Escarpments and Entanglements

I don't know if an 8% slide is "falling precipitously," as Matt Yglesias claims, but I, for one, like my corporations to serve their shareholders -- by, e.g., making money for them. I'm a radical capitalist, I know. So I'm not particularly happy that Sinclair, in which I own stock through one of my mutual funds, has decided to forego the whole "money making for shareholders" thing to, instead, focus on politicing.

It would be nice to have a management at Sinclair who is more attentive to the owners of their company, and less attentive to their own self-interest in using the company's assets to to help a particular candidate out. Even Heinz realized the business necessity of distancing itself from the Kerry campaign; it's hard to understand how such an easy business lesson is lost on Sinclair. Serving the shareholders is, after all, supposedly management's highest duty.

(I think Bainbridge is right, however, on his suggestion that there's no actionable claim against Sinclair's management. Still, after a 50% slide* over the last year, one has to wonder how long Sinclair's institutional investors will stand for such shenanigans. Methinks it's time for a shakeup.)

von

*Admittedly, some of this slide was a result of events beyond management's control -- as such things always are.

Comments

[hilzoy]

Mark Schmitt had an interesting post about this, which reads in part:

"And an interesting, very packed comment about Sinclair Broadcasting, from "fatbear":

Sinclair is desperate, on the cusp of destruction (self-caused). They have constructed a classic over-leveraged multi-station group, with a debt/equity ratio over 7:1, and interest rates tied to (now rising) LIBOR and a EBIDTA/debt ratio. They either are allowed to own more stations and operate/own more duopolies, or they collapse under the weight - that's why the stock has gone down ~70%, and that's why they MUST have a Repub FCC. Running the show is a chip to be cashed in in that case; they can't survive if the Dems win, so any Dem FCC threat is akin to "multiple life sentences to be served consecutively."

The basic finances reported here are accurate, although I don't know enough about the industry to know whether owning more stations would save the company or not."

I don't know the broadcasting industry any better than Mark, but I thought it was interesting. (More so than speculations on Sinclair as Berlusconi.)

[rilkefan]

There's a claim that Sinclair would be in trouble under a Kerry admin (which might for example push for media deconsolidation or which might look into their business practices) and so politicing is important in increasing the value of your stock. Of course there's a big downside now and a bigger one if Kerry wins.

[wcw]

An 8% decline over a long period, when comparable-company stocks are dropping as well, is meaningless. An 8% decline over a day or two when comparables are up is very meaningful.

Sinclair vs Viacom, 5-day chart:
http://finance.yahoo.com/q/bc?t=5d&s=SBGI&l=on&z=m&q=l&c=viab

[rilkefan]

Oops, got scooped. Note that re the quote above, tacitus.org luminary spc67 says "that commenter hasn't a clue".

[wcw]

Spc67 would not be my first authority on financial matters. For example, he claims SBGI's debt/EBITDA ratio was "hardly unusual" for media companies.

Dare we strike a blow for the reality-based community?

symbol, debt/EBITDA
SBGI, 5.0
CCU, 2.9
BLC, 2.9
GCI, 1.7
HTV, 2.5

One-of-these-things-is-not-like-the-other 5-day chart:
http://finance.yahoo.com/q/bc?t=5d&s=SBGI&l=on&z=m&q=l&c=CCU+BLC+GCI+HTV

Tacitus is not PIMCO. Spc67 is not Warren Buffet.

[Sebastian Holsclaw]

Generally an 8% drop, if not reclaimed within a week, isn't very good. But I'm all for the market. If enough people think the group went too far it should be punished, even if they are trying to support my side.

[double-plus-ungood]

Hmmm. Now it looks as if there is a bit of insider trading shenanigans. That would be interesting, extreme partisanship in the media as a illegal money-making ploy.

[praktike]

spc67 isn't Warren Buffet?

Shoot. There goes my day.

[sidereal]

No shakeup possible. The Smith family owns a significant majority of votes.

[sidereal]

Also, the figures are old. As of a couple of minutes ago, it was down 16% over the week, on very high volume.

[Bernard Yomtov]

Bainbridge is probably right. Those who think the country suffers from excess litigation ought to have the experience of being a shareholder in a mismanaged company and trying to figure out if there's anything that can be done about it.

Yes. The market is driving Sinclair prices down, so you can sell, having taken a hit from management's shenanigans. Even that option would not be available if the company were not public. The business judgment rule is one area where I believe the field is tilted too steeply against potential plaintiffs.

I speak from sad experience.

[rilkefan]

Thanks, wcw - I'm lazy and financially innumerate.

[wcw]

Sure.

In spc67's defense, SBGI as a rollup broadcast play wasn't ludicrously out-of-line with its peers. However, his reassuring message wasn't strictly accurate. They are highly leveraged, and thus will have serious cash-flow issues if their stations become persona non grata to advertisers.

SBGI does seem a good object lesson for prospective minority shareholders in any enterprise.

[Fledermaus]

From the press release: I have been encouraged, however, by the thousands of e-mails and other messages I, and others, received supporting Sinclair's efforts to hold firm to its ideals in the face of a firestorm of controversy which, ironically, was actually based on misinformation

Ironic, huh? Dave please to be meeting Alanis Morissette. Kinda like rain on your wedding day.

[Jesurgislac]

Misinformation? They're not planning to show this anti-Kerry bile and call it "news"?

[Jesurgislac]

With regard to the above comment - I somehow managed to miss this. Now I got it.

Of course, there's also this and this.

