# Sinclair, Inc. (SBGI) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sinclair, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1971213/000197121324000011/sbgi-20231231.htm
Accession: 0001971213-24-000011
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SBGI/
All MD&A years: /company/SBGI/mda/
Next year: /company/SBGI/mda/fy2024/ (FY 2024)

ITEM 7.                                    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled "Forward-Looking Statements." Certain risks may cause our actual results, performance, or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A. Risk Factors.

Overview

 The following Management’s Discussion and Analysis provides qualitative and quantitative information about Sinclair's and SBG's financial performance and condition which should be read in conjunction with the other sections in this annual report, including Item 1. Business and the Consolidated Financial Statements, including the accompanying notes to those statements. This discussion consists of the following sections:

Executive Overview — a description of our business, summary of significant events, and information about industry trends;

Critical Accounting Policies and Estimates — a discussion of the accounting policies that are most important in understanding the assumptions and judgments incorporated in the Consolidated Financial Statements and a summary of recent accounting pronouncements;

Results of Operations — a summary of the components of Sinclair's and SBG's revenues by category and by network affiliation, a summary of other operating data, and an analysis of Sinclair's and SBG's revenues and expenses for 2023, 2022, and 2021, including a comparison between 2023 and 2022 and between 2022 and 2021; and

Liquidity and Capital Resources — a discussion of Sinclair's and SBG's primary sources of liquidity and contractual cash obligations and an analysis of Sinclair's and SBG's cash flows from or used in operating activities, investing activities, and financing activities.

EXECUTIVE OVERVIEW

We are a diversified media company with national reach and a strong focus on providing high-quality content on our local television stations, digital platform, and, prior to the Deconsolidation, regional sports networks. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, other original programming produced by us and our owned networks, and, prior to the Deconsolidation, college and professional sports. Additionally, we own digital media products that are complementary to our extensive portfolio of television station related digital properties and we have interests in, own, manage and/or operate technical and software services companies, research and development for the advancement of broadcast technology, and other media and non-media related businesses and assets, including real estate, venture capital, private equity, and direct investments.

As of December 31, 2023, Sinclair had two reportable segments, local media and tennis, and SBG had one reportable segment, local media. Prior to the Deconsolidation, Sinclair and SBG had one additional reportable segment, local sports. Sinclair and SBG's local media segment is comprised of our television stations, which are owned and/or operated by Sinclair and SBG's wholly-owned subsidiary, Sinclair Television Group, Inc. ("STG") and its direct and indirect subsidiaries, original networks and content. Sinclair's tennis segment primarily consists of Tennis Channel, a cable network which includes coverage of many of tennis' top tournaments and original professional sports and tennis lifestyle shows. Sinclair and SBG's local sports segment was comprised of our regional sports networks, which are owned and operated by our subsidiary, Diamond Sports Group, LLC ("DSG"). Sinclair also earns revenues from non-broadcast digital and internet services, technical services, and non-media investments, included within "other". Other and corporate are not reportable segments for either Sinclair or SBG.

STG, for which certain assets and results of operations are included in the local media segment and which is one of Sinclair's and SBG's wholly owned subsidiaries, is the primary obligor under the Bank Credit Agreement and the STG Notes. SBG and substantially all of STG’s subsidiaries are guarantors under the STG debt instruments. Sinclair's Class A Common Stock and Class B Common Stock remain securities of Sinclair and not obligations or securities of STG.

For more information about our business, reportable segments, and our operating strategy, see Item 1. Business in this Annual Report on Form 10-K.

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Summary of Significant Events

Content and Distribution

•In February 2023, SBG announced that its free, over-the-air multicast networks Comet, CHARGE!, and TBD will add 2.4 million households through upgraded local broadcast affiliates and linear carriage.

•In March 2023, SBG entered into an agreement with fuboTV for carriage of SBG's CBS stations.

•In April 2023, Sinclair announced a distribution agreement with YouTube TV to add carriage of Sinclair's Tennis Channel and T2 and SBG's CHARGE! and TBD to YouTube TV's service offerings and to extend YouTube TV's existing carriage of SBG's CBS and MyNetworkTV affiliated television broadcast stations.

•In April 2023, SBG entered into an agreement with Hulu to resume carriage of SBG's ABC stations.

•In June 2023, SBG reached an agreement with Smith Entertainment Group, parent company of the Utah Jazz, to make KJZZ "The Home of the Utah Jazz," enabling fans within the Jazz's local broadcast market to watch all non-nationally televised exclusive Jazz games on the over-the-air, local TV station.

•In July 2023, Sinclair announced a distribution agreement with Hulu to add carriage of Sinclair's Tennis Channel and T2 and SBG's Comet and CHARGE! to Hulu's service offerings beginning in January 2024.

•In August 2023, SBG agreed to expand and extend its network affiliation agreement with The CW. Under the terms of the comprehensive multiyear agreement, SBG will continue carrying The CW’s entertainment and sports programming in 35 of its owned and/or operated markets across the country. The agreement also includes the right to negotiate carriage agreements directly with vMVPDs. In addition, beginning September 1, SBG launched The CW on two new affiliate stations, KOMO-TV/KUNS-TV, in Seattle, Washington, and WPNT-TV in Pittsburgh, Pennsylvania.

•In September 2023, DIRECTV, LLC extended its distribution agreement with Sinclair.

•In September 2023, Tennis Channel and the Carvana Professional Pickleball Association (PPA Tour) announced a commercial joint venture to further grow pickleball in the United States and worldwide. The partnership will see the vast majority of PPA Tour matches appear live on Tennis Channel platforms, integrated advertising-sales efforts for media and tournaments, and the recent launch of a 24-hour pickleball channel. Tennis Channel will produce all events for the PPA Tour.

•In October 2023, SBG launched The Nest, a new, free over-the-air national broadcast TV network with programming comprised of home-improvement, true-crime, factual reality series, and celebrity driven family shows. The Nest joins SBG’s lineup of national broadcast networks, Comet, CHARGE!, and TBD. It replaces Stadium network on broadcast stations across the country. At launch, the network was available in more than 50% of all US television households including the major markets of New York, Los Angeles, Philadelphia, Dallas - Ft. Worth, Boston, San Francisco - Oakland - San Jose and Seattle-Tacoma.

•In October 2023, SBG and Paramount reached comprehensive, multi-year affiliation agreements across all 21 CBS network affiliations for SBG stations, including six top-50 market affiliates, KUTV in Salt Lake City, UT, KEYE in Austin, TX, WKRC in Cincinnati, OH, WPEC in West Palm Beach, FL, WWMT in Grand Rapids, MI and WHP in Harrisburg, PA. Additionally, Paramount reached an agreement to renew the affiliations of WTVH in Syracuse, NY and WGFL in Gainesville, FL, stations to which SBG provides services.

•In January 2024, Sinclair announced a comprehensive multi-year distribution agreement with Verizon for carriage on FiOS TV, covering Tennis Channel and SBG's local television stations in 10 markets.

•In January 2024, SBG and FOX Corporation reached an agreement for a multi-year renewal of all FOX affiliations in SBG markets, including where SBG provides sales and other services under JSAs or MSAs.

•In January 2024, Sinclair renewed its distribution agreement with the National Content & Technology Cooperative ("NCTC") that allows NCTC's member companies to opt into a multi-year retransmission consent agreement for SBG's owned and operated stations and includes an agreement for Tennis Channel.

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Environmental, Social, and Governance

•For the year ended December 31, 2023, our newsrooms won a total of 276 journalism awards, including 24 Regional and one National RTDNA Edward R. Murrow awards and 67 regional Emmy awards.

•In March 2023, SBG announced a multi-year, national agreement with USC Shoah Foundation—The Institute for Visual History and Education to assist with the recording of interviews with genocide survivors as part of the Institute’s Last Chance Testimony Collection Initiative.

•In April 2023, SBG announced that Project Baltimore, the special investigative reporting unit of WBFF/Fox 45 News, was honored by Investigative Reporters and Editors for its reporting on Baltimore's public school system.

