Sinclair Broadcast Group Inc. is on pace to shatter previous midterm election political ad revenues, although the category's crowd-out of inventory and slowing of other key sectors has had a deleterious effect on core advertising.
Third-quarter political ad revenues totaled $88 million, up 28% on a pro forma basis from the midterm cycle in 2018.
COO Rob Weisbord said on the company's Nov. 2 earnings call that political ad revenue year-to-date through the third quarter was up more than 50% over 2018 pro forma levels and off just 2% on a pro forma basis from the 2020 presidential cycle.
Political ad spending continued to be strong in October, with the company projecting its full-year category take to wind up in the $335 million to $340 million range, including $174 million to $179 million in the fourth quarter.
Sinclair President and CEO Chris Ripley said meeting that guidance would mean a better-than-30% improvement from what it booked in 2018 and only 5% down from the 2020 cycle, prior to the Georgia Senate runoff.
The political category's gains, though, have come at the expense of core advertising. That segment declined 34% in the third quarter to $286 million versus $434 million in the prior-year period. Excluding results from Diamond Sports Group, the Sinclair subsidiary that operates its regional sports networks, core advertising revenues decreased 9.5% from $316 million in the third quarter of 2021.
Results reflect the deconsolidation of the Diamond Sports Group local sports segment from Sinclair's financial statements that were measured under the equity method of accounting, effective March 1. As such, the year-to-date 2022 consolidated results only included two months of results from the local sports segment, while the consolidated financial results for the comparable 2021 periods include the local sports segment's results for the full period. Diamond will host a separate earnings call later in November.
CFO Lucy Rutishauser pointed to a political inventory crowd-out in certain highly competitive markets where spending has been strong, as well as with year-ago comparables that included revenue tied to the delayed Tokyo Summer Olympics, as reasons for the retreat of core advertising.
Weisbord also pointed to decreases in the sports betting and insurance categories. Weisbord said the former has been impacted by more states legalizing the practice, with some spending now migrating to national outlets and RSNs.
Insurance companies have also curtailed their spending in deference to losses they sustained owing to weather issues and pandemic-related costs.
As to the key auto category, Weisbord said the drive to clarity remains stalled, even as Sinclair registered year-over-year increases in spending. Although results now have comparables against the ongoing chip shortage, there is now a sheet metal shortage. To that end, the COO said that Toyota announced that minivan production would not begin for at least 18 months.
The company will get a better sense for core advertising after Election Day, as a number of advertisers have been sitting on the sidelines while the political cycle plays out. As of today, Weisbord said Sinclair has not seen any key categories "come in with any types of cancellations."
Rutishauser said fourth-quarter core advertising is expected to be down in the high single-digit to low double-digit percentage range when gauged against adjusted fourth-quarter 2021 results. The adjusted results exclude a $63 million hit against ad revenues that Sinclair experienced in late 2021 tied to a ransomware incident. The attack interfered with news broadcasts and other programming.
The CFO said the projected core decline will emanate from anticipated political inventory displacement and mild macroeconomic weakness.
All told, total third-quarter revenue declined 45% to $843 million from $1.54 billion. Media revenues decreased at the same rate to $836 million, versus $1.53 billion a year ago. Backing out Diamond results, total revenues increased 5% from $804 million in the prior-year period, with media revenues also ahead 5% from $795 million.
Net income attributable to the company was $21 million, or 32 cents per share, versus net income of $19 million, or 25 cents per share, in the prior-year period. Excluding adjustments, the company had net income of $25 million. The net loss from Diamond in the third quarter of 2021 was $132 million.
The S&P Capital IQ consensus EPS final estimate for the third quarter was 96 cents on a GAAP basis and 55 cents on a normalized measure.
