Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q2 2022 Earnings Conference Call August 3, 2022 9:00 AM ET
Company Participants
Lucy Rutishauser – EVP & CFO
Billie Jo McIntire – Director of IR
Christopher Ripley – President & CEO
Robert Weisbord – COO & President, Broadcast
Steven Zenker – VP, IR
Conference Call Participants
Daniel Kurnos – The Benchmark Company
Steven Cahall – Wells Fargo Securities
Aaron Watts – Deutsche Bank
Barton Crockett – Rosenblatt Securities
Edward Reily – EF Hutton
David Hamburger – Morgan Stanley
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sinclair Broadcast Group, Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions].
I would now like to turn the call over to the host, Executive Vice President and Chief Financial Officer, Lucy Rutishauser.
Lucy Rutishauser
Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Operating Officer; and Steve Zenker, Vice President of Investor Relations.
Before we begin, I want to remind everyone that slides and supplemental information for today’s earnings call are available on our website, sbgi.net, on the Investor Information page and on the earnings webcast page. I also want to remind you that today’s call is a Sinclair-only call. As a result of the de-consolidation of Diamond Sports Group on March 1, separate Diamond financials will be made available in a couple of weeks and a separate quarterly public call hosted.
Now Billie Jo McIntire will make our forward-looking statement disclaimer.
Billie Jo McIntire
Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company’s most recent reports as filed with the SEC and included in our second quarter earnings release.
The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our website and will remain available until our next quarterly earnings release.
Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA, adjusted free cash flow and leverage. The company considers adjusted EBITDA to be an indicator of operating performance of its assets. The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure of valuation.
These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other companies’ uses or formulations. The company does not provide reconciliations on a forward-looking basis. Further discussions and reconciliations of the company’s non-GAAP financial measures to comparable GAAP financial measures can be found on its website, www.sbgi.net.
Chris Ripley will now give you an update on the strategic direction of the company.
Christopher Ripley
Thank you, Billie. Good morning, everyone. Over the years, Sinclair has evolved considerably from a large broadcaster that relied on advertising for the vast majority of its revenue to a far larger and more diversified company that we are today. We believe the diversity of our businesses embodies the future earnings power of our organization with revenue streams expected to come from a number of different areas, including certain investments that generate little to no revenue as of yet.
In addition to the advertising and distribution revenues that make up the bulk of our current revenue generation, we believe other areas will be drivers of our business in the future. These include: wireless data revenue from NextGen/ATSC 3.0 technology that will enable us to more fully utilize our spectrum, expansion of our national networks and the build-out of our Compulse Marketing Services business, which utilizes new SaaS marketing technology that we have acquired and developed. What will not change is our company’s steadfast belief in local media news and sports and the value they bring to our customers, viewers and the communities in which we operate.
In regards to second quarter results, we met our revenue expectations and exceeded our adjusted EBITDA guidance. Political advertising revenues were not only strong, but they were the highest second quarter and year-to-date political revenue in our company’s history. Year-to-date, through the end of June, political revenue was over double 2018’s political revenue for the same period and up over 20% compared to 2020, which was a presidential election year. Rob and Lucy will talk more about the specifics and results.
We expect political revenue to drive total ad sales for the remainder of the year, resulting in growth over last year. It is important to note that while we’re not in a position to forecast the state of the economy through the end of the year or in 2023, we expect that a strong year in political advertising helps cushion against any possible downturn, in addition to discretionary levers on operating capital expenditures that we can pull to mitigate such weakness.
More than ever, consumers have more choices to view content, whether it’s on traditional TV sets, mobile devices, social media or other platforms. With our cumulative on-air and online audiences, we are poised to deliver our content, how and where audiences choose to view and consume it. While overall video viewing is fragmenting an opportunity going forward is engaging with users of our content directly, reaching and engaging audiences on all platforms and opening up incremental revenue opportunities.
Digital is a big part of that equation. Digital viewing is growing with our current average monthly unique users of 80 million to 90 million. We are well positioned as a holder of first-party data to develop these additional revenue opportunities, especially when third-party engagement tools like cookies go away.
We have the ability to engage viewers beyond passive consumption, encourage interaction and convert them to direct customers. And we can utilize our content, both newly developed and from our archives, to drive these opportunities. This includes initiatives such as podcasts, digital newsletters and other digital content as well as referring users to partner sites to make transactions.
In all these cases, we are and will be able to learn more about our users through consented data gathering as a first-party provider to enhance the user experience while opening up the door to additional revenue opportunities.
