Sinclair Broadcast Group’s latest efforts to appease the Federal Communications Commission (FCC) and get approval for its massive expansion plan don’t seem to have fooled anyone. And the questionable maneuvers that triggered the FCC’s slow-down of the deal represent only a fraction of the regulatory tricks Sinclair uses to keep expanding its reach.
On July 16, FCC Chairman Ajit Pai issued a statement saying he had “serious concerns” about the pending acquisition of Tribune Media by conservative local TV giant Sinclair Broadcast Group, and the deal is now officially heading for an administrative hearing -- a step that has doomed such transactions in the past. The FCC’s formal order to designate the matter for a hearing, which was made public on July 19, details potential “misrepresentation or lack of candor” by Sinclair in its application materials.
In question is Sinclair’s proposed use of legal maneuvers commonly known as “sidecar” agreements for several stations it planned to sell off. The company is already notorious for using these contractual loopholes in a manner that’s been described as bordering on “regulatory fraud.” Basically, when Sinclair bumps up against a national or local ownership cap on TV stations, it sells one of its stations to nominally fall below the cap. Then it uses “sidecar” agreements -- sometimes known as shared service agreements, joint sales agreements, or local marketing agreements -- to keep operating the station anyway.
The order singled out three station divestitures in the proposed deal that they believe need to be examined by a judge: WGN in Chicago, IL; KDAF in Dallas, TX; and KIAH in Houston, TX. The draft order said that the FCC believed Sinclair may have been planning to maintain de facto control of the stations after selling them. Because of this potential deception, the hearing will now also consider whether the entire Sinclair-Tribune deal would be in the public interest.
Sinclair was planning to sell WGN to WGN TV LLC, which is controlled by Steven Fader, a longtime business associate of Sinclair Executive Chairman David Smith. Fader seemingly created this company so it could be used to buy WGN. In a filing with the FCC, Sinclair had indicated it would enter into multiple sidecar agreements to continue operations for WGN once the sale was complete. The FCC wrote in its hearing designation order, “Specifically, we question the legitimacy of the proposed sale of a such a highly rated and profitable station in the nation’s third-largest market to an individual with no broadcast experience, with close business ties to Smith, and with plans to own only the license and minimal station assets. Indeed, one could argue that Sinclair’s proposal to divest what has been described as one of the ‘crown jewels’ of Tribune makes no sense from a business perspective unless that divestiture permitted Sinclair to maintain effective control over the station.”
Sinclair was also planning to sell KDAF and KIAH to Cunningham Broadcasting Corp., another company with Sinclair ties. (Sinclair did not say it would use any sidecar agreements for these stations.) According to Politico, “Cunningham's voting stock was owned until January by the estate of Carolyn Smith, David Smith's mother. The nonvoting stock of the company is owned by trusts that benefit Carolyn Smith's grandchildren.” The voting stock was sold to Cunningham’s current CEO, Michael Anderson, but according to a Newsmax filing petitioning the FCC to deny the Sinclair-Tribune deal, Sinclair’s control of Cunningham still remained intact. The filing stated, “Sinclair’s controlling shareholders—Carolyn Smith’s sons, David Smith, Frederick Smith, J. Duncan Smith, and Robert Smith—each hold options to acquire Mr. Anderson’s voting shares such that they can regain control of the company. These options are in addition to the ownership of all of Cunningham’s non-voting shares. Cunningham’s ownership structure is thus still tightly connected to Sinclair’s ownership.” The filing also noted that Sinclair had agreed to sell the stations to Cunningham for low figures that do not “reflect market prices for the assets,” and that Sinclair is additionally guaranteeing nearly $54 million of Cunningham’s debt. The FCC’s hearing designation order cited this information in its reasoning for questioning the KIAH and KDAF divestitures.
