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Political ad spending on TV stations may decline from earlier projections

WithRepublican presidential candidate Donald Trump's TV advertising campaign yet toshift into high gear and lower-than-expected spending on other races in keystates, Sinclair Broadcast GroupInc. and GrayTelevision Inc. withdrew their political guidance for the year.

SteveLanzano, president and CEO of the TelevisionBureau of Advertising, previously forecast that broadcast stations wouldreap $3.3 billion inpolitical advertising from the presidential contest between Trump andDemocratic candidate Hillary Clinton and related political action committees,the battles for Senate, House and gubernatorial seats, and from various issues. 

Notingthat "many scenarios remain in play," Lanzano in an interview saidthe bureau is now conservatively estimating that stations will garner upward of$3 billion. The assessment, he said, is based on $1 billion in political adspending through August, and typical patterns in which two-thirds tothree-quarters of the total outlay occurs post-Labor Day.

TheTelevision Bureau of Advertising estimated stations' political advertising dollars at$2.9 billion in 2012 and $1.5 billion in 2008. That was prior to the federal courtdecision in "SpeechNow.org v. Federal Election Commission" in2010 that freed up corporations, unions, associations and individuals to spendunlimited sums on political advertising.

PeterLeitzinger, an analyst at SNL Kagan, a division of S&P Global MarketIntelligence, noted that with "the Trump campaign spending less than weexpected," the company is going to revise its forecast "a bitlower," without providing specifics. Previously, SNL Kagan had alsoforecast thatstations' political ad revenue would hit the $3.3 billion mark in 2016, a 15%jump from $2.9 billion in 2012.

Jefferiesanalyst John Janedis in a note wrote that "Sinclair's rescinding of itsfull-year political guidance supports our long-held view that politicaladvertising would disappoint this year." He also wrote that while"the industry has taken the view that political money would eventuallysurface," it did not fully factor in the difficulty of "catchingup," after spending falls behind budget.

SNL Image

GOP Presidential Candidate Donald Trump at the RNC

Sinclairon Sept. 20 lowered its expectations for third-quarter media revenues, citing"current and anticipated pacing of political advertising spending."The revision fell from a range of $649.2 million to $663.2 million, to $637million to $638 million, including $46 million in political ad spending, downfrom projections of between $58 million and $68 million.

SinclairCFO Chris Ripley said it also withdrew its full-year 2016 political estimates of $260million to $280 million due to "the unusual nature of this year'selection."

"Politicalis the most difficult part of our revenue to estimate given that advertisingtime is typically purchased with only a couple of days' notice prior to the adsairing," said Ripley. "While we previously anticipated a decline inpresidential ad spending in the third quarter based on the late fundraising bythe Trump campaign, we have yet to see significant spending, even at the levelswe initially anticipated."

Healso noted that spending on a Senatorial race in Ohio, which was expected to beone of the most expensive ever, has dropped drastically.  

Grayalso cited politicaladvertising orders arriving later than usual, with orders received just a fewdays ahead of broadcast, among the reasons for its guidance withdrawal.Although both presidential campaigns and allied PACs have either bought orexpressed interest in buying advertising time, Gray said it is "currentlyimpossible" to predict the future spending of the campaigns.

Thestation group did disclose that Trump's campaign and allied PACs have bought adtime and shown interest in placing ads in up to nine states in as many as 17 ofits markets. The Clinton campaign and allied PACs, according to Gray, haveeither bought time or expressed interest in buying advertising in six statesand up to seven Gray markets.

Thecompany said that its stations are experiencing more competitive statewideraces than expected in Missouri, Indiana and North Carolina, but Senate racesin Ohio and Colorado fell short of anticipated advertising spending.

Leitzingerexpects there will be significant spending on issues and the GOP fighting tokeep control of the Senate. As for the presidential contest, hesaid Clinton has been in the market and the anticipation is that Trump willhave to open up his TV spending.

"Youhave to think it would be disadvantageous to his campaign, if he didn't,"said Leitzinger.

RBCCapital Markets analyst Leo Kulp said he spoke with a political ad consultantfollowing the Sinclair and Gray guidance revisions who labeled this the"craziest cycle ever," but still called for record spending. In hisnote, Kulp said the consultant believes the presidential races will "widendramatically on a geographic basis." Whereas in 2012, the Obama campaignspent two-thirds of its TV budget in Ohio, Virginia and Florida, the consultantenvisions there will be presidential advertising activity in 10 states.

Inassessing the market, Lanzano presented "a worse-case scenario" inwhich political ad spending on the TV stations would still cross the $3 billionmark.

TelevisionBureau of Advertising envisions stations garnering between $1.65 billion and$1.70 billion on House, Senate and gubernatorial races, which would be up 20%to 25% from 2012. At this point, presidential and related PAC spending couldtrend toward $750 million, which would be down by 25% from the prior election.In 2012, issue- and ballot-based spending totaled $560 million for thestations. Through Sept. 18, Lanzano said that category was pacing 39% ahead ofthe corresponding stage in 2012. Since much of those dollars are spent in theweeks immediately ahead of Election Day, there is potential for a large uptickthere.

Lanzanoalso said the "big unknown" centers on Trump and his spending plansfor October.

"Historically,money that has been fundraised gets spent," he said, adding that the GOPcandidate's recent hiring of ad agency National Media "bodes well. Theyhave been big TV spenders."