Sinclair moves on deal to acquire Fox’s WUTB-TV Baltimore


SBG / Sinclair Broadcast GroupPaperwork is at the FCC which shows a step being taken in the multifaceted deal between Sinclair and Fox that was initiated last spring. Sinclair will use a proxy for a de facto Baltimore triple play, while Fox continues to hold options on various Sinclair stations.

MNT affiliate WUTB will go to Sinclair for $2.711M. Sinclair in turn will assign the right to buy the license to frequent local market partner Deerfield Media, headed by Stephen Mumblow, for $330K.

Sinclair is based in Baltimore, and its flagship station, Fox WBFF-TV, is located there. It also owns CW WNUV in Baltimore.

Deerfield will get an additional $10K in exchange for granting Sinclair an option to purchase the station down the road for the same $330K it’s paying.

The two parties will enter into a pair of local agreements. Under terms of a JSA, Sinclair will sell time on the station and keep 30% of the proceeds, while 70% goes to Deerfield. They will also enter into an SSA, under terms of which Deerfield will pay an initial annual management fee to Sinclair amounting to $2.109M. The fee will increase 1.5% every 12 months.

The deal is part of a larger arrangement that began with Fox and Sinclair arriving at an affiliation agreement. Here is how Sinclair explained it to the SEC: “On May 14, 2012, the Company and the licensees of stations to which we provide services, representing 20 affiliates of Fox Broadcast Company (FOX) in total, extended the network affiliation agreements with FOX from the existing term of December 31, 2012 to December 31, 2017. Concurrently, we entered into an assignable option agreement with Fox Television Stations, Inc. (FTS) giving us or our assignee the right to purchase substantially all the assets of the WUTB station (Baltimore, MD) owned by FTS, which has a program service arrangement with MyNetworkTV, and entered into an option agreement giving FTS the right to purchase our stations in up to three of the following four markets: Las Vegas, NV, Raleigh, NC, Norfolk, VA, and Cincinnati, OH. Our stations in these markets are affiliated with the following networks or program service providers: Las Vegas (The CW and MyNetworkTV), Raleigh (The CW and MyNetworkTV), Norfolk (MyNetworkTV) and Cincinnati (MyNetworkTV). These options are exercisable between July 1, 2012 and March 30, 2013. The maximum total potential payments associated with the affiliation agreement and the option agreements is $50.0 million, which excludes any proceeds from the sale of stations upon FTS exercising its option, the $2.7 million purchase price we would pay to FTS for WUTB pursuant to our option, and ordinary course programming payments that will be due to FOX under the terms of the Company’s affiliation agreements. If FTS decides to exercise its option to purchase one or more of the aforementioned stations, the total payments will be reduced by $25.0 million. In the second quarter of 2012, we paid $25.0 million to FOX pursuant to the agreements, which is reflected as cash flows used in operating activities within the consolidated statement of cash flows for the nine month period ending September 30, 2012. During the second quarter of 2012, we recorded $50.0 million in other assets and $25.0 million of other accrued liabilities within the consolidated balance sheet, representing the additional obligation due to FOX if FTS does not exercise its option to acquire any of our stations. The $50.0 million asset is being amortized through the current term of the affiliation agreement ending on December 31, 2017. Approximately $2.2 million and $3.3 million of amortization expense has been recorded in the consolidated statement of operations during the three and nine months ended September 30, 2012, respectively.

“In October, we entered into an agreement to purchase the assets of the WUTB (MNT) station in Baltimore, MD owned by FOX for $2.7 million after exercising our purchase option as described under Network Affiliations above. This transaction is subject to FCC approval and other closing conditions. Our right to purchase the license assets under the agreement was assigned to Deerfield for $0.3 million, bringing our net purchase price to $2.4 million. Upon closing, we intend to provide sales and other non-programming services to this station pursuant to shared services and joint sales agreements.”