The content — the creation of new content continues to be a priority for our company. On the heels of the successful launch and extension of the National Desk franchise and our widely available NewsOn platform, we are looking at other initiatives to utilize our vast resources around local news.
I mentioned podcasting just a minute ago as one example. In the second quarter, we debuted the first in a new series of broadcast titled, Missing Erica Baker, about the disappearance of a young child in Ohio. These podcasts take a deep dive into stories of local and national interest. Sinclair is in a prime position to produce such compelling storytelling, thanks to our company-wide commitment to investigative reporting and teams of talent and journalists across our expansive network of local news stations.
We’ve been encouraged by our first broadcast performance so far with consumers giving the content favorable reviews. We are also developing new shows and series, including a debate show, a game show and a docu series based on noteworthy events covered by our local news stations. The new content will appear on one or multiple Sinclair platforms or might even be sold to third parties.
Also, we recently rolled out the National Desk weather to our local newscast at 6:00 a.m. and 6:00 p.m. and on social media, and we plan to launch a morning show that will tap into the live coverage and weather content produced over the prior 24 hours. And we’re working on gamification elements for our content. Expect to hear more about all these efforts as we progress through the year.
We continue to make solid progress on our marketing technology platform Compulse 360. We have built a comprehensive proprietary platform that we believe is the only entity of its kind, focused exclusively on growing local agencies and local media companies offering an omnichannel product that combines data-driven media planning, order management, fulfillment and analytics into a single SaaS-based solution.
The result is an experience for the client that is efficient, transparent and more profitable as it eliminates the middle man and allows the client to keep more of the media margin. The platform offers not only broad access across Sinclair’s diversified properties, but also from over 100 publishers with which we have partnerships with a reach to over 90 million unique connected TV households.
We believe the opportunity here is significant as we’re offering an omnichannel solution that enables our partners to compete for the $240 billion in U.S. digital advertising budgets. And by owning our technology versus licensing, like many of our chief competitors, we believe we have a competitive advantage in making significant inroads in this marketplace.
On the NextGen broadcasting front, another 5 Sinclair markets launched NextGen in the second quarter, making 10 thus far for the year and 32 overall. To date, NextGen TV is available in 60% of the households in Sinclair’s licensed footprint.
Meanwhile, 3.0 is advancing globally. Just this week, we announced that we entered into memorandums of understanding with 2 top brand broadcast networks to collaborate on the development and implementation of NextGen broadcast models and technologies in both the U.S. and Korea.
Demonstrations of use cases for the technology ongoing and include automotive video applications and enhanced GPS that takes the GPS precision from 3 meters down to 3 centimeters. We believe our joint efforts will allow for greater efficiency in developing new business models around these future monetization opportunities.
And finally, we continue to look for ways to best provide value to our shareholders. In addition to growth initiatives that I’ve touched upon earlier in the year, we increased our quarterly dividend by 25%. And in June, we resumed our 10b5-1 share repurchase program, buying back another 500,000 shares or so through yesterday. This makes close to 39 million shares repurchased since the beginning of 2018 or 38% of our total shares outstanding. We also repurchased some of our STG notes at a discount in the open market, which Lucy will detail.
And we continue to utilize our free cash flow to invest in attractive and strategic investments that we believe will enhance our business in the years ahead. Year-to-date, we’ve deployed $19 million in investments and received distributions of $44 million. In 2021, those numbers were $125 million of investments and $48 million of distributions. And since 2017, we have made $303 million in investments and received distributions of $269 million.
And going back a bit further, these investments we have purchased since 2014 have generated an over 20% IRR to date. This diversified portfolio of investments made up of holdings in real estate, venture capital and private equity as well as strategic investments in companies has an estimated market value as of June 30 of $764 million or over $11 per share.
Adding in our Bally’s Holdings, the Diamond A/R facility and holding company cash, the estimated market value is over $1.2 billion or over $17 per share. On the corporate social responsibility front, we announced the annual winners of our diversity scholarships awarded to high achieving diverse students seeking careers in the broadcast industry.
This year, we opened it up to applicants nationwide and awarded $50,000 in scholarships. Since 2013, we have awarded over $250,000 to help bring more diversity to news and marketing teams throughout the country.
Finally, we just finished up our Sinclair Cares: Summer Hunger relief fundraising campaign to help provide meals to needy families. The campaign helped provide approximately 1.8 million meals to children and families across the U.S.