•In April 2023, Sinclair and SBG celebrated our first Sinclair Day of Service whereby all employees were encouraged to volunteer that day for charitable causes. Thousands of employees eagerly turned out to help out in their communities.

•In May 2023, Sinclair published its 2022 Environmental, Social and Governance report, detailing ESG achievements in 2022 and progress toward its longstanding ESG goals and commitments.

•In May 2023, SBG announced that "Hate Rising: Antisemitism in America," a 60-minute special, will initially air on WPEC and be available across SBG's stations throughout the summer, providing an unfiltered look at the rise of antisemitism in America, examining how the country is combating it through awareness, education, and legislation.

•In July 2023, Sinclair announced a partnership with the National Diaper Bank Network to launch Sinclair Cares: Summer Diaper Drive, a nationwide campaign to create awareness, provide assistance, and build a community to reduce diaper need in the United States.

•In July 2023, SBG announced that scholarships were awarded to 15 university students as a part of SBG's annual Diversity Scholarship program.

•In October 2023, Sinclair launched Sinclair Cares: Humanitarian Relief in Israel, a fundraising partnership in conjunction with Magen David Adom (MDA), an affiliate of the International Federation of Red Cross and Red Crescent Societies, to help with their efforts providing humanitarian relief and emergency medical services for all people in Israel, regardless of religious creed or political belief.

•In October 2023, SBG announced the return of SBG's News Reporter and Producer Academies, a series of interactive, virtual workshops for college students interested in pursuing careers in journalism. This year, SBG also added Weather Academy, a workshop for students interested in a career in weather.

•In October 2023, Sinclair updated its Code of Business Conduct and Ethics.

NextGen Broadcasting (ATSC 3.0)

•In April 2023, Sinclair and its partners CAST.ERA, SK Telecom, and Saankhya Labs, announced they will build and operate an innovative and interconnected broadcast platform to provide commercial services and solutions for national data distribution using NextGen Broadcast (ATSC 3.0) network technology.

•In April 2023, the Metropolitan Washington Council of Governments and Sinclair's subsidiary, ONE Media 3.0, launched the nation's first pilot project to use Next Generation Broadcast to disseminate Advanced Emergency Information. The pilot program provides an efficient, instantaneous and simultaneous delivery of emergency messaging sent by local governments to all users for free, utilizing the over-the-air broadcast platform. The pilot also demonstrated delivery of enhanced, rich media supplements to those emergency messages that meet its newsworthy criteria.

•In October 2023, Sinclair announced an agreement to expand development of and promote NextGen services in South Korea with the Korea Radio Promotion Association.

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•In 2023, Sinclair, in coordination with other broadcasters, and led by BitPath, Sinclair's joint venture with another broadcaster, have deployed NextGen TV, powered by ATSC 3.0, in the 6 additional markets below. This brings the total number of our markets in which NextGen TV has been deployed to 43:

[[GREPCENT_TABLE]]
[["Month","","Market","","Number of Stations","","Company Stations"],["March 2023","","Rochester, NY","","4","","WHAM-TV(a) (ABC), WUHF (FOX)"],["March 2023","","Des Moines, IA","","4","","KDSM-TV (FOX)"],["June 2023","","South Bend, IN","","5","","WSBT-TV (CBS and FOX)"],["July 2023","","Reno, NV","","5","","KRXI-TV (FOX), KRNV-DT(a) (NBC), KNSN-TV(b) (MyNet)"],["August 2023","","Minneapolis, MN","","5","","WUCW-TV (CW)"],["December 2023","","El Paso, TX","","5","","KDBC-TV (CBS), KFOX-TV (FOX)"]]
[[/GREPCENT_TABLE]]

(a)The license and programming assets for these stations are currently owned by a third party. SBG provides certain non-programming related sales, operational, and administrative services to these stations pursuant to a service agreement, such as a JSA and SSA.

(b)The license assets for these stations are currently owned by a third party. SBG provides programming, sales, operational, and administrative services to these stations pursuant to certain service agreements, such as LMAs.

Financing, Capital Allocation, and Shareholder Returns

•In February 2023, Sinclair purchased the remaining 175,000 units of the redeemable subsidiary preferred equity for an aggregate purchase price of $190 million, representing 95% of the sum of the remaining unreturned capital contribution of $175 million, and accrued and unpaid dividends up to, but not including, the date of purchase.

•For the year ended December 31, 2023, STG purchased an aggregate $64 million of principal across multiple tranches of debt in the open market for $49 million. In January 2024, STG purchased $27 million aggregate principal amount of the Term Loan B-2, due September 30, 2026, for consideration of $25 million.

•For the year ended December 31, 2023, Sinclair repurchased approximately 8.8 million shares of Class A Common Stock for $153 million. All shares were repurchased under an SEC Rule 10b5-1 plan.

•For the year ended December 31, 2023, Sinclair paid dividends of $1.00 per share. In February 2024, Sinclair declared a quarterly cash dividend of $0.25 per share.

Other Events

•In January 2024, Sinclair announced that it has agreed, subject to Sinclair and DSG completing definitive documentation, to a global settlement and release of all claims associated with the litigation filed by DSG and DSG’s wholly-owned subsidiary, Diamond Sports Net, LLC, in July 2023. The settlement terms include Sinclair’s cash payment to DSG of $495 million. The cash payment will be funded by cash on hand at Ventures, STG and/or a loan backed by Ventures. Under the terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity going forward.

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Industry Trends

•During the last few years, the number of subscribers to Distributor services in the United States has been declining, as technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where, and how they consume news, sports, and other entertainment, including through the so-called "cutting the cord" and other consumption strategies.

•The Distributor industry has continued to undergo significant consolidation, which gives top Distributors purchasing power.

•vMVPDs have continued to gain increasing importance and have quickly become a critical segment of the market. These vMVPDs offer a limited number of networks at a lower price point as compared to the traditional cable offering.

•Political spending is significantly higher in the even-numbered years due to the cyclicality of political elections. In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election.

•The FCC has permitted broadcast television stations to use their digital spectrum for a wide variety of services including multi-channel broadcasts. The FCC "must-carry" rules only apply to a station's primary digital stream.

•Seasonal advertising increases within our local media segment occur in the second and fourth quarters due to the anticipation of certain seasonal and holiday spending by consumers.

•Broadcasters have found ways to increase returns on their news programming initiatives while continuing to maintain locally produced content through the use of news sharing arrangements.

•'Big Tech' has begun offering OTT platforms.

•Broadcast networks have begun launching and expanding their own DTC platforms.

•Advertising revenue on digital platforms continues to grow.

•Advertising revenue related to the Summer Olympics occurs in even numbered years, with the exception of 2020 which was postponed due to COVID-19 and took place in Summer 2021. Advertising revenue related to the Winter Olympics also occurs in even numbered years but are two years apart from the Summer Olympics. The Super Bowl is aired on a different network each year. All of these popularly viewed events can have an impact on our advertising revenues.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, program contract costs, income taxes and variable interest entities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates have been consistently applied for all years presented in this report and in the past we have not experienced material differences between these estimates and actual results. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and such differences could be material.

We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a detailed discussion of the application of these and other accounting policies, see Note 1. Nature of Operations and Summary of Significant Accounting Policies within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements.

Revenue Recognition. As discussed in Revenue Recognition under Note 1. Nature of Operations and Summary of Significant Accounting Policies within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements, we generate advertising revenue primarily from the sale of advertising spots/impressions on our broadcast television, digital platforms, and, prior to the Deconsolidation, the RSNs. Advertising revenue is recognized in the period in which the advertising spots/impressions are delivered. In arrangements where we provide audience ratings guarantees, to the extent that there is a ratings shortfall, we will defer a proportionate amount of revenue until the ratings shortfall is settled through the delivery of additional advertising. The term of our advertising arrangements is generally less than one year and the timing between when an advertisement is aired and when payment is realized is not significant. In certain circumstances, we require customers to pay in advance; payments received in advance of satisfying our performance obligations are reflected as deferred revenue.

