Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q1 2021 Earnings Conference Call May 5, 2021 9:00 AM ET
Lucy Rutishauser - Executive Vice President & Chief Financial Officer
Billie-Jo McIntire - Investor Relations
Chris Ripley - President & Chief Executive Officer
Rob Weisbord - President, Broadcast & Chief Advertising Revenue Officer
Conference Call Participants
Dan Kurnos - The Benchmark Company
John Janedis - Wolfe Research
Steven Cahall - Wells Fargo
David Hamburger - Morgan Stanley
Aaron Watts - Deutsche Bank
Lance Vitanza - Cowen & Company
Greetings and welcome to Sinclair Broadcast Group's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Lucy Rutishauser, Executive VP and Chief Financial Officer.
Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Advertising Revenue; and Steve Zenker, Vice President, Investor Relations. And before we begin, Billie-Jo McIntire will make our forward-looking statement disclaimer.
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 first quarter earnings release. The company undertakes no obligation to update these forward-looking statements.
The company uses its website as the 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 the operating performance of its assets.
The company also believes that adjusted EBITDA is frequently used by industry analysts, investors and lenders as a measure evaluation. These measures are not formulated in accordance with GAAP and are not meant to replace GAAP measurements and may differ from other company's 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 take you through our operating highlights.
Good morning, everyone. Our results for the first quarter were better than we guided as our media revenues and EBITDA for the combined company exceeded our expectations due in large part to the change in the amount and timing of distributor and team rebates in the local sports segment but also reflecting the continued improvement in the core advertising market, which beat expectations despite the ongoing pandemic environment.
Advertising trends continue to improve in our broadcast and other segment's first quarter core ad revenues, finishing flattish to pro forma first quarter of 2020 and 2019, which exclude the sale of stations we made in the past 12 months. As you recall, April of last year was the first full month negatively impacted by COVID.
Broadcast and other was down 43% in that month alone and 36% for the second quarter of 2020. As expected, April of this year well-exceeded 2020, up over 70% and was down low-single digits from April 2019 when adjusting for station sales, which is the more representative comparison.
One item that we're keeping a close eye on is the component ship and rubber supply constraints that are impacting the auto industry, which will likely be a factor in the categories ad spending in the upcoming quarters. While the auto category is comping against COVID weak quarters in 2020 for the industry, the visibility in the category is low right now. Overall, however, I would say that we continue to be very encouraged by the progress of the core ad market, which has seen particular strength in services and sports betting categories.
On the sports side, the NBA and NHL seasons proceeded according to their revised schedules for the first quarter of 2021, and MLB started their season on time and is expected to play a full regular season. Core advertising for the sports segment for Q1 was slightly lower than our guidance range, mainly due to fewer MLB spring training games than we expected. However, our revenue per game average in the first quarter was up over 2019.
As a reminder, there were no professional gains in the second quarter of 2020 due to COVID and we are expecting to receive more NBA gains in the second quarter than we anticipated when we've guided last quarter. Comparing to Q2 of 2019, we're off to a good start in the second quarter this year, aided by the additional NBA and NHL games in the quarter versus a normal season. In April, we launched our much anticipated Bally sports app that gives authenticated viewers of the RSN a more robust and interactive experience than was previously available on the Fox Sports GO app.
Early feedback from users has been positive and initial usage stats show that users are taking advantage of the new functionality of the app. We expect to introduce additional features including gamification elements later in the year. We're working diligently with Bally's Corp to create a consumer experience that maximizes viewer entertainment and engagement by being able to move seamlessly back and forth between the Bally Sports app and Bally new sports betting app Bally Bet. Additionally, we are exploring non-game programing that Bally's would provide to the RSNs with the goal of upgrading such day parts content.
On the broadcast side, the National Desk which premiered in January and airs across 68 of our markets continues to perform better than we expected. The National Desk allows us to take the most timely and relevant content from our 2,500 hours of local news produced each week along with content created specifically for the program and share it with viewers across the country, creating a unique alternative to cable news.
Viewer feedback has been positive with many commenting that it is different and better than the other morning national news programs on broadcast nets and cable. We are encouraged by the reception the program has gotten and have plans to expand the program into the evening hours later this year.
