Squander

How Sinclair lost Trump's FCC

‘Sinclair’s style in Washington is exhibit A of how to squander the most favorable regulatory environment in decades,’ said one industry official.

By MARGARET HARDING MCGILL

Sinclair Broadcast Group had everything going for it when it announced its $3.9 billion purchase of Tribune Media in May 2017: close ties to the Trump administration, and a friendly Federal Communications Commission chairman who cleared a path for regulators to approve the mega-deal.

Sinclair, known for its “must-run” pro-Trump programming, was already the country’s biggest television broadcaster. The deal would make it even bigger, allowing it to reach nearly three-quarters of U.S. households — further positioning it to take on Fox in the battle for conservative eyeballs.

But 14 months later, Sinclair's deal is headed toward an almost-certain defeat, with that same FCC chairman, Ajit Pai, sending the merger on Monday into an administrative proceeding that is tantamount to a death sentence.

The story of how Sinclair's deal ran into trouble, despite its considerable sway in Republican-led Washington, is a tale of stunning hubris, according to officials inside and outside the FCC who watched the drama unfold. The broadcaster needed to sell stations to stay under federal media ownership limits, but instead it aggressively pushed proposals that would have left it in effective control of some of those spun-off outlets — raising alarms at an FCC that had already relaxed some ownership rules to the company's benefit.

Pai made clear Monday that the company had pushed the envelope too far, saying the proposed divestitures would "allow Sinclair to control those stations in practice, even if not in name, in violation of the law."

People watching the Tribune purchase called it a striking turnabout.

“Sinclair’s style in Washington is exhibit A of how to squander the most favorable regulatory environment in decades,” said one broadcast industry official who has monitored the deal's progress.

Pai's trajectory on the Sinclair deal speaks volumes.

Shortly after assuming the FCC's top job, the chairman last year revived a decades-old regulatory loophole — widely viewed as technologically obsolete — that lets broadcasters count only half the reach of some of their TV stations when calculating their compliance with national media ownership rules. The change allowed Sinclair to avoid vastly exceeding the cap, sparking criticism that Pai had delivered a gift to the conservative-leaning broadcaster.

Even with the loophole, though, the Sinclair-Tribune merger still would leave the company with stations reaching more households than the federal limits allow. That meant Sinclair needed to restructure its deal — but it waited months to put forward a plan for doing that. And when it did agree to make concessions, proposing to sell off nearly two dozen stations in some markets, some of the deals left stations in the hands of Sinclair allies or let Sinclair retain a stake in their operations.

In the end, even Pai — a chairman with a pro-industry, anti-regulation reputation — was troubled by Sinclair's deal-making.

“Let’s be honest, if you’re Sinclair and you lose Chairman Pai, you’ve done something wrong,” said a person in the media industry who opposed to the transaction.

Within hours of Pai's announcement Monday, FCC Commissioners Brendan Carr, a fellow Republican, and Jessica Rosenworcel, a Democrat, indicated they would support the chairman's plan to send the matter to an administrative law judge, a lengthy process that in past transactions has proven to be a deal killer. That represents a majority on the commission needed to advance the measure.

Sinclair, in a statement late Monday, said it was "shocked and disappointed" by the chairman's announcement and said it's "prepared to resolve any perceived issues" in order the finalize the acquisition.

"At no time have we misled the FCC in any manner whatsoever with respect to the relationships or the structure of those relationships proposed as part of the Tribune acquisition," Sinclair said. "Any suggestion to the contrary is unfounded and without factual basis."

Another misstep by Sinclair: It allowed the government's review process to drag on, giving the broadcaster's many critics time to savage the transaction. The result was more time for controversies such as a viral video in April that showed a series of Sinclair anchors reading from the same script on the threat of “fake news" — widely seen as a Trump-style broadside aimed at mainstream press outlets.

The company also didn’t bother building support for its deal with outside organizations, like nonprofits and trade groups, that are typically deployed to make the case for mergers. Sinclair’s in-house lobbyist, Rebecca Hanson, left the company earlier this month.

And in December, when the FCC announced a $13 million fine against Sinclair over an unrelated issue — an allegation that the company violated sponsorship identification rules — Sinclair took the aggressive step of saying it would fight the penalty rather than attempt to settle.

That decision certainly didn’t build goodwill with the agency, but officials said it was Sinclair’s refusal to listen to FCC staff raising concerns about station spin-offs that inflicted what appears to be the mortal wound.

FCC officials, speaking on condition of anonymity to freely discuss the agency's deliberations, said one especially problematic deal was a plan to sell Chicago station WGN to Steven Fader, a Maryland business associate of Sinclair Executive Chairman David Smith who oversees car dealerships. The $60 million deal would see Sinclair handle advertising sales and deliver programming to WGN, with an option for Sinclair to buy back the station.

Others considered troublesome were the deals to sell stations in Dallas and Houston to Cunningham Broadcasting, a company with ties to the Smith family. 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.

“If the company had really paid attention to FCC precedent and listened to the FCC, they could’ve got this deal done easily,” another media industry official said. “But they refused."