We generate distribution revenue through fees received from Distributors and other OTT providers for the right to distribute our broadcast channels and cable networks on their distribution platforms. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal is provided to our customers (as usage occurs) which corresponds with the satisfaction of our performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. Our customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.

Impairment of Goodwill, Indefinite-Lived Intangible Assets, and Other Long-Lived Assets. We evaluate our goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate an impairment may exist. As of December 31, 2023, Sinclair's consolidated balance sheet included $2,082 million and $150 million of goodwill and indefinite-lived intangible assets, respectively, and SBG's consolidated balance sheet included $2,016 million and $123 million of goodwill and indefinite-lived intangible assets, respectively. We evaluate long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of our asset groups may not be recoverable.

In the performance of our annual goodwill and indefinite-lived intangible asset impairment assessments we have the option to qualitatively assess whether it is more likely-than-not that the respective asset has been impaired. If we conclude that it is more-likely-than-not that a reporting unit or an indefinite-lived intangible asset is impaired, we apply the quantitative assessment, which involves comparing the estimated fair value of the reporting unit or indefinite-lived intangible asset to its respective carrying value. See Impairment of Goodwill, Intangibles and Other Assets under Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 5. Goodwill, Indefinite-Lived Intangible Assets, and Other Intangible Assets within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements for further discussion of the significant judgments and estimates inherent in both qualitatively assessing whether impairment may exist and estimating the fair values of the reporting units and indefinite-lived intangible assets if a quantitative assessment is deemed necessary.

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We are required to analyze our long-lived assets, including definite-lived intangible assets, for impairment. We evaluate our definite-lived intangible assets for impairment if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In the event we identify indicators that these assets are not recoverable, we evaluate the recoverability of definite-lived intangible assets by comparing the carrying amount of the assets within an asset group to the estimated undiscounted future cash flows associated with the asset group. An asset group represents the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. At the time that such evaluations indicate that the future undiscounted cash flows are not sufficient to recover the carrying value of the asset group, an impairment loss is determined by comparing the estimated fair value of the asset group to the carrying value. We estimate fair value using an income approach involving the performance of a discounted cash flow analysis.

We believe we have made reasonable estimates and utilized appropriate assumptions in the performance of our impairment assessments. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions, loss of significant customers, and significant increases in discount rates, among other factors, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows.

Program Contract Costs.  As discussed in Broadcast Television Programming under Note 1. Nature of Operations and Summary of Significant Accounting Policies within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements, we record an asset and corresponding liability for programming rights when the program is available for its first showing or telecast. These costs are expensed over the period in which an economic benefit is expected to be derived. To ensure the related assets for the programming rights are reflected in our consolidated balance sheets at the lower of unamortized cost or fair value, management estimates future advertising revenue to be generated by the remaining program material available under the contract terms. Management’s judgment is required in determining the timing of expense for these costs, which is dependent on the economic benefit expected to be generated from the program and may significantly differ from the timing of related payments under the contractual obligation. If our estimates of future advertising revenues decline, amortization expense could be accelerated or fair value adjustments may be required.

Fair Value Measurements of Investments in Bally's Securities. As discussed in Note 6. Other Assets and Note 18. Fair Value Measurements within Sinclair's Consolidated Financial Statements, we entered into a commercial agreement with Bally’s Corporation on November 18, 2020. As part of this arrangement, we received warrants and options to acquire common equity in the business. These financial instruments are measured each period at fair value. The fair value of the options are derived utilizing a Black Scholes valuation model which utilizes a number of inputs which most significantly includes the trading price of the underlying common stock and the exercise price of the options. The fair value of the warrants are primarily derived from the trading price of the underlying common stock and the exercise price of the warrants. The determination of the fair value of these financial instruments requires the Company to exercise judgment.

Income Tax.  As discussed in Income Taxes under Note 1. Nature of Operations and Summary of Significant Accounting Policies within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2023 and 2022, a valuation allowance has been provided for deferred tax assets related to certain temporary basis differences, and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements.

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Management periodically performs a comprehensive review of our tax positions, and we record a liability for unrecognized tax benefits if such tax positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes. Significant judgment is required in determining whether positions taken are more likely than not to be sustained, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided. See Note 12. Income Taxes within Sinclair's Consolidated Financial Statements and Note 11. Income Taxes within SBG's Consolidated Financial Statements, for further discussion of accrued unrecognized tax benefits.

Variable Interest Entities ("VIEs").  As discussed in Note 14. Variable Interest Entities within Sinclair's Consolidated Financial Statements and Note 13. Variable Interest Entities within SBG's Consolidated Financial Statements, we have determined that certain third-party licensees of stations for which we perform services pursuant to arrangements, including LMAs, JSAs, and SSAs, are VIEs and we are the primary beneficiary of those variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs.

Transactions with Related Parties. We have determined that we conduct certain business-related transactions with related persons or entities. See Note 15. Related Person Transactions within Sinclair's Consolidated Financial Statements and Note 14. Related Person Transactions within SBG's Consolidated Financial Statements for discussion of these transactions.

RECENT ACCOUNTING PRONOUNCEMENTS

See Recent Accounting Pronouncements under Note 1. Nature of Operations and Summary of Significant Accounting Policies within each of Sinclair's Consolidated Financial Statements and SBG's Consolidated Financial Statements for a discussion of recent accounting policies and their impact on Sinclair's and SBG's financial statements.

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SINCLAIR, INC. RESULTS OF OPERATIONS

SINCLAIR, INC. RESULTS OF OPERATIONS

Any references to the first, second, third, or fourth quarters are to the three months ended March 31, June 30, September 30, or December 31, respectively, for the year being discussed. As of December 31, 2023, we had two reportable segments for accounting purposes, local media and tennis. Prior to the Deconsolidation, we had one additional reportable segment for accounting purposes, local sports.

Seasonality / Cyclicality

The operating results of our local media segment are usually subject to cyclical fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election. Also, the second and fourth quarters' operating results are usually higher than the first and third quarters' operating results because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.

The operating results of our tennis segment are usually subject to cyclical fluctuations due to the amount and significance of tournaments that take place in the respective quarters during the year. The first and fourth quarter operating results are usually higher than the second and third quarters' because of the amount and significance of tournaments that are played during those periods.

Consolidated Operating Data

The following table sets forth certain of our consolidated operating data for the years ended December 31, 2023, 2022, and 2021 (in millions).

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2023","","2022","","2021"],["Media revenues","$","3,106","","","$","3,894","","","$","6,083"],["Non-media revenues","28","","","34","","","51"],["Total revenues","3,134","","","3,928","","","6,134"],["Media programming and production expenses","1,611","","","1,942","","","4,291"],["Media selling, general and administrative expenses","747","","","812","","","908"],["Depreciation and amortization expenses","271","","","321","","","591"],["Amortization of program contract costs","80","","","90","","","93"],["Non-media expenses","49","","","44","","","57"],["Corporate general and administrative expenses","694","","","160","","","170"],["Loss (gain) on deconsolidation of subsidiary","10","","","(3,357)","","","\u2014"],["Loss (gain) on asset dispositions and other, net of impairment","3","","","(64)","","","(71)"],["Operating (loss) income","$","(331)","","","$","3,980","","","$","95"],["Net (loss) income attributable to Sinclair","$","(291)","","","$","2,652","","","$","(414)"]]
[[/GREPCENT_TABLE]]

A discussion regarding our financial results and operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 and for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.

