquired | (16) | (8,999) | 0 | ||||||||||||||
| Spectrum repack reimbursements | 90 | 62 | 6 | ||||||||||||||
| Proceeds from the sale of assets | 36 | 8 | 2 | ||||||||||||||
| Purchases of investments | (139) | (452) | (48) | ||||||||||||||
| Other, net | 27 | 7 | 27 | ||||||||||||||
| Net cash flows used in investing activities | (159) | (9,530) | (118) | ||||||||||||||
| CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES: | |||||||||||||||||
| Proceeds from notes payable and commercial bank financing | 1,819 | 9,956 | 4 | ||||||||||||||
| Repayments of notes payable, commercial bank financing, and finance leases | (1,739) | (1,236) | (167) | ||||||||||||||
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | 0 | 985 | 0 | ||||||||||||||
| Repurchase of outstanding Class A Common Stock | (343) | (145) | (221) | ||||||||||||||
| Dividends paid on Class A and Class B Common Stock | (63) | (73) | (74) | ||||||||||||||
| Dividends paid on redeemable subsidiary preferred equity | (36) | (33) | 0 | ||||||||||||||
| Redemption of redeemable subsidiary preferred equity | (547) | (297) | 0 | ||||||||||||||
| Debt issuance costs | (19) | (199) | (1) | ||||||||||||||
| Distributions to noncontrolling interests, net | (32) | (27) | (9) | ||||||||||||||
| Distributions to redeemable noncontrolling interests | (383) | (5) | 0 | ||||||||||||||
| Other, net | (117) | (39) | 3 | ||||||||||||||
| Net cash flows (used in) from financing activities | (1,460) | 8,887 | (465) | ||||||||||||||
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (71) | 273 | 64 | ||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | 1,333 | 1,060 | 996 | ||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | $ | 1,262 | $ | 1,333 | $ | 1,060 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 105 | $ | 346 | $ | 594 | |||||
| Adjustments to reconcile net income to net cash flows from operating activities: | |||||||||||
| Depreciation of property and equipment | 97 | 105 | 97 | ||||||||
| Amortization of definite-lived intangible and other assets | 327 | 175 | 179 | ||||||||
| Amortization of program contract costs and net realizable value adjustments | 90 | 101 | 116 | ||||||||
| Loss from extinguishment of debt | 10 | — | 1 | ||||||||
| Stock-based compensation | 33 | 26 | 16 | ||||||||
| Deferred tax benefit | (5 | ) | (103 | ) | (159 | ) | |||||
| Gain on asset disposition and other, net of impairment | (62 | ) | (19 | ) | (279 | ) | |||||
| Loss from equity method investments | 35 | 61 | 14 | ||||||||
| Amortization of sports programming rights | 637 | — | — | ||||||||
| Additions to sports programming rights | (578 | ) | — | — | |||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Decrease (increase) in accounts receivable | 70 | (37 | ) | (42 | ) | ||||||
| Increase in prepaid expenses and other current assets | (27 | ) | (10 | ) | (9 | ) | |||||
| Increase in accounts payable and accrued liabilities | 334 | 24 | 35 | ||||||||
| Net change in net income taxes payable/receivable | (127 | ) | 49 | (43 | ) | ||||||
| Decrease in program contracts payable | (94 | ) | (108 | ) | (111 | ) | |||||
| Other, net | 71 | 37 | 23 | ||||||||
| Net cash flows from operating activities | 916 | 647 | 432 | ||||||||
| CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of property and equipment | (156 | ) | (105 | ) | (84 | ) | |||||
| Acquisition of businesses, net of cash acquired | (8,999 | ) | — | (271 | ) | ||||||
| Spectrum repack reimbursements and auction proceeds | 62 | 6 | 311 | ||||||||
| Proceeds from the sale of assets | 8 | 2 | 195 | ||||||||
| Purchases of investments | (452 | ) | (48 | ) | (63 | ) | |||||
| Distributions from investments | 7 | 24 | 32 | ||||||||
| Other, net | — | 3 | (6 | ) | |||||||
| Net cash flows (used in) from investing activities | (9,530 | ) | (118 | ) | 114 | ||||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | |||||||||||
| Proceeds from notes payable and commercial bank financing | 9,956 | 4 | 166 | ||||||||
| Repayments of notes payable, commercial bank financing, and finance leases | (1,236 | ) | (167 | ) | (340 | ) | |||||
| Proceeds from the sale of Class A Common Stock | — | — | 488 | ||||||||
| Proceeds from the issuance of redeemable subsidiary preferred equity, net | 985 | — | — | ||||||||
| Repurchase of outstanding Class A Common Stock | (145 | ) | (221 | ) | (30 | ) | |||||
| Dividends paid on Class A and Class B Common Stock | (73 | ) | (74 | ) | (71 | ) | |||||
| Dividends paid on redeemable subsidiary preferred equity | (33 | ) | — | — | |||||||
| Redemption of redeemable subsidiary preferred equity | (297 | ) | — | — | |||||||
| Debt issuance costs | (199 | ) | (1 | ) | (1 | ) | |||||
| Distributions to noncontrolling interests | (32 | ) | (9 | ) | (22 | ) | |||||
| Other, net | (39 | ) | 3 | — | |||||||
| Net cash flows from (used in) financing activities | 8,887 | (465 | ) | 190 | |||||||
| NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 273 | 64 | 736 | ||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | 1,060 | 996 | 260 | ||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | $ | 1,333 | $ | 1,060 | $ | 996 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-11
SINCLAIR BROADCAST GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Sinclair Broadcast Group, Inc. (the Company) is a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, regional sports networks, and digital platforms. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us. Additionally, we own digital media products that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses, we operate technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other non-media related investments.
As of December 31, 2019,2020, we had 2 reportable segments for accounting purposes, local newsbroadcast and marketing services andlocal sports. The local news and marketing servicesbroadcast segment consists primarily of our 191188 broadcast television stations in 8988 markets, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as JSAs and SSAs). These stations broadcast 629628 channels as of December 31, 2019.2020. For the purpose of this report, these 191188 stations and 629628 channels are referred to as “our” stations and channels. The local sports segment consists primarily of the 21our regional sports network brands, acquired during the year ended December 31, 2019, Marquee, and a 20%minority equity interest in the YES Network. The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of 45 professional sports teams.
Principles of Consolidation
The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries, including the operating results of the regional sports networksAcquired RSNs acquired on August 23, 2019, as discussed in Note 2. Acquisitions and Dispositions of Assets, and variable interest entities (VIEs)VIEs for which we are the primary beneficiary. Noncontrolling interests represent a minority owner’s proportionate share of the equity in certain of our consolidated entities. Noncontrolling interests which may be redeemed by the holder, and the redemption is outside of our control, are presented as redeemable noncontrolling interests. All intercompany transactions and account balances have been eliminated in consolidation.
We consolidate VIEs when we are the primary beneficiary. We are the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. See Note 14. Variable Interest Entities for more information on our VIEs.
Investments in entities over which we have significant influence but not control are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income or loss generated by equity method investees.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
The impact of the outbreak of the novel coronavirus (COVID-19) continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could further materially impact our estimates related to, but not limited to, revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.
F-12
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance related to accounting for leases, Accounting Standards Codification (ASC) Topic 842. We adopted the new guidance on January 1, 2019 using the modified retrospective approach and the optional transition method. Under this adoption method, comparative prior periods were not adjusted and continue to be reported in accordance with our historical accounting policy. We elected to apply the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carryforward our historical assessments of whether contracts are, or contain, leases and lease classification. The primary impact of adopting this standard was the recognition of $215 million of operating lease liabilities and $196 million of operating lease assets. The adoption did not have a material impact on how we account for finance leases. See Note 8. Leases for more information regarding our leasing arrangements.
In June 2016, the FASB issued amended guidance on the accounting for credit losses on financial instruments. Among other provisions, this guidance introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for losses. This guidance is effective for interim and annual periods beginning after December 15, 2019. We do not expectadopted this guidance toduring the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with the capitalized implementation costs of a hosting arrangement that is a service contract expensed over the term of the hosting arrangement. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We do not expectadopted this guidance toduring the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety, (asas currently required in GAAP)generally accepted accounting principles (GAAP). The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, applied retrospectively. We do not expectadopted this guidance toduring the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In March 2019, the FASB issued guidance which requires that an entity test a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group level, when the film or license agreement is predominantly monetized with other films and/or license agreements. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. We do not expectadopted this guidance toduring the first quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued guidance which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. We early adopted this guidance during the third quarter of 2020. The impact of the adoption did not have a material impact on our consolidated financial statements.
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The guidance was effective for all entities immediately upon issuance of the update and may be applied prospectively to applicable transactions existing as of or entered into from the date of adoption through December 31, 2022. We are currently evaluating the impact of this guidance, if elected, but do not expect a material impact on our consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
F-13
Accounts Receivable
We regularly review accounts receivable and determine an appropriate estimate for the allowance for doubtful accounts based upon the impact of economic conditions on the merchant’s ability to pay, past collection experience, and such other factors which, in management’s judgment, deserve current recognition. In turn, a provision is charged against earnings in order to maintain the appropriate allowance level.
A rollforward of the allowance for doubtful accounts for the years ended December 31, 2020, 2019, 2018, and 20172018 is as follows (in millions):
| 2020 | 2019 | 2018 | |||||||||||||||
| Balance at beginning of period | $ | 8 | $ | 2 | $ | 3 | |||||||||||
| Charged to expense | 2 | 9 | 5 | ||||||||||||||
| Net write-offs | (5) | (3) | (6) | ||||||||||||||
| Balance at end of period | $ | 5 | $ | 8 | $ | 2 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Balance at beginning of period | $ | 2 | $ | 3 | $ | 2 | |||||
| Charged to expense | 9 | 5 | 3 | ||||||||
| Net write-offs | (3 | ) | (6 | ) | (2 | ) | |||||
| Balance at end of period | $ | 8 | $ | 2 | $ | 3 | |||||
As of December 31, 2020, three customers accounted for 19%, 17%, and 15%, respectively, of our accounts receivable, net. As of December 31, 2019, three customers accounted for 24%, 15%, and 11%, respectively, of our accounts receivable, net. For purposes of this disclosure, a single customer may include multiple entities under common control.
Broadcast Television Programming
We have agreements with distributorsprogramming syndicators for the rights to television programming over contract periods, which generally run from one to seven years. Contract payments are made in installments over terms that are generally equal to or shorter than the contract period. Pursuant to accounting guidance for the broadcasting industry, an asset and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement, and the program is available for its first showing or telecast. The portion of program contracts which becomes payable within one year is reflected as a current liability in the accompanying consolidated balance sheets.
The rights to this programming are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or estimated net realizablefair value. With the exception of one to three-year contracts, amortization of program contract costs is computed using an accelerated method. Program contract costs are amortized on a straight-line basis except for one to three-year contracts.contracts greater than three years which are amortized utilizing an accelerated method. Program contract costs estimated by management to be amortized in the succeeding year are classified as current assets. Payments of program contract liabilities are typically made on a scheduled basis and are not affected by adjustments for amortization or estimated net realizable value.fair value adjustments.
Sports Programming Rights
We have multi-year program rights agreements that provide the Company with the right to produce and telecast professional live sports games within a specified territory in exchange for an annuala rights fee. A prepaid asset is recorded for rights acquired related to future games upon payment of the contracted fee. The assets recorded for the acquired rights are classified as current or non-current based on the period when the games are expected to be aired. Liabilities are recorded for any program rights obligations that have been incurred but not yet paid at period end. We amortize these programingprogramming rights as an expense over each season based upon contractually stated rates. Amortization is accelerated in the event that the stated contractual rates over the term of the rights agreement results in an expense recognition pattern that is inconsistent with the projected growth of revenue over the contractual term.
On March 12, 2020, the NBA, NHL, and MLB suspended or delayed the start of their seasons as a result of the COVID-19 pandemic. On that date, the Company suspended the recognition of amortization expense associated with prepaid program rights agreements with teams within these leagues. Amortization expense resumed for the NBA, NHL, and MLB over the modified seasons when the games commenced during the third quarter of 2020. The NBA and NHL also delayed the start of their 2020-2021 seasons until December 22, 2020 and January 13, 2021, respectively; sports rights expense associated with these seasons will be recognized over the modified term of these seasons.
F-14
Certain rights agreements with professional teams contain provisions which require the rebate of rights fees paid by the Company if a contractually minimum number of live games are not delivered. As a result of the COVID-19 pandemic, the number of games played in the 2019-2020 NBA and NHL seasons and the 2020 MLB season were less than the contractual minimum number of games to be delivered. The resulting reduction in sports rights expense was recognized over the term of the modified seasons. Rights fees paid in advance of expense recognition, inclusive of any contractual rebates due to the Company, are included within prepaid sports rights in our consolidated balance sheets.