Sinclair had earlier responded to reports about an impending FCC order by promising in a statement to change course on the three divestitures. It said it would ask permission from the FCC to put KDAF and KIAH into an independent divestiture trust and would “simply acquire” WGN and keep the station under its control. On its face, this proposed solution seemed laughable -- Sinclair was saying it would partly alleviate concerns about its national ownership reach by keeping a station that serves the third largest media market in the country rather than pretending to get rid of it. It didn’t appear to work on the FCC either -- the commissioners voted to officially send the matter to hearing hours after Sinclair’s last-ditch announcement.
And Sinclair’s promise to change course with a few station divestments didn’t suddenly eliminate its numerous other current and proposed sidecar agreements. Or the fact that the rest of this potential deal is made possible only because of an outdated rule the FCC recently reinstated as part of a series of moves that happened to help Sinclair.
What about the proposed sidecar agreements with Howard Stirk Holdings?
Sinclair has proposed entering into sidecar arrangements for three other stations as part of the Tribune deal, and those stations haven’t received the same level of scrutiny. The company is still proposing to sell three stations -- KUNS in Seattle, WA; KAUT in Oklahoma City, OK; and KMYU in Salt Lake City, UT -- to another Sinclair business partner, Howard Stirk Holdings.
Howard Stirk Holdings is the holding company of Armstrong Williams, a conservative pundit who hosts a weekly show that airs on the Sinclair-owned News Channel 8 in the D.C. area and is syndicated on other Sinclair local TV stations across the country. Williams already owns several local TV stations through Howard Stirk that have sidecar agreements with Sinclair.
Politico reported in May that Sinclair would sell the three new stations to Williams’ company for well below market price. And just as it did with its WGN divestiture, Sinclair indicated in a filing with the FCC that it would enter into multiple sidecar agreements to continue operating all three stations.
What about the other nearly 50 stations Sinclair already operates using sidecar agreements?
Craig Aaron, the president and CEO of consumer rights group Free Press, said in a recent statement about the Sinclair-FCC developments, “Sinclair has dozens of identical shell operations in numerous markets around the country. If the new ones were improper, so are all the existing ones.”
Aaron is referring to the numerous other sidecar agreements Sinclair already uses to control local TV stations across the country. By Media Matters’ count, there are at least 48 stations Sinclair lists on its website but doesn’t technically own. Many of these have websites branded like Sinclair websites, run Sinclair content on air, and specify that they are not owned by Sinclair but might be operated by the company or receive “certain services” provided to them by the company.
For example, Sinclair doesn’t actually own any local TV stations in the Wilkes-Barre/Scranton area of Pennsylvania -- but it still controls some content and/or handles operations at three stations there (WOLF, WSWB, and WQMY). WOLF, also known as Fox 56, regularly airs Sinclair “must-run” segments from Boris Epshteyn and the “Terrorism Alert Desk,” and it links to Circa, Sinclair’s online news company, on its website. And because of Sinclair’s complicated web of agreements, WOLF is also sharing news anchors with two other Sinclair stations in entirely different states.
Click here for Media Matters’ list of 48 stations in 23 states that aren’t owned by Sinclair but are operated by the company in some capacity. Many are owned by Cunningham, Howard Stirk, or Deerfield Media, a third smaller company that often strikes sidecar deals with Sinclair.
What about the wonky rule that enabled the Sinclair-Tribune deal proposal in the first place?
Sinclair is already the largest owner of local TV stations in the country, and its proposed Tribune acquisition would allow it to reach up to 72 percent of American TV households. It will say, on paper, though, that the reach is just under 39 percent. That’s because current FCC regulations prevent any one company from owning stations that collectively reach more than 39 percent of households -- and the FCC reinstated an outdated method for calculating the number that allow Sinclair to seem like it’s following the rules.
The decision to reinstate the outdated rule, called the UHF discount, is suspicious enough that it’s currently being challenged in the D.C. Circuit Court of Appeals. A ruling has not yet been issued, but the panel of judges hearing the case seemed skeptical of the FCC’s reasoning for re-adopting the discount. One judge commented that the FCC seemed to be keeping the rule “on life support.”