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SINCLAIR, INC. RESULTS OF OPERATIONS

Local Media Segment

The following table sets forth our revenue and expenses for our local media segment for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase / (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Revenue:"],["Distribution revenue","$","1,491","","","$","1,531","","","$","1,476","","","(3)%","","4%"],["Advertising revenue","1,236","","","1,518","","","1,230","","","(19)%","","23%"],["Other media revenue (a)","139","","","144","","","181","","","(3)%","","(20)%"],["Media revenues (b)","$","2,866","","","$","3,193","","","$","2,887","","","(10)%","","11%"],["Operating Expenses:"],["Media programming and production expenses","$","1,488","","","$","1,450","","","$","1,389","","","3%","","4%"],["Media selling, general and administrative expenses (c)","694","","","704","","","644","","","(1)%","","9%"],["Depreciation and amortization expenses","243","","","243","","","248","","","\u2014%","","(2)%"],["Amortization of program contract costs","80","","","90","","","93","","","(11)%","","(3)%"],["Corporate general and administrative expenses","134","","","117","","","148","","","15%","","(21)%"],["Non-media expenses","14","","","15","","","\u2014","","","(7)%","","n/m"],["Gain on asset dispositions and other, net of impairment","(14)","","","(17)","","","(23)","","","(18)%","","(26)%"],["Operating income","$","227","","","$","591","","","$","388","","","(62)%","","52%"],["Interest expense including amortization of debt discount and deferred financing costs","$","305","","","$","226","","","$","183","","","35%","","23%"],["Gain (loss) on extinguishment of debt","$","15","","","$","3","","","$","(7)","","","n/m","","n/m"]]
[[/GREPCENT_TABLE]]

n/m - not meaningful

(a)Includes $26 million and $111 million for the years ended December 31, 2022 and 2021, respectively, of intercompany revenue related to certain services provided by the local media segment to other and the local sports segment, prior to the Deconsolidation, under management services agreements, which was eliminated in consolidation, and $52 million and $39 million of revenue for the years ended December 31, 2023 and 2022, respectively, for services provided by the local media segment under management services agreements after the Deconsolidation, which is not eliminated in consolidation.

(b)Includes $6 million and $4 million for the years ended December 31, 2023 and 2022, respectively, of intercompany revenue related to certain advertising services provided by the local media segment to the tennis segment, which is eliminated in consolidation.

(c)Includes $8 million, $12 million, and $35 million for the years ended December 31, 2023, 2022, and 2021, respectively, of intercompany expense related to certain services provided to the local media segment from other, which is eliminated in consolidation.

Revenues

Distribution revenue. Distribution revenue, which includes payments from Distributors for our broadcast signals, decreased $40 million in 2023, when compared to the same period in 2022, primarily due to a decrease in subscribers, partially offset by an increase in contractual rates. Distribution revenue increased $55 million in 2022, when compared to the same period in 2021, primarily due to an increase in contractual rates, partially offset by a decrease in subscribers.

Advertising revenue. Advertising revenue decreased $282 million in 2023, when compared to the same period in 2022, primarily due to a decrease in political advertising revenue, as 2022 was a political year, compared to 2023 which is a non-political year. Advertising revenue increased $288 million in 2022, when compared to the same period in 2021, primarily due to an increase in political advertising revenue, as 2022 was a political year, compared to 2021 which was a non-political year.

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The following table sets forth our primary types of programming and their approximate percentages of advertising revenue, excluding digital revenue, for the periods presented:

[[GREPCENT_TABLE]]
[["","Percent of Advertising Revenue (Excluding Digital) for the Twelve Months Ended December 31,"],["","2023","","2022","","2021"],["Local news","34%","","35%","","32%"],["Syndicated/Other programming","28%","","27%","","30%"],["Network programming","18%","","21%","","21%"],["Sports programming","16%","","13%","","12%"],["Paid programming","4%","","4%","","5%"]]
[[/GREPCENT_TABLE]]

The following table sets forth our affiliate percentages of advertising revenue for the years ended December 31, 2023, 2022, and 2021:

[[GREPCENT_TABLE]]
[["","# of","","Percent of Advertising Revenue for the Twelve Months Ended December 31,"],["","Channels","","2023","","2022","","2021"],["ABC","40","","29%","","28%","","29%"],["FOX","55","","24%","","22%","","23%"],["CBS","30","","20%","","19%","","19%"],["NBC","25","","12%","","17%","","13%"],["CW","47","","5%","","5%","","5%"],["MNT","39","","4%","","3%","","4%"],["Other","404","","6%","","6%","","7%"],["Total","640"]]
[[/GREPCENT_TABLE]]

Other media revenue. Other media revenue decreased $5 million in 2023, when compared to the same period in 2022, primarily due to a decrease related to providing certain services under management service agreements. Other media revenue decreased $37 million in 2022, when compared to the same period in 2021, primarily due to a $46 million decrease in revenue from the local sports segment related to providing certain services under a management services agreement due to the deferral of fees owed under the agreement, partially offset by a $6 million increase related to revenue recognized under the Bally's commercial agreement that we began performing on in the second quarter of 2021.

Expenses

Media programming and production expenses. Media programming and production expenses increased $38 million during 2023, when compared to the same period in 2022, primarily related to an increase in fees pursuant to network affiliation agreements as a result of increased contractual rates, and an increase in employee compensation cost. Media programming and production expenses increased $61 million during 2022, when compared to the same period in 2021, primarily related to an increase in fees pursuant to network affiliation agreements as a result of increased contractual rates, and an increase in advertising and promotion costs.

Media selling, general and administrative expenses. Media selling, general and administrative expenses decreased $10 million during 2023, when compared to the same period in 2022, primarily due to a $15 million decrease in national sales commission and an $11 million decrease in professional and consulting fees, partially offset by a $12 million increase in third-party fulfillment costs relating to our digital business. Media selling, general and administrative expenses increased $60 million during 2022, when compared to the same period in 2021, primarily due to a $26 million increase in information technology costs, a $16 million increase in third-party fulfillment costs relating to our digital business, a $13 million increase in national sales commissions, a $7 million increase in research and professional cost, and a $3 million increase in employee travel expenses, partially offset by a decrease of $8 million related to FCC penalties incurred by several consolidated VIEs recorded in our consolidated financial statements in 2021, as discussed in Note 13. Commitments and Contingencies within Sinclair's Consolidated Financial Statements.

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Amortization of program contract costs. The amortization of program contract costs decreased $10 million during 2023, when compared to the same period in 2022, and $3 million during 2022, when compared to the same period in 2021, primarily related to reduced programming costs.

Corporate general and administrative expenses.  See explanation under Corporate and Unallocated Expenses.

Non-media expenses. Non-media expenses increased $15 million during 2022, when compared to the same period in 2021, primarily related to an increase in expenses associated with our broadcast technology related initiatives.

Depreciation and amortization expenses. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets remained flat during the year ended 2023, when compared to the same period in 2022. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets decreased $5 million during 2022, when compared to the same period in 2021, primarily due to assets retired during 2022.

Gain on asset dispositions and other, net of impairments. During the years ended December 31, 2023, 2022, and 2021, we recorded gains of $14 million, $17 million, and $23 million, respectively, of which $8 million, $4 million, and $24 million, respectively, related to reimbursements from the spectrum repack. See Broadcast Incentive Auction within Note 2. Acquisitions and Dispositions of Assets within Sinclair's Consolidated Financial Statements for further discussion. During the year ended December 31, 2023, we recognized a $6 million gain on the sale of one of our broadcast station buildings. During the year ended December 31, 2022, we recognized a $4 million gain on the sale of Ring of Honor Entertainment. The remaining amounts are primarily related to net gains on the sale of certain broadcast assets.

Interest expense including amortization of debt discount and deferred financing costs. Interest expense increased by $79 million in 2023, when compared to the same period in 2022, and $43 million in 2022, when compared to the same period in 2021, primarily due to increased interest expense related to our variable rate debt as a result of higher interest rates.

Gain on extinguishment of debt. During the year ended December 31, 2023, we purchased $64 million in aggregate principal across multiple tranches of debt and recognized a gain on extinguishment of approximately $15 million. See Bank Credit Agreement and STG Notes under Note 7. Notes Payable and Commercial Bank Financing within Sinclair's Consolidated Financial Statements.