Part of the comprehensive news coverage that we pride ourselves on as an organization is our investigative journalism, uncovering local issues, corruption and other injustices. For the third consecutive year, one of our stations received the prestigious IRE for Investigative Reporters and Editors Award. This year, WGME, our CBS affiliate in Portland, Maine received the award for bringing to light a serious shortcoming in that trend's crisis line in Maine.
Through our investigative team's effort, we helped alleviate the issue and fought all year to get the problem fixed, culminating in Congress passing legislation to help resolve the issue. It is this type of relentless and insightful news coverage that is a hallmark of Sinclair's efforts to better the communities in which we operate and to rectify issues or inefficiencies that are present in our institutions.
I'm very proud of the impact our stations have and making our communities a better place for all residents through uncovering and addressing issues that impact their lives, as well as the support we bring for them from fundraisers' [ph] public service announcements and other charitable activities. For example, in 2020, as an organization, we helped raise over $35 million for non-profit organizations, schools, agencies and local disaster relief, while also collecting over nine million pounds of food and 242,000 thousand toys in addition to providing over two million meals and distributing 52,000 backpacks and school supplies and over 18,000 coats.
I want to also mention that in April, we announced we would be expanding our Board and named a new Director, Laurie Beyer. Laurie is our first female director and reflects our commitment as an organization to seek out diversity of experience, skills, viewpoints and backgrounds in addition to strengthening our governance.
Finally, I want to talk for a minute about the dynamics behind some of the efforts Sinclair is making to drive future growth and what we believe the impact could be on the organization in the years ahead. One of the bigger opportunities for our sports business is going direct to consumer with our regional sports content.
It is no secret that consumer cord cutting and the dropped distributor carriage of the RSNs have left many people scrambling for a way to watch their favorite local team. It is imperative that Sinclair be able to fill that void and provide consumers the sports programing they desire most in a way they choose to access it through MVPDs or digital means.
At the end of 2020, we had 52 million RSN subscribers, of which approximately 35 million households are unique. The 35 million households represents less than half of the total subscribers possible in the RSN teams' geographic territories, meaning the total number of addressable subscribers under the D2C model is theoretically more than double. As I mentioned previously, we are currently developing a product to reach these consumers on a direct basis via an app [ph] as similar to the way consumers access over-the-top platforms.
Because the launch is still many months away, I do not have particulars to give to you at this time such as the content that will be part of the subscriptions, the price of the subscriptions, or other details that will be made available as we approach the launch of the product. But what I can say is the intent is to complement the accessibility of the programing currently available through traditional ways through distributors carrying the programing.
As I said, consumers make the choice on how they watch the games and we and the team's desire to make the programing as accessible as possible, something that today, unfortunately is not ideal. We believe that ultimately the incremental revenues from direct-to-consumer will likely more than offset the loss of revenue from churn of subscribers of traditional distributor platforms. And much like the authenticated viewers who currently subscribe to the RSNs, the direct-to-consumer viewer will benefit from the upgrades that we are making to the digital viewing experience, including increased functionality of playback and recording capabilities, enhanced news and statistics, new programing developed in conjunction with Bally's and elements of gamification including watch and bet via Bally Bet.
These activities are all part of making the viewing experience more personalized and engaging through to utilization of live interactive programing, games, contest, polls, socializing and sharing content with other fans, even interacting with advertisers. These are all ways in which the viewer becomes more invested in the activity of watching sports. Fueling a virtuous cycle where the more they participate, the more they watch, this is a dynamic that simply does not exist today in live sports viewing.
Once you have the attention of an engaged viewer, incremental monetization opportunities to become significant. This is another aspect of the business' potential revenue generation and so far it's totally untapped. Another opportunity for future revenue growth is ATSC 3.0 or NEXTGEN TV. We've talked about this initiative for a number of years, but with 14 markets now having being launched, TV is being produced and sold that are able to receive the new signal, a mobile phone prototype being tested and our Cast.era partnership with SK Telecom completing testing of its 5G ATSC 3.0 mobile platform technology, monetization for ATSC 3.0 is approaching.
There are a number of ways the NEXTGEN TV will enable us and the entire industry to generate incremental revenues while also better-serving the public. With the new technologies, Sinclair and other broadcasters will be able to unlock the inherent value of the broadcast spectrum. An example would be the ability to transmit four to five times the volume of video content and data capable of being transmitted as compared to the current broadcast transmission standard. Another example would be the ability to provide higher quality, higher value ultra high definition content with immersive sound. But the benefits can extend far beyond superior quality and immersive video and audio experience.