What about the internal investigation into FCC and Sinclair dealings?
As the Sinclair-Tribune deal continues to unfold, an internal investigation into Pai’s relationship with Sinclair may still be ongoing at the FCC. In February, The New York Times reported that the FCC inspector general has opened an internal investigation into potential improper conduct by Pai and his aides in advocating for deregulatory measures that specifically benefited Sinclair. The investigation began after lawmakers called on the inspector general to investigate a “disturbing pattern of a three way quid-pro-quo” that could include a laundry list of activities.
Pai’s (and the rest of the Trump administration’s) previously cozy relationships with Sinclair are a major reason why the newest developments with the Tribune deal were regarded with widespread surprise. Some speculate that the internal investigation could have played a role in Pai’s latest decision to slow-track the deal.
Here is Media Matters’ list of 48 stations in 23 states that aren’t owned by Sinclair but are operated by the company in some capacity. Many are owned by Cunningham, Howard Stirk, or Deerfield Media, a third smaller company that often strikes sidecar deals with Sinclair.
- WDBB (a CW 21 satellite station) in Birmingham, AL
- WPMI (NBC 15) in Mobile, AL
- WJTC (UTV44) in Mobile, AL
- KCVU (Fox 20) in Chico, CA
- KBVU (Fox 28) in Eureka, CA
- WYME-CD (Antenna TV) in Gainesville, FL
- WNBW (NBC 9) in Gainesville, FL
- WGFL (CBS 4) in Gainesville, FL
- WTLF (The CW Tallahassee) in Midway, FL
- KFXA (Fox 28) in Cedar Rapids, IA
- WCCU (Fox Illinois) in Champaign, IL
- WRSP (Fox Illinois) in Springfield, IL
- WBUI (The CW 23) in Springfield, IL
- KMTW (MyTV Wichita) in Wichita, KS
- WUTB (MyTV Baltimore) in Baltimore, MD
- WNUV (The CW Baltimore) in Baltimore, MD
- WPFO (Fox 23) in Portland, ME
- WEYI (NBC 25) in Flint, MI
- WBSF (The CW 46) in Flint, MI
- WGTQ (UpNorthLive) in Traverse City, MI
- WGTU (UpNorthLive) in Traverse City, MI
- WDKA (My49) in Cape Girardeau, MO
- WMYA (My40) in Asheville, NC
- WYDO (Fox 14) in New Bern, NC
- KXVO (The CW 15) in Omaha, NE
- KENV in Elko, NV
- KAME (My21) in Reno, NV
- KRNV (NBC 4) in Reno, NV
- WHAM (ABC 13) in Rochester, NY
- WTVH (CNY Central) in Syracuse, NY
- WSTR (Star 64) in Cincinnati, OH
- WWHO (The CW Columbus) in Columbus, OH
- WTTE (Fox 28) in Columbus, OH
- WRGT (Fox 45) in Miamisburg, OH
- KMTR (NBC Eugene) in Springfield, OR
- KTCW (an NBC Eugene satellite station) in Roseburg, OR
- KMCB (an NBC Eugene satellite station) in North Bend, OR
- WOLF (Fox 56) in Wilkes-Barre, PA
- WQMY (MyTV Wilkes-Barre) in Wilkes-Barre, PA
- WSWB (The CW 38) in Wilkes-Barre, PA
- WWMB (The CW 21) in Florence, SC
- KMEG (CBS 14) in Dakota Dunes, SD
- WFLI (The CW Chattanooga) in Chattanooga, TN
- WNAB (The CW 58) in Nashville, TN
- KBTV (Fox 4) in Beaumont, TX
- KMYS (The CW 35) in San Antonio, TX
- WEMT (Fox 39) in Bristol, VA
- WVAH (Fox 11) in Charleston, WV