Impairment of Goodwill, Intangibles,Indefinite-lived Intangible Assets, and Other Long-lived Assets
We evaluate our goodwill and indefinite lived intangible assets for impairment annually in the fourth quarter, or more frequently, if events or changes in circumstances indicate that an impairment may exist. Our goodwill has been allocated to, and is tested for impairment at, the reporting unit level. A reporting unit is an operating segment or a component of an operating segment to the extent that the component constitutes a business for which discrete financial information is available and regularly reviewed by management. Components of an operating segment with similar characteristics are aggregated when testing goodwill for impairment.
In the performance of our annual assessment of goodwill for impairment, we have the option to qualitatively assess whether it is more likely than not that a reporting unit has been impaired. As part of this qualitative assessment, we weigh the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over carrying value in prior quantitative assessments.
If we conclude that it is more likely than not that a reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we will determine the fair value of the reporting unit and compare it to the net book value of the reporting unit. If the fair value is less than the net book value, we will record an impairment to goodwill for the amount of the difference. We estimate the fair value of our reporting units utilizing a combination of a market-based approach, which considers earnings and cash flow multiples of comparable businesses and recent market transactions, as well as anthe income approach involving the performance of a discounted cash flow analysis. Our discounted cash flow model is based on our judgment of future market conditions based on our internal forecast of future performance, as well as discount rates that are based on a number of factors including market interest rates, a weighted average cost of capital analysis, and includes adjustments for market risk and company specific risk.
Our indefinite-lived intangible assets consist primarily of our broadcast licenses and a trade name. For our annual impairment test for indefinite-lived intangible assets, we have the option to perform a qualitative assessment to determine whether it is more likely than not that these assets are impaired. As part of this qualitative assessment we weigh the relative impact of factors that are specific to the indefinite-lived intangible assets as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over carrying value in prior quantitative assessments. When evaluating our broadcast licenses for impairment, the qualitative assessment is done at the market level because the broadcast licenses within the market are complementary and together enhance the single broadcast license of each station. If we conclude that it is more likely than not that one of our broadcast licenses is impaired, we will perform a quantitative assessment by comparing the aggregate fair value of the broadcast licenses in the market to the respective carrying values. We estimate the fair values of our broadcast licenses using the Greenfield method, which is an income approach. This method involves a discounted cash flow model that incorporates several variables, including, but not limited to, market revenues and long-term growth projections, estimated market share for the typical participant without a network affiliation, and estimated profit margins based on market size and station type. The model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. If the carrying amount of the broadcast licenses exceeds the fair value, then an impairment loss is recorded to the extent that the carrying value of the broadcast licenses exceeds the fair value.
We periodically evaluate our long-lived assets for impairment and continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We evaluate the recoverability of long-lived assets by measuringcomparing the carrying amount of the assets againstwithin an asset group to the estimated undiscounted future cash flows associated with them.the asset group. An asset group represents the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. At the time that such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are tested forasset group, an impairment loss is determined by comparing theirthe estimated fair value of the asset group to the carrying value. We typically estimate fair value using an income approach involving the performance of a discounted cash flow modelsanalysis.
F-15
Our RSNs included in the local sports segment have been negatively impacted by the recent loss of three Distributors. In addition, our existing Distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic and appraisals.related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenues and margins of our RSNs. As a result of these factors, we performed an impairment test of the RSN reporting units' goodwill and long-lived asset groups during the third quarter of 2020 which resulted in a non-cash impairment charge on goodwill of $2,615 million, customer relationships of $1,218 million and other definite-lived intangible assets of $431 million, included within impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. See Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets for more information.
When factors indicate that there may be a decrease in value of an equity method investment, we assess whether a loss in value has occurred. If that loss is deemed to be other than temporary, an impairment loss is recorded accordingly. For any equity method investments that indicate a potential impairment, we estimate the fair values of those investments using a combination of a market-based approach, which considers earnings and cash flow multiples of comparable businesses and recent market transactions, as well as an income approach involving the performance of a discounted cash flow models, unrelated third-party valuations, or industry comparables, based on the various facts available to us.analysis. See Note 6. Other Assets for more information.
We recorded an impairment charge of $60 million for the year ended December 31, 2018 to adjust one of our consolidated real estate development projects to fair value less costs to sell based upon a pending sale transaction. This impairment is reflected in gain on asset dispositions and other, net of impairment within our statements of operations. The fair value of the real estate investment was determined based on both observable and unobservable inputs, including the expected sales price as supported by a discounted cash flow model.
Accounts Payable and Accrued Liabilities
Accrued liabilities consisted of the following as of December 31, 20192020 and 20182019 (in millions):
| 2020 | 2019 | ||||||||||
| Compensation and employee benefits | $ | 131 | $ | 136 | |||||||
| Interest | 127 | 154 | |||||||||
| Programming related obligations | 183 | 191 | |||||||||
| Legal, litigation, and regulatory | 2 | 186 | |||||||||
| Accounts payable and other operating expenses | 90 | 115 | |||||||||
| Total accounts payable and accrued liabilities | $ | 533 | $ | 782 | |||||||
| 2019 | 2018 | ||||||
| Compensation and employee benefits | $ | 136 | $ | 100 | |||
| Interest | 154 | 42 | |||||
| Programming related obligations | 191 | 80 | |||||
| Legal, litigation, and regulatory | 186 | 9 | |||||
| Accounts payable and other operating expenses | 115 | 99 | |||||
| Total accounts payable and accrued liabilities | $ | 782 | $ | 330 | |||
We expense these activities when incurred.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2019 and 2018,2020, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, interest expense carryforwards under the Internal Revenue Code (IRC) Section 163(j) and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/basis differences, alternative tax strategies and projected future taxable income. As of December 31, 2019, a valuation allowance was provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, including the RSN impairment, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements.
Management periodically performs a comprehensive review of our tax positions, and we record a liability for unrecognized tax benefits whenif such tax positions doare more likely than not meetto be sustained upon examination based on their technical merits,
F-16
including the “more-likely-than-not” threshold.resolution of any appeals or litigation processes. Significant judgment is required in determining whether a tax position meets the “more-likely-than-not” threshold,positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided. See Note 12. Income Taxes, for further discussion of accrued unrecognized tax benefits.
Supplemental Information — Statements of Cash Flows
During the years ended December 31, 2020, 2019, 2018, and 2017,2018, we had the following cash transactions (in millions):
| 2019 | 2018 | 2017 | |||||||||
| Income taxes paid | $ | 32 | $ | 17 | $ | 128 | |||||
| Income tax refunds | $ | 2 | $ | — | $ | 2 | |||||
| Interest paid | $ | 283 | $ | 285 | $ | 204 | |||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Income taxes paid | $ | 11 | $ | 32 | $ | 17 | |||||||||||
| Income tax refunds | $ | 2 | $ | 2 | $ | 0 | |||||||||||
| Interest paid | $ | 634 | $ | 283 | $ | 285 | |||||||||||
Non-cash investing activities included property and equipment purchases of $6 million, $10 million, $11 million, and $10$11 million for the years ended December 31, 2020, 2019, and 2018, respectively, and 2017, respectively.the transfer of an asset for property of $7 million for the year ended December 31, 2020. During the year ended December 31, 2020 the Company entered into a commercial agreement with Bally's and received equity interests in the business with a value of $199 million. See Note 6. Other Assets and Note 18. Fair Value Measurements for further discussion.Non-cash transactions related to sports rights were $22 million for the year ended December 31, 2020.
Revenue Recognition
The following table presents our revenue disaggregated by type and segment for the years ended December 31, 2020, 2019, and 2018 (in millions):
| For the year ended December 31, 2019 | Local News and Marketing Services | Sports | Other | Total | |||||||||||
| Distribution revenue | $ | 1,341 | $ | 1,029 | $ | 130 | $ | 2,500 | |||||||
| Advertising revenue | 1,268 | 103 | 109 | 1,480 | |||||||||||
| Other media and non-media revenues | 46 | 7 | 207 | 260 | |||||||||||
| Total revenues | $ | 2,655 | $ | 1,139 | $ | 446 | $ | 4,240 | |||||||
| For the year ended December 31, 2018 | Local News and Marketing Services | Sports | Other | Total | |||||||||||
| Distribution revenue | $ | 1,186 | $ | — | $ | 113 | $ | 1,299 | |||||||
| Advertising revenue | 1,484 | — | 75 | 1,559 | |||||||||||
| Other media and non-media revenues | 45 | — | 152 | 197 | |||||||||||
| Total revenues | $ | 2,715 | $ | — | $ | 340 | $ | 3,055 | |||||||
| For the year ended December 31, 2017 | Local News and Marketing Services | Sports | Other | Total | |||||||||||
| Distribution revenue | $ | 1,033 | $ | — | $ | 107 | $ | 1,140 | |||||||
| Advertising revenue | 1,315 | — | 54 | 1,369 | |||||||||||
| Other media and non-media revenues | 46 | — | 81 | 127 | |||||||||||
| Total revenues | $ | 2,394 | $ | — | $ | 242 | $ | 2,636 | |||||||
| For the year ended December 31, 2020 | Broadcast | Local sports | Other | Eliminations | Total | ||||||||||||||||||||||||
| Distribution revenue | $ | 1,414 | $ | 2,472 | $ | 199 | $ | 0 | $ | 4,085 | |||||||||||||||||||
| Advertising revenue | 1,364 | 196 | 131 | (2) | 1,689 | ||||||||||||||||||||||||
| Other media, non-media, and intercompany revenue | 144 | 18 | 121 | (114) | 169 | ||||||||||||||||||||||||
| Total revenues | $ | 2,922 | $ | 2,686 | $ | 451 | $ | (116) | $ | 5,943 | |||||||||||||||||||
| For the year ended December 31, 2019 | Broadcast | Local sports | Other | Eliminations | Total | ||||||||||||||||||||||||
| Distribution revenue | $ | 1,341 | $ | 1,029 | $ | 130 | $ | 0 | $ | 2,500 | |||||||||||||||||||
| Advertising revenue | 1,268 | 103 | 110 | (1) | 1,480 | ||||||||||||||||||||||||
| Other media, non-media, and intercompany revenue | 81 | 7 | 230 | (58) | 260 | ||||||||||||||||||||||||
| Total revenues | $ | 2,690 | $ | 1,139 | $ | 470 | $ | (59) | $ | 4,240 | |||||||||||||||||||
| For the year ended December 31, 2018 | Broadcast | Local sports | Other | Eliminations | Total | ||||||||||||||||||||||||
| Distribution revenue | $ | 1,186 | $ | 0 | $ | 113 | $ | 0 | $ | 1,299 | |||||||||||||||||||
| Advertising revenue | 1,484 | 0 | 75 | 0 | 1,559 | ||||||||||||||||||||||||
| Other media, non-media, and intercompany revenue | 45 | 0 | 162 | (10) | 197 | ||||||||||||||||||||||||
| Total revenues | $ | 2,715 | $ | 0 | $ | 350 | $ | (10) | $ | 3,055 | |||||||||||||||||||
F-17
Distribution Revenue. We generate distribution revenue through fees received from MVPDs and vMVPDsDistributors for the right to distribute our stations, RSNs, and other properties. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal or network programming is provided to our customers (as usage occurs) which corresponds with the satisfaction of our performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. Our customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.
Certain of our distribution arrangements contain provisions that require the Company to deliver a minimum number of live professional sports games or tournaments during a defined period which usually corresponds with a calendar year. If the minimum threshold is not met, we may be obligated to refund a portion of the distribution fees received if shortfalls are not cured within a specified period of time. Our ability to meet these requirements is primarily driven by the delivery of games by the professional sports leagues. The Company has not historically paid any material rebates under these contractual provisions as it is unusual for there to be an event which is significant enough to preclude the Company from meeting or exceeding these thresholds. The COVID-19 pandemic has resulted in significant disruptions to the normal operations of the professional sports leagues resulting in delays and uncertainty with respect to regularly scheduled games. Decisions made by the leagues during the second quarter of 2020 regarding the timing and format of the revised 2020 seasons and decisions made by the NHL and NBA during the fourth quarter of 2020 regarding the timing and format of their revised 2020-2021 seasons have resulted, in some cases, in our inability to meet these minimum requirements and the need to reduce revenue based upon estimated rebates due to our distribution customers. These estimated rebates were recognized over the measurement period of the rebate which is the year ended December 31, 2020. For the year ended December 31, 2020, we reduced revenue by, and accrued corresponding rebates to Distributors of $420 million, which is expected to be paid over 2021 and 2022. See Subsequent Events within Note 1. Nature of Operations and Summary of Significant Accounting Policies.
Advertising Revenue. We generate advertising revenue primarily from the sale of advertising spots/impressions within our broadcast television, RSN, and digital platforms. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where we provide audience ratings guarantees, to the extent that there is a ratings shortfall, we will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of our advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is due is not significant. In certain circumstances, we require customers to pay in advance; payments received in advance of satisfying our performance obligations are reflected as deferred revenue.
Practical Expedients and Exemptions. We expense sales commissions when incurred because the period of benefit for these costs is one year or less. These costs are recorded within media selling, general and administrative expenses. In accordance with ASC 606, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) distribution arrangements which are accounted for as a sales/usage based royalty.
Arrangements with Multiple Performance Obligations.Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price, which is generally based on the prices charged to customers.