Sinclair and the entire industry will benefit in a number of ways, including potentially wholesaling excess spectrum data capacities to other firms inside and outside the broadcast industry. Establishing conditional access on enabled subscription-based services for video, audio and other products, targeting the device, household and geographies. In addition, the increased spectrum efficiencies can be used to help communities by providing robust emergency alerting and to help support remote learning to under-served broadband areas.
Because ATSC 3.0 is a mobile-first standard, it brings portability to the spectrum opportunities and does not have some of the inherent weaknesses and reliability issues present in cellular or WiFi service. Of particular important interest to many sectors including sports betting, is the ability to reduce latency and provide synchronicity when watching live broadcast on all classes of receiving devices including mobile devices.
Our JV with SK Telecom Cast.era is making great progress on many fronts that will bring new network appliances and services to make beneficial use of our broadcast spectrum. Enhanced GPS is but one of those opportunities. We believe that for Sinclair, there is approximately 1.7 billion of hidden spectrum asset value based on applying $1 per MHz-POP valuation to our spectrum, which was the average price in the last major FCC spectrum auction.
So, to sum it up, while the monetization of a viewer is at one level today, we believe the monetization of that same viewer is a multiple of that level in the future as we execute on the initiatives I just mentioned, plus others which are expected to drive revenue growth in the future.
With that, I'll turn it over to Lucy to cover the financials of the quarter.
Thank you, Chris. First, some housekeeping items to note. As discussed on previous earnings calls, distribution revenues and sports rights in the local sports segment can be impacted by minimum game guarantees, which can result in rebates to be paid to distributors when received from the teams. After we reported our year-end results in February, the NBA finalized their scheduled for the second half of the 2020-2021 season, which resulted in more local broadcast games than we were anticipating in our guidance.
As a result the prior estimate of $420 million of rebates to our distributors and which we fully accrued in 2020, is now expected to be approximately $19 million less with the credit booked in the first quarter of 2021. From a cash payment standpoint, $133 million of the revised $400 million due was paid in Q1 of this year, another $84 million expected to be paid in the remainder of 2021 and $183 million is expected to be paid in the first half of 2022. The lower rebate favorably impacted first quarter distribution revenues and adjusted EBITDA in the local sports segment.
The increase in the number of games also resulted in a $46 million decrease in the rebates we anticipate from the teams this year. If you recall from last quarter, the total amount of rebates from the teens as a result of the minimum game guarantees was estimated to be $697 million, of which $542 million was received last year and $155 million expected to be received this year. Which after the $46 million revision is now expected to be $109 million, and of that $67 million was realized in the first quarter of this year and the remaining $42 million expected to be realized in the second quarter of 2021.
Lastly, in an effort to keep my prepared remarks higher level, I will not be going through all the detailed numbers as I have in the past. Instead, in addition to our earnings release this morning, we have prepared a schedule which you can access on our public website that provides the detailed numbers. We believe this format will allow you to focus on the more important aspects and analysis of our results.
So, now turning to the broadcast and other segments. Media revenues for the quarter decreased 4% versus the same period a year ago, due primarily to the absence of meaningful political revenue with 2021 being a non-political year, as well as reflecting the sale of three stations in the last 12 months. Media revenues exceeded our guidance range on better than expected core advertising and distribution revenue.
Our core advertising excluding the three stations that we sold increased almost 1% year-over-year and was better than our expectations of down mid-single digit percent. And if you adjust for the impact of the Super Bowl moving to CBS this year from Fox last year, our core advertising results for the first quarter would have been up low-single digits compared to a year ago. The growth came primarily from the service and entertainment categories, particularly the sports betting companies. And if we compare first quarter 2021, the first quarter of 2019 same station core advertising revenues were up slightly, which is very good result considering the economy is not fully recovered and the country is still working through the COVID pandemic.
Distribution revenues for broadcast and other increased 2% versus last year and was above our guidance range, reflecting a slight improvement in subscriber churn than what we anticipated. Media expenses were 3% higher in this year's first quarter versus last year, due primarily to higher network compensation cost, but were lower than our guidance range on better cost controls and lower digital expenses. Adjusted EBITDA [ph], excluding $13 million for non-recurring items was $173 million, down 22% from first quarter a year ago, due primarily to the drop in political advertising, but once again exceeded guidance.