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Tennis Segment

The following table sets forth our revenue and expenses for our tennis segment for the periods presented (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase / (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Revenue:"],["Distribution revenue","$","189","","","$","179","","","$","192","","","6%","","(7)%"],["Advertising revenue","37","","","33","","","29","","","12%","","14%"],["Other media revenues","2","","","5","","","3","","","(60)%","","67%"],["Media revenues","$","228","","","$","217","","","$","224","","","5%","","(3)%"],["Operating Expenses:"],["Media programming and production expenses","$","115","","","$","97","","","$","92","","","19%","","5%"],["Media selling, general and administrative expenses (a)","$","41","","","$","47","","","$","40","","","(13)%","","18%"],["Depreciation and amortization expenses","$","21","","","$","21","","","$","21","","","\u2014%","","\u2014%"],["Operating income","$","50","","","$","52","","","$","71","","","(4)%","","(27)%"]]
[[/GREPCENT_TABLE]]

(a)Includes $6 million and $4 million for years ended December 31, 2023 and 2022, respectively, of intercompany expense related to certain advertising services provided by the local media segment, which is eliminated in consolidation.

Revenue

Distribution revenue. Distribution revenue, which is generated through fees received from Distributors for the right to distribute Tennis Channel, increased $10 million in 2023, when compared to the same period in 2022, primarily due to an increase in subscribers as a result of increased carriage that occurred during the second quarter of 2023. Distribution revenue decreased $13 million in 2022, when compared to the same period in 2021, primarily due to a decrease in subscribers.

Advertising revenue. Advertising revenue is primarily generated from sales of commercial time within Tennis Channel programming. Advertising revenue increased $4 million in both 2023 and 2022, when compared to the same periods in 2022 and 2021, respectively, primarily due to an increase in the number of tournaments aired in the current periods versus the prior periods.

Expenses

Media programming and production expenses. Media programming and production expenses increased $18 million in 2023, when compared to the same period in 2022, primarily due to a $15 million increase in programming, including rights fees, and live production expenses related to various tournaments, which was a result of an increase in the number of tournaments aired in the current period versus the prior period, and a $4 million increase in employee compensation cost. Media programming and production expenses increased $5 million in 2022, when compared to the same period in 2021, primarily due to a $2 million increase in programming, including rights fees, and live production expenses related to various tournaments, which was a result of an increase in the number of tournaments aired in 2022 versus 2021, and a $1 million increase in employee compensation cost.

Media selling, general and administrative expenses. Media selling, general and administrative expenses decreased $6 million in 2023, when compared to the same period in 2022, primarily due to a decrease in expenses related to start-up costs associated with our online tennis platforms. Media selling, general and administrative expenses increased $7 million in 2022, when compared to the same period in 2021, primarily due to a $4 million increase in national sales commissions and a $2 million increase in employee compensation cost.

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Local Sports Segment

Our local sports segment reflected the results of the Bally RSNs, Marquee, and a minority interest in the YES Network prior to the Deconsolidation on March 1, 2022. The Bally RSNs, Marquee, and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams in designated local viewing areas.

The following table sets forth our revenue and expenses for our local sports segment for the years ended December 31, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","2022","","2021"],["Revenue:"],["Distribution revenue","","","$","433","","","$","2,620"],["Advertising revenue","","","44","","","409"],["Other media revenue","","","5","","","27"],["Media revenue","","","$","482","","","$","3,056"],["Operating Expenses:"],["Media programming and production expenses","","","$","376","","","$","2,793"],["Media selling, general and administrative expenses (a)","","","55","","","297"],["Depreciation and amortization expenses","","","54","","","316"],["Corporate general and administrative","","","1","","","10"],["Gain on asset dispositions and other, net of impairment","","","\u2014","","","(43)"],["Operating loss (a)","","","$","(4)","","","$","(317)"],["Income from equity method investments","","","$","10","","","$","49"],["Other (expense) income, net","","","$","(3)","","","$","15"],["Interest expense including amortization of debt discount and deferred financing costs","","","$","72","","","$","436"]]
[[/GREPCENT_TABLE]]

(a)Includes $24 million and $109 million for the years ended December 31, 2022 and 2021, respectively, of intercompany expense which is eliminated in consolidation.

The revenue and expense items noted above for the years ended December 31, 2022 and 2021 represent activity prior to the Deconsolidation which occurred on March 1, 2022, thus there is no activity presented for periods subsequent to February 28, 2022.

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Other 

The following table sets forth our revenue and expenses for our non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, "Other") for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase / (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Revenue:"],["Media revenues (a)","$","28","","","$","51","","","$","70","","","(45)%","","(27)%"],["Non-media revenues (b)","$","34","","","$","44","","","$","58","","","(23)%","","(24)%"],["Operating Expenses:"],["Media expenses (c)","$","35","","","$","73","","","$","94","","","(52)%","","(22)%"],["Non-media expenses (d)","$","39","","","$","36","","","$","65","","","8%","","(45)%"],["Loss (gain) on asset dispositions and other, net of impairments","$","18","","","$","(12)","","","$","(5)","","","n/m","","n/m"],["Operating loss","$","(44)","","","$","(9)","","","$","(35)","","","n/m","","(74)%"],["Income (loss) from equity method investments","$","31","","","$","46","","","$","(4)","","","(33)%","","n/m"]]
[[/GREPCENT_TABLE]]

n/m — not meaningful     

(a)Media revenues for the years ended December 31, 2023, 2022, and 2021 include $8 million, $12 million, and $35 million, respectively, of intercompany revenues related to certain services and sales provided to the local media segment, which are eliminated in consolidation.

(b)Non-media revenues for the years ended December 31, 2023, 2022, and 2021 include $6 million, $10 million, and $7 million, respectively, of intercompany revenues related to certain services and sales provided to the local media segment, which are eliminated in consolidation.

(c)Media expenses for the years ended December 31, 2023, 2022, and 2021 include $2 million, $7 million, and $1 million, respectively, of intercompany expenses primarily related to certain services provided by the local media segment, which are eliminated in consolidation.

(d)Non-media expenses for the years ended December 31, 2023, 2022, and 2021 include $4 million, $7 million, and $8 million, respectively, of intercompany expenses related to certain services provided by the local media segment, which are eliminated in consolidation.

Revenue. Media revenues decreased $23 million during 2023, when compared to the same period in 2022, primarily due to the sale of our Stadium network (Stadium). Media revenues decreased $19 million during 2022, when compared to the same period in 2021, primarily due to a decrease in advertising revenue. Non-media revenues decreased $10 million during 2023, when compared to the same period in 2022, primarily due to lower sales within our consolidated real estate investments. Non-media revenues decreased $14 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle Sign & Service, LLC (Triangle) in the second quarter of 2021.

Expenses. Media expenses decreased $38 million during 2023, when compared to the same period in 2022, primarily due to the sale of Stadium. Media expenses decreased $21 million during 2022, when compared to the same period in 2021, primarily due to our digital businesses. Non-media expenses increased $3 million during 2023, when compared to the same period in 2022, primarily due to an increase in expenses related to our technical services business. Non-media expenses decreased $29 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021 and a decrease in expenses related to our technical services business.

Loss (gain) on asset dispositions and other, net of impairments. During the year ended December 31, 2023, we recognized a loss of $12 million related to the sale of Stadium. During the year ended December 31, 2022, we recognized a gain of $14 million related to one of our investments. During the year ended December 31, 2021, we sold our controlling interest in Triangle for $12 million and recognized a gain of $6 million.

Income (loss) from equity method investments. During the year ended December 31, 2023, we recognized a gain of $33 million related to the sale of two of our real estate investments, which is included in income from equity method investments in our consolidated statements of operations. During the year ended December 31, 2022, we recognized a gain of $29 million related to the sale of one of our real estate investments, which is included in income from equity method investments in our consolidated statements of operations.