With that, I will turn it over to Rob to review the operational highlights for the quarter.
Robert Weisbord
Thanks, Chris. Political ad revenues were certainly a big driver during the quarter, surpassing our most bullish expectations and setting a second quarter record for political revenues, including presidential election years. As Chris pointed out, combined with the strong first quarter, political revenues year-to-date are up more than 100% compared to 2018 and up over 20% versus 2020. We continue to expect strong third and fourth quarters for political spending, which are typically the largest quarters for political ad spend. I think it is fair to say that at this juncture, political revenue for 2022 could possibly approach the record level we had in 2020.
The political strength in the quarter helped media revenues grow 5% over the prior year, which was within our guidance range. Core ad sales were down low single digits coming in around the low end of our expectations on decreased revenues in the service category, particularly the insurance and the sports betting category versus a year ago.
In regards to our growth networks, Comet, Charge!, & TBD, we’re in the process of adding 13 million households to their combined coverage. The incremental rollout began late in the first quarter and will go through September. This will give the networks a total combined coverage of over 95 million households, a 7% increase in households over the end of last year. We expect the added audiences to drive impression-based sales.
In Tennis Channel News, we are pleased with the viewing of this year’s French Open, played from May 22 to June 5. The May 31, Rafael Nadal and Novak Djokovic match garnered 666,000 viewers. The most views ever for a Tennis Channel match, eclipsing the old record by 30%. Also, during the French Open on May 31, authenticated users made the Tennis Channel app the #3 paid sports app, hitting an all-time high during that Nadal-Djokovic instant classic.
On the tennischannel.com website, digital users grew double digits year-over-year as viewers found the French Open on the go. Tennis Channel also had another successful [indiscernible] with household impressions up over 1 million this year on Tennis Channel versus a year ago, and our new 24/7 T2 linear channel on Samsung TV+ is reaching a brand-new audience with over 700 live hours of tennis since its launch.
I’ll now turn it over to Lucy, who will delve deeper into the Sinclair financials.
Lucy Rutishauser
Thank you, Rob. Given the deconsolidation of Diamond on March 1 of this year and in order to have a meaningful discussion around comparative results and trends, the results I’m going to speak to are the Sinclair only pro forma numbers for all periods, which excludes Diamond and excludes businesses sold in the prior 12 months. You can follow along with our slide deck or our financial supplements on our website. For actual results, including the periods to Diamond was consolidated, please refer to this morning’s earnings release.
Media revenues for the quarter were up 6% versus the same period a year ago on a pro forma basis, driven by higher distribution and political ad revenues, and that was offset in part by the deferred management fee and lower core advertising, as Rob discussed.
Digital revenues increased 17%, and the $831 million of media revenues was within the middle of our guidance range. Distribution revenue increased 4% versus last year, but fell short of our guidance range, primarily due to higher-than-expected distributor churn.
Subscriber churn was mid-single-digit percent versus last year. Core advertising decreased low single digits in the second quarter compared to the same period a year ago and was close to the low end of our expectations. As Rob mentioned, we saw some weakness in the insurance category and some political crowd out.
Total advertising revenues were very strong when including political, increasing 12% over last year and coming in at the upper end of the guidance range. Media expenses were 7% higher in this year’s second quarter versus last year on higher network programming fees, digital expenses on the higher digital revenue and timing of tennis tournaments, but were favorable to guidance with about half of the favorability related to timing with the expenses expected to be incurred in the back half of this year in part due to supply chain challenges and the other half the result of cost controls and open positions.
Adjusted EBITDA for the quarter decreased 6% over the second quarter of last year on the Diamond management fee deferral and the higher expenses, which were offset in part by the strength in political revenues and growth in net retrans. As compared to guidance, our $183 million of adjusted EBITDA more than exceeded the high end.
Although adjusted free cash flow in the quarter came in lower than our guidance, this was due to a delay in a large IRS cash tax refund, which we’re now expecting later this year. Excluding the delay of that refund, we were within our second quarter adjusted free cash flow guidance range. Adjusted free cash flow per share was $1.42 for the quarter, while diluted net loss per share was $0.17.
Our liquidity and balance sheet remained strong with $420 million of cash at the end of the quarter, and with an undrawn revolver puts our liquidity at almost $1.1 billion at quarter end.