Now, turning to the local sports segment. Media revenues for the local sports segment declined 5% compared to the first quarter a year ago on lower distribution revenue from dropped carriage and higher subscriber churn, partially offset by the distribution rebate credit and higher core advertising revenue, which benefited from more games in the quarter than a year ago. Media revenues also beat guidance with the distributor rebate accounting for the majority of the out-performance.
Local sports media expenses for the first quarter were up 35% from a year ago, due primarily to the greater number of games played during the quarter, which increased sports rights amortization as well as total game production costs. Also impacting the quarter was approximately $19 million of transition services and one-time costs primarily related to the mover of our RSN production facilities, the new Bally sports app and the re-brand.
Excluding the impact of the higher sports rights amortization in the first quarter, media expenses were favorable to guidance by $12 million due to fewer Major League Baseball spring training games played than expected as well as overall cost savings. Our local sports' Adjusted EBITDA for the first quarter of $9 million was down from the prior year, due primarily to the lower distribution revenue but beat the high end of guidance by more than $60 million on the net rebates and lower production expenses.
For the consolidated company, Sinclair's total company media revenues for the first quarter decreased 5% from the first quarter of 2020. Adjusted EBITDA which excludes $32 million of one-time expenses declined to $182 million for the reasons just outlined. But compared to guidance, revenues and adjusted EBITDA both exceeded the high end of our guidance range.
First quarter consolidated adjusted free cash flow, which excludes the adjustments, was $9 million, which is approximately $117 million better than the low end of the guidance range primarily on the adjusted EBITDA fee [ph]. For the quarter, we had a $0.16 loss per share on 74 million weighted average common shares, compared to $1.35 of diluted income per share a year ago. Adjusted for the non-recurring items, diluted earnings per share was $0.18 for the quarter versus $1.53 a year ago.
Now turning to the balance sheet. Consolidated cash at the end of the quarter was $941 million including $507 million at STG and $415 million at Diamond. Neither credit silos revolver was drawn during the quarter and as of the end of the quarter, the balance board under our accounts receivable facility was $173 million. Total debt at the end of the first quarter was $12.540 billion and net leverage for the consolidated company at quarter end was 6.4x.
Sinclair Television Group's first lien indebtedness ratio on a trailing eight quarters was 2.7x on a covenant of 4.5x and 3.9x on a net leverage basis through the bonds, which is now in our net leverage target range. Diamond's first lien indebtedness ratio on a trailing four quarters was 7.2x on a covenant of 6x in the quarter, which only springs if the revolver is strong over 35%. Diamond's net leverage was 9.3x.
During the quarter, we paid down $12 million of debt and paid $15 million in common stock dividends and while many companies have recently been buying their shares, but only as the stock market recovered, we remind you of the 21% of our total equity we repurchased last year at almost half our current trading levels.
Turning to the second quarter and full-year guidance for our broadcast and other segments, our second quarter media revenue guidance is up approximately 16% to 18% to $774 to $793 million. The increase is driven primarily by higher core advertising revenue off of pandemic depressed 2020. The expected upside is partially offset by lower political revenue as 2021 is a non-political year. Second quarter adjusted EBITDA is expected to be between $157 and $172 million compared to $145 million last year.
For the local sports segment, second quarter media revenue is expected to be up 33% to 36% to $821 to $836 million. As a reminder, there were no major live sports games played in the second quarter of last year and they were accruals for distributor rebates which lower distribution revenue. For the full year, media revenues are expected to be up 14% to 21%. Second quarter adjusted EBITDA is expected to be up 75% to 88% to $192 to $206 million. Full-year adjusted EBITDA is expected to be down 24% to 46% to $458 to $637 million.
For the consolidated company second quarter media revenues expected to be up 24% to 27%. Second quarter adjusted EBITDA expected to be up 37% to 49% for an adjusted EBITDA of $349 to $378 million and second quarter adjusted free cash flow up 343% to 405% for free cash flow was $206 to $235 million.
With that, I would like to open it up to questions.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Dan Kurnos of Benchmark Company. Please proceed.