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Corporate and Unallocated Expenses

The following table presents our corporate and unallocated expenses for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase/ (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Corporate general and administrative expenses","$","694","","","$","160","","","$","170","","","n/m","","(6)%"],["Loss (gain) on deconsolidation of subsidiary","$","10","","","$","(3,357)","","","$","\u2014","","","n/m","","n/m"],["Other expense, net","$","(45)","","","$","(129)","","","$","(14)","","","(65)%","","n/m"],["Income tax benefit (provision)","$","358","","","$","(913)","","","$","173","","","n/m","","n/m"]]
[[/GREPCENT_TABLE]]

n/m — not meaningful 

Corporate general and administrative expenses.  The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses increased by $534 million during 2023, when compared to the same period in 2022, primarily due to a $495 million litigation settlement accrual related to the DSG litigation, an $18 million increase in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 13. Commitments and Contingencies within Sinclair's Consolidated Financial Statements, and a $20 million increase in employee compensation expense. Corporate general and administrative expenses decreased by $10 million during 2022, when compared to the same period in 2021, primarily due to an $18 million decrease in employee compensation costs related to the reduction-in-force that occurred in the first quarter of 2021, as well as compensation expense savings within the current period as a result of the reduction-in-force, partially offset by an $8 million increase in general insurance expenses related to the cybersecurity incident that occurred in the fourth quarter of 2021.

Gain on deconsolidation of subsidiary. During the first quarter of 2022, we recorded a gain of $3,357 million related to the Deconsolidation.

Other expense, net. Other expense, net decreased by $84 million during 2023 and increased $115 million during 2022, when compared to the same periods in 2022 and 2021, respectively, primarily due to changes in the fair value of certain investments recorded at fair value. See Note 6. Other Assets within Sinclair's Consolidated Financial Statements for further information.

Income tax benefit (provision). The 2023 income tax benefit for our pre-tax loss of $637 million resulted in an effective tax rate of 56.3%. The 2022 income tax provision for our pre-tax income of $3,614 million resulted in an effective tax rate of 25.3%. The increase in the effective tax rate from 2022 to 2023 is primarily due to the 2023 benefit from the release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the Internal Revenue Code ("IRC") Section 163(j). The 2021 income tax benefit for our pre-tax loss of $499 million resulted in an effective tax rate of 34.7%. The decrease in the effective tax rate from 2021 to 2022 is primarily due to the 2021 benefit from federal tax credits related to investments in sustainability initiatives.

As of December 31, 2023, we had a net deferred tax liability of $252 million as compared to a net deferred tax liability of $610 million as of December 31, 2022. The decrease in net deferred tax liability primarily relates to the 2023 release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j).

As of December 31, 2023, we had $14 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect our effective tax rate. As of December 31, 2022, we had $17 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect our effective tax rate. We recognized $1 million and $2 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2023 and 2022, respectively. See Note 12. Income Taxes within Sinclair's Consolidated Financial Statements for further information.

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SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS

Any references to the first, second, third, or fourth quarters are to the three months ended March 31, June 30, September 30, or December 31, respectively, for the year being discussed. As of December 31, 2023, SBG had one reportable segment for accounting purposes, local media. Prior to the Deconsolidation, SBG had one additional reportable segment for accounting purposes, local sports.

Seasonality / Cyclicality

The operating results of SBG's local media segment are usually subject to cyclical fluctuations from political advertising.  In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election. Also, the second and fourth quarters' operating results are usually higher than the first and third quarters' operating results because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.

Consolidated Operating Data

The following table sets forth certain of SBG's consolidated operating data for the years ended December 31, 2023, 2022, and 2021 (in millions).

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2023","","2022","","2021"],["Media revenues","$","2,968","","","$","3,894","","","$","6,083"],["Non-media revenues","10","","","34","","","51"],["Total revenues","2,978","","","3,928","","","6,134"],["Media programming and production expenses","1,543","","","1,942","","","4,291"],["Media selling, general and administrative expenses","719","","","812","","","908"],["Depreciation and amortization expenses","252","","","321","","","591"],["Amortization of program contract costs","80","","","90","","","93"],["Non-media expenses","24","","","44","","","57"],["Corporate general and administrative expenses","654","","","160","","","170"],["Loss (gain) on deconsolidation of subsidiary","10","","","(3,357)","","","\u2014"],["Gain on asset dispositions and other, net of impairment","(2)","","","(64)","","","(71)"],["Operating (loss) income","$","(302)","","","$","3,980","","","$","95"],["Net (loss) income attributable to SBG","$","(257)","","","$","2,652","","","$","(414)"]]
[[/GREPCENT_TABLE]]

A discussion regarding SBG's financial results and operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 and for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.

Local Media Segment

Refer to Local Media Segment above under Sinclair's Results of Operations for a discussion of SBG's local media segment, which is the same as Sinclair's local media segment for all of the years ended December 31, 2023, 2022, and 2021.

Local Sports Segment

Refer to Local Sports Segment above under Sinclair's Results of Operations for a discussion of SBG's local sports segment, which is the same as Sinclair's local sports segment for the years ended December 31, 2022 and 2021.

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Other 

The following table sets forth SBG's revenue and expenses for tennis, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, "Other") for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase / (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Revenue:","(e)"],["Distribution revenue","$","76","","","$","179","","","$","192","","","(58)%","","(7)%"],["Advertising revenue","29","","","74","","","93","","","(61)%","","(20)%"],["Other media revenues","3","","","15","","","9","","","(80)%","","67%"],["Media revenues (a)","$","108","","","$","268","","","$","294","","","(60)%","","(9)%"],["Non-media revenues (b)","$","11","","","$","44","","","$","58","","","(75)%","","(24)%"],["Operating Expenses:"],["Media expenses (c)","$","86","","","$","217","","","$","226","","","(60)%","","(4)%"],["Non-media expenses (d)","$","10","","","$","36","","","$","65","","","(72)%","","(45)%"],["Loss (gain) on asset dispositions and other, net of impairments","$","13","","","$","(12)","","","$","(5)","","","n/m","","n/m"],["Operating income","$","\u2014","","","$","43","","","$","36","","","n/m","","19%"],["Income (loss) from equity method investments","$","31","","","$","46","","","$","(4)","","","(33)%","","n/m"]]
[[/GREPCENT_TABLE]]

n/m — not meaningful 

(a)Media revenues for the years ended December 31, 2023, 2022, and 2021 include $3 million, $12 million, and $35 million, respectively, of intercompany revenues related to certain services and sales provided to the local media segment, which are eliminated in consolidation.

(b)Non-media revenues for the years ended December 31, 2023, 2022, and 2021 include $1 million, $10 million, and $7 million, respectively, of intercompany revenues related to certain services and sales provided to the local media segment, which are eliminated in consolidation.

(c)Media expenses for the years ended December 31, 2023, 2022, and 2021 include $1 million, $11 million, and $1 million, respectively, of intercompany expenses primarily related to certain services provided by the local media segment, which are eliminated in consolidation.

(d)Non-media expenses for the years ended December 31, 2023, 2022, and 2021 include $1 million, $7 million, and $8 million, respectively, of intercompany expenses related to certain services provided by the local media segment, which are eliminated in consolidation.

(e)Represents the activity prior to the Reorganization on June 1, 2023. There was no reportable activity for the June through December period in the year ended December 31, 2023 following the Reorganization on June 1, 2023. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements.

The decrease in the revenue and expense items noted above for the year ended December 31, 2023, when compared to the same period in the prior year, was primarily due to the results for the twelve months ended December 31, 2023 including only five months of activity due to the Reorganization (the Transferred Assets were moved to Ventures effective June 1, 2023), versus a full period of activity in the prior year period, and therefore the periods are not comparable. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements.

Revenue. Media revenues decreased $26 million during 2022, when compared to the same period in 2021, primarily due to a decrease in advertising revenue, partially offset by an increase in distribution revenue related to owned networks. Non-media revenues decreased $14 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021.

Expenses. Media expenses decreased $9 million during 2022, when compared to the same period in 2021, primarily due to our digital businesses. Non-media expenses decreased $29 million during 2022, when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021 and a decrease in expenses related to our technical services business.

Loss (gain) on asset dispositions and other, net of impairments. During the year ended December 31, 2023, we recognized a loss of $12 million related to the sale of Stadium. During the year December 31, 2022, we recognized a gain of $14 million related to one of our investments. During the year ended December 31, 2021, we sold our controlling interest in Triangle for $12 million and recognized a gain of $6 million.

