The failed Tribune acquisition could be just the start of Sinclair's problems
Because of the company's potential misconduct, the FCC could reconsider its broadcast licenses
The implosion of Sinclair Broadcast Group's planned acquisition of Tribune Media has led to weeks of bad headlines for Sinclair -- but its regulatory and legal troubles may be far from over.
Earlier this month, Tribune Media announced it had pulled out of the embattled Sinclair-Tribune acquisition proposal and had filed a lawsuit against Sinclair for “breach of contract,” citing the company’s questionable conduct that led to the deal’s slow-tracking. The announcement came several weeks after the Federal Communications Commission (FCC) designated the proposed acquisition for further legal scrutiny in what’s called a “hearing designation order,” citing possible “misrepresentation or lack of candor” by Sinclair.
Sinclair is currently the largest owner and operator of local TV stations in the country, with control of 192 stations in 89 different local media markets. There’s plenty the company could do to further exert power using those stations, no acquisitions required.
But it now faces a long list of unresolved issues Sinclair created for itself during the failed acquisition process -- and its potential misconduct in the last year specifically could keep the company from gaining the federal approval it would need to expand again.
As former FCC Chairman Tom Wheeler recently wrote, the commission must consider the “character” of a licensee when granting permission to hold a TV station’s broadcast license. “The character of the licensee is an important component in determining whether the party is a fit trustee for the public’s airwaves,” he explained.
Wheeler is referring to a provision in the Communications Act which specifies that the FCC should examine an applicant’s “citizenship, character, and financial, technical, and other qualifications” to operate a station when granting and renewing broadcast licenses. This consideration applies to new license applications as well as renewals of existing licenses, which Sinclair will have to address beginning in 2020. (The FCC also has the right to ask a licensee for more proof that it’s fit to operate the station at any point during the license term.)
The law does not define “character,” and the FCC has invoked this part of the Communications Act only in relatively extreme circumstances in the past. The commission broadened its definition of character qualifications in 1990, saying that it would consider “any conviction for misconduct constituting a felony” and any “adjudicated violations of antitrust or anticompetitive laws involving any media of mass communications” when examining a licensee. It also reiterated that the point of considering a licensee’s character is to determine that the entity would “deal truthfully” with the commission, and concluded that a licensee’s “propensity to comply with the law generally” ought to also be considered so the commission can be sure the licensee “will conform to FCC rules and policies.”
Elsewhere, the FCC has also indicated that during license renewals, a licensee must prove that “during the preceding license term, the licensee has served the public interest” and does not have any unresolved character issues with the commission.
According to Axios, some in the broadcasting world believe the potential for license renewal complications for Sinclair has been “underappreciated” so far. Indeed, in the last year or so, Sinclair has given the FCC a laundry list of reasons to reconsider its character and fitness to operate public broadcast stations, some of which could ultimately result in character dings according to the FCC’s definitions.
Potential “misrepresentation” by Sinclair in its FCC dealings
In his piece for Brookings, former FCC Chairman Wheeler focused on the FCC’s pending administrative hearing about the Sinclair-Tribune merger. Before the deal collapsed completely, the commission had referred the matter to an administrative law judge, alleging that Sinclair had engaged in potential “misrepresentation or lack of candor” in its application. The commission cited Sinclair’s proposed use of legal maneuvers commonly known as “sidecar agreements” for several specific stations it planned to sell off, contending that Sinclair was using questionable arrangements to maintain control of these specific stations.
Tribune pulled out of the deal after the hearing was designated, and the FCC has not yet taken further action on the hearing. Wheeler argued that the commission still ought to follow through with the proceeding, explaining that leaving the allegations of “misrepresentation” unresolved will cast a shadow over Sinclair’s character (especially with President Donald Trump himself defending Sinclair after the hearing was ordered).
Wheeler points out that the FCC could also elect to essentially settle with Sinclair, allowing the company to pay a fine without admitting any misconduct by using a consent decree (as it has done in the past). But this less transparent route would not provide the commission with any information about Sinclair’s fitness as a licensee moving forward.
Sinclair’s rampant and long-term abuse of sidecar agreements -- which it has utilized for far more than just this deal -- is also a potential factor in the FCC’s decision about its ability to “deal truthfully” with the commission. By Media Matters’ count, there are at least 48 stations Sinclair lists on its website that it doesn’t technically own. Many of these have websites branded like Sinclair’s, run Sinclair content on air, and specify that they are not owned by Sinclair but might be operated by or receive “certain services” from the company.
Alleged misleading conduct and antitrust violations by Sinclair, as described in lawsuits
In addition to pulling out of the transaction with Sinclair, Tribune Media also filed a billion-dollar lawsuit against the company alleging misconduct during the approval process. Tribune’s complaint argues that Sinclair misled the company and regulators, omitting information about several sidecar transactions that would have compromised the deal (and ultimately did). The suit was filed in Delaware’s Court of Chancery on August 9.
Sinclair is also one of several major broadcasters named in a class-action lawsuit filed shortly after The Wall Street Journal reported the Department of Justice (DOJ) was conducting a related antitrust investigation. The suit, brought on behalf of advertisers, alleges that Sinclair, Tribune, and other companies worked together to set higher prices for TV advertising buys. It was filed in the U.S. District Court for the Northern District Illinois on August 1.
The New York Post reported that Sinclair shareholders may be “weighing lawsuits” against the company as well.
Sinclair’s alleged mistreatment of regulators and disregard for DOJ antitrust law
The Tribune complaint also alleged further specifics about Sinclair’s “belligerent” conduct throughout the federal approval process for the deal, saying Sinclair “fought, threatened, insulted, and misled regulators.” This includes an alleged incident in which Sinclair accused a high-ranking federal antitrust official of “‘completely misunderstand[ing]’ the broadcast industry,” inviting the DOJ to sue the company over proposed station divestitures, and threatening to “file its own lawsuit against DOJ.”
The New York Post also reported that the DOJ would have filed a lawsuit (presumably on antitrust grounds) to halt the Sinclair-Tribune merger if the FCC had not stepped in. In other words, it seems federal regulators felt there were enough antitrust issues with the proposed transaction to warrant legal action.
The FCC has fined Sinclair before for deceptive business practices
The FCC has fined Sinclair multiple times in the past for running undisclosed ads, including a $13.3 million fine issued in 2017. The FCC also fined Sinclair over $9.4 million in 2016 for negotiating improperly on behalf of sidecar stations it didn’t own.
In 2007, the commission fined Sinclair for airing two shows in which host Armstrong Williams made positive comments about the Bush administration’s education policy, without disclosing that Williams was under contract with the Bush Education Department to promote the policy.