Great, thanks. Good morning. Maybe, Chris, just on the [ph] RS and a couple of things, your commentary around DTC, I think a little more prominent at this time. I just want to get a sense from you, how much if at all there is a change in tone there originally, we thought 2022 more of a super-fan experience? Obviously, you've got the ongoing challenges with the distributors and clearly a big [ph] TAM. Just to the extent you can kind of give us some color around understanding on you have to navigate your existing relationships? How do you think that there might be a sea change there? Then you also talked about improving day part. I think the advertising guide in Q2 was surprisingly strong. Historically, I think, it's been like 90/10 distribution advertising. To the extent that you are in talks with [ph] Bally's and maybe even others to approved dayparts and how you think the ad yield to be improved and maybe what the longer-term split between ad distribution could look like? It would be super helpful, thanks.
Great. Thanks, Dan. Look, I think if you're noticing a difference in tone on direct to consumer for sports, I think that is an accurate pick up as we dig into the details of our business plan and really, really realize what the other opportunities are when you get a fan that's coming in day in day out to watch your games on a digital interactive platform. When you know who the viewer is and you can funnel them into other opportunities, which are massive adjacencies growing really, really fast, like sports betting, like merchandise, like what's going on with NFTs and that becomes a platform for interaction and socialization for the fan. We were very excited about what that means, because we have the largest collection of premium sports rights in the country and so we have this tremendous foundational piece and we're filling out our plan and we've got our TV Everywhere App was launched a couple of weeks ago. It's gone well and we're going to continue to build on that. I would say that you're accurate in picking up that increased bullishness on where we're headed with direct to consumer.
Then as it relates to other dayparts, we did announce that MOU with Bally's. There is a lot on the drawing board there to improve our non-game programing, which if you followed us, you would know that there is really nothing of value outside of the pre-post in the game on the RSNs and it's just a latent opportunity and the arrangement with Bally's is a great arrangement for us because it enhances the programing that we're going to have in these areas, while taking little to no risk on the financial side to get that programing. So, it's really best of all worlds sort of situation. But what you're seeing in the numbers, does not reflect the upgrades that are on the drawing board for the non-game programing. Those actually haven't hit yet. That's just a strength in sports advertising and core advertising. That's really just blown away here so far in the recovery that we've seen post COVID and the strength of sports and advertising related to sports has never really wavered at all even through COVID and has continued to increase on a per game basis as we mentioned earlier in our comments. When that new programing starts to hit outside of the game, the pre and the post, that's going to be an additional upside.
So, Dan, as well as will attack this with our yield management system. It's an AI machine learning system that will have a dedicated analyst to look at extracting higher yields per game as well as with that new app launch will be able to geo-target. So, as you know, the RSNs are in multiple DMAs, will be able to target ads and during the political season, we will be able to capture more political dollars by zeroing in on those geos of the specific DMAs as well and then through the gamification, our Interactive Division will be launching some free to play. Beginning this year, we will be able to capture dollar sponsoring in this free to play as well as branded content opportunities. So, there is numerous opportunities to unlock with the RSNs that were in that stuff.
Got it, that's super helpful. Just a housekeeping, I'll let everyone else follow the core questions. Lucy, what's political in Q1?
Q1 of this year, we had got $4 million for the total company.
Got it. Perfect. Thanks very much guys.
Our next question is from John Janedis of Wolfe Research. Please proceed.
Thanks, good morning. Maybe a quick follow-up to Dan's question, just on direct to consumer. Chris, I just wanted to clarify, do you need to get consent from distributors prior to doing it and can you talk about the process in terms of the leagues teams and I guess distributors, are those on parallel paths and could any of those things impact timing? And then, maybe on a related topic, with baseball season starting and no new news on the carriage front related to YouTube or Hulu, can you talk about your confidence level about getting something done as we get deeper into the season?
Sure. Thanks, John. We have already the past with the distributors to launch direct to consumer. So, that's the answer on that question. We have direct to consumer rights really for the vast majority of our teams. We are in discussions with the leagues and the teens on enhancing some of those rights to make the product even better. So that's what's going on right now. I don't see that mean a threat to timing. The plan is to launch in the first half of 2022. Then on your question around carriage, look, we don't comment on the specific status of any one distributor discussions. The only thing I can say is time will tell if these distributors will return.
All right. Thank you very much.
Thank you. Our next question is from Steven Cahall of Wells Fargo. Please proceed.