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Income (loss) from equity method investments. Income from equity method investments increased $50 million during 2022, when compared to the same period in 2021, primarily due to a gain on the sale of one of our real estate investments.

Corporate and Unallocated Expenses

The following table presents SBG's corporate and unallocated expenses for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent Change Increase/ (Decrease)"],["","2023","","2022","","2021","","\u201823 vs.\u201822","","\u201822 vs.\u201821"],["Corporate general and administrative expenses","$","654","","","$","160","","","$","170","","","n/m","","(6)%"],["Loss (gain) on deconsolidation of subsidiary","$","10","","","$","(3,357)","","","$","\u2014","","","n/m","","n/m"],["Other expense, net","$","(43)","","","$","(129)","","","$","(14)","","","n/m","","n/m"],["Income tax benefit (provision)","$","359","","","$","(913)","","","$","173","","","n/m","","n/m"]]
[[/GREPCENT_TABLE]]

n/m — not meaningful 

Corporate general and administrative expenses.  The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses increased by $494 million during 2023, when compared to the same period in 2022, primarily due to an increase in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 12. Commitments and Contingencies within SBG's Consolidated Financial Statements. Corporate general and administrative expenses decreased by $10 million during 2022, when compared to the same period in 2021, primarily due to an $18 million decrease in employee compensation costs related to the reduction-in-force that occurred in the first quarter of 2021, partially offset by an $8 million increase in general insurance expenses related to the cybersecurity incident that occurred in the fourth quarter of 2021.

Gain on deconsolidation of subsidiary. During the first quarter of 2022 we recorded a gain of $3,357 million related to the Deconsolidation.

Other expense, net. Other expense, net decreased by $86 million during 2023 and increased $115 million during 2022, when compared to the same periods in 2022 and 2021, respectively, primarily due to changes in the fair value of certain investments recorded at fair value. See Note 6. Other Assets within SBG's Consolidated Financial Statements for further information.

Income tax benefit (provision). The 2023 income tax benefit for SBG’s pre-tax loss of $604 million resulted in an effective tax rate of 59.4%. The 2022 income tax provision for SBG’s pre-tax income of $3,614 million resulted in an effective tax rate of 25.3%. The increase in the effective tax rate from 2022 to 2023 is primarily due to the 2023 benefit from the release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). The 2021 income tax benefit for SBG’s pre-tax loss of $499 million resulted in an effective tax rate of 34.7%. The decrease in the effective tax rate from 2021 to 2022 is primarily due to the 2021 benefit from federal tax credits related to investments in sustainability initiatives.

As of December 31, 2023, SBG had a net deferred tax liability of $283 million as compared to a net deferred tax liability of $610 million as of December 31, 2022. The decrease in net deferred tax liability primarily relates to the 2023 release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j).

As of December 31, 2023, SBG had $12 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect SBG’s effective tax rate. As of December 31, 2022, SBG had $17 million of gross unrecognized tax benefits, all of which, if recognized, would favorably affect SBG’s effective tax rate. SBG recognized less than $1 million and $2 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2023 and 2022, respectively. See Note 11. Income Taxes within the SBG's Consolidated Financial Statements for further information.

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LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, Sinclair had net working capital of approximately $372 million, including $662 million in cash and cash equivalent balances and $650 million of available borrowing capacity. Cash on hand, cash generated by Sinclair's operations, and borrowing capacity under the Bank Credit Agreement are used as Sinclair's primary sources of liquidity.

As of December 31, 2023, SBG had net negative working capital of approximately $1 million, including $319 million in cash and cash equivalent balances and $650 million of available borrowing capacity. Cash on hand, cash generated by SBG's operations, and borrowing capacity under the Bank Credit Agreement are used as SBG's primary sources of liquidity.

The Bank Credit Agreement includes a financial maintenance covenant, the first lien leverage ratio (as defined in the Bank Credit Agreement), which requires such ratio not to exceed 4.5x, measured as of the end of each fiscal quarter. As of December 31, 2023, the STG first lien leverage ratio was below 4.5x. Under the Bank Credit Agreement, a financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the revolving credit facility, measured as of the last day of each fiscal quarter, is drawn under the revolving credit facility as of such date. Since there was no utilization under the revolving credit facility as of December 31, 2023, STG was not subject to the financial maintenance covenant under the Bank Credit Agreement. The Bank Credit Agreement contains other restrictions and covenants with which STG was in compliance as of December 31, 2023.

During the year ended December 31, 2023, STG purchased $30 million aggregate principal amount of the Term Loan B-2 for consideration of $26 million. In January 2024, STG purchased $27 million aggregate principal amount of the Term Loan B-2 for consideration of $25 million.

During the year ended December 31, 2023, STG purchased $7 million, $15 million, and $13 million aggregate principal amount of the 5.125% Senior Notes due 2027 (the "5.125% Notes"), the 5.500% Senior Notes due 2030 (the "5.500% Notes"), and the 4.125% Senior Secured Notes due 2030 (the "4.125% Notes" and, collectively with the 5.125% Notes and 5.500% Notes, the notes are referred to as the "STG Notes"), respectively, in open market transactions for consideration of $6 million, $8 million, and $8 million, respectively. The STG Notes acquired during the year ended December 31, 2023 were canceled immediately following their acquisition.

For the year ending December 31, 2024, Sinclair expects capital expenditures to be within the range of $110 million to $117 million, primarily related to station technical, maintenance, and building projects, and SBG expects capital expenditures to be within the range of $107 million to $114 million, primarily related to station technical, maintenance, and building projects.

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Sinclair and SBG have various contractual obligations which are recorded as liabilities in Sinclair's and SBG's consolidated financial statements, such as notes payable, finance leases, and commercial bank financing; operating leases; and active television program contracts. Certain other contractual obligations have not been recognized as liabilities in Sinclair's and SBG's consolidated financial statements, such as certain future television program contracts and network programming rights. Active television program contracts are included in Sinclair's and SBG's balance sheets as an asset and liability while future television program contracts are excluded until the cost is known, the program is available for its first showing or telecast, and the licensee has accepted the program. Industry protocol typically enables us to make payments for television program contracts on a three-month lag, which differs from the contractual timing. As of December 31, 2023, Sinclair's and SBG's significant contractual obligations include:

Sinclair:

•Total debt of Sinclair, defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates, of $4,175 million, including current debt, due within the next 12 months, of $36 million.

•Interest due on Sinclair's total debt in the next twelve months of $298 million, including interest estimated on Sinclair's variable rate debt calculated at an effective weighted average interest rate of 8.42% as of December 31, 2023.

•Sinclair's contractual amounts owed through the expiration date of the underlying agreement for active and future television program contracts, network programming rights, and Tennis programming rights of $1,632 million, including $779 million due within the next 12 months. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and reflected in the previous amounts based on current subscriber amounts.

SBG:

•Total debt of SBG, defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates, of $4,160 million, including current debt, due within the next 12 months, of $36 million.

•Interest due on SBG's total debt in the next twelve months of $298 million, including interest estimated on SBG's variable rate debt calculated at an effective weighted average interest rate of 8.42% as of December 31, 2023.

•SBG's contractual amounts owed through the expiration date of the underlying agreement for active and future television program contracts and network programming rights of $1,205 million, including $711 million due within the next 12 months. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and reflected in the previous amounts based on current subscriber amounts.

See Note 7. Notes Payable and Commercial Bank Financing, Note 8. Leases, and Note 9. Program Contracts within Sinclair's Consolidated Financial Statements and Note 7. Notes Payable and Commercial Bank Financing, Note 8. Leases, and Note 9. Program Contracts within SBG's Consolidated Financial Statements for further information.

