Sinclair's problems go beyond anti-Kerry telecast

October 20, 2004|By JAY HANCOCK

THE MAINSTREAM media are scared or brainwashed, so this column must march into the breach, reporting the good news at Sinclair Broadcast Group that all the other journalists are ignoring.

The Hunt Valley-based chain has prompted national scrutiny by planning to air portions of a polemic on John Kerry's opposition to the Vietnam War on many of its 62 stations.

Democrats have blasted the piece, by Carlton Sherwood, author of Inquisition: The Persecution and Prosecution of the Reverend Sun Myung Moon, as an extended attack ad.

Sinclair's stock hit a three-year low yesterday. Advertisers are leery. Institutional shareholders are applying pressure. Sinclair's Washington bureau chief criticized his bosses and got fired.

Media scolds claim airing parts of Sherwood's Stolen Honor: Wounds That Never Heal and labeling them news will further tarnish an operation that previously blacked out a Nightline show listing U.S. dead in Iraq and dispatched a news team to report the positive, "untold stories" in that country.

Are there any positive, untold stories about Sinclair, the country's biggest owner-operator of television stations, whose outlets potentially reach a quarter of the population?

Of course there are. Listen to this:

Some broadcasting stocks have performed even worse than Sinclair's.

True, if you bought Sinclair stock in late 1995, shortly after the company went public, your stake would have shrunk more than 20 percent by now. Yes, you'd have been better off buying a basket of telecommunications stocks, or California real estate.

But imagine you had bought shares in Young Broadcasting, which was fined by the Federal Communications Commission this year for showing "male genitalia during a morning news show," according to Mediaweek. Young Broadcasting stock has fallen 60 percent since late 1995.

So stop complaining.

Sinclair made money in five of the last 10 years, including $24.3 million last year on revenue of $738.7 million. Of course, it has lost money five of the last 10 years, too, and its profit margin was often lackluster.

There are several categories of junk bonds even riskier than those of the highly indebted Sinclair.

The "below investment grade" category goes all the way to "D" for default, but Sinclair's bonds get a "B" score, which is solidly in the "highly speculative" range! That means there's a decent chance of not getting your money back, but it's higher on the ladder than "extremely speculative."

Sinclair's board has several directors who are not brothers.

Institutional investors dislike seeing members of the same family in top positions at one company because it raises questions about competence, independence and so forth. David, Frederick, Duncan and Robert Smith, who took over control of the company started by their father in the early 1970s, all sit on the board.

Three, including Chairman and Chief Executive David D. Smith, are top bosses. But they did make room for several outside directors.

If the broadcasting thing doesn't work out, there's always car sales. Sinclair has invested millions in Summa Holdings, an auto dealership company in which David Smith holds a controlling interest.

This is a troubling potential conflict of interest, in which Smith's interests as a Summa shareholder might diverge significantly from Smith's responsibility to Sinclair minority shareholders. A classic example of dubious corporate governance.

Oops, this was supposed to be positive.

President Bush might win re-election.

Sinclair had better hope so. The Democrats know how to wreak regulatory revenge, and a President Kerry might not look kindly on Sinclair's push for looser media ownership restrictions or maybe even license renewals for its stations.

This is perhaps the main thing shareholders are worried about, the biggest factor in the stock decline.

True, advertisers withholding their spots could hurt Sinclair's results at a challenging time for many media companies. But the bigger risk is what the Wall Street guys call political risk. By antagonizing potential regulators with a news operation that blurs the line between journalism and partisanship, Sinclair might damage its franchise.

And then shareholders might get hurt.

That's not good news. It's not even news. Sinclair shareholders have felt the pain for years.

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