Total debt at the end of the second quarter was $4.3 billion, and STG’s first-lien indebtedness ratio on a trailing 8 quarters was 3.3x, while total net leverage due to the bonds was 4.1x. In April, we closed on $750 million of new term loans that mature in 2029, with the proceeds used to redeem our [indiscernible] senior notes that were set to mature in 2026 and to refinance the Term B-1 loans that were set to mature in early 2024. We also extended the maturity of $613 million of our revolving credit facility to 2027. Should a downturn in the economy occur, all of our near-term debt maturities have been addressed with our next maturity not until 2026.
During the quarter, we repurchased in the open market $118 million face value of our senior notes due 2027 at a $14 million discount. We also repurchased 1.6 million common shares under a 10b5-1 stock buyback program and an additional almost 500,000 shares since June 30. Year-to-date, we have repurchased approximately 6% of our total shares outstanding for $114 million. Our total share count at the end of the quarter was approximately 70 million shares.
Turning to our third quarter guidance. We expect another strong quarter for political, which is the main driver for media revenues increasing approximately 10% to 12% versus the pro forma third quarter of last year. Third quarter core advertising is expected to be flat to down low single-digit percent versus third quarter of last year pro forma.
The downside of the range is driven by anticipated political crowd-out, the absence of Olympics and macroeconomic factors, while the high end is driven by growth of our digital revenues.
Third quarter adjusted EBITDA is expected to be between $197 million and $215 million compared to $190 million pro forma last year, with the increase primarily the result of higher political revenue, partially offset by the management fee deferral, higher network programming fees, technology and infrastructure upgrades sales cost on the higher revenues, news content and NextGen initiatives.
Adjusted free cash flow for the quarter is expected to be $162 million to $182 million or $2.32 to $2.60 per share. For the year, based on current assumptions and receipt of the delayed tax refund, we expect adjusted free cash flow per share of approximately $11.90 to $12.70 for 2022, excluding Diamond’s January and February results.
And so with that, I would like to open it up to questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question is coming from Dan Kurnos with The Benchmark Company.
Daniel Kurnos
Maybe we can just talk a little bit, I guess, maybe for Rob or Chris, just around the interplay between political and crowd-out and what you’re seeing just overall? Obviously, Chris, in your prepared remarks, you mentioned, no one has a crystal ball, obviously, none of us do, that would be great.
But just in terms of all of the commentary we’ve heard out there just around national softening, we’ve heard that local has held up better. But if I pull out political from both years and exclude Tennis, it looked like core was down a little bit worse just within the Broadcast segment. So maybe just kind of talk through what you’re seeing there? You gave some category color, but just sort of expectations maybe on how that trends or how that holds up based on either cancellations or what you’re seeing in the marketplace?
Robert Weisbord
Yes. Dan, this is Rob. I’ll take that. We’re seeing retail and medical categories, they were strong in the first quarter and continue to held well in the second quarter as well. As mentioned, Services, which is our largest category, saw some weakness due to the insurance subcategory within that category.
Auto is now coming on a go-forward basis. Annualized, it’s come full circle with the chip shortage. So we expect it to have a new normalized look until the chips supply is fixed. So that will not be a drain on our pace.
Sports Betting category will be down slightly. What we’re seeing is it’s crossed the 50% threshold. So dollars are moving the network and where our opportunities are is when each state opens up, and we expect Ohio to open up, that’s where we’ll see the money coming in.
And due to the fact that we’ve built out a robust digital portfolio, we believe that both on-air and digital will remain the buffer to keep us strong on a go-forward basis. We will see some spot weakness on the core just due to the record political that is coming in. And for the first half of the year, it’s robust. We have many races going on in our key markets that will drive our business for the rest of the year.
Christopher Ripley
And I’ll just — Dan, I’ll just add to that. So when you think about Q2 core being down low single digits, but having a record political quarter, insurance going through various issues, auto still not back. We’re very pleased with that outcome. And then looking forward, Q3, we’ll definitely have significant crowd out, but political will be tremendous again as we anticipate.
And then Q4, we’ll have a half a quarter of political, but also we’re going to be lapping the impact of the cyber event we had last quarter. So the year in terms of core advertising revenue in general, looks very positive going forward.
Robert Weisbord
And I’ll add one last thing, Dan, that we’ve done extensive training on how to sell through a down economy with our local sellers. And so they’re having those conversations on a continuous basis with our local and regional clients and how to get through a potential recession. So we think we’re 4 to 5 to go forward.
Daniel Kurnos
Got it. And just to be clear, you’re not seeing, at least at this time, any incremental cancellations or anything that would make you additionally concerned relative to what we’ve heard from the others.
