Sinclair Broadcast Group, Inc. (NASDAQ: SBGI), the largest broadcasting company in America, has agreed to acquire Tennis Channel for $350 million. The sellers include private-equity firms Apollo Partners, Bain Capital Ventures, Battery Ventures, CCMP Capital and Columbia Capital. Satellite broadcasters DirecTV and Dish Network Corp. also own small stakes in the network.
Tennis channel has $200 million in net operating losses (NOL, which Sinclair will be able to carry forward to offset future income taxes. The NOL present value is estimated to be worth approximately $65 million, said the company.
The transaction, which is subject to antitrust regulatory approval and other customary closing conditions, is expected to close during the first quarter of 2016 and will be funded through cash on hand and a draw on the company’s revolving line of credit.
LionTree Advisors acted as financial advisor to Tennis Channel in connection with the transaction. Evolution Media Capital also acted as an advisor to Tennis Channel.
Tennis Channel is the only 24-hour, television-based multimedia destination dedicated to both the professional sport and tennis lifestyle. Tennis Channel includes established over-the-top subscription services, TC Plus and TV Everywhere, and has rights to 90% of all the televised tennis in the U.S., featuring comprehensive coverage of the top 100 tournaments in the sport.
The company has already negotiated agreements with a number of multi-channel video programming distributors (MVPDs). Following Sinclair’s acquisition, Tennis Channel’s audience is expected to grow from 30 to 50 million homes.
“The company expects 2015 pro forma operating cash flow for the contracted subscriber increases (including the additional license fees and advertising revenues resulting from such increased carriage), to be approximately $60 million, the synergies of which will be phased in over 18 months, and resulting in a 2015 pro forma purchase multiple, including the present value of the NOLs, of 4.8x and approximately $0.40 of incremental cash flow per share,” commented Chris Ripley, CFO of Sinclair.
“Tennis Channel is an established property with high-quality content and advertisers, and is vastly under-compensated and under-distributed relative to the value it brings to its viewers. It was the only independently-owned major sports network left, and we knew we could unlock value through a tuck-in acquisition,” commented David Smith, chairman, president and CEO of Sinclair. “The additional subscriber base, which has already been contracted, equates to the creation of approximately $200 million of incremental value at closing. Furthermore, we expect this combination to create additional linear and OTT viewership and advertising growth, and we have the added benefit of continued involvement of Ken Solomon, CEO of Tennis Channel, and a seasoned programming executive.”
“We greatly appreciate the commitment from many of our distribution partners to substantially increase their carriage of Tennis Channel, and we expect that a number of upcoming MVPD negotiations to result in further carriage and Tennis subscriber penetration,” stated Barry Faber, Sinclair’s EVP and general counsel. “Nothing is more valuable to video distributors than high quality, live sports, and we expect the increased carriage of Tennis will be well-received by their subscribers. We also expect to leverage our broadcast platform to promote Tennis Channel, which we anticipate will result in increased viewership, further adding to the channel’s value in attracting and retaining subscribers.”
“In Sinclair we have found the perfect owner-partner to accelerate scaling the Tennis Channel brand and our sport’s expanding fan-base to the next level. Sinclair’s unique size and position in the media ecosystem will facilitate significant distribution growth towards parity with our competitive set and expand our brand’s assets and unique value as the go-to destination for all things tennis in the U.S. and beyond,” commented Ken Solomon, chairman and CEO of the Tennis Channel.
“The larger platform will immediately help develop incremental advertising and sponsorship business and puts us in a great position to enhance our already comprehensive rights portfolio domestically as well as develop the brand internationally. We also intend to utilize Sinclair’s advanced branding capabilities, digital expertise and significant broadcast asset platform to drive increased awareness for both Tennis Channel and our successful subscription-based OTT platform, Tennis Channel Plus,” added Solomon.
Launched in 2003 and based in Santa Monica, Calif., Tennis Channel is a hybrid of comprehensive sports, health, fitness, pop culture, entertainment and travel programming, home to every aspect of the wide-ranging, worldwide tennis community. It has the most concentrated single-sport coverage in television, with telecast rights at the U.S. Open, Wimbledon, Roland Garros (French Open), Australian Open, ATP World Tour Masters 1000 events, top-tier WTA competitions, Davis Cup and Fed Cup by BNP Paribas, and Hopman Cup. Tennis Channel is carried by nine of the top 10 video providers.
As a media platform for the sport itself, Tennis Channel has established trusted domestic and international partnerships with tennis’ governing bodies, players, agents, advertisers, fellow networks and other representatives of the year-round, global tennis family. The only U.S. television network with live/same-day coverage at each of the sport’s four majors, Tennis Channel has developed an unparalleled on-air talent roster with Hall of Famers and award-winning sportscasters. The network’s programming includes groundbreaking original shows and specials. These programs run the gamut, with instructionals, health and fitness, nutrition, tennis travel and news, as well as in-depth documentaries that explore the sport’s most impactful legends.
Tennis Channel has stayed on the forefront of cutting-edge media technology with the continuous expansion of its digital offerings to create the ultimate tennis viewing experience for fans. The network has rolled out TV Everywhere to 75% of its subscriber base. Additionally, when Tennis Channel launched its landmark digital subscription service, Tennis Channel Plus, it was the first to pair a subscription service with TV Everywhere ability within one app. The service features more than 800 additional live matches from more than 450 tournaments around the world – including the Australian and French Open – as well as thousands of hours of on-demand programming.
Sinclair is the largest and one of the most diversified television broadcasting companies in the United States. Including pending transactions, the company owns, operates and/or provides services to 171 television stations in 81 markets, broadcasting 467 channels and affiliations with all the major networks. Sinclair is the leading local news provider in the country, as well as a producer of sports content. Sinclair’s broadcast content is delivered via multiple-platforms, including over-the-air, multi-channel video program distributors, and digital platforms.
Sinclair also offers sign design and fabrication services; and security alarm monitoring and bulk acquisition services. In addition, the company invests in various real estate ventures, including developmental land, and operating commercial and multi-family residential real estate properties and apartments, as well as in private equity and structured debt/mezzanine financing investment funds. Further, it manufactures and services television broadcast antennas and transmitters. The company was founded in 1986 and is headquartered in Hunt Valley, Maryland. Sinclair has a market capitalization of $3.07 billion.