Deferred Revenues. We record deferred revenue when cash payments are received or due in advance of our performance, including amounts which are refundable. We classify deferred revenue as either current in other current liabilities or long-term in other long-term liabilities within our consolidated balance sheets based on the timing of when we expect to satisfy our performance obligations. Deferred revenue was $233 million, $54 million, $83 million, and $50$83 million as of December 31, 2020, 2019, and 2018, and 2017, respectively.respectively, of which $184 million as of December 31, 2020 was reflected in other long-term liabilities in our consolidated balance sheets. Deferred revenue recognized during the year ended December 31, 20192020 and 20182019 that was included in the deferred revenue balance as of December 31, 2019 and 2018 and 2017 was $76$49 million and $39$76 million, respectively.
On November 18th, 2020, we entered into a commercial agreement with Bally’s Corporation where we will provide certain branding integrations in our RSNs, broadcast networks and other properties. These branding integrations include naming rights associated with the majority of our RSNs. The initial term of this arrangement is 10 years and we expect to begin performing under this arrangement in 2021. The Company received non-cash consideration initially valued at $199 million which is reflected as a contract liability and will be recognized as revenue as the performance obligations under the arrangement are satisfied. No revenue was recognized under this arrangement during the year ended December 31, 2020. See Note 6. Other Assets for more information.
F-18
For the year ended December 31, 2020, three customers accounted for 18%, 17%, and 12%, respectively, of our total revenues. For the year ended December 31, 2019 three customers accounted for 16%, 13%, and 10%, respectively, of our total revenues. For purposes of this disclosure, a single customer may include multiple entities under common control.
Advertising Expenses
Promotional advertising expenses are recorded in the period when incurred and are included in media production and other non-media expenses. Total advertising expenses, net of advertising co-op credits, were $23 million, $25 million, $19 million, and $21$19 million for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
Financial Instruments
Financial instruments, as of December 31, 20192020 and 2018,2019, consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued liabilities, and notes payable. The carrying amounts approximate fair value for each of these financial instruments, except for the notes payable. See Note 18. Fair Value Measurements for additional information regarding the fair value of notes payable.
Post-retirement Benefits
We maintain a supplemental executive retirement plan (SERP) which we inherited upon the acquisition of certain stations. As of December 31, 2019,2020, the estimated projected benefit obligation was $20$21 million, of which $2 million is included in accrued expenses and $18$19 million is included in other long-term liabilities onin our consolidated balance sheets. At December 31, 2019,2020, the projected benefit obligation was measured using a 3.04%2.10% discount rate compared to a discount rate of 4.11%3.04% for the year ended December 31, 2018.2019. For botheach of the years ended December 31, 20192020 and 2018,2019, we made $2 million in benefit payments and recognized $2 million of actuarial losses and $1 million of actuarial gains, respectively, through other comprehensive income. For botheach of the years ended December 31, 20192020 and 2018,2019, we recognized $1 million of periodic pension expense, reported in other income, net onin our consolidated statements of operations.
We also maintain other post-retirement plans provided to certain employees. The plans are voluntary programs that primarily allow participants to defer eligible compensation and they may also qualify to receive a discretionary match on their deferral. As of December 31, 2019,2020, the assets and liabilities included onin our consolidated balance sheets related to deferred compensation plans were $36$42 million and $33$36 million, respectively.
Reclassifications
Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s presentation.
Subsequent Events
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it has already impacted, and will impact, its advertisers, Distributors, and agreements with professional sports leagues. While the NBA, NHL, and MLB were able to complete modified season schedules during 2020, there can be no assurance that the MLB, NBA, or NHL will complete full or abbreviated seasons in the future. The NBA and NHL delayed the start of their 2020-2021 seasons until December 22, 2020 and January 13, 2021, respectively, however both under reduced game counts. The MLB has announced that they expect their 2021 season to begin on time in April 2021 and contain a full game schedule. The NBA and NHL have not announced their 2021-2022 season schedules yet. Any reduction in the number of games played by the leagues may have an adverse impact on our operations and cash flows. The Company is currently unable to predict the full extent that the COVID-19 pandemic will have on its financial condition, results of operations, and cash flows in future periods due to numerous uncertainties.
F-19
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS:
During the years ended December 31, 20192020 and 2017,2019, we acquired certain businesses for an aggregate purchase price, net of cash acquired, of $9.3$9 billion, including working capital adjustments and other adjustments.
The following summarizes the material acquisition activity during the years ended December 31, 20192020 and 2017:2019:
2020 Acquisitions
During the year ended December 31, 2020, we completed the acquisition of the license asset and certain non-license assets of a radio station for $7 million and the license assets and certain non-license assets of 2 television stations for $9 million. The acquisitions were completed using cash on hand.
2019 Acquisitions
RSN Acquisition. In May 2019, DSG entered into a definitive agreement to acquire controlling interests in 21 Regional Sports Network brands and Fox College Sports (collectively, the Acquired RSNs), from Disney for $9.6 billion plus certain adjustments. On August 23, 2019, we completed the acquisition (the RSN Acquisition) for an aggregate preliminary purchase price, including cash acquired, and subject to an adjustment based upon finalization of working capital, net debt, and other adjustments, of $9,817 million, accounted for as a business combination under the acquisition method of accounting. The acquisitionRSN Acquisition provides an expansion to our premium sports programming including the exclusive regional distribution rights to 42 professional teams consisting of 14 Major League BaseballMLB teams, 16 National Basketball AssociationNBA teams, and 12 National Hockey LeagueNHL teams. The Acquired RSNs are reported within Sports, a reportable segment withinour local sports segment. See Note 17. Segment Data.
The transaction was funded through a combination of debt financing raised by DSG and STG, as described in Note 7. Notes Payable and Commercial Bank Financing, and redeemable subsidiary preferred equity, as described in Note 10. Redeemable Noncontrolling Interests.
The following table summarizes our current allocation of the fair value of acquired assets, assumed liabilities, and noncontrolling interests of the Acquired RSNs (in millions):
| Initial Allocation (a) | Adjustments | Updated Allocation | |||||||||
| Cash and cash equivalents | $ | 823 | $ | 1 | $ | 824 | |||||
| Accounts receivable, net | 604 | 2 | 606 | ||||||||
| Prepaid expenses and other current assets | 176 | (1 | ) | 175 | |||||||
| Property and equipment, net | 25 | — | 25 | ||||||||
| Definite-lived intangible assets, net | 7,676 | (951 | ) | 6,725 | |||||||
| Other assets | 52 | — | 52 | ||||||||
| Accounts payable and accrued liabilities | (261 | ) | 80 | (181 | ) | ||||||
| Other long-term liabilities | (579 | ) | 183 | (396 | ) | ||||||
| Goodwill | 1,924 | 691 | 2,615 | ||||||||
| Fair value of identifiable net assets acquired | $ | 10,440 | $ | 5 | $ | 10,445 | |||||
| Redeemable noncontrolling interests | (380 | ) | — | (380 | ) | ||||||
| Noncontrolling interests | (231 | ) | (17 | ) | (248 | ) | |||||
| Gross purchase price | $ | 9,829 | $ | (12 | ) | $ | 9,817 | ||||
| Purchase price, net of cash acquired | $ | 9,006 | $ | (13 | ) | $ | 8,993 | ||||
| 824 | |||||
| Accounts receivable, net | 606 | ||||
| Prepaid expenses and other current assets | 175 | ||||
| Property and equipment, net | 25 | ||||
| Customer relationships, net | 5,439 | ||||
| Other definite-lived intangible assets, net | 1,286 | ||||
| Other assets | 52 | ||||
| Accounts payable and accrued liabilities | (181) | ||||
| Other long-term liabilities | (396) | ||||
| Goodwill | 2,615 | ||||
| Fair value of identifiable net assets acquired | $ | 10,445 | |||
| Redeemable noncontrolling interests | (380) | ||||
| Noncontrolling interests | (248) | ||||
| Gross purchase price | $ | 9,817 | |||
| Purchase price, net of cash acquired | $ | 8,993 | |||
The preliminaryfinal purchase price allocation presented above is based upon management's estimates of the fair value of the acquired assets, assumed liabilities, and noncontrolling interest at the time of acquisition using valuation techniques including income and cost approaches. The fair value estimates are based on, but not limited to, projected revenue, projected margins, and discount rates used to present value future cash flows. The adjustments made to the initial purchase price areallocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed. The adjustments made to the initial allocationassumed and did not result in material changes to the amortization expense recorded in previous quarters. The allocation is preliminary pending a final determination
F-20
The definite-lived intangible assets of $6,725 million includes $5,439 millionare primarily comprised of customer relationships, primarily relating to MVPDs, $1,271which represent existing advertiser relationships and contractual relationships with Distributors of $5,439 million, the fair value of favorable contracts with sports teams of $1,271 million, and tradenames/trademarks of $15 million of tradenames/trademarks.million. The intangible assets will be amortized on a straight-line basis over a weighted average useful life of 2 years for tradenames/trademarks, 13 years for customer relationships, and 12 years for contracts with sports teams and 13 years for customer relationships.on a straight-line basis. The fair value of the sports team contracts will be amortized over the respective contract term. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as expected future synergies. We estimate that $2,340 million$2.4 billion of goodwill, which represents our interest in the Acquired RSNs, will be deductible for tax purposes.
| Accounts receivable | $ | 15 | |
| Prepaid expenses and other current assets | 1 | ||
| Program contract costs | 1 | ||
| Property and equipment | 27 | ||
| Definite-lived intangible assets | 162 | ||
| Other assets | 3 | ||
| Accounts payable and accrued liabilities | (9 | ) | |
| Program contracts payable | (1 | ) | |
| Deferred tax liability | (66 | ) | |
| Other long term liabilities | (12 | ) | |
| Fair value of identifiable, net assets acquired | 121 | ||
| Goodwill | 121 | ||
| Total purchase price, net of cash acquired | $ | 242 | |
Financial Results of Acquisitions
The following tables summarize the results of the net revenues and operating (loss) income (loss) included in the financial statements of the Company beginning on the acquisition date of each acquisition as listed below (in millions):
| 2020 | 2019 | ||||||||||||||||
| Revenues: | |||||||||||||||||
| RSN | $ | 2,562 | $ | 1,139 | |||||||||||||
| Other acquisitions in 2020 | 3 | 0 | |||||||||||||||
| Total net revenues | $ | 2,565 | $ | 1,139 | |||||||||||||
| Revenues | 2019 | 2018 | 2017 | |||||||||
| RSN | $ | 1,139 | $ | — | $ | — | ||||||
| Bonten | 96 | 101 | 31 | |||||||||
| Other 2017 acquisitions | 17 | 18 | 11 | |||||||||
| Total net revenues | $ | 1,252 | $ | 119 | $ | 42 | ||||||
| Operating Income (Loss) | 2019 | 2018 | 2017 | |||||||||
| RSN (a) | $ | 70 | $ | — | $ | — | ||||||
| Bonten | 19 | 21 | 7 | |||||||||
| Other 2017 acquisitions | (4 | ) | (2 | ) | — | |||||||
| Total operating income | $ | 85 | $ | 19 | $ | 7 | ||||||
| 2020 | 2019 | ||||||||||||||||
| Operating (Loss) Income: | |||||||||||||||||
| RSN (a) | $ | (3,585) | $ | 70 | |||||||||||||
| Other acquisitions in 2020 | (2) | 0 | |||||||||||||||
| Total operating (loss) income | $ | (3,587) | $ | 70 | |||||||||||||
(a)Operating (loss) income for the years ended December 31, 2020 and 2019 includes transaction costs discussed below and excludes $98 million and $35 million selling, general, and administrative expenses, respectively, for services provided by broadcast to local sports, which are eliminated in consolidation.
In connection with the 20192020 and 20172019 acquisitions, for the years ended December 31, 2019,2020, and 2017,2019, we recognized $96$5 million and $1$96 million, respectively, of transaction costs which we expensed as incurred and classified as corporate general and administrative expenses onin our consolidated statements of operations.
F-21
Pro Forma Information
The following table sets forth unaudited pro forma results of operations, assuming that the RSN Acquisition, along with transactions necessary to finance the acquisition, occurred at the beginning of the year preceding the year of acquisition (in millions, except per data share):
| Unaudited | |||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Total revenues | $ | 6,689 | $ | 6,874 | |||||||||||||
| Net income | $ | 328 | $ | 732 | |||||||||||||
| Net income attributable to Sinclair Broadcast Group | $ | 130 | $ | 524 | |||||||||||||
| Basic earnings per share attributable to Sinclair Broadcast Group | $ | 1.41 | $ | 5.20 | |||||||||||||
| Diluted earnings per share attributable to Sinclair Broadcast Group | $ | 1.39 | $ | 5.16 | |||||||||||||
This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of what our results would have been had we operated the Acquired RSNs for the period presented because the pro forma results do not reflect expected synergies. The pro forma adjustments reflect depreciation expense and amortization of intangible assets related to the fair value adjustments of the assets acquired and any adjustments to interest expense to reflect the debt financing of the transactions. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquiree due to the fair value adjustments recorded for long-lived tangible and intangible assets in purchase accounting.
Termination of Material Definitive Agreement.