Robert Weisbord
No. It’s some sporadic cancellations. But on the upfront through our Sinclair Sports Group that sells the house of brands, we’ve seen linear at a mid- to high increase on spot and 43% increase in our digital spend. So what was laying in during the upfront leads us to believe we will be okay.
Daniel Kurnos
Got it. That’s helpful. And then there’s World Cup, too, later, which could help keep you viewing. And then just sort of on the retrans side, mid-singles is not — that’s sort of a little bit better, I think, than broader industry, which has been the trend for broadcast.
Just any thoughts on sort of sub trends and/or net retrans change in outlook for the balance of the year. Just want to get a sense of where your guys headed at as you’re looking — going into ’23.
Lucy Rutishauser
Yes. So I’ll take that one, Dan. So we continue to forecast gross retrans to grow mid-single digit percent this year. And that’s assuming mid-single-digit percent subscriber churn, which is what we did see in second quarter.
And then just while it’s too early to provide any outlook for ’23, what I will say is we have in the fourth quarter of this year, we have our ABC affiliates, which renew. And then on the distributor side, we have about just over 30% of our big 4 subscribers that renew in the back half of next year.
Daniel Kurnos
All right. That does it for me. Glad to see I’m not entirely crazy when I see broadcast a little bit sticky.
Operator
Your next question is coming from Steven Cahall at Wells Fargo.
Steven Cahall
Maybe first just on political, could you add any more context to what drove such strong results in the second quarter? I assume it’s a lot of primary activity, maybe some state referendum, might be great to maybe help us think about it versus either 2018 or 2020 in terms of what was candidate money you’re doing and what was issue or pack money doing?
And now that we’re kind of through a lot of those primaries, are you seeing the same sort of strength versus ’18 or ’20 kind of continue as you see the bookings come in for the third quarter? It just sounds like things are really, really strong. I just want to get as much color as we can there.
And then, Lucy, I was wondering if you could just provide us with a little more color on the cash tax refund. Does that impact your NOLs at all? Is it separate? And could any of that extend? And could you see anything like that in 2023 as well?
Lucy Rutishauser
Yes. So let me do the cash taxes first. So you have our forecast for this year, which is $138 million total for refunds. And so what has not come in yet is $158 million of refunds, which the IRS is already approved, it’s just held up in their processing. So we had that in our second quarter guidance, and that’s now pushed into the back half of the year. And so that’s just timing.
And then again, for ’23, it’s still too early to put out any kind of estimates for ’23. We do have a few — some other additional audits that are in process with the IRS. But again, too early to say outcome and timing for those.
Christopher Ripley
But those audits, to be clear, do result in further returns. We just — they still are in process.
Robert Weisbord
And on the political side, I’ll set the macro first. It was estimated $5.7 billion was spent in 2018. The cross-screen media’s most recent call is for $9 billion to be spent in 2022. So first half of the year, there were many issues that were driving it as well as some of the primaries. But when we look at the issues on the ballot, we have religion issues, abortion issues, gambling issues, firearms, amendment, we have abortion, marijuana for recreational, minimum wage, citizen voting, right to health and right to work. So we think all those factors are going to drive and where all the issues pop up that we don’t see.
And in Florida, [indiscernible] just announced that he’s raised $20 million for the rates there. So the money keeps coming in across the country. So that’s why we’re very robust in our estimates.
Steven Cahall
And maybe just one quick follow-up. Are you able to update us on how many Bally shares are now owned at SBGI or STG, and any progress on those performance warrants?
Christopher Ripley
Follow-up in a second on the specific number. I don’t have that at the tip of my fingers. But in terms of our performance metrics, which we believe are very low and we have 10 years to — or 10 years from the original date of the deal to achieve them or rather Bally’s achieving them in terms of total users.
We — they continue to — they have launched in 6 markets now, with their latest offering, which takes the technology from Europe and brings it to the U.S. And so they have made progress towards those objectives, there are those performance levels. They have not reached them yet, and we continue to believe that they will be easily achieved within the span of time.
Steven Zenker
The number of shares is 12.8 million share equivalents.
Christopher Ripley
Yes, sorry, 12.8 million. That’s the total. It’s not the amount subject to performance levels.
Lucy Rutishauser
Operator?
Operator
Your next question is coming from Aaron Watts at Deutsche Bank.
Aaron Watts
Two questions for me. I guess, first, Lucy, you were able to take advantage of discounted bond prices this past quarter. Could we see more of that? And hoping to hear your updated thoughts around leverage for the station group now.
