Sanctions against Sinclair? Sounds justified

It’s either coincidence, karma or a higher power when things come together in ways previously thought impossible.

This weekend, Jewish people around the world read the Torah portion Shofetim (שֹׁפְטִים, or “Judges,” comprising Deuteronomy 16:18–21:9).

The best-known line in it is the third, “Justice, justice shall you pursue” (צֶ֥דֶק צֶ֖דֶק תִּרְדֹּ֑ף, Deut. 16:20).

Shofetim also happens to be the Torah portion from my bar mitzvah and it’s interesting that it’s coming up this week because an article in Axios yesterday said,

Sinclair Broadcasting’s failed effort to buy Tribune Media may soon become more than just a costly embarrassment. It could result in the company ultimately losing its broadcast licenses.”

Isn’t that what I suggested should happen, weeks ago, back on July 27?

And two days earlier, how

“It looks like one of the seven deadly sins – greediness – may have killed the (merger) deal!”?

Yesterday, Axios wrote,

“The conservative broadcaster has been accused of lying to the FCC, and of acting in bad faith with Tribune.”

There’s not much a huge corporation can do to anger the Federal Communications Commission these days – if it follows the rules, which get eased all the time – but lying is its one big crime.

Back on Jan. 27, I wrote the FCC was going to allow the deal but

“force Sinclair to sell off a bunch of stations because it’ll be (way, way, way) too big.”

And that was the crux of the problem: ownership limits and which stations would be sold off. Oh, and would the companies buying really be associated with Sinclair and let Sinclair control the stations?

Ajit Pai fcc wikipedia
Ajit Pai (Wikipedia)

In mid-July, FCC Chairman Ajit Pai said in a statement:

“Based on a thorough review of the record, I have serious concerns about the Sinclair-Tribune transaction. … The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law. … When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction. Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues.”

That was a huge surprise and the turning point in the drawn-out deal.

On July 24, the newspaper in Sinclair’s hometown, The Baltimore Sun, wrote what finally did the deal in:

“FCC Chairman Ajit Pai, an appointee of President Donald J. Trump who has been viewed as friendly to Sinclair and such a merger, raised ‘serious concerns’ Monday about whether the deal would serve the public interest.”

Ah, the public interest! It’s always nice to hear about that, since we’re talking about use of the public airwaves.

I quoted TVNewsCheck’s Harry A. Jessell on the seriousness of what Sinclair had actually been doing pretty quietly doing for years:

“Its mishandling of its merger application has badly stained its permanent FCC record in a way that could greatly complicate its future regulatory dealings. … And a liar is what the FCC has accused Sinclair of being by obfuscating the fact it would continue to control three major market stations that it told the FCC it would spin off to other broadcasters to comply with ownership limits.

sinclair before tribune
Sinclair’s reach. Large enough?

“You see, the FCC acts on the honor system. It presumes that you are obeying all the rules and expects you to confess any infractions. It’s the principal way the FCC polices those it regulates. That’s why lying – the ever-polite FCC calls it “misrepresentation” or “lack of candor” – is taken seriously and is the FCC equivalent of a capital crime. … As the lawyers pointed out to me this week, once indicted for misrepresentation as Sinclair has now been, it sticks because it goes to the broadcaster’s basic character qualifications to be a licensee. It cannot buy or sell a station or even renew a license until it resolves the character question. Sinclair’s best move now is to walk away from the merger and promise, no, swear on a stack of Bibles, that it will never, ever mislead the FCC again.

“Sinclair has no one but itself to blame for this fiasco. It pushed too hard to keep as many of the Tribune stations as it could and somewhere along the line lost sight of the larger goal – get the transfer through the FCC and get to closing. … (David Smith) kept going back to the FCC (and the Justice Department) demanding more and more. Ironically, he will likely end up with nothing, except maybe a new set of regulatory hassles.”

feature Tribune gavel Sinclair

Tribune called off the deal and sued Sinclair for $1 billion.