Thanks. So, Chris. Maybe just dig a little more into the RSN, maybe you could just tell us a little bit of what happens next? I think probably DISH discussion is ongoing. So, I'm just curious if you would accept an agreement with DISH that didn't include them? Then if we kind of think about where you might be with the RSN if you come in at the low end of your guidance this year, it could mean a renegotiation of debt or some more liquidity coming in? I know these are what-if scenarios, but I think it would just be helpful if you could maybe just talk about a little bit of how you're thinking about those scenarios.
Then, Lucy, the buyback commentary is very helpful. You certainly were opportunistic last year to take advantage of the share price dislocation. As you think about uses of broadcast cash flow going forward, is a debt reduction, is it being opportunistic on maybe potential end market station M&A participating in a diamond recapitalization, maybe just help us think about use of the broadcast cash? Thanks.
Why don't I do that question first and then Chris can talk to the other one. So uses of free cash flow really haven't changed from what we've been talking about for years and it doesn't really matter if you're on the STG sided stack or the diamond side. It's all about how do we de-lever? How do we increase value -- long-term value within companies weather it's core positions, investments, reinvesting in the companies, particularly on the STG side, which has been the company that has funded the equity returns. It's also been about the equity return. So, all of those things are still on the table, equity returns, de-levering, strengthening the balance sheet, and making sure that we're reinvesting in the company with the free cash flow to continue to grow for the long term.
Great. On your question related to DISH, we really can't be renegotiating in public with DISH for I think obvious reasons, but I will note that we have had tremendous success with the traditional MVPDs when we come with the entire suite of our programing on offer. In fact, we have been successful with all of them under that circumstance, say for Frontier who filed for bankruptcy. It will be a pivotal time and of course, we can't predict. We don't have a crystal ball, what will happen, but I will note that that has been a successful strategy for us with the other traditional MVPDs. Then as it relates to Diamond and its capital structure, again we're being very proactive on that front. We're open to discussions with our stakeholders, indeed we are in active discussions with a large segment of our capital constituency with respect to structures that will help us achieve our goals, which Lucy mentioned, including strengthening our balance sheet, optimizing our cost of capital, funding future growth opportunities, maximizing shareholder returns, and de-levering the entity.
Thanks for the color.
Thank you. Our next question is from David Hamburger of Morgan Stanley. Please proceed.
Hi, good morning. Thanks. If I could, two questions. Can you talk a little bit about, I know you've recently renewed your programing contracts with a few teams and you talked about giving equity in the stations and how that helps to attenuate some of the escalating cash costs associated with those contracts, can you help us dimension like what has been the cost savings and maybe can you give us a forward look how many contracts will you be renegotiating here this year and your expectation for how those will be negotiated? Then the second question if I may.
Sure. When we go into renewals, we don't specifically say which teams are up, for confidentiality reasons, but every year, we have a few teams that have come up. Last year, we obviously had the Marlins and Brewers, those were successfully renewed and this coming months, we've got a handful of teams with 45 teams in the total portfolio there over a sort of a 15 year spread of contract expirations. You've got handful teams every year that you've got to deal with. So it's really sort of normal course as you roll through the business and one of our explicit goals and already exist in the portfolio when we took it over is to variabilize more of the cost structure. So when we go into a renewal specifically with anchor teams on the MLB side, we always try to negotiate and an ownership stake in the RSN which then it takes a portion of what they want in terms of total rights fees and makes it variable depending on the performance of the RSN. And there is no rule of thumb I can give you.
Besides that, most of the stakes are minority stakes and just depending on how big the rights fee is and how large the income projected out of our assemble will be for that minority stake then determines how much of the total rights fee will be variable versus fixed. And so they're really without getting into specifics on a specific contract which I can't for confidentiality reasons, I can't really give you more detail than that, but to say that we really do like that strategy. It does vary relying more of the cost structure and it aligns interest with the teams. And you can see just sort of in our overall numbers what's happening in terms of, I think we're at mid-single digits in terms of rights fees going up and we do expect that to head downwards in terms of annual escalation on an overall perspective.
