Sinclair, Fox Iron Out Options to Buy/Sell Stations

New affiliation agreements for Sinclair, and option to acquire in home market of Baltimore

By Michael Malone -- Broadcasting & Cable, 5/15/2012 10:12:54 AM

Sinclair Broadcast Group has entered into a long-term affiliation agreement with Fox Network, and has obtained an option to acquire Fox-owned WUTB Baltimore, a MyNetworkTV (MNT) affiliate in Sinclair's home market.

The affiliation agreements cover 19 stations and run from 2013 through 2017. Sinclair, the largest Fox affiliates group, says the deal marks a "continuation of monthly programming fee payments at rates and increases consistent with the marketplace for Fox stations."

The pact also includes what Sinclair calls "an assignable option to Sinclair to purchase at fair value," WUTB, between July 1, 2012 and March 31, 2013. Such a deal would pair WUTB with Sinclair's Fox affiliate, WBFF.

The arrangement also gives Fox the option to purchase Sinclair-owned stations in up to three markets: Raleigh (WRDC-WLFL, an MNT-CW combo), Las Vegas (KVMY-KVCW, also a MNT-CW pair), Cincinnati (MNT affiliate WSTR), and Norfolk (MNT affiliate WTVZ), exercisable between July 1, 2012 and March 31, 2013.

Sinclair cited "a maximum $52.7 million in payments to Fox associated with the Baltimore option and affiliation," which decreases by $25 million should Fox exercise its option to purchase any of the aforementioned Sinclair stations.

"We are very pleased to have reached agreement to renew all of our affiliations with Fox Broadcasting, allowing us to continue as the largest Fox affiliate group," said David Smith, CEO and president of Sinclair. "For us, a pivotal aspect of the agreement was securing our affiliation on WBFF, our flagship station in Baltimore. Our Fox affiliate in Baltimore is one of our most important television assets, and over the years the station has built a strong local brand. We believe that this affiliation was at risk, and negotiated with Fox to acquire the option to purchase Fox Television Stations' WUTB, in Baltimore in hopes that acquiring this station would solidify WBFF's position as a Fox affiliate in Baltimore in the long term."

Smith did not sound bullish on Sinclair's CW and MyNetworkTV stations. "Any sales under the option agreement would be in line with our current focus to lessen our exposure to MNT and CW stations, particularly in markets where we do not have a duopoly structure with a 'big four' network," he said. "As expected, we agreed to continue to pay Fox annual program license fees, which increase annually. We believe that the current retransmission rates that are being paid to us by the multichannel video program distributor ("MVPD") providers such as cable, telecom and satellite are significantly below market value based on the fees paid to cable channels and, as these contracts renew, we expect these revenues to provide us with the resources to pay those programming license fees.

"Our goal is to grow our share of MVPD programming payments to reflect more closely the audience share and appointment programming we bring to the MVPDs," Smith continued. "We believe the best and quickest strategy to achieving that goal is by having our broadcast network partners' and our interests aligned."

Sinclair owns and operates, programs or provides sales services to 74 television stations in 45 markets.