— UPDATE: Sinclair counter-suing Tribune, accusing its onetime takeover target of a “deliberate effort to exploit and capitalize on an unfavorable and unexpected reaction from the FCC to capture a windfall.” —

Of course, Sinclair denied everything and said in a statement,

“We have been completely transparent about every aspect of the proposed transaction.”

fcc commissioners 2018One thing Sinclair failed to do after telling the FCC it was withdrawing the deal was asking the administrative law judge, who FCC commissioners unanimously recommended look into Sinclair’s representations during the Tribune negotiations, to end his planned hearing. The FCC’s Enforcement Bureau said it had no problem if the hearing was terminated.

But Broadcasting & Cable reported “The FCC docket was still open” as of Monday and got confirmation from an FCC spokesperson,

“Although Sinclair’s pleading states that the applications ‘have been withdrawn’ and are to be dismissed with prejudice, it fails to specifically seek such relief from the Chief Administrative Law Judge.”

B&C added,

“That’s because the licenses are now before him, rather than the FCC staffers who had been vetting them before the hearing designation.”

tv airwavesThis is a world of bigger and bigger broadcasting companies – in part because of competition from cable, satellite and the internet – but as I’ve said about a million times, the broadcasters have special responsibilities since they use the public airways. And they need a tougher FCC to keep them, and the newer companies, in line.

On the other hand, Axios quoted Dennis Wharton, executive vice president of communications for the National Association of Broadcasters as saying,

“Scale matters when we are competing against massive pay TV conglomerates, Facebook, Apple and Netflix. If you want a healthy broadcast business that keeps the Super Bowl on free TV, that encourages local investigative journalism and allows stations to go 24-7 live with California wildfire coverage, broadcasters can’t be the only media barred from getting bigger.”

The FCC is still determining whether to raise the limits on TV station ownership above 39 percent. Most experts told Axios they

“believe that cap will be lifted above 50 percent, but they don’t know what the exact limit will be, or when it will be passed and implemented.”

RKO General 1962Anyway, the FCC has taken away broadcast licenses before. I wrote about the RKO General situation all over the country, and also allegations of impropriety in the granting of a Boston television license.

According to experts Axios spoke to, Sinclair’s first batch of licenses comes up for renewal in June 2020. (Look for more activist challenges then.)

They also

“describe Sinclair as a ‘hard headed’ company that rarely engages with D.C. and which recently lost its top lobbyist.”

That description should come as no surprise to any regular reader of this blog.

So for now, there’s no deal, but a lawsuit, between Sinclair and Tribune.

Sinclair’s alleged misrepresentations to the FCC

“can be reviewed by an administrative law judge during a license renewal hearing, were the FCC to recommend such a hearing (which may be likely, given FCC’s concerns and Sinclair’s many outside critics),”

according to Axios.

The judge could revoke Sinclair’s licenses outright, which would teach the industry and its investors a big, important lesson. But a telecom lawyer Axios spoke to said,

“A more likely scenario … is that the FCC would reach a settlement whereby Sinclair is required to divest stations.”

My opinion: Crush them or cut them down to size, but at least do something.

One last note is that Sinclair is going to have trouble finding another merger partner due to its potential license renewal issues, but also because Tribune’s lawsuit accused the company of being “belligerent.” It’s what happens when you’re too big.Tribune Broadcasting Company

Now to the Tribune side, where there is less justice.

Reuters reported the company is going to pay big

“bonuses to executives who worked for more than 15 months on its failed merger.”

You’d think they’d be in line for bonuses after a successful merger!

How big are these bonuses? Reuters reported the company said,

“16 percent of target annual bonuses, which had been conditioned on completion of the Sinclair merger.” (I underlined. –Lenny)

money dollars centsAre you hearing this, shareholders?

This is what it adds up to. Three top executives – chief financial officer Chandler Bigelow, president of broadcast media Larry Wert, and general counsel and chief strategy officer Edward Lazarus – will be getting

“between $102,000 and $160,000. Other executives will get bonuses based on a similar percentage of their targeted annual bonuses.”

Why?

“In recognition of the substantial efforts and time that each of them devoted to the company’s anticipated merger with Sinclair and their contributions to maintain and grow the company’s business,”

according to the company.

That’s if the company was actually spending money to “maintain and grow” the business which is doubtful because companies in the process of being bought are cheap, not replacing employees or equipment so the financial sheets look better.

And what about all the employees who were encouraged to work under harder conditions and so much uncertainty for so long?