A question I ask in light of a large portion of the management fees from Diamond now being deferred that were previously paid in cash. Do you see that impacting leverage? And where do you see leverage living over the near-term horizon?
Lucy Rutishauser
Yes. So look, Aaron, we’ve — here at the company, we’ve been opportunistic over time, whether it’s on the shares or the bond side. So you could see us continue to be opportunistic on that front.
What I would say, when you think about our liquidity today, at the end of the quarter, which was almost $1.1 billion, and our total net leverage, low 4s, which is in our target range. And then going into the back half of the year, which is when the height of the political season will take place, the cash tax refund comes in.
We will — we expect to end 2022 in a very strong balance sheet and liquidity position. both from leverage and liquidity. And so when you think about heading into ’23 in a nonpolitical cycle. And if there is any kind of a potential downturn in the economy, we feel very confident that we are — we would enter that period in a very strong position and very strong leverage levels.
And then not to mention that we’ve strengthened the balance sheet further by taking out any of the near-term maturity. So if they ended up being any kind of financial marketplace stress, we don’t have any debt maturities to come up for another 4 years.
So again, very strong position that we’ve been working towards for this year, strong free cash flow that we’ll generate this year, and that will put us into a very good position heading into ’23.
Aaron Watts
Okay. Great. That’s really helpful. And then my second question, it’s been some time since I’ve asked about Tennis Channel, but you highlighted some themes. So I thought I could follow up. With Serena seemingly close to retirement and a couple of the big 3 men’s players playing less or also sadly nearing the end of their professional careers, how is that impacting viewership throughout the year for the network and then also adoption of the app?
And then kind of secondly, given how competitive bidding for sports rights has gotten, can you remind us how long the key deals are locked up for at Tennis Channel? And then finally, is Tennis Channel generating positive EBITDA for you? And does it fit strategically with the station group going forward?
Christopher Ripley
Sure. So look, we have seen some rating declines recently with some of the bigger players playing less, as you mentioned. But we have a lot of optimism around the new crop of men that are coming through the system and on the women’s side like Coco Gauff and Naomi Osaka. So there is a new generation of stars being born as we speak. And we think as they [indiscernible] into the process, that will be good for viewership.
And in terms of app and streaming, that has been a huge area for growth with Tennis. Authenticated streaming is up something like 200% this year. The SVOD product, which does not include the main content on Tennis Channel, that will be something sort of end of ’23, beginning of ’24, that will roll out, but the extra content on TC Plus has reached new highs this year in terms of subscribers.
So there is a huge opportunity on streaming generally speaking, not to mention T2 being a top 3 sports channel on Samsung TV. Once that 1-year exclusivity is over, it’s going to expand into other — FAST channel platforms is also going to expand internationally. We have FAST channels in some of our international markets, but the rest will also expand into the FAST channel environment. So there’s a lot of growth vectors that we’re very excited about for Tennis.
And your second question in terms of how long these contracts are? I mean, it goes — it really varies, and all the way from 2022, all the way down to 2035. And one of the things that we really like about the things we like about Tennis is that it’s a fragmented industry. So we don’t rely on one single counterparty for our rights. We have multiple counterparties for our rights.
And that means that Tennis Channel has a stronger position within the value chain as the aggregator within the space. And so we don’t worry about necessarily any one rights deal when it comes to tennis because of that fragmented value chain. So it really is a good industry setup for us.
And in terms of your question on EBITDA, it is positive. I mean it’s more than paid for itself since the acquisition of Tennis Channel, but it is — it’s less than 10% of our total EBITDA within STG, SBG. But as I mentioned before, it really has multiple growth vectors that we’re quite excited about, including international, where it’s in 8 countries total with more being added in the future.
And in those countries, we’re starting to add live rights like in Germany, Austria, Switzerland. We added the WTA rights. We’ll start to do that in other territories. We’ll have SVOD platforms and FAST platforms in these other countries. It is — it got a great multi-platform strategy with Tennis.com being at the center of the digital strategy that will go multi-language across the globe.
Tennis, by the way, is felt the same in just about every language that matters. It’s strong on SVOD, strong on FAST channels. And as I mentioned, at some point in the not-too-distant future, we’ll also have a direct-to-consumer strategy here in the U.S. for the main product in — on Tennis Channel.