In August 2018, we received a termination notice from Tribune Media Company (Tribune), terminating the Agreement and Plan of Merger entered into on May 8, 2017, between the Company and Tribune (Merger Agreement), which provided for the acquisition by the Company of the outstanding shares of Tribune Class A common stock and Tribune Class B common stock (Merger). On January 27, 2020, the Company and Nexstar, which acquired Tribune in September 2019, agreed to settle the Tribune Complaint. See Litigation under Note 13. Commitments and Contingencies for further discussion on our settlement with Nexstar.
For the year ended December 31, 2018 we incurred $100 million of costs in connection with this acquisition, of which $21 million primarily related to legal and other professional services, that we expensed as incurred and classified as corporate general and administrative expenses onin our consolidated statements of operations; and $79 million of ticking fees and the write-off of previously capitalized debt issuance costs associated with the Tribune acquisition which was subsequently terminated, which are recorded as interest expense on our consolidated statements of operations. For the year ended December 31, 2017, we incurred $21 million of costs in connection with this acquisition, primarily related to legal and other professional services, that we expensed as incurred and classified as corporate general and administrative expenses on our consolidated statements of operations.
Dispositions
Broadcast Sales. In January 2020, we agreed to sell the license and non-license assets of WDKY-TV in Lexington, KY and certain non-license assets associated with KGBT-TV in Harlingen, Texas for an aggregate purchase price of $36 million. The KGBT-TV transaction closed during the first quarter of 2020 and we recorded a gain of $8 million which is included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations. The WDKY-TV transaction closed during the third quarter of 2020 and we recorded a gain of $21 million which is included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations.
Broadcast Incentive Auction. Congress authorized the FCC to conduct so-called "incentive auctions" to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of itstheir rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process.
For the yearsyear ended December 31, 2018, and 2017, we recognized a gain of $83 million, and $225 million, respectively, which was included within gain on asset dispositions and other, net of impairment onin our consolidated statements of operations. These gains relateoperations and was related to the auction proceeds associated with three marketsone market where the underlying spectrum was vacated during the first quarter of 2018 and fourth quarter of 2017.2018. The results of the auction are not expected to produce any material change in operations of the Company as there is no change in on air operations.
F-22
In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We have received notification from the FCC that 100 of our stations have been assigned to new channels. Legislation has provided the FCC with a $2.75$3 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that the reimbursements from the fund will cover the majority of our expenses related to the repack. We recorded gains related to reimbursements for the spectrum repack costs incurred of $90 million, $62 million, and $6 million for the years ended December 31, 2020, 2019, and 2018, respectively, which are recorded within gain on asset dispositions and other, net of impairment onin our consolidated statements of operations. DuringFor the years ended December 31, 2020, 2019, and 2018, capital expenditures related to the spectrum repack were $61 million, $66 million, and $31 million, respectively.
3. STOCK-BASED COMPENSATION PLANS:
In June 1996, our Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term Incentive Plan (LTIP). The purpose of the LTIP is to reward key individuals for making major contributions to our success and the success of our subsidiaries and to attract and retain the services of qualified and capable employees. Under the LTIP, we have issued restricted stock awards (RSAs), stock grants to our non-employee directors, stock-settled appreciation rights (SARs), and stock options. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under this plan. As of December 31, 2019, 4,968,5112020, 2,309,855 shares were available for future grants. Additionally, we have the following arrangements that involve stock-based compensation: employer matching contributions (the Match) for participants in our 401(k) plan, an employee stock purchase plan (ESPP), and subsidiary stock awards. Stock-based compensation expense has no effect on our consolidated cash flows. For the years ended December 31, 2020, 2019, 2018, and 2017,2018, we recorded stock-based compensation of $51 million, $33 million, $26 million, and $19$26 million, respectively. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards:
RSAs. RSAs issued in 2020, 2019, 2018, and 20172018 have certain restrictions that lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. Unvested RSAs are entitled to dividends, and therefore, are included in weighted shares outstanding, resulting in a dilutive effect on basic and diluted earnings per share. The fair value assumes the closing value of the stock on the measurement date.
The following is a summary of changes in unvested restricted stock:
| RSAs | Weighted-Average Price | |||||
| Unvested shares at December 31, 2018 | 280,315 | $ | 34.73 | |||
| 2019 Activity: | ||||||
| Granted | 287,550 | 33.54 | ||||
| Vested | (164,423 | ) | 34.59 | |||
| Forfeited | (2,000 | ) | 34.48 | |||
| Unvested shares at December 31, 2019 | 401,442 | $ | 33.93 | |||
| RSAs | Weighted-Average Price | ||||||||||
| Unvested shares at December 31, 2019 | 136,543 | $ | 32.80 | ||||||||
| 2020 Activity: | |||||||||||
| Granted | 831,228 | 28.21 | |||||||||
| Vested | (520,655) | 28.81 | |||||||||
| Forfeited | (5,407) | 28.89 | |||||||||
| Unvested shares at December 31, 2020 | 441,709 | $ | 28.86 | ||||||||
For the years ended December 31, 2020, 2019, 2018, and 2017,2018, we recorded compensation expense of $23 million, $9 million, $5 million, and $3$5 million, respectively. The majority of the unrecognized compensation expense of $8$18 million as of December 31, 20192020 will be recognized in 2020.2021.
Stock Grants to Non-Employee Directors. In addition to directors fees paid in cash to our non-employee directors, on the date of each annual meetings of shareholders, each non-employee director receives a grant of unrestricted shares of Class A Common Stock. We issued 63,600 shares in 2020, 24,000 shares in 2019, and 20,000 shares in 2018 and 2017.2018. We recorded expense of $1 million for each of the years ended December 31, 2020, 2019, 2018, and 2017,2018, which was based on the average share price of the stock on the date of grant. Additionally, these shares are included in the total shares outstanding, which results in a dilutive effect on our basic and diluted earnings per share.
Stock Appreciation Rights (SARs). These awards entitle holders to the appreciation in our Class A Common Stock over the base value of each SAR over the term of the award. The SARs have a 10-year term with vesting periods ranging from zero to four years. The base value of each SAR is equal to the closing price of our Class A Common Stock on the date of grant. For the years ended December 31, 2020, 2019, 2018, and 2017,2018, we recorded compensation expense of $6 million, $4 million, $3 million, and $7$3 million, respectively.
F-23
The following is a summary of the 20192020 activity:
| SARs | Weighted-Average Price | ||||||||||
| Outstanding SARs at December 31, 2019 | 2,080,032 | $ | 20.14 | ||||||||
| 2020 Activity: | |||||||||||
| Granted | 1,763,828 | 28.83 | |||||||||
| Forfeited | (638,298) | (a) | 28.20 | ||||||||
| Outstanding SARs at December 31, 2020 | 3,205,562 | $ | 23.32 | ||||||||
| SARs | Weighted-Average Price | |||||
| Outstanding SARs at December 31, 2018 | 3,060,000 | $ | 24.29 | |||
| 2019 Activity: | ||||||
| Granted | 500,000 | 32.81 | ||||
| Exercised | (1,479,968 | ) | 33.00 | |||
| Outstanding SARs at December 31, 2019 | 2,080,032 | $ | 20.14 | |||
(a)In connection with the settlement of certain litigation as discussed in Note 13. Commitments and Contingencies, David Smith agreed to forego, cancel, and return his February 2020 grant of a SAR award of 638,298 shares of Class A Common Stock..
The aggregate intrinsic value of the 2,080,0323,205,562 SARs outstanding as of December 31, 20192020 was $27$28 million and the outstanding SARs have a weighted average remaining contractual life of 45 years as of December 31, 2019. 2020.
Valuation of SARS. Our SARs were valued using the Black-Scholes pricing model utilizing the following assumptions:
| 2019 | 2018 | 2017 | ||||||
| Risk-free interest rate | 2.5 | % | 2.6 | % | 2.1 | % | ||
| Expected years to exercise | 5 years | 5 years | 5 years | |||||
| Expected volatility | 33.8 | % | 36.2 | % | 37.0 | % | ||
| Annual dividend yield | 2.5 | % | 2.1% - 2.2% | 2.0 | % | |||
| 2020 | 2019 | 2018 | |||||||||||||||
| Risk-free interest rate | 1.2% - 1.6% | 2.5 | % | 2.6 | % | ||||||||||||
| Expected years to exercise | 5 years | 5 years | 5 years | ||||||||||||||
| Expected volatility | 35.0 | % | 33.8 | % | 36.2 | % | |||||||||||
| Annual dividend yield | 2.4% - 2.9% | 2.5 | % | 2.1% - 2.2% | |||||||||||||
The risk-free interest rate is based on the U.S. Treasury yield curve, in effect at the time of grant, for U.S. Treasury STRIPS that approximate the expected life of the award. The expected volatility is based on our historical stock prices over a period equal to the expected life of the award. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date.
Options. As of December 31, 2019,2020, there were options outstanding to purchase 375,000 shares of Class A Common Stock. These options are fully vested and have a weighted average exercise price of $31.08, a weighted average remaining contractual term of 65 years, and an aggregate intrinsic value of $1 million. There was no grant, exercise, or forfeiture activity during the year ended December 31, 2019.2020. There was 0 expense recognized during the years ended December 31, 2020, 2019, 2018, and 2017.2018.
During 2019 2018, and 2017,2018, outstanding SARs and options increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.
401(k) Match. The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the 401(k) Plan) is available as a benefit for our eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount with a match calculation (The Match). The Match and any additional discretionary contributions may be made using our Class A Common Stock, if the Board of Directors so chooses. Typically, we make the Match using our Class A Common Stock.
The value of the Match is based on the level of elective deferrals into the 401(k) Plan. The number of our Class A Common shares granted under the Match is determined based upon the closing price on or about March 1st of each year for the previous calendar year’s Match. For the years ended December 31, 2020, 2019, 2018, and 2017,2018, we recorded $19 million, $17 million, $16 million, and $7$16 million, respectively, of stock-based compensation expense related to the Match. A total of 7,000,000 shares of Class A Common Stock are reserved for matches under the plan. As of December 31, 2019,2020, 3,575,958 shares were available for future grants.
ESPP. The ESPP allows eligible employees to purchase Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP was $3 million of the year ended December 31, 2020, and $1 million for each of the years ended December 31, 2019 2018, and 2017 was $1 million.2018. A total of 3,200,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2019, 520,0522020, 175,890 shares were available for future purchases.
4. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is generally computed under the straight-line method over the following estimated useful lives:
| Buildings and improvements | 10 - 30 years | |||||||
| Operating equipment | 5 - 10 years | |||||||
| Office furniture and equipment | 5 - 10 years | |||||||
| Leasehold improvements | Lesser of 10 - 30 years or lease term | |||||||
| Automotive equipment | 3 - 5 years | |||||||
| Property and equipment under finance leases | Lease term | |||||||
Acquired property and equipment as discussed in Note 2. Acquisitions and Dispositions of Assets, is depreciated on a straight-line basis over the respective estimated remaining useful lives.
