Sinclair: Trump No Drag On Political Spending

Even the stingy ways of Donald Trump are not dampening hopes for a big political advertising year at the Sinclair Broadcast Group, executives of the company told securities analysts after the release of its fourth quarter earnings this morning.

The company has been “pleasantly surprised” by spending thus far in the presidential primaries, said Steven Marks, co-COO. The revenue has exceeded expectations in Iowa, South Carolina and Nevada, even with Trump “sitting on the sidelines for the most part.”

“The spending to date has been enormous, actually, and we will have to wait and see what Donald does,” Marks said.

Trump, the surprise frontrunner for the Republican nomination, has been relying heavily on the earned media to keep his name in front of voters rather than paid media.

But the Trump advertising may eventually come, if not directly from his campaign, Marks said. “I would suspect that if he is the nominee … the RNC [Republican National Committee] is going to have no choice but to back him and the money will flow,” Marks said. “The prize is too big.”

Lucy Rutishauser, SVP, corporate finance, offered some specifics on political.

Spending in the first quarter is running 60% to 90% higher than in the first quarter of 2012, the last presidential election year, she said. “Now we don’t expect that trajectory to continue throughout the year, but I think it’s another indicator of just how strong political will be this year.”

The total political take for 2012 was $254 million. Should Sinclair zoom past the 2012 mark, she said, it will not be an accident.

“Over the past four years, we have been building this company for this political year,” she said. “We have been acquiring a lot of Big Four affiliates that have a lot of news, we have been adding a lot of news inventory, we added Full Measure … we expanded news in 16 markets and we are in all the key swing states in very big way.”

Full Measure is Sinclair’s new Sunday morning public affairs show featuring Sharyl Attkisson.

Rutishauser noted that accommodating the political money comes at a cost. “Just remember, the stronger [political] is, the more displacement you are going to have in back half of the year because of the finite amount of inventory that we have.”

In discussing core advertising, which excludes political, the Sinclair executives said they saw no signs of the weakness that Wells Fargo Marci Ryvicker mentioned as she questioned the executives.

EVP and COO David Amy, EVP said that core was up 2% in the fourth quarter of 2015 and up “just over 1%” for the entire year.

And, he said, he expects it to rise in the low single digits in the first quarter of this year, even when the $3 million windfall from the Super Bowl on CBS is factored out.

“Other than Q2 of ’15 where we had some weakness in Fox primetime, Q1 ’16 would be four out of five quarters where we are seeing the core business up in the low single digits,” Rutishauser said.

“We are not seeing any weakness,” added CFO Chris Ripley. “That’s not showing up in our business whatsoever.”

Co-COO Steve Pruett acknowledged that auto dealers have been making ever greater use of digital media over the past 15 years, but said the marketing dollars flowing to digital have come from media other than TV.

Nonetheless, he said, Sinclair has gotten “very aggressive” in going after auto’s digital dollars by offering “marketing plans that incorporate things like SEO, SEM, retargeting email campaigns and analytics intelligence….”

Right now, the marketing plans target dealers, but they will eventually also target auto dealer associations and manufacturers, he said.

Sinclair is also “organizing our dealer relationships” at all levels of auto sales to “make sure we continue to enjoy a big position in their marketing plan,” he said.

In response to a question about the impact of another recession, Ripley said Sinclair is in “an incredibly great” position to weather one, given the company’s mix of businesses and capital structure.

That Sinclair now enjoys a healthy revenue stream from retransmission consent “is nothing short of revolutionary,” he said. “Subscription revenue is much stickier and much less volatile in economic downturns.”

What’s more, he said, the company is leveraged lower than it was in 2007, just before the last recession, and its debt has lower cost and greater flexibility in terms of covenants and longer due dates.

Rutishauser added that Sinclair now also benefits from more diversify in network affiliations and markets.

Pruett added that Sinclair is a lot bigger than it was in 2007 and that alone brings benefits. “We are just now learning how to attack other pockets for money with our scale,” he said. “We now see we can go after network money and regional footprint money by aligning with other broadcasters and just using our scale to more effective.”