And then lastly, it also is expanding into other sports where if you’ve watched Tennis Channel recently, you’ll see pickleball coverage which is the fastest-growing sport in America. And we’re going to get more involved in that sport as well as other lifestyle sports to continue to expand the amazing production capabilities that we’ve built out for Tennis Channel.
So we’re — we couldn’t be more excited about Tennis Channel in terms of its future. And it’s not necessarily strategic to the television group, but it is a great asset that we think is worth an incredible amount of [indiscernible]
Robert Weisbord
So Aaron, also I’ll add is that there’s always this cycle of generation. Serena, up until Wimbledon, hadn’t played for 12 months, and you had the U.S. Open story with the British, Emma Raducanu, who’s now playing in D.C. right now. You have Carlos Alcaraz, who is the next-generation Spaniard coming up and is considered to be more advanced than where Rafa was.
Now Rafa has had an incredible career, so you don’t know where that career is going. But even in Indian Wells, which is considered the fifth major an American Taylor Fritz, on that tournament. So there is a next generation coming up on both sides. The women and men that people will be tune to and they’ll be the next idol of all the kids that are playing across the country.
Aaron Watts
Yes. I share your enthusiasm about the younger crop. I appreciate all the details and the time.
Operator
Your next question is coming from Barton Crockett of Rosenblatt Securities.
Barton Crockett
I was wondering if you could talk a little bit more about what you’re seeing in pacing so far in the third quarter. I understand you’re talking about what your guidance reflects, but what do you — what does that — how that kind of the outlook compared to what you’re seeing right now?
And just more generally, I mean, with all this nervousness about the macro. I know you talked about insurance. I don’t know if that’s macro related. To what degree are you seeing macroeconomic headwinds or not in your ads business?
Robert Weisbord
Yes, I can give you some color. I mean we’re pacing the outlook we’re pretty confident with is again, with the extensive political and artificially will tighten up our supply, which will lead to obviously increase rates corresponding with the diminished inventory.
And on the macro level, like I said, we’re coming around the corner, so we’ll have apples-to-apples pace with the chip shortage, so we’ll have some normalized environmental pace with auto, which had been a drag for the last several quarters.
And again, we’re selling through this tough economy and the local advertisers continue to be strong. And in the upfront, we saw strong activity. And again, I’m not ready to call where the economy is going to go long term. But due to the strength of all our digital assets that we’ve built in a portfolio that sells across platform, we feel we’re in a good position.
Christopher Ripley
And I’ll just add to that. Despite significantly more political coming in, in Q3, what’s embedded in our guidance is not really any material reduction in the core advertising performance in Q2. So I think that is a pretty strong statement right there.
And whatever weakness we have seen like in insurance, that certainly is driven by some macro concerns, a lot of insurance companies ended up having reduced profitability due to various environmental disasters and whatnot that have hit their underwriting profitability, that is — that’s pretty unique to insurance.
The auto situation is pretty unique to auto given the chip shortage. So we’re not really seeing broad macro pullbacks and in the advertising market, it’s more industry-specific based on various supply chain issues or industry-specific issues.
Barton Crockett
Okay. And then if I could just follow up on one category that you guys had highlighted, which was Sports Betting. It sounds like from what you’re saying that the pressure there is really allocation of dollars to national networks because they are not large enough in presence and footprint for Sports Betting to do that. I just want to make sure I understood that correctly.
And then it sounds like you’re saying that the growth driver from here is going to be new markets opening up like Ohio, but then it sounds like over time, that, that movie will be year-to-date gone tomorrow as it moves to National. So I’m just wondering because this has been seen as a big growth category, not just for openings, but overall, how should we feel about Sports Betting as a growth category for local TV from here, do you think?
Robert Weisbord
Yes. I think it’s flattened. The cost of acquisition has gone over $1,000. And I think we have to wait because of my subjective opinion and what’s been on the street is that there’ll be some consolidation because of the costs they require an active better. And so from the broadcast side, they might buy some high-profile sports, but we see it flattening. But when we get into our sports segment in a couple of weeks, it’s much more robust in the sports segment.
Christopher Ripley
So look, I’d add on the Sports Betting. Like there’s — in a new category like this, there’s always ups and downs in volatility. But bigger picture, this is a category that did not exist a few years ago. And it’s set to become somewhere — I don’t know where maturity will be, somewhere between 5% and 10% of our total mix. That’s a pretty significant category that didn’t exist 3 years ago. And I think that’s — it will end up maturing and end up being a 5% to 10% category, which is huge.