Property and equipment consisted of the following as of December 31, 20192020 and 20182019 (in millions):
| 2020 | 2019 | ||||||||||
| Land and improvements | $ | 74 | $ | 75 | |||||||
| Real estate held for development and sale | 25 | 26 | |||||||||
| Buildings and improvements | 307 | 293 | |||||||||
| Operating equipment | 939 | 781 | |||||||||
| Office furniture and equipment | 123 | 114 | |||||||||
| Leasehold improvements | 59 | 36 | |||||||||
| Automotive equipment | 66 | 64 | |||||||||
| Finance lease assets | 59 | 53 | |||||||||
| Construction in progress | 36 | 116 | |||||||||
| 1,688 | 1,558 | ||||||||||
| Less: accumulated depreciation | (865) | (793) | |||||||||
| $ | 823 | $ | 765 | ||||||||
| 2019 | 2018 | ||||||
| Land and improvements | $ | 75 | $ | 77 | |||
| Real estate held for development and sale | 26 | 35 | |||||
| Buildings and improvements | 293 | 279 | |||||
| Operating equipment | 781 | 744 | |||||
| Office furniture and equipment | 114 | 107 | |||||
| Leasehold improvements | 36 | 24 | |||||
| Automotive equipment | 64 | 63 | |||||
| Finance lease assets | 53 | 53 | |||||
| Construction in progress | 116 | 71 | |||||
| 1,558 | 1,453 | ||||||
| Less: accumulated depreciation | (793 | ) | (770 | ) | |||
| $ | 765 | $ | 683 | ||||
F-25
5. GOODWILL, INDEFINITE-LIVED INTANGIBLE ASSETS, AND OTHER INTANGIBLE ASSETS:
Goodwill, which arises from the purchase price exceeding the assigned value of the net assets of an acquired business, represents the value attributable to unidentifiable intangible elements being acquired. Goodwill totaled $4,716$2,092 million and $2,124$4,716 million at December 31, 20192020 and 2018,2019, respectively. The change in the carrying amount of goodwill was as follows (in millions):
| Local News and Marketing Services | Sports | Other | Consolidated | ||||||||||||
| Balance at December 31, 2017 | $ | 2,053 | $ | — | $ | 71 | $ | 2,124 | |||||||
| Measurement period adjustments related to prior year acquisitions | 2 | — | (2 | ) | — | ||||||||||
| Balance at December 31, 2018 (a) | $ | 2,055 | — | $ | 69 | $ | 2,124 | ||||||||
| Acquisition (b) | — | 2,615 | 6 | 2,621 | |||||||||||
| Assets held for sale | (29 | ) | — | — | (29 | ) | |||||||||
| Balance at December 31, 2019 (a) | $ | 2,026 | $ | 2,615 | $ | 75 | $ | 4,716 | |||||||
| Broadcast | Local sports | Other | Consolidated | ||||||||||||||||||||
| Balance at December 31, 2018 | $ | 2,055 | 0 | $ | 69 | $ | 2,124 | ||||||||||||||||
| Acquisition (a) | 0 | 2,615 | 6 | 2,621 | |||||||||||||||||||
| Assets held for sale (b) | (29) | 0 | 0 | (29) | |||||||||||||||||||
| Balance at December 31, 2019 | $ | 2,026 | $ | 2,615 | $ | 75 | $ | 4,716 | |||||||||||||||
| Assets held for sale | (9) | 0 | 0 | (9) | |||||||||||||||||||
| Impairment | 0 | (2,615) | 0 | (2,615) | |||||||||||||||||||
| Balance at December 31, 2020 | $ | 2,017 | $ | 0 | $ | 75 | $ | 2,092 | |||||||||||||||
(a)See Note 2. Acquisitions and Dispositions of Assets for discussion of acquisitions made during 2019. (b)Assets held for sale as of December 31, 2019 were sold during the year ended December 31, 2020. See Note 2. Acquisitions and Dispositions of Assets for discussion of dispositions during 2020. During the year ended December 31, 2020, we recorded a $2,615 million goodwill impairment charge related to our regional sports networks included within the local sports segment based upon an interim impairment test performed during the three-month period ended September 30, 2020. See Impairment of Goodwill and Definite-Lived Intangible Assets below for additional discussion surrounding this impairment charge. Our accumulated goodwill impairment as of December 31, 2020 and 2019 was $3,029 million and $414 million, respectively. |
For our annual goodwill impairment tests related to our broadcast and other reporting units in 2020, 2019, 2018, and 2017,2018, we concluded that it was more-likely-than-not that goodwill was not impaired for the reporting units in which we performed a qualitative assessment. The qualitative factors reviewed during our annual assessments indicated stable or improving margins and favorable or stable forecasted economic conditions including stable discount rates and comparable or improving business multiples. For one reporting unit in 2019, we elected to perform a quantitative assessment and concluded that its fair value significantly exceeded the carrying value. Additionally, the results of prior quantitative assessments supported significant excess fair value over carrying value of our reporting units. We did 0t have any indicators of impairment in any interim period in 2019 2018, or 2017,2018, and therefore did not perform interim impairment tests for goodwill during those periods. Our accumulated goodwill impairment as of December 31, 2019 and 2018 was $0.4 million.
As of December 31, 20192020 and 2018,2019, the carrying amount of our indefinite-lived intangible assets was as follows (in millions):
| Local News and Marketing Services | Other | Consolidated | |||||||||
| Balance at December 31, 2017 (b) | $ | 132 | $ | 27 | $ | 159 | |||||
| Disposition of assets (a) | (1 | ) | — | (1 | ) | ||||||
| Balance at December 31, 2018 (b) (c) | $ | 131 | $ | 27 | $ | 158 | |||||
| Balance at December 31, 2019 (b) (c) | $ | 131 | $ | 27 | $ | 158 | |||||
| Broadcast | Other | Consolidated | |||||||||||||||
| Balance at December 31, 2018 (a) | $ | 131 | $ | 27 | $ | 158 | |||||||||||
| Balance at December 31, 2019 (a) (b) | $ | 131 | $ | 27 | $ | 158 | |||||||||||
| Acquisition / Disposition (c) | 13 | 0 | 13 | ||||||||||||||
| Balance at December 31, 2020 (a) (b) | $ | 144 | $ | 27 | $ | 171 | |||||||||||
(a)Our indefinite-lived intangible assets in our broadcast segment relate to broadcast licenses and our indefinite-lived intangible assets in other relate to trade names. (b)Approximately $14 million of indefinite-lived intangible assets relate to consolidated VIEs as of December 31, 2020 and 2019. (c)See Note 2. Acquisitions and Dispositions of Assets for discussion of acquisitions made during 2020. |
We did not have any indicators of impairment for our indefinite-lived intangible assets in any interim period in 20192020 or 2018,2019, and therefore did not perform interim impairment tests during those periods. We performed our annual impairment tests for indefinite-lived intangibles in 20192020 and 20182019 and as a result of our qualitative assessments, we recorded 0 impairment.
F-26
The following table shows the gross carrying amount and accumulated amortization of definite-lived intangibles (in millions):
| As of December 31, 2019 | As of December 31, 2020 | |||||||||||||||||||||||||||
| Gross Carrying Value | Accumulated Amortization | Net | Gross Carrying Value | Accumulated Amortization | Net | |||||||||||||||||||||||
| Amortized intangible assets: | Amortized intangible assets: | |||||||||||||||||||||||||||
| Customer relationships (a) | $ | 6,548 | $ | (569 | ) | $ | 5,979 | Customer relationships (a) | $ | 5,329 | $ | (1,043) | $ | 4,286 | ||||||||||||||
| Network affiliation (a) | 1,441 | (689 | ) | 752 | ||||||||||||||||||||||||
| Network affiliation | Network affiliation | 1,438 | (775) | 663 | ||||||||||||||||||||||||
| Favorable sports contracts (a) | 1,271 | (43 | ) | 1,228 | Favorable sports contracts (a) | 840 | (174) | 666 | ||||||||||||||||||||
| Other (a) | 46 | (28 | ) | 18 | Other (a) | 35 | (26) | 9 | ||||||||||||||||||||
| Total other definite-lived intangible assets, net (b) | $ | 2,758 | $ | (760 | ) | $ | 1,998 | Total other definite-lived intangible assets, net (b) | $ | 2,313 | $ | (975) | $ | 1,338 | ||||||||||||||
| As of December 31, 2018 | |||||||||||
| Gross Carrying Value | Accumulated Amortization | Net | |||||||||
| Amortized intangible assets: | |||||||||||
| Customer relationships | $ | 1,113 | $ | (341 | ) | $ | 772 | ||||
| Network affiliation | 1,452 | (604 | ) | 848 | |||||||
| Other | 33 | (26 | ) | 7 | |||||||
| Total other definite-lived intangible assets, net (b) | $ | 1,485 | $ | (630 | ) | $ | 855 | ||||
| As of December 31, 2019 | |||||||||||||||||
| Gross Carrying Value | Accumulated Amortization | Net | |||||||||||||||
| Amortized intangible assets: | |||||||||||||||||
| Customer relationships (c) | $ | 6,548 | $ | (569) | $ | 5,979 | |||||||||||
| Network affiliation (c) | 1,441 | (689) | 752 | ||||||||||||||
| Favorable sports contracts (c) | 1,271 | (43) | 1,228 | ||||||||||||||
| Other | 46 | (28) | 18 | ||||||||||||||
| Total other definite-lived intangible assets, net (b) | $ | 2,758 | $ | (760) | $ | 1,998 | |||||||||||
(a)As of December 31, 2020, we recorded a total impairment loss relating to customer relationships and favorable sports contracts of $1,218 million and $431 million, respectively, which is reflected as a reduction within the Gross Carrying Value column. (b)Approximately $54 million and $93 million of definite-lived intangible assets relate to consolidated VIEs as of December 31, 2020 and 2019, respectively. (c)As a result of our 2019 acquisitions, we acquired $6,725 million of definite-lived assets as discussed in Note 2. Acquisitions and Dispositions of Assets. |
Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over their estimated useful lives. The definite-lived intangible assets are amortized over a weighted average useful life of 13 years for customer relationships, 15 years for network affiliations, and 12 years for favorable sports contracts. The total weighted average useful life of definite-lived intangible assets and other assets subject to amortization acquired as a result of the acquisitions, as discussed in Note 2. Acquisitions and Dispositions of Assets, is 13 years. The amortization expense of the definite-lived intangible and other assets for the years ended December 31, 2020, 2019, and 2018 and 2017 was $327$703 million, $370 million, and $175 million, respectively, of which $131 million and $179$43 million respectively. We analyze specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets. There were 0 impairment charges recorded for the years ended December 31, 2020 and 2019 2018,is associated with the amortization of favorable sports contracts and 2017.is presented within media programming and production expenses in our statements of operations.
The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in millions):
| 2021 | $ | 559 | |||
| 2022 | 542 | ||||
| 2023 | 530 | ||||
| 2024 | 517 | ||||
| 2025 | 505 | ||||
| 2026 and thereafter | 2,971 | ||||
| $ | 5,624 | ||||
| 2020 | $ | 742 | |
| 2021 | 707 | ||
| 2022 | 690 | ||
| 2023 | 670 | ||
| 2024 | 656 | ||
| 2025 and thereafter | 4,512 | ||
| $ | 7,977 | ||
F-27
Impairment of Goodwill and Definite-Lived Intangible Assets
In conjunction with the interim third quarter impairment testing related to our RSNs discussed below, during the year ended December 31, 2020, we recorded a non-cash impairment charge associated with customer relationships and other definite-lived intangible assets of $1,218 million and $431 million, respectively, included in impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. After the recognition of these impairments there were no asset groups which have a heightened risk of impairment because the projected undiscounted cash flows of the individual asset groups were substantially greater than their carrying values. However, significant deterioration in the factors described below could result in future material impairments. There were 0 impairment charges recorded for the years ended December 31, 2019 and 2018.
The Company performed an interim goodwill and long-lived asset impairment test during the three-month period ending September 30, 2020. Our RSNs, included in the local sports segment, have been negatively impacted by the recent loss of certain distributors. In addition, our existing distributors are experiencing elevated levels of subscriber erosion which we believe is influenced, in part, by shifting consumer behaviors resulting from media fragmentation, the current economic environment, the COVID 19 pandemic, and related uncertainties. Most of these factors are also expected to have a negative impact on future projected revenue and margins of our RSNs.
The long-lived asset impairment test requires a comparison of undiscounted cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. We evaluated each of our RSNs individually as asset groups. We estimated the projected undiscounted cash flows over the remaining useful life of each asset group. The more sensitive inputs used in the undiscounted cash flow analysis include projected revenues and margins. We identified 10 RSNs which had carrying values in excess of the future undiscounted cash flows.For these RSNs, an impairment loss was measured as the amount by which the carrying value of the asset group exceeded the fair value. The calculated impairment was then allocated to the long-lived assets within the asset group, which primarily consists of definite lived intangible assets, based upon relative fair value.
The fair value of the asset groups, reporting units and definite lived intangible assets were determined based upon a discounted cash flow analysis which uses the present value of projected cash flows. The projected cash flows were based upon our estimates of future revenues and margins, among other inputs. The discount rates used in the valuation were based on a weighted-average cost of capital determined from relevant market comparisons and taking into consideration the risk specifically associated with our asset groups and underlying assets. Terminal values were determined based upon the final year of projected cash flows which reflected our estimate of stable perpetual growth. The more sensitive inputs used in the discounted cash flow analysis include projected revenues and margins, as well as the discount rates used to calculate the present value of future cash flows. Projected revenue was based on the consideration of historical experience of the business, market data surrounding subscriber projections and advertising growth, our ability to retain existing customers and our ability to obtain new customers. Our revenue projections could be negatively impacted by the further loss of key distributors, inability to obtain new or retain existing distributors on terms similar to those expiring, greater than expected consumer migration away from traditional linear distributors, or our inability to successfully develop alternative revenue streams, among other factors. Our future margins may also be affected by our inability to renew sports rights agreements on terms favorable to us.
We tested the RSN reporting units' goodwill for impairment on an interim basis by comparing the fair value of each of the RSN reporting units to their revised carrying value after adjustments were made related to the impairments of the asset groups, as described above. To the extent that the carrying value of the respective reporting units exceeded the fair value, a goodwill impairment charge was recorded. The fair value of the reporting units was determined based upon a discounted cash flow analysis, as described above. We recorded a non-cash goodwill impairment charge of $2,615 million, included in impairment of goodwill and definite-lived intangible assets in our consolidated statements of operations. As of December 31, 2020, there was 0 remaining goodwill within our local sports segment and the remaining balance of the customer relationship intangible asset was $3,679 million and the aggregate remaining balance of the other definite-lived intangible assets was $671 million within our local sports segment.
