New details have emerged related to the announcement on January 13 that Sinclair Broadcast Group SBGI +0.5% subsidiary Diamond Sports Group had signed a deal with the NBA to allow the nation’s largest owner of Regional Sports Networks to stream games over a new yet-to-be-named Direct To Consumer (DTC) product. At the same time, it announced it is raising $600 million to fund the DTC expansion.
Sinclair Broadcast Group on 1/13 filed an 8K with the Securities and Exchange Commission (SEC) in which it laid out forecasts on the low end of 3.4 mil. streaming subs and another 2.4 million “feature” subs (which get a betting app but with no live games) by 2027, and on the high end 9.7 mil. streaming subs plus 6.4 mil. “feature” subs during the 5+ years of the projections.
These forecasts of between 5.9 million average paying subs and 16.1 million average paying subs by 2027. This would be boosted by 9.6 million free users (getting the product as a perk from their multichannel provider). As a result, they would have between 15.5 and 25.7 million average subscribers by 2027 which could generate as much as $500 million/year in advertising revenue in addition to the forecasted subscription fees.
Although the forecasts shown in the SEC filing are only based on existing rights, it’s likely that they Diamond Sports Group will have to add more league rights to get to the high-end of the projections of more than 16 million average paid subscribers.
Sinclair CEO Chris Ripley told The Wall Street Journal that the company plans to do a soft launch as soon as the second quarter with a full roll out in Q3. That means executives will likely be working furiously to line up deals with other sports leagues to beef up its offering which now includes 16 NBA Teams, 12 NHL Teams and an undisclosed number of markets where it has NFL rights.
In order to do so, the company will likely have to raise more capital, and this will come at a price. To seal the $600 million deal with lenders, Sinclair Broadcast Group agreed to defer about $400 million in management fees over the next five years.
The company’s three financial model shake out as follows:
In the case 1 model, the company forecasts revenue of $110 million in 2022, growing to $1.3 billion by 2027 while adjusted EBITDA is forecasted to be -$125 million in 2022, rising to $307 million by 2027. Average DTC subscribers are estimated to be 309K in 2022, rising to 3.5 million by 2027. This implies an average retail price point of $18 for the streaming service in 2027 and under $5 for the betting app.
In the case 2 model, revenue is forecasted to be $214 million in 2022, rising to $1.7 billion by 2027 while adjusted EBITDA comes in at -$64 million in 2022, growing to $444 million by 2027.
In the Case 3 model, revenue is forecasted to be $279 million in 2022, growing to $2.9 billion by 2022 while adjusted EBITDA grows from a negative $36 million in 2022 to over $1 billion by 2027.
Although there is no question that there is fierce demand for sports content out there, consumers are facing a dizzying array of options for online content, and the sports genre is no exception. ESPN plus has priced its service at an extremely low-price point of $6.99/month (and is currently advertising it has more than 1,000 NHL games). The price-point looks even cheaper if you consider the attractive bundling Walt Disney DIS -2.3% is doing with Disney+ DIS -2.3% Hulu and ESPN+ at just $13.99/month.
Then there are the flurry of sports-centric services like The NBA League Pass for $49.99/season or $14.99/month that are targeting avid sports fans. Forbes