Sinclair and SBG anticipate that existing cash and cash equivalents, cash flow from the local media segment's operations, and borrowing capacity under the Bank Credit Agreement will be sufficient to satisfy the local media segment's debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. Sinclair anticipates that existing cash and cash equivalents and cash flow from the tennis segment and other's operations will be sufficient to satisfy the tennis segment and other's debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to the war in Ukraine, conflict in the Middle East, and other geopolitical matters, natural disasters, and pandemics, and their resulting effect on the economy, Sinclair's and SBG's advertisers, and Sinclair's and SBG's Distributors and their subscribers, could affect Sinclair's and SBG's liquidity and first lien leverage ratio which could affect Sinclair's and SBG's ability to access the full borrowing capacity under the Bank Credit Agreement. In addition to the sources described above, Sinclair and SBG may rely upon various sources for long-term liquidity needs, such as but not limited to, the issuance of long-term debt, the issuance of Sinclair equity, for Sinclair only, the issuance of Ventures equity or debt, or other instruments convertible into or exchangeable for Sinclair equity, or the sale of assets. However, there can be no assurance that additional financing or capital or buyers of assets will be available, or that the terms of any transactions will be acceptable or advantageous to Sinclair or SBG.

In January 2024, Sinclair announced that it has agreed, subject to definitive documentation and final court approval, to a global settlement and release of all claims associated with the litigation filed by DSG and DSG’s wholly-owned subsidiary, Diamond Sports Net, LLC, in July 2023.

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The settlement terms include Sinclair’s cash payment to DSG of $495 million. The cash payment will be funded by cash on hand at Ventures, STG and/or a loan backed by Ventures. Under the terms of the settlement, Sinclair will provide transition services to DSG to allow DSG to become a self-standing entity.

Sinclair, Inc. Sources and Uses of Cash

The following table sets forth Sinclair's cash flows for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Net cash flows from operating activities","$","235","","","$","799","","","$","327"],["Cash flow from (used in) investing activities:"],["Acquisition of property and equipment","$","(92)","","","$","(105)","","","$","(80)"],["Spectrum repack reimbursements","8","","","4","","","24"],["Proceeds from the sale of assets","1","","","9","","","43"],["Deconsolidation of subsidiary cash","\u2014","","","(315)","","","\u2014"],["Purchases of investments","(72)","","","(75)","","","(256)"],["Distributions from investments","206","","","99","","","26"],["Other, net","1","","","2","","","(3)"],["Net cash flows from (used in) investing activities","$","52","","","$","(381)","","","$","(246)"],["Cash flows used in financing activities:"],["Proceeds from notes payable and commercial bank financing","$","\u2014","","","$","728","","","$","357"],["Repayments of notes payable, commercial bank financing, and finance leases","(85)","","","(863)","","","(601)"],["Repurchase of outstanding Class A Common Stock","(153)","","","(120)","","","(61)"],["Dividends paid on Class A and Class B Common Stock","(65)","","","(70)","","","(60)"],["Dividends paid on redeemable subsidiary preferred equity","\u2014","","","(7)","","","(5)"],["Redemption of redeemable subsidiary preferred equity","(190)","","","\u2014","","","\u2014"],["Distributions to noncontrolling interests","(13)","","","(12)","","","(95)"],["Distributions to redeemable noncontrolling interests","\u2014","","","\u2014","","","(6)"],["Other, net","(3)","","","(9)","","","(53)"],["Net cash flows used in financing activities","$","(509)","","","$","(353)","","","$","(524)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash flows from Sinclair's operating activities decreased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors, as well as the partial period impact related to the Deconsolidation.

Net cash flows from Sinclair's operating activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the receipt of income taxes receivable, increased cash collections on accounts receivable associated with increased political advertising revenue, and a partial period of payments for production and overhead costs, distributor rebate payments, and payments for sports rights as a result of the Deconsolidation, partially offset by the partial period of cash collections from Distributors and advertisers as a result of the Deconsolidation.

Investing Activities

Net cash flows from Sinclair's investing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation in the first quarter of 2022 and the $193 million A/R Facility principal payment received from DSPV.

Net cash flows used in Sinclair's investing activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation, partially offset by increased distributions from investments and decreased purchases of investments.

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Financing Activities

Net cash flows used in Sinclair's financing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the repurchase of the Redeemable Subsidiary Preferred Equity and an increase in the repurchase of outstanding Common Stock, partially offset by a decrease in the net repayment of debt (repayments less proceeds).

Net cash flows used in Sinclair's financing activities decreased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the proceeds from the STG Term Loan B-4 issuance, partially offset by the repurchase of Class A Common Stock during 2022, the redemption of STG's Term Loan B-1, the redemption of the STG 5.875% Notes, and the partial redemption of the STG 5.125% Notes.

Sinclair Broadcast Group, LLC Sources and Uses of Cash

The following table sets forth SBG's cash flows for the years ended December 31, 2023, 2022, and 2021 (in millions):

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Net cash flows from operating activities","$","260","","","$","799","","","$","327"],["Cash flow from (used in) investing activities:"],["Acquisition of property and equipment","$","(90)","","","$","(105)","","","$","(80)"],["Spectrum repack reimbursements","8","","","4","","","24"],["Proceeds from the sale of assets","\u2014","","","9","","","43"],["Deconsolidation of subsidiary cash","\u2014","","","(315)","","","\u2014"],["Purchases of investments","(39)","","","(75)","","","(256)"],["Distributions from investments","204","","","99","","","26"],["Other, net","1","","","2","","","(3)"],["Net cash flows from (used in) investing activities","$","84","","","$","(381)","","","$","(246)"],["Cash flows used in financing activities:"],["Proceeds from notes payable and commercial bank financing","$","\u2014","","","$","728","","","$","357"],["Repayments of notes payable, commercial bank financing, and finance leases","(85)","","","(863)","","","(601)"],["Repurchase of outstanding Old Sinclair Class A Common Stock","(153)","","","(120)","","","(61)"],["Dividends paid on Old Sinclair Class A and Class B Common Stock","(18)","","","(70)","","","(60)"],["Dividends paid on redeemable subsidiary preferred equity","\u2014","","","(7)","","","(5)"],["Redemption of redeemable subsidiary preferred equity","(190)","","","\u2014","","","\u2014"],["Distribution to member","(448)","","","\u2014","","","\u2014"],["Distributions to noncontrolling interests","(12)","","","(12)","","","(95)"],["Distributions to redeemable noncontrolling interests","\u2014","","","\u2014","","","(6)"],["Other, net","(3)","","","(9)","","","(53)"],["Net cash flows used in financing activities","$","(909)","","","$","(353)","","","$","(524)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash flows from SBG's operating activities decreased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors, as well as the partial period impact related to the Deconsolidation and Reorganization.

Net cash flows from SBG's operating activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the receipt of income taxes receivable, increased cash collections on accounts receivable associated with increased political advertising revenue, and a partial period of payments for production and overhead costs, distributor rebate payments, and payments for sports rights as a result of the Deconsolidation, partially offset by the partial period of cash collections from Distributors and advertisers as a result of the Deconsolidation.

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Investing Activities

Net cash flows from SBG's investing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation in the first quarter of 2022; the $193 million A/R Facility principal payment received from DSPV; a decrease in the purchases of investments during the year ended December 31, 2023, as a result of the Reorganization; and the partial period impact related to the Reorganization.

Net cash flows used in SBG's investing activities increased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the removal of DSIH's cash balance as a result of the Deconsolidation, partially offset by increased distributions from investments and decreased purchases of investments.

Financing Activities

Net cash flows used in SBG's financing activities increased during the year ended December 31, 2023, when compared to the same period in 2022, primarily related to the repurchase of the Redeemable Subsidiary Preferred Equity; an increase in the repurchase of outstanding Old Sinclair Common Stock, prior to the Reorganization; the one-time distribution to member at the time of the Reorganization of $360 million; and the partial period impact related to the Reorganization, partially offset by a decrease in the net repayment of debt (repayments less proceeds).

Net cash flows used in SBG's financing activities decreased during the year ended December 31, 2022, when compared to the same period in 2021, primarily related to the proceeds from the STG Term Loan B-4 issuance, partially offset by the repurchase of Class A Common Stock during 2022, the redemption of STG's Term Loan B-1, the redemption of the STG 5.875% Notes, and the partial redemption of the STG 5.125% Notes.

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