F-28
6. OTHER ASSETS:
Other assets as of December 31, 20192020 and 20182019 consisted of the following (in millions):
| 2019 | 2018 | 2020 | 2019 | |||||||||||||||
| Equity method investments | $ | 459 | $ | 72 | Equity method investments | $ | 451 | $ | 459 | |||||||||
| Other equity investments | 52 | 45 | ||||||||||||||||
| Other investments | Other investments | 450 | 52 | |||||||||||||||
| Post-retirement plan assets | 38 | 28 | Post-retirement plan assets | 44 | 38 | |||||||||||||
| Other | 64 | 40 | Other | 113 | 69 | |||||||||||||
| Total other assets | $ | 613 | $ | 185 | Total other assets | $ | 1,058 | $ | 618 | |||||||||
Equity Method Investments
We have a portfolio of investments, including our investment in the YES Network and entities that are primarily focused on the development of real estate, sustainability initiatives, and other non-media businesses. For the years ended December 31, 2020, 2019, 2018, and 20172018, none of our investments were individually significant.
Summarized Financial Information. As described under Principles of Consolidation within Note 1. Nature of Operations and Summary of Significant Accounting Policies, we record our proportionate share of net income generated by equity method investees in loss from equity method investments onin our consolidated statements of operations. The summarized results of operations and financial position of the investments accounted for under the equity method are as follows (in millions):
| For the Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Revenues, net | $ | 386 | $ | 145 | $ | 115 | |||||
| Operating income (loss) | $ | 47 | $ | (58 | ) | $ | (17 | ) | |||
| Net income (loss) | $ | 13 | $ | (82 | ) | $ | (42 | ) | |||
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Current assets | $ | 369 | $ | 28 | |||
| Noncurrent assets | $ | 4,056 | $ | 711 | |||
| Current liabilities | $ | 118 | $ | 53 | |||
| Noncurrent liabilities | $ | 2,313 | $ | 544 | |||
| For the Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenues, net | $ | 611 | $ | 386 | $ | 145 | |||||||||||
| Operating income (loss) | $ | 147 | $ | 47 | $ | (58) | |||||||||||
| Net income (loss) | $ | 23 | $ | 13 | $ | (82) | |||||||||||
| As of December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Current assets | $ | 493 | $ | 369 | |||||||
| Noncurrent assets | $ | 4,219 | $ | 4,056 | |||||||
| Current liabilities | $ | 410 | $ | 118 | |||||||
| Noncurrent liabilities | $ | 2,327 | $ | 2,313 | |||||||
YES Network Investment. On August 29, 2019, an indirect subsidiary of DSG, an indirect wholly-owned subsidiary of the Company, acquired a 20%minority equity interest in the YES Network for cash consideration of $346 million as part of a consortium led by Yankee Global Enterprises. We account for our investment in the YES Network as an equity method investment, which is recorded within other assets onin our consolidated balance sheets, and in which our proportionate share of the net income generated by the investment is represented within loss from equity method investments onin our consolidated statements of operations. For the year ended December 31, 2019, weWe recorded income of $6 million and $16 million related to our investment.investment for the years ended December 31, 2020 and December 31, 2019, respectively. We did not identify any other than temporary impairments associated with our investment in the YES Network during the years ended December 31, 2020 and 2019,
F-29
Other Equity Investments
We measure our investments, excluding equity method investments, at fair value or, in situations where fair value is not readily determinable, we have the option to value investments at cost plus observable changes in value, less impairment.
At December 31, 2020 and 2019, we held $68 million and $2 millionof investments in equity securities which are classified as level 1 securities in the fair value hierarchy. During the years ended December 31, 2020 and 2019 we recognized fair value adjustments associated with these securities of $24 million and $0.1 million which is reflected in other income, net in our consolidated statements of operations. SeeNote 18. Fair Value Measurements for further information. Investments accounted for utilizing the measurement alternative were $26 million, net of $7 million of cumulative impairments, as of December 31, 2020, and $28 million, net of $7 million of cumulative impairments, as of December 31, 2019, and $25 million as of December 31, 2018.2019. We recorded a $7 million impairment related to two investments for the year ended December 31, 2019, and a $10 million impairment related to one investment for the year ended December 31, 2018, which areis reflected in other income, net onin our consolidated statements of operations.
On November 18, 2020, we entered into a commercial agreement with Bally's Corporation. As part of this arrangement, we received warrants to acquire up to 8.2 million shares of Bally's Common stock for a penny per share, of which 3.3 million are exercisable upon meeting certain performance metrics. We also received options to purchase up to 1.6 million shares of Bally's common stock with exercise prices between $30 and $45 per share, exercisable after four years. The initial value associated with the warrants was $199 million. These financial instruments are reflected at fair value within our financial statements. For the year ended December 31, 2020 we recorded an increase in value of $133 million which is reflected in other income, net in our consolidated statements of operations. The value of these investments was $332 million as of December 31, 2020. See Note 18. Fair Value Measurements for further discussion.
As of December 31, 20192020 and 2018,2019, our unfunded commitments related to certain equity investments totaled $32$98 million and $29$32 million, respectively.
F-30
7. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
Notes payable, finance leases, and commercial bank financing (including finance leases to affiliates) consisted of the following as of December 31, 20192020 and 20182019 (in millions):
| 2019 | 2018 | ||||||
| STG Bank Credit Agreement: | |||||||
| Term Loan A, due July 31, 2021 (a) | $ | — | $ | 96 | |||
| Term Loan B, due January 3, 2024 | 1,329 | 1,343 | |||||
| Term Loan B-2, due September 30, 2026 (b) | 1,297 | — | |||||
| DSG Bank Credit Agreement: | |||||||
| Term Loan, due August 24, 2026 (b) | 3,291 | — | |||||
| STG Senior Unsecured Notes: | |||||||
| 5.375% Notes, due April 1, 2021 (c) | — | 600 | |||||
| 6.125% Notes, due October 1, 2022 (c) | — | 500 | |||||
| 5.625% Notes, due August 1, 2024 | 550 | 550 | |||||
| 5.875% Notes, due March 15, 2026 | 350 | 350 | |||||
| 5.125% Notes, due February 15, 2027 | 400 | 400 | |||||
| 5.500% Notes due March 1, 2030 (b) | 500 | — | |||||
| DSG Senior Notes: | |||||||
| 5.375% Secured Notes, due August 15, 2026 (b) | 3,050 | — | |||||
| 6.625% Unsecured Notes, due August 15, 2027 (b) | 1,825 | — | |||||
| Debt of variable interest entities | 21 | 25 | |||||
| Debt of non-media subsidiaries | 18 | 20 | |||||
| Finance leases | 27 | 29 | |||||
| Finance leases - affiliate | 11 | 13 | |||||
| Total outstanding principal | 12,669 | 3,926 | |||||
| Less: Deferred financing costs and discounts | (231 | ) | (33 | ) | |||
| Less: Current portion | (69 | ) | (41 | ) | |||
| Less: Finance leases - affiliate, current portion | (2 | ) | (2 | ) | |||
| Net carrying value of long-term debt | $ | 12,367 | $ | 3,850 | |||
| 2020 | 2019 | ||||||||||
| STG Bank Credit Agreement: | |||||||||||
| Term Loan B-1, due January 3, 2024 (a) | $ | 1,119 | $ | 1,329 | |||||||
| Term Loan B-2, due September 30, 2026 | 1,284 | 1,297 | |||||||||
| DSG Bank Credit Agreement: | |||||||||||
| Term Loan, due August 24, 2026 | 3,259 | 3,291 | |||||||||
| STG Notes: | |||||||||||
| 5.625% Unsecured Notes, due August 1, 2024 (a) | 0 | 550 | |||||||||
| 5.875% Unsecured Notes, due March 15, 2026 | 348 | 350 | |||||||||
| 5.125% Unsecured Notes, due February 15, 2027 | 400 | 400 | |||||||||
| 5.500% Unsecured Notes, due March 1, 2030 | 500 | 500 | |||||||||
| 4.125% Senior Secured Notes, due December 1, 2030 (a) | 750 | 0 | |||||||||
| DSG Notes: | |||||||||||
| 12.750% Senior Secured Notes, due December 1, 2026 (b) | 31 | 0 | |||||||||
| 5.375% Senior Secured Notes, due August 15, 2026 | 3,050 | 3,050 | |||||||||
| 6.625% Unsecured Notes, due August 15, 2027 (b) | 1,744 | 1,825 | |||||||||
| DSG Accounts Receivable Securitization Facility (c) | 177 | 0 | |||||||||
| Debt of variable interest entities | 17 | 21 | |||||||||
| Debt of non-media subsidiaries | 17 | 18 | |||||||||
| Finance leases | 30 | 27 | |||||||||
| Finance leases - affiliate | 8 | 11 | |||||||||
| Total outstanding principal | 12,734 | 12,669 | |||||||||
| Less: Deferred financing costs and discounts | (183) | (231) | |||||||||
| Less: Current portion | (56) | (69) | |||||||||
| Less: Finance leases - affiliate, current portion | (2) | (2) | |||||||||
| Net carrying value of long-term debt | $ | 12,493 | $ | 12,367 | |||||||
(a)On December 4, 2020, we issued $750 million aggregate principal amount of the STG 4.125% Secured Notes, the net proceeds of which were used, plus cash on hand, to redeem $550 million aggregate principal amount of the STG 5.625% Notes, as well as repay $200 million of STG's Term Loan B-1, as more fully described below under STG Notes.
(c)We entered into the A/R Facility on September 23, 2020, as more fully described below under Accounts Receivable Securitization Facility.
F-31
Debt under the STG Bank Credit Agreement, DSG Bank Credit Agreement, notes payable, A/R Facility, and finance leases as of December 31, 20192020 matures as follows (in millions):
| Notes and Bank Credit Agreements | Finance Leases | Total | |||||||||||||||||||||
| 2021 | $ | 53 | $ | 8 | $ | 61 | |||||||||||||||||
| 2022 | 57 | 8 | 65 | ||||||||||||||||||||
| 2023 | 224 | 7 | 231 | ||||||||||||||||||||
| 2024 | 1,165 | 6 | 1,171 | ||||||||||||||||||||
| 2025 | 62 | 5 | 67 | ||||||||||||||||||||
| 2026 and thereafter | 11,135 | 19 | 11,154 | ||||||||||||||||||||
| Total minimum payments | 12,696 | 53 | 12,749 | ||||||||||||||||||||
| Less: Deferred financing costs, discounts, and premiums | (183) | — | (183) | ||||||||||||||||||||
| Less: Amount representing future interest | — | (15) | (15) | ||||||||||||||||||||
| Net carrying value of debt | $ | 12,513 | $ | 38 | $ | 12,551 | |||||||||||||||||
| Notes and Bank Credit Agreements | Finance Leases | Total | |||||||||
| 2020 | $ | 66 | $ | 8 | $ | 74 | |||||
| 2021 | 67 | 8 | 75 | ||||||||
| 2022 | 68 | 7 | 75 | ||||||||
| 2023 | 61 | 7 | 68 | ||||||||
| 2024 | 1,871 | 6 | 1,877 | ||||||||
| 2025 and thereafter | 10,498 | 16 | 10,514 | ||||||||
| Total minimum payments | 12,631 | 52 | 12,683 | ||||||||
| Less: Deferred financing costs and discounts | (231 | ) | — | (231 | ) | ||||||
| Less: Amount representing future interest | — | (14 | ) | (14 | ) | ||||||
| Net carrying value of debt | $ | 12,400 | $ | 38 | $ | 12,438 | |||||
Interest expense onin our consolidated statements of operations was $656 million, $422 million, $292 million, and $212$292 million for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. Interest expense included amortization of deferred financing costs, and debt discounts, and premiums of $31 million, $17 million, for the year ended December 31, 2019 and $8 million for both the years ended December 31, 2020, 2019, and 2018, and 2017respectively, and ticking fees and the write-off of previously capitalized debt issuance costs associated with the Tribune acquisition, which was subsequently terminated, of $79 million for the year ended December 31, 2018.
