Court Holds Key to Sinclair-Tribune Merger

Lengthy stay of FCC decision could unwind deal

The fate of the FCC’s reinstitution of the UHF discount is in the hands of a federal appeals court.

That means the court also holds the key to Sinclair Broadcast Group’s multibillion-dollar bid to purchase the Tribune Media stations and other groups’ eyeing transactions that would hinge on such a discount.

The FCC would still have to vet the deal, but if the U.S. Court of Appeals for the D.C. Circuit grants a stay, it could jeopardize the acquisition, Sinclair has told the court.

Free Press, Prometheus and other consolidation critics have made their case for why the FCC was out of bounds in reversing yet another Tom Wheeler-era decision, which was to start counting 100% of a UHF TV station’s audience reach toward the 39% cap on a station group owner’s total audience, rather than only 50% of that audience, as had been the case.

FCC chairman Ajit Pai, in proposing to reverse that, said the FCC erred in not considering raising the 39% cap at the same time it eliminated the discount, or perhaps instituting a VHF discount. He concedes that the discount dates from the analog era when UHF signals were weaker than VHF signals, which is reversed in the digital era.

But one rub to the combined UHF and 39% cap review Pai has promised is that his fellow Republican on the commission, Michael O’Rielly, has argued that the FCC does not have the authority to raise or lower the cap because it was set by Congress.

That produced the unusual circumstance of Free Press et al. citing O’Rielly in making their case to the court for blocking the discount’s return, which O’Rielly voted for.

The court will be ruling on the groups’ request for an emergency stay of the return of the discount until the court hears the underlying legal arguments for why the FCC’s decision under Pai should or shouldn’t be reversed. But if the court grants the stay, it is a signal that reversal is likely, since there is a high legal bar for staying an agency decision, including likelihood of winning on the merits.

The FCC’s decision was supposed to take effect June 5, but the court issued a temporary, administrative stay, so that Free Press had time to respond to the FCC and its supporters, which it did by a June 7 deadline.

Deal in Jeopardy

Sinclair, which not surprisingly weighed in supporting the FCC, said that if a stay is granted while the case is argued and decided — which usually takes many months — it could jeopardize the deal no matter the outcome.

“It cannot be disputed that suspending a pending transaction for months while waiting for a judicial appeal to run its course would cause significant harm,” Sinclair told the court, according to a copy of its filing. “Such a delay would inherently increase financing and other costs and perhaps jeopardize funding and consummation of the transaction completely.”

A stay simply returns the status quo, Free Press et. al. argue, but that’s a status quo that has only existed since last fall. For three decades before that, the discount had been the norm.

“A stay would actually alter a status quo that has been in effect for 32 years,” Tribune told the court in a filing along with other station groups, Ion Media, Fox Television Stations and Trinity Broadcasting Network among them.

Ion said that eliminating the cap immediately decreases its market value, including by forcing the group to be broken up under certain refinancing scenarios. That’s because the discount, grandfathered for existing groups under the Wheeler decision, would not survive a change in control.

Whether the discount survives judicial scrutiny remains to be seen.