And this, which seems worth quoting:

Third, the chairman of the FCC and his White House friends have nothing to be proud of in this embroglio, but perhaps the American people can be happy that notwithstanding his implicit endorsement of the Sinclair smear, at least in the first round the public has stood up to Sinclair's unfairness with some steadfastness and coordinated purpose. On the other hand, Michael Copps and Jonathan Adelstein, two Democratic commissioners at the FCC, have expressed themselves forcefully on the issue of balance and fairness. The next step either for commissioners or the Chairman, if he were to come to a realization of his duties, would be to investigate immediately the applicability of equal time obligations. This must be done in a hurry, so that if the Kerry campaign were granted equal time, that time would come before, rather than after (!) the election. If the Chairman won't act, then the commissioners should and could investigate without him, and make public their own conclusions about equal time. Of course, equal time for the Kerry campaign to reach the public served by the Sinclair use of the public's airwaves is not only a matter of specific regulation but also an ethical and cultural value to which any public official is empowered to speak.

Time for another eloquent post by Sebastian Holsclaw on media responsibility, I think...

[Sebastian Holsclaw]

"The next step either for commissioners or the Chairman, if he were to come to a realization of his duties, would be to investigate immediately the applicability of equal time obligations."

Actually I don't think there are equal time obligations anymore. Unless I am wrong, (and I freely admit this isn't my area of expertise) the equal time obligations died in the late 1980s.

From the same portion you quote:

Second, Sinclair calling their proposed new show news does not make it news. What in fact one may think of their broadcast can and should be judged after the fact. But since Sinclair's relationship to objectivity, as reflected in its press statements, is rather attenuated, one should suppose that Sinclair's new show may well be judged just as much a smear as the so-called documentary they apparently will no longer run.

I almost hesitate to say: if I substitute in the word 'CBS' for 'Sinclair' do we get something that requires FCC action?

I won't say that no one suggested it, but as bad as I thought the CBS propagation of obvious fraud was, I still never suggested FCC action. Is it wise to have a government agency decide what is and what is not 'news'?

[Jesurgislac]

Actually I don't think there are equal time obligations anymore. Unless I am wrong, (and I freely admit this isn't my area of expertise) the equal time obligations died in the late 1980s.

It's not my area of expertise either: perhaps someone for whom it is would enlighten both of us.

I won't say that no one suggested it, but as bad as I thought the CBS propagation of obvious fraud was, I still never suggested FCC action.

I've never ceased to find it amazing that you have such high standards for CBS and Michael Moore, and such low standards for Bush & Co. I mean, I'm all in favor for people having high standards for truth and responsibility in media - but I tend to think the standards for elected politicians ought to be as high or higher. You seem to think the exact reverse.

Is it wise to have a government agency decide what is and what is not 'news'?

As far as I can see, the only people who claim to think that Sinclair's hour-long smear of Kerry is "news" are the upper echelons at Sinclair: and presumably, they do so by redefining the concept of "news".

[Jesurgislac]

Is it wise to have a government agency decide what is and what is not 'news'?

I wonder how you would react were CBS to decide they would air Fahrenheit 911, or a condensed version of it, on Friday 29 October as a news broadcast?

Would you be arguing that CBS has a perfect right to decide, for itself, what is or is not "news", and if CBS wants to air a documentary and call it news, that's perfectly fair?

Jon Lieberman (ex-Bureau Chief at Sinclair) told the New York Times

that Sinclair influences the newsroom. "My hope at the end of the day is that this just wakes up some people in our company and we just do a better job at being fair, that what we call news is news, what we call commentary is commentary." (cite)

[Jesurgislac]

Closing HTML. Sorry, sorry.

[Jesurgislac]

Via Slacktivist, who is, as usual, worth reading:

A Vietnam veteran who teaches at the University of Delaware filed a lawsuit Monday in Philadelphia against the makers of an anti-John Kerry documentary about the Vietnam War, claiming the film suggests he and another veteran fabricated details of wartime atrocities. (cite)

This should be interesting...

[Lex]

I can answer some of these questions, having both worked in and written about broadcasting.

First, and most important, owning a television broadcasting license, particularly for a VHF (channels 2-13) major-network affiliate, is pretty much a license to print money. Profit margins are significantly higher in the industry than in American industry generally. You have to work hard to screw this up.

Second, one good way to screw it up is to overleverage your company in the quest for additional properties during good times, then be stuck with those debt payments during bad ones. This Sinclair has done. Moreover, anything management does voluntarily that causes your stock price to drop 20% in two weeks can fairly be characterized as a bad idea, if not grounds for a lawsuit.

Third, regarding the "fairness issue" -- a lot of people have confused two different things here: the "fairness doctrine," a regulatory standard overturned by the Supreme Court in 1987, and an existing statute that requires broadcasters who give time on the public's airwaves to one political candidate to give it to that candidate's opponents as well. In other words, this isn't government regulation of content; it's equitable allocation of a scarce, publicly owned commodity -- broadcast spectrum.

The major exception is, of course, news reporting, which, under the First Amendment, can be as fairly or unfairly distributed as the broadcaster likes. Sinclair initially described its planned broadcast as "news" specifically to avoid this statutory requirement for equal time, I'm confident. But the notion that "Stolen Honor" is not news is supported by:

David Shuster's analysis for MSNBC.

Sinclair's firing of its D.C. bureau chief, Jon Lieberman, for telling the Baltimore Sun the video was propaganda and not news. (If it were news, Lieberman wouldn't have been complaining, presumably.)

The libel action that has been filed against the producers, mentioned above by Jesurgislac.

[Lex]

Oops. Sorry about that tag. Preview button is there for a reason.

[Jesurgislac]

It's one of those puns that's just irresistible, and certainly no one seems to be trying too hard to resist it: Burger King Comes Out Against Whoppers.

The protest grew yesterday. The Burger King Company announced that it would pull all its commercials from Sinclair stations all day on the date the program is broadcast. "Burger King wants to maintain neutrality during this election," said Eric Anderson, a spokesman. (cite)

Found via TalkLeft.