Okay, thanks. My second question is with regard to guidance at Diamond. The better expected EBITDA, I know was driven a little bit by rebates in the first quarter, but if I look at the midpoint of guidance for the year now. It's come down relative to the guidance you provided for the fourth quarter earnings call. Can you talk about what's driving that. I would anticipate, if there was kind of better expected outcome in 1Q, we wouldn't see guide down for the year. So I'm wondering what's driving that guide down, maybe could also in context, Lucy mentioned last quarter, $100 million of incremental expenses associated with growth initiatives. And can you put this in the context of, there was a $368 million reduction in cash at Diamond in the first quarter. I know interest cost and the sports rights payments are higher in the quarter and you mentioned the 100 and plus billion of rebates to distributors, but could you talk a little bit about liquidity and the cadence of cash flows, as you look at Diamond for the remainder of the year and you're going into '22?
Okay. So three questions here. Let me do the cash walk first, so the cash usage from the December balance to first quarter you've hit on all the main points right there is the EBITDA, we had the semi-annual bond interest, they got paid in Q1 and the rebates distributor rebates that we paid and the rest of that is going to be working capital changes. So you've for the most part. So you've hit all the key points on the change in cash. So based on our current assumptions and again acknowledging that there is still a lot of uncertainty right with the economy and COVID and churn rates et cetera but based on the assumptions when we look out 12 months, we believe the Diamond has sufficient cash and revolver availability to fund all its debt services. So you should be fine there and then your question on the $100 million of the incremental expenses so that is made up of multiple things. It's made up of new initiatives such as gamification and new app features, right, which is the old app didn't have and two it of our regular OpEx inflation in there also all the replacement services that were standing up such as the going into the Encompass facility to get out of this new facilities, the development of the new app. As well as all the rebranding that we did around the new name, but at the same time, we're also continuing to pay Disney and Fox for transition services as we build out our new store, our own services there is duplication of costs that are running through the model for the year.
So that's primarily what's in that $100 million. And so, when I think about it, a good $60 million, $65 million of that does not come back next year because it was either the duplication of services for the rebrand were for the development of the app cost on to the next part. And then your first question on the midpoint for the EBITDA. So as you know, right now we still don't have Dish, Hulu or YouTube up and running into that, that will affect the top end of the range, as we said last quarter, there were a range of outcomes that could happen during the year, whether it was on carriage, whether it was on churn, whether it is on advertising. And so with those, there is three still not all, we've taken the top end of the range down, but I think the important part here is at the lower end of the range has increased for the year. So we went from the $441 to $458 million at the low end and so that's the more important piece that I think everybody should take away from.
Okay, thank you.
Thank you. Our next question is from Aaron Watts of Deutsche Bank. Please proceed.
Hi, everyone. Thanks for having me on. One quick follow-up on the core advertising at the station encouraging to hear it seems like things are turning a corner. Lucy, I believe you said, kind of flattish in the first quarter versus last year in April looking much better how is core trending for 2Q overall?
We're looking at slightly down against 2019, which is our benchmark. But again, the business is in place month-on-month and that's why it's encouraging to see April. May has started off strong and then will gauge where we're going and we're cautiously optimistic as you see traveling increasing businesses are being opening up and so we think will benefit from a more robust economy.
Here, and I would just add to that, as I said, we've been very, very happy with what we've seen on the core advertising front. And the only thing that gives us a little bit of pause for Q2 is chip shortage, but all the others categories have been very, very strong and look very, very strong in Q2. So we're just, it's been a great bounce back in the time overall.
And we're in great shape with our portfolio is, the gaming industry starts to spend and unlock what goal have been asking for the last 18 months. It's now happening with our portfolio, we're able to capture those dollars in a significant way.
Okay, great, that's helpful. Second question, any material change in the underlying subscriber trends in churn for both the stations in the RSNs here to start the year and relatedly on the Cox renewal. You mentioned in the release. Just wanted to confirm that the RSN had previously been carried across their platform, and that the agreements were merely extended to be coterminous with the new broadcast deal?
Sure. So we did see a slight improvement in subscriber trends in the last quarter. Nothing all that material. So our outlook remains the same. In terms of mid-single digits decline on broadcast and high-single digits for our sense. And then the Fox deal, we're very pleased with the outcome on the Fox deal, I mean did sync up and we did think of all of our content under the same arrangement and expiration date.
Okay, great. And one last one for me, and this is really just a home my understanding on some of your comments around your rates on the sports side, Chris, and correct me if I'm wrong on any of this but I believe the MLB turn streaming rights back to the teams but the NBA and NHL still negotiate those right at the league level if that's all right. When are those streaming agreements up for renewal with the NBA and NHL and their current discussions with those leaves on either extending that deal or what to direct to consumer offering streaming offering could look like there, and I know you touched on that earlier. I just wanted to clarify those points?