F-32
The stated and weighted average effective interest rates on the above obligations are as follows, for the periods stated:years ended December 31, 2020 and 2019:
| Weighted Average Effective Rate | ||||||
| Stated Rate | 2019 | 2018 | ||||
| STG Bank Credit Agreement: | ||||||
| Term Loan B | LIBOR plus 2.25% | 4.62% | 4.34% | |||
| Term Loan B-2 | LIBOR plus 2.50% | 4.36% | —% | |||
| Revolving Credit Facility (a) | LIBOR plus 2.00% | —% | —% | |||
| DSG Bank Credit Agreement: | ||||||
| Term Loan | LIBOR plus 3.25% | 5.31% | —% | |||
| Revolving Credit Facility (b) | LIBOR plus 3.00% | —% | —% | |||
| STG Senior Unsecured Notes: | ||||||
| 5.625% Notes | 5.63% | 5.83% | 5.83% | |||
| 5.875% Notes | 5.88% | 6.09% | 6.09% | |||
| 5.125% Notes | 5.13% | 5.33% | 5.33% | |||
| 5.500% Notes | 5.50% | 5.66% | —% | |||
| DSG Senior Notes: | ||||||
| 5.375% Secured Notes | 5.38% | 5.73% | —% | |||
| 6.625% Unsecured Notes | 6.63% | 7.00% | —% | |||
| Weighted Average Effective Rate | ||||||||||||||||||||
| Stated Rate | 2020 | 2019 | ||||||||||||||||||
| STG Bank Credit Agreement: | ||||||||||||||||||||
| Term Loan B | LIBOR plus 2.25% | 2.94% | 4.62% | |||||||||||||||||
| Term Loan B-2 | LIBOR plus 2.50% | 3.29% | 4.36% | |||||||||||||||||
| Revolving Credit Facility (a) | LIBOR plus 2.00% | 0% | 0% | |||||||||||||||||
| DSG Bank Credit Agreement: | ||||||||||||||||||||
| Term Loan | LIBOR plus 3.25% | 4.21% | 5.31% | |||||||||||||||||
| Revolving Credit Facility (b) | LIBOR plus 3.00% | 0% | 0% | |||||||||||||||||
| DSG Accounts Receivable Securitization Facility (c) | LIBOR plus 4.97% | 4.77% | 0% | |||||||||||||||||
| STG Notes: | ||||||||||||||||||||
| 5.625% Unsecured Notes | 5.63% | 5.83% | 5.83% | |||||||||||||||||
| 5.875% Unsecured Notes | 5.88% | 6.09% | 6.09% | |||||||||||||||||
| 5.125% Unsecured Notes | 5.13% | 5.33% | 5.33% | |||||||||||||||||
| 5.500% Unsecured Notes | 5.50% | 5.66% | 5.66% | |||||||||||||||||
| 4.125% Secured Notes | 4.13% | 4.31% | 0% | |||||||||||||||||
| DSG Notes: | ||||||||||||||||||||
| 12.750% Secured Notes | 12.75% | 11.95% | 0% | |||||||||||||||||
| 5.375% Secured Notes | 5.38% | 5.73% | 5.73% | |||||||||||||||||
| 6.625% Unsecured Notes | 6.63% | 7.00% | 7.00% | |||||||||||||||||
(a)We incur a commitment fee on undrawn capacity of 0.25%, 0.375%, or 0.50% if our first lien indebtedness ratio is less than or equal to 2.75x, less than or equal to 3.0x but greater than 2.75x, or greater than 3.0x, respectively. The STG Revolving Credit Facility is priced at LIBOR plus 2.00%, subject to decrease if the specified first lien leverage ratio (as defined in the STG Bank Credit Agreement) is less than or equal to certain levels. As of December 31, 2020 and December 31, 2019, there were 0 outstanding borrowings, $1 million in letters of credit outstanding, and $649 million available under the STG Revolving Credit Facility. See STG Bank Credit Agreement below for further information.
(b)We incur a commitment fee on undrawn capacity of 0.25%, 0.375%, or 0.50% if our first lien indebtedness ratio is less than or equal to 3.25x, less than or equal to 3.75x but greater than 3.25x, or greater than 3.75x, respectively. The DSG Revolving Credit Facility is priced at LIBOR plus 3.00%, subject to decrease if the specified first lien leverage ratio (as defined in the DSG Bank Credit Agreement) is less than or equal to certain levels. As of December 31, 2020 and December 31, 2019, there were 0 outstanding borrowings, 0 letters of credit outstanding, and $650 million available under the DSG Revolving Credit Facility. See DSG Bank Credit Agreement below for further information.
(c)Borrowings under the A/R Facility generally bear interest at a rate per annum equal to LIBOR, which is subject to an interest rate floor of 0.00% per annum, plus 4.97% or, if the aggregate outstanding principal amount of loans is less than $125 million on or after November 1, 2020, 5.47%.
We recorded $19 million of debt issuance costs and a $25 million original issuance premium during the year ended December 31, 2020, $222 million of debt issuance costs and original issuance discounts during the year ended December 31, 2019, and $1 million of debt issuance costs during both the yearsyear ended December 31, 2018 and 2017.2018. Debt issuance costs and original issuance discounts and premiums are presented as a direct deduction from, or addition to, the carrying amount of an associated debt liability, except for debt issuance costs related to our STG Revolving Credit Facility, and DSG Revolving Credit Facility, and A/R Facility which are presented within other assets onin our consolidated balance sheets.
F-33
STG Bank Credit Agreement
We have a syndicated credit facility which includes both revolving credit and issued term loans (the STG Bank Credit Agreement).
On August 13, 2019, we issued a seven-yearseven-year incremental term loan facility in an aggregate principal amount of $600 million (the STG Term Loan B-2b) with an original issuance discount of $3 million, which bears interest at LIBOR plus 2.50%. The proceeds from the Term Loan B-2b were used, together with cash on hand, to redeem, at par value, $600 million aggregate principal amount of STG's 5.375% Senior Notes due 2021 (the STG 5.375% Notes). We recognized a loss on the extinguishment of the STG 5.375% Notes of $2 million for the year ended December 31, 2019.
On August 23, 2019, we amended and restated the STG Bank Credit Agreement which provided additional operating flexibility and revisions to certain restrictive covenants. Concurrent with the amendment, we raised a seven-yearseven-year incremental term loan facility of $700 million (the STG Term Loan B-2a, and, together with the STG Term Loan B-2b, the STG Term Loan B-2) with an original issuance discount of $4 million, which bears interest at LIBOR plus 2.50%.
Additionally, in connection with the amendment, we replaced STG's existing revolving credit facility with a new $650 million five-yearfive-year revolving credit facility (the STG Revolving Credit Facility), priced at LIBOR plus 2.00%, subject to decrease if the specified first lien leverage ratio (as defined in the STG Bank Credit Agreement) is less than or equal to certain levels, which includes capacity for up to $50 million of letters of credit and for borrowings of up to $50 million under swingline loans. On December 4, 2020, we entered into an amendment to the STG Bank Credit Agreement to extend the maturity date of the STG Revolving Credit Facility to December 4, 2025. On March 17, 2020, we drew $648 million under the STG Revolving Credit Facility as a precautionary measure given the COVID-19 pandemic. During the second quarter of 2020, we fully repaid the amount outstanding under the STG Revolving Credit Facility.
The STG Bank Credit Agreement contains covenants that, subject to certain exceptions, qualifications, ratios, and "baskets", generally limitincludes a financial maintenance covenant, the ability of the borrower and its restricted subsidiaries to incur debt, create liens, make fundamental changes, enter into asset sales, make certain investments, pay dividends or distribute or redeem certain equity interests, prepay or redeem certain debt, and enter into certain transactions with affiliates. Also,first lien leverage ratio (as defined in the STG RevolvingBank Credit Facility is subjectAgreements), which requires such applicable ratio not to compliance with a first lien net leverage ratio test that will be tested atexceed 4.5x, measured as of the end of each fiscal quarterquarter. The financial maintenance covenant is only applicable if certain borrowings35% or more of the capacity (as a percentage of total commitments) under the STG Revolving Credit Facility, exceed 35%measured as of the total commitmentslast day of each quarter, is utilized under the STG Revolving Credit Facility onas of such date. Since there was no utilization under the STG Revolving Credit Facility as of December 31, 2020, STG was not subject to the financial maintenance covenant under the STG Bank Credit Agreement. As of December 31, 2019,2020, the STG first lien leverage ratio was below 4.5x. The STG Bank Credit Agreement contains other restrictions and covenants which we were in compliance with all covenants.
STG Notes
On November 27, 2019, we issued $500 million principal amount of senior notes, which bear interest at a rate of 5.500% per annum and mature on March 1, 2030 (the STG 5.500% Notes). The net proceeds of the STG 5.500% Notes were used, plus cash on hand, to redeem $500 million aggregate principal amount of STG's 6.125% senior unsecured notes due 2022 (the STG 6.125% Notes) for a redemption price, including the outstanding principal amount of the STG 6.125% Notes, accrued and unpaid interest, and a make-whole premium, of $510 million. We recognized a loss on the extinguishment of the STG 6.125% Notes of $8 million for the year ended December 31, 2019.
Prior to December 1, 2024, we may redeem the STG 5.500% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the STG 5.500% Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, on or prior to December 1, 2022, we may redeem up to 40% of the STG 5.500% Notes using the proceeds of certain equity offerings. Beginning on December 1, 2024, we may redeem some or all of the STG 5.500% Notes at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. If the notes are redeemed during the twelve-month period beginning December 1, 2024, 2025, 2026, and 2027 and thereafter, then the redemption prices for the STG 5.500% Notes are 102.750%, 101.833%, 100.917%, and 100%, respectively. Upon the sale of certain of STG’s assets or certain changes of control, the holders of the STG 5.500% Notes may require us to repurchase some or all of the STG 5.500% Notes.
STG’s obligations under the STG 5.500% Notes are guaranteed, jointly and severally, on a senior unsecured basis, by the Company and each wholly-owned subsidiary of STG or the Company that guarantees the STG Bank Credit Agreement and rank equally with all of STG’s other senior unsecured indebtedness.debt.
F-34
On May 21, 2020, we purchased $2.5 million aggregate principal amount of STG's 5.875% senior unsecured notes due 2026 (the STG 5.875% Notes) in open market transactions for consideration of $2.3 million. The STG 5.875% Notes acquired in May 2020 were canceled immediately following their acquisition. We recognized a gain on extinguishment of the STG 5.875% Notes of $0.2 million for the year ended December 31, 2020.
On December 4, 2020, we issued $750 million aggregate principal amount of senior secured notes, which bear interest at a rate of 4.125% per annum and mature on December 1, 2030 (the STG 4.125% Secured Notes). The net proceeds of the STG 4.125% Secured Notes were used, plus cash on hand, to redeem $550 million aggregate principal amount of STG's 5.625% senior unsecured notes due 2024 (the STG 5.625% Notes) for a redemption price, including the outstanding principal amount of the STG 5.625% Notes, accrued and unpaid interest, and a call premium, of $571 million and to prepay $200 million outstanding under the STG Term Loan B-1. We recognized a loss on extinguishment of the STG 5.625% Notes and prepayment of the STG Term Loan B-1 of $15 million for the year ended December 31, 2020.
Prior to December 1, 2025, we may redeem the STG 4.125% Secured Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the STG 4.125% Secured Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, on or prior to December 1, 2023, we may redeem up to 40% of the STG 4.125% Secured Notes using the proceeds of certain equity offerings. Beginning on December 1, 2025, we may redeem some or all of the STG 4.125% Secured Notes at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. If the notes are redeemed during the twelve-month period beginning December 1, 2025, 2026, 2027, and 2028 and thereafter, then the redemption prices for the STG 4.125% Secured Notes are 102.063%, 101.375%, 100.688%, and 100%, respectively. Upon the sale of certain of STG’s assets or certain changes of control, we may be required to repurchase some or all of the STG 4.125% Secured Notes.
STG’s obligations under the STG 4.125% Secured Notes are secured on a first-lien basis by substantially all tangible and intangible personal property of STG and each wholly-owned subsidiary of STG or the Company that guarantees the STG Bank Credit Agreement (the Guarantors) and on a pari passu basis with all of STG's and the Guarantor's existing and future debt that is secured by a first-priority lien on the collateral securing the STG 4.125% Secured Notes, including the debt under the STG Bank Credit Agreement, subject to permitted liens and certain other exceptions.
Upon issuance, the STG 5.625% Notes, STG 5.875% Notes and STG 5.125% Notes were redeemable up to 35%. We may redeem 100% of these notes upon the date set forth in the indenture of each note. The price at which we may redeem the notes is set forth in the indenture of each note. Also, if we sell certain of our assets or experience specific kinds of changes of control, the holders of these notes may require us to repurchase some or all of the outstanding notes.
DSG Bank Credit Agreement
On August 23, 2019, DSG and Diamond Sports Intermediate Holdings LLC (DSIH), an indirect wholly owned subsidiary of the Company and an indirect parent of DSG, entered into a credit agreement (the DSG Bank Credit Agreement). Pursuant to the DSG Bank Credit Agreement, DSG raised a seven-yearseven-year $3,300 million aggregate amount term loan (the DSG Term Loan), with an original issuance discount of $17 million, which bears interest at LIBOR plus 3.25%.
Additionally, in connection with the DSG Bank Credit Agreement, DSG obtained a $650 million five-yearfive-year revolving credit facility (the DSG Revolving Credit Facility, and, together with the DSG Term Loan, the DSG Credit Facilities), priced at LIBOR plus 3.00%, subject to reduction based on a first lien net leverage ratio, which includes capacity for up to $50 million of letters of credit and for borrowings of up to $50 million under swingline loans. On March 17, 2020, we drew $225 million under the DSG Revolving Credit Facility as a precautionary measure given the COVID-19 pandemic. During the second quarter of 2020, we fully repaid the amount outstanding under the DSG Revolving Credit Facility.