The other thing interesting sort of tidbit on Sports Betting is that on the RSN side, it continues to grow and be incredibly strong. So there’s — that is any of the sort of points that Rob made about National, and that would not be applicable to the RSNs is they are sort of a tailor-made fit for Sports Betting.
Robert Weisbord
The other thing to think of is as we progress through the year, we’ll be adding game centers to the broadcast websites, and that will be opportunities for sponsorships and again, to increase our first-party data as well. So we believe in a lean forward strategy of [indiscernible] broadcast and on our sports side will become prevalent.
Operator
Your next question is coming from Edward Reily at EF Hutton.
Edward Reily
Just to piggyback on Aaron’s question. I was wondering if you could give us some more color on the strength in digital by platform?
Robert Weisbord
Yes. Look, we believe, obviously, our station websites with monthly averaging between 80 million and 90 million uniques gives us a huge opportunity to launch many different business opportunities from that gamification to e-commerce to marketing affiliates to launching some of our own products that will be sold directly to our core audience as well.
As we said, we had record audience on tennischannel.com during the French Open. So our whole thesis is that we’re going to give our audience an opportunity to receive our content where they want it, how they want it.
So we feel really strongly about that. And then Compulse or SaaS business, there’s a major focus on growing that business and being a dominant player in the local space.
Edward Reily
Have you found it challenging to acquire additional customers given kind of the macro weakness here for Compulse, specifically?
Robert Weisbord
No, because we don’t believe so because of the SaaS business, people will be in there. You’ve seen this percentage of budgets going to CTV. And so especially during the political crowd-out, we expect money to be shifting that would have gone to some of the core going to digital expenditures.
Christopher Ripley
The other thing to remember about Compulse 360 is that it’s unique in that it offers transparency and flow through pricing in a marketplace that’s dominated by arbitrage pricing. And so as people seek to make — to have more transparency to be more efficient, to keep more of the media margin for themselves, Compulse answers all those questions and does so in an automated efficient way. So that value proposition is very, very strong. I think it will only get stronger as things potentially get tighter.
Operator
Your next question is coming from David Hamburger with Morgan Stanley.
David Hamburger
Just a couple of questions. I noticed that DSG management fee deferral resulted in $16 million of reduced revenue in the quarter. I was wondering, is that a good run rate that we should think about going forward for that number? And then can you tell us kind of, you mentioned it also in the EBITDA results, what sort of margin should we expect on that fee?
Lucy Rutishauser
Yes. So on the management fee because, again, we’re booking on a cash basis as opposed to the total, so I would — I think you’re going to be safe if you just build in a similar run rate, which was about the $10 million for each of the quarters going forward.
David Hamburger
And what sort of margin for EBITDA purposes, should we be thinking about on that?
Christopher Ripley
It’s pretty much a 100% flow through.
Lucy Rutishauser
Yes.
David Hamburger
Yes. Okay. Great. And then just to reconcile kind of the cash, I know that the DSG A/R facility of about $400 million, it was about $163 million drawn last quarter. Can you tell us how much either a decrease or increase in that outstanding affected Sinclair’s cash balances since the counterparty to the A/R facility?
Unidentified Company Representative
It increased, I think.
Christopher Ripley
It’s around $200 million, I think.
Lucy Rutishauser
The total here, about $183 million I think. Hold on a minute, David. Just didn’t have that number handy. But that number that A/R facility is not in our cash number.
David Hamburger
No, I know. But you’re the counterparty…
Lucy Rutishauser
Yes. So it went from $163 million drawn at the end of last quarter to $193 million drawn this quarter. And again, that’s going to fluctuate based on their A/R that’s outstanding.
David Hamburger
Okay. And I know usually you give a kind of — and then the question was asked before me as maybe you elaborate a little bit. You only have the deferred tax asset from Diamond and the refunds, I guess, is more of just a timing issue. How much remains in terms of the deferred tax asset that you are holding on Sinclair’s balance sheet as a result? Because I know Diamond was deconsolidated for accounting purposes, but I think for tax purposes, you’re still…
Christopher Ripley
Sure. Look, there’s — we don’t have that — we can follow up, David, with the — what that number is. But there’s still significant tax benefits flowing through from that ownership.
Operator
There are no further questions in queue at this time. I would now like to turn the floor back over to the President and Chief Executive Officer, Chris Ripley for any closing comments.
Christopher Ripley
Thank you all for joining us today. If you should need more information or have additional questions, please don’t hesitate to give us a call.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
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