Yes. I know you have it, right Aaron, in terms of what you remember. So the NHL and NBA deals naturally expire at the end of this season. So it actually was very fortuitous because we wanted to expand and enhance the rates we were getting to make the product even better. As I mentioned and those renewal discussions are ongoing as we speak.
Okay, thank you for the time.
Our next question is from Lance Vitanza of Cowen. Please proceed.
Hi guys, thanks for taking the questions and congrats on the quarter. I have two questions if I could. The first is, Lucy. I agree on the guidance for Diamond. I mean it seems pretty obvious given where the bonds are trading that the focus should be on the upside to the low end of the guidance I think objectively, you'd have to look at this guidance as an improvement versus the prior guidance. I know I did. My question is you mentioned range of part of potential outcomes, to what extent does the low end of your new guidance contemplate or to what extent is the low end of your guidance contingent upon I should say the return of Dish, Hulu and YouTube.
Yes. So as we talked about this on our last call. Lance as well. So the low end, the low-end would incorporate no current returns as well as range on subscriber churn in advertising ranges which I'm not going to get into, but there is our, but that would be the low end and the upside would also have a range for subscriber churn advertising and some amount of carriage return.
Okay but so just so I'm clear though, what you're saying is that even without the return of Dish, Hulu and YouTube, you're still covering your interest expense?
Okay. My other question is with respect to the new app launched last month. I know it's early but, and I know that Chris you did get into this a little bit during the call, but could you give us a little bit more color on what the feedback has been like I haven't had a chance to play around with the app, but to what extent is it branded Sinclair versus Valley sports, could you remind us who runs the app, I mean, is it your app or is it Bally's App and how does the app help Sinclair versus helping drive revenue to Bally's eventually?
Sure, so the app was launched literally. I think it was just two weeks ago, last month, and it is branded Valley sports and I'll let Rob, who oversees our digital operations, talk more about the feedback and what we're seeing on the app, but it is a Sinclair asset, it's not a Valley's asset. You can think of. Just to sort of clear up some potential confusion Valley sports is the brand for our sense and it is a brand that we have rights to exploit on any platform to even to license out to other people and every rebrand has gone amazingly well. I think we've just, the team really killed it on the rebrand. The product looks that much better. We've gotten compliments from all the stakeholders. That's been an improvement in and the main product that we put out. And quite frankly it's amazing to do that when you're dealing with a brand that's so well known as box to switch it over and within a short period of time people just think of our networks. Now as Valley sports, they don't, they're not connecting that necessarily to the casino company and that was the objective. So objective achieved and the app is an extension of that. So it's been launched. It was a big technical feed to convert over from Fox Sports GO. It's a very complex under carriage to manage all the rights and pull that of successfully now it's about improving and enhancing the features in the app.
And so, I'll turn it over to Rob and you also asked about just economic opportunity, it represents a large economic opportunity for the RSNs as it relates to a bunch of impressions which we're way under monetized in the FOX Sports GO app they weren't even targeted. So it really does build that business for Sinclair in a big way. And then it does what Valley's bargain for which is promote the brand values and connect over to their sports betting app which will launch shortly. So it really is a very symbiotic relationship there and I'll turn it over to Rob for some of the feedback.
Yes. Lance. So our product team did a great job, we spent 15 months building this app, trying to focus on full improvements, Fox Sports app as a feedback for Marquees [ph] and the viewers was a little bit long in the two. So it's a modern app that only needed an update. It was not to go find Bally sports, you already have Fox Sports assistance update that app and it seamlessly went from Fox Sports to Bally Sports, and we are truly excited in just a short few days, we've had over 2.5 million video views and like Chris indicated is that we're going to be able to unlock each impression from those video views in the past it was sold more of a share of voice not geo targeted and through our Sinclair Sports Group, we have a dedicated digital team selling every single impression which will unlock that value. Our interactive team, which is led by JR [ph] will unlock the gamification. So there's numerous ways that we'll be able to monetize the app along with solidify the brand of Bally sports itself.
Thanks for taking the questions guys.
Thank you. Ladies and gentlemen this ends our question-and-answer session. And I would like to turn the call back to Chris Ripley for closing comments.
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.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.