That’s the world, these days, kids.

Reuters also mentioned,

“Last week, Tribune Media Chief Executive Officer Peter Kern told investors it (was) ‘open to all opportunities’ in terms of industry consolidation or remaining independent. He noted on an investor call there was ‘tons of activity out there.’

“Kern said he would continue to run the company until Tribune reached a ‘permanent state.’”

Keep in mind, last Monday, Tribune announced it

“reached a comprehensive agreement with Fox Broadcasting Company to renew the existing Fox affiliations of eight Tribune Media television stations, including KCPQ-TV (Seattle), KDVR-TV (Denver), WJW-TV (Cleveland), KTVI-TV (St. Louis), WDAF-TV (Kansas City), KSTU-TV (Salt Lake City), WITI-TV (Milwaukee), WGHP-TV (Greensboro, NC). Terms of the agreement were not disclosed.”

disney abc logo

But knowing Fox is selling most of its assets to Disney/ABC and looking for more stations to buy, especially those in NFL football team markets, I’d consider Tribune a seller rather than a buyer.

TVNewsCheck’s Jessell agrees, pointing out,

“Recall that just prior to the announcement of the Sinclair deal, Fox tried to swoop in and buy Tribune out from underneath Sinclair. It coveted some of Tribune’s stations and it feared Sinclair becoming too big an affiliate group for it to push around.”

Fox TV stations

I’d also consider telling the FCC not to let Fox buy any of those eight stations, except Seattle, because it owned them at one point and sold them when it made sense for the company. In other words, it showed no commitment to the communities or their people. Companies shouldn’t be allowed to sell unneeded stations and then buy them back when they feel they’ll make more money.

standard media

Besides Fox, which could face ownership limits, Jessell pointed to Soo Kim’s new Standard Media, which was going to buy nine Tribune stations in seven cities, and Nexstar as potential buyers.

Jessell also mentions there are a lot more stations on the market now than two years ago.

cox media group

Cox is looking for someone to buy its 14 stations, Gray is buying Raycom and has to spin off nine stations, and Cordillera will be leaving the industry once it sells its 11 stations.

So complicated!

But some more from Jessell on Sinclair:

“Not in the entire history of broadcasting, with the possible of RKO, has a major company so thoroughly managed to trap itself in such a regulatory and legal morass. …

“If Executive Chairman David Smith did not control the board, he would be thrown out for directing this debacle and hobbling the company at a critical time for it and the industry. It will be interesting to see who is made the scapegoat. …

“Sinclair can continue to churn out cash, but, from a strategic standpoint in broadcasting, is indefinitely sidelined. Until it resolves the alleged character issues at the FCC, it cannot buy a broadcast license. It can’t even renew one.

“Sinclair’s challenge today is to start digging out — and it’s going to be costly. First it must settle with Tribune. And then it has to return to the good graces of the FCC.” …

Also, “The Sinclair independent shareholders (could) file a lawsuit against Smith and his team for gross mismanagement.” …

And, “Indeed, Sinclair did everything wrong, allowing arrogance and self-righteousness to overcome its good sense at every turn.”

I think a lot of justice is what’s needed here, and soon.

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5 thoughts on “Sanctions against Sinclair? Sounds justified

  1. Gray Makes Deals To Sell 9 More Stations https://tvnewscheck.com/article/top-news/220885/gray-makes-deals-sell-9-stations/ I don’t like the consolidation, or the fact WTXL is getting its third owner in less than two years, but notice how Gray approached the FCC and followed through, compared to Sinclair. That’s how you do a deal, and get it done. From here, it seems everything was done above board. No secrets. That gets me wondering whether Fox has a secret deal to try to buy Tribune stations.

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    1. From FTVLive’s Scott Jones: https://www.ftvlive.com/sqsp-test/2018/8/21/gray-selling-stations-to-scripps-tegna-lockwood “Unlike what Sinclair tried to do, Gray wisely will not have any joint sales, joint retransmission, shared services, or local marketing arrangements with any divested station. Additionally, Gray will not hold an option to repurchase any divested station, nor will Gray finance or guarantee any purchaser’s indebtedness. In short, following consummation of the transactions, the divested stations will operate independently of Gray and under the full control of their new owners.”

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