Analyst: Market overreacted to Sinclair wrestling buy


Sinclair Broadcast Group saw its stock price drop 5.5% on Monday after the company announced its acquisition of the Ring Of Honor (ROH) wrestling franchise. Wells Fargo Securities analyst Marci Ryvicker not only thinks the market overreacted by selling off the stock, but that the deal is actually a pretty good one for Sinclair.

“ROH is one of the three major wrestling franchises in the US (TNA and WWE are the other two), and was acquired by SBGI for what we believe to be an immaterial amount,” said Ryvicker in a note to clients. She’s guessing the price tag at less than $10 million.

Why didn’t Wall Street like the purchase? “Based on our conversations, investors are not comfortable with an acquisition outside of SBGI’s (or any TV company’s) ‘core business’ but we actually view ROH as a unique opportunity that could benefit SBGI’s primary operations (i.e. advertising),” the analyst wrote. Ryvicker noted that ROH will be run by Joe Koff, who has been with Sinclair since 2003, most recently serving as Director of Sales. Plus, he has hands-on experience managing wrestling content, she added.

Why does Ryvicker like the deal? “Wrestling tends to attract the hard-to-reach young male demographic, which is already a cornerstone of SBGI’s Fox, CW and MY Network stations,” she said. “SBGI is now a content owner, effectively controlling its own destiny and potentially generating additional revenue by syndicating this content to other distributors,” she added. Also on the financial side, programming costs could decline as Sinclair has fewer syndicated hours to fill on its own distribution platform as a result of producing more of its own content.

The analyst doesn’t think that Sinclair has any other non-station acquisitions in the pipeline and that management remains focused on the company’s dividend, which was reinstated in February. The current yield is over 4.5%. “To be blunt – We do not believe that this acquisition has any adverse impact on the current dividend or the potential for future increases in the dividend,” said Ryvicker. She said the market was overreacting and advised clients to buy the stock on the dip. The analyst has an “outperform” rating on the stock, with a target range of $15-17. SBGI closed Monday at $9.79.

RBR-TVBR observation: We would have to agree with Ryvicker. It looks like Sinclair is going to own what should be valuable programming at a reasonable price. Owning 100% of the inventory should make it pretty easy to turn a nice profit – not to mention the potential new revenue stream from syndication to other TV groups.