F-35
The DSG Bank Credit Agreement contains covenants that, subject to certain exceptions, qualifications, ratios, and "baskets", generally limitincludes a financial maintenance covenant, the ability of the borrower and its restricted subsidiaries to incur debt, create liens, make fundamental changes, enter into asset sales, make certain investments, pay dividends or distribute or redeem certain equity interests, prepay or redeem certain debt, and enter into certain transactions with affiliates. Also,first lien leverage ratio (as defined in the DSG RevolvingBank Credit Facility is subjectAgreements), which requires such applicable ratio not to compliance with a first lien net leverage ratio test that will be tested atexceed 6.25x, measured as of the end of each fiscal quarterquarter. The financial maintenance covenant is only applicable if certain borrowings35% or more of the capacity (as a percentage of total commitments) under the DSG Revolving Credit Facility, exceed 35%measured as of the total commitmentslast day of each quarter, is utilized under the DSG Revolving Credit Facility onas of such date. Since there was no utilization under the DSG Revolving Credit Facility as of December 31, 2020, DSG was not subject to the financial maintenance covenant under the DSG Bank Credit Agreement. As of December 31, 2019,2020, the DSG first lien leverage ratio was above 6.25x. We expect that the DSG first lien leverage ratio will remain above 6.25x for at least the next 12 months, which will restrict our ability to utilize the full DSG Revolving Credit Facility. We do not currently expect to have more than 35% of the capacity of the DSG Revolving Credit Facility outstanding as of any quarterly measurement date during the next twelve months, therefore we do not expect DSG will be subject to the financial maintenance covenant. The DSG Bank Credit Agreement contains other restrictions and covenants which we were in compliance with all covenants.as of December 31, 2020.
DSG's obligations under the DSG Bank Credit Agreement are (i) jointly and severally guaranteed by DSIH and DSG’s direct and indirect, existing and future wholly-owned domestic restricted subsidiaries, subject to certain exceptions, and (ii) secured by first-priority lien on substantially all tangible and intangible assets (whether now owned or hereafter arising or acquired) of DSG and the guarantors, subject to certain permitted liens and other agreed upon exceptions. The DSG Credit Facilities are not guaranteed by the Company, STG, or any of STG’s subsidiaries.
DSG Senior Notes
On August 2, 2019, DSG issued $3,050 million principal amount of senior secured notes, which bear interest at a rate of 5.375% per annum and mature on August 15, 2026 (the DSG 5.375% Secured Notes), and issued $1,825 million principal amount of senior notes, which bear interest at a rate of 6.625% per annum and mature on August 15, 2027 (the DSG 6.625% Notes and, together with the DSG 5.375% Secured Notes, the DSG Senior Notes). The proceeds of the DSG Senior5.375% Secured Notes and DSG 6.625% Notes were used, in part, to fund the RSN Acquisition.
In March 2020 and June 2020, we purchased a total of $15 million aggregate principal amount of the DSG's 6.625% Notes in open market transactions for consideration of $10 million. The DSG 6.625% Notes acquired in March 2020 and June 2020 were canceled immediately following their acquisition. We recognized a gain on extinguishment of the DSG 6.625% Notes of $5 million for year ended December 31, 2020.
On June 10, 2020, we exchanged $66.5 million aggregate principal amount of the DSG 6.625% Notes for cash payments of $10 million, including accrued but unpaid interest, and $31 million aggregate principal amount of newly issued senior secured notes, which bear interest at a rate of 12.750% per annum and mature on December 1, 2026 (the DSG 12.750% Secured Notes)
Prior to August 15, 2022, we may redeem the DSG Senior Notes, in whole or in part, at any time or from time to time, at a price equal to 100% of the principal amount of the applicable DSG Senior Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a ‘‘make-whole’’ premium. Beginning on August 15, 2022, we may redeem the DSG Senior Notes, in whole or in part, at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or prior to August 15, 2022, we may redeem up to 40% of each series of the DSG Senior Notes using the proceeds of certain equity offerings. If the notes are redeemed during the twelve-month period beginning August 15, 2022, 2023, and 2024 and thereafter, then the redemption prices for the DSG 5.375% Secured Notes are 102.688%, 101.344%, and 100%, respectively, and the redemption prices for the DSG 6.625% Notes are 103.313%, 101.656%, and 100%, respectively, and the redemption prices for the DSG 12.750% Secured Notes are 102.688%, 101.344%, and 100%, respectively.
DSG’s obligations under the DSG Senior Notes are jointly and severally guaranteed by DSIH, DSG’s direct parent, and certain wholly-owned subsidiaries of DSIH. The RSNs wholly-owned by DSIH and its subsidiaries will also jointly and severally guarantee the Issuers' obligations under the DSG Senior Notes. The DSG Senior Notes are not guaranteed by the Company, STG, or any of STG’s subsidiaries.
Accounts Receivable Securitization Facility
On September 23, 2020 (the Closing Date), the Company's and DSG's indirect wholly-owned subsidiary, DSPV, entered into a $250 million accounts receivable securitization facility (the A/R Facility) which matures on September 23, 2023, in order to enable DSG to raise incremental funding for the ongoing business needs of DSG and its subsidiaries.
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The A/R Facility was entered into pursuant to a Loan and Security Agreement (the Loan Agreement), dated September 23, 2020, among DSPV, as borrower, the persons from time to time party thereto, as lenders (the Lenders), and Fox Sports Net, LLC (FSN), a wholly-owned direct subsidiary of DSG, as initial servicer, Credit Suisse AG, New York Branch, as administrative agent and Wilmington Trust, National Association, as collateral agent, paying agent and account bank. The Lenders will provide certain loans, which loans will be secured by certain accounts receivable (Pool Receivables) purchased by DSPV pursuant to a Purchase and Sale Agreement (the Purchase Agreement, and together with the Loan Agreement, the A/R Agreements), dated September 23, 2020, among FSN, certain indirect wholly owned subsidiaries of DSG identified therein as originators (the Originators) and DSPV as purchaser, pursuant to which the Originators will sell certain accounts receivable to DSPV and FSN will continue to service such accounts receivable.
The maximum funding availability under the A/R Facility is the lesser of $250 million and the sum of the lowest aggregate loan balance since November 1, 2020 plus $50 million. The amount of actual availability under the A/R Facility is subject to change based on the level of eligible receivables sold by the Originators to DSPV and certain reserves. Eligibility of the receivables is determined by a variety of factors, including, but not limited to, credit ratings of the Originators’ customers, customer concentration levels, and certain characteristics of the accounts receivable being transferred. As of December 31, 2020, the total commitment was $227 million.
Borrowings under the A/R Facility generally bear interest at a rate per annum equal to LIBOR, which is subject to an interest rate floor of 0.00% per annum, plus 4.97% or, if the aggregate outstanding principal amount of loans is less than $125 million on or after November 1, 2020, 5.47%. We are required to pay a commitment fee on unutilized commitments under the A/R Facility.
We may voluntarily prepay outstanding loans or terminate commitments under the A/R Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBOR rate loans, except (1) any voluntary prepayment (x) from the proceeds of a voluntary repurchase in accordance with the Purchase Agreement by any Originator of any Pool Receivables on or prior to the date that is 18 months after the Closing Date or (y) from the proceeds of a new accounts receivable financing entered into by DSPV or an affiliate thereof and requiring the purchase of Pool Receivables from DSPV after the date that is 18 months after the Closing Date but on or prior to the date that is 36 months after the Closing Date or (2) certain terminations of commitments on or prior to the date that is 18 months after the Closing Date, shall in each case be subject to a prepayment premium of 1.00% of the principal amount of the loans prepaid or commitments terminated, as the case may be.
DSPV, FSN, and the Originators provide customary representations and covenants under the A/R Agreements. Receivables in the A/R Facility are subject to certain eligibility criteria, concentration limits and reserves. The Loan Agreement provides for certain events of default upon the occurrence of which the administrative agent may declare the facility’s termination date to have occurred and declare the outstanding loan and all other obligations of DSPV to be due and payable. The Purchase Agreement provides for certain early amortization events upon the occurrence of which DSPV may terminate the sale and contribution of accounts receivable and related assets thereunder, including an early amortization event which would occur upon Consolidated EBITDA (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, less Consolidated Interest Expense (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, being less than zero as of the last day of any fiscal quarter (measured on a trailing four fiscal quarter basis).
As of December 31, 2020, the balance of the loans under the A/R Facility was $177 million and the balance of the receivables held by DSPV as part of the A/R Facility was $228 million, included in accounts receivable, net in our consolidated balance sheets.
The performance by the Originators of their respective obligations under the A/R Facility is guaranteed by FSN pursuant to a performance guaranty by FSN in favor of Credit Suisse AG, New York Branch, as administrative agent under the Loan Agreement.
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DSG's ability to make scheduled payments on its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyond its control. The impact of the outbreak of COVID-19 continues to create significant uncertainty and disruption in the global economy and financial markets. Further, DSG’s success is dependent upon the existence and terms of its agreements with distributors, OTT and other streaming providers. We anticipate DSG’s existing cash and cash equivalents, cash flow from our operations, and borrowing capacity will be sufficient to satisfy its debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and resulting effect on the economy, our advertisers, distributors, and their subscribers, could affect DSG’s liquidity and ability to maintain a level of cash flows from operating activities sufficient to permit DSG to pay the principal, premium, if any, and interest on its debt.
Debt of variable interest entities and guarantees of third-party debt
We jointly, severally, unconditionally, and irrevocably guarantee $57$49 million and $77$57 million of debt of certain third parties as of December 31, 20192020 and 2018,2019, respectively, of which $20$16 million and $24$20 million, net of deferred financing costs, related to consolidated VIEs is included onin our consolidated balance sheets as of December 31, 20192020 and 2018,2019, respectively. These guarantees primarily relate to the debt of Cunningham as discussed under Cunningham Broadcasting Corporation within Note 15. Related Person Transactions. The credit agreements and term loans of these VIEs each bear interest of LIBOR plus 2.50%. As of December 31, 2019,2020, we have determined that it is not probable that we would have to perform under any of these guarantees.
Finance leases
For more information related to our finance leases and affiliate finance leases see Note 8. Leases and Note 15. Related Person Transactions, respectively.
8. LEASES:
As described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, we adopted new lease accounting guidance effective January 1, 2019.
We determine if a contractual arrangement is a lease at inception. Our lease arrangements provide the Company the right to utilize certain specified tangible assets for a period of time in exchange for consideration. Our leases primarily relate to building space, tower space, and equipment. We do not separate non-lease components from our building and tower leases for the purposes of measuring our lease liabilities and assets. Our leases consist of operating leases and finance leases which are presented separately onin our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
We recognize a lease liability and a right of use asset at the lease commencement date based on the present value of the future lease payments over the lease term discounted using our incremental borrowing rate. Implicit interest rates within our lease arrangements are rarely determinable. Right of use assets also include, if applicable, prepaid lease payments and initial direct costs, less incentives received.
We recognize operating lease expense on a straight-line basis over the term of the lease within operating expenses. Expense associated with our finance leases consists of two components, including interest on our outstanding finance lease obligations and amortization of the related right of use assets. The interest component is recorded in interest expense and amortization of the finance lease asset is recognized on a straight-line basis over the term of the lease in depreciation of property and equipment.
Our leases do not contain any material residual value guarantees or material restrictive covenants. Some of our leases include optional renewal periods or termination provisions which we assess at inception to determine the term of the lease, subject to reassessment in certain circumstances.
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The following table presents lease expense we have recorded onin our consolidated statements of operations for the yearyears ended December 31, 2020 and December 31, 2019 (in millions):
| 2019 | |||
| Finance lease expense: | |||
| Amortization of finance lease asset | $ | 3 | |
| Interest on lease liabilities | 4 | ||
| Total finance lease expense | 7 | ||
| Operating lease expense (a) | 47 | ||
| Total lease expense | $ | 54 | |
| 2020 | 2019 | ||||||||||
| Finance lease expense: | |||||||||||
| Amortization of finance lease asset | $ | 3 | $ | 3 | |||||||
| Interest on lease liabilities | 4 | 4 | |||||||||
| Total finance lease expense | 7 | 7 | |||||||||
| Operating lease expense (a) | 64 | 47 | |||||||||
| Total lease expense | $ | 71 | $ | 54 | |||||||
The following table summarizes our outstanding operating and finance lease obligations as of December 31, 20192020 (in millions):
| Operating Leases | Finance Leases | Total | |||||||||||||||
| 2021 | $ | 46 | $ | 8 | $ | 54 | |||||||||||
| 2022 | 36 | 8 | 44 | ||||||||||||||
| 2023 | 32 | 7 | 39 | ||||||||||||||
| 2024 | 26 | 6 | 32 | ||||||||||||||
| 2025 | 24 | 5 | 29 | ||||||||||||||
| 2026 and thereafter | 142 | 19 | 161 | ||||||||||||||
| Total undiscounted obligations | 306 | 53 | 359 | ||||||||||||||
| Less imputed interest | (74) | (15) | (89) | ||||||||||||||
| Present value of lease obligations | $ | 232 | $ | 38 | $ | 270 | |||||||||||
| Operating Leases | Finance Leases | Total | |||||||||
| 2020 | $ | 51 | $ | 8 | $ | 59 | |||||
| 2021 | 43 | 8 | 51 | ||||||||
| 2022 | 33 | 7 | 40 | ||||||||
| 2023 | 30 | 7 | 37 | ||||||||
| 2024 | 24 | 6 | 30 | ||||||||
| 2025 and thereafter | 158 | 16 | 174 | ||||||||
| Total undiscounted obligations | 339 | 52 | 391 | ||||||||
| Less imputed interest | (84 | ) | (14 | ) | (98 | ) | |||||
| Present value of lease obligations | $ | 255 | $ | 38 | $ | 293 | |||||