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Sinclair Broadcasting Group: An Investor Analysis for Progressives

By

Sheldon Drobny

 

 

As a venture capitalist and fund manager I have had the experience to recognize a good value stock when I see it.  Sinclair Broadcasting Group (NADAQ: SBGI) has had a bad year as is evidenced by the following chart:

	Sinclair Broadcast Group'A' (SBGI) 7.29  +0.18 (+2.53%) as of 10/15/2004 at 12:25PM EDT (NASDAQ Delay: 15 mins.)

 

As the co-founder of Air America Radio (AAR), I have learned a lot about broadcast media and the decline in markets and advertising caused by management that does not have a vision for growing markets.  One of the major issues we had when we started AAR was the lack of available radio stations that understood that the best and most loyal audience for advertisers is educated progressive people.  These people used to be called YUPPIES, but there is a growing trend in America that TV and radio broadcasters are missing.  This educated and mostly secular audience buy a lot of stuff we call adult toys.  They are the best audiences for advertisers.  

 

Sinclair has done very poorly in the last few years because the CEO and founder has his own political agenda and is not programming what is in the best interest of the company.  Here is a profile of Sinclair:

 

		10706 Beaver Dam Rd. Hunt Valley , MD 21030 http://www.sbgi.net Phone: 410-568-1500 Fax: 410-568-1533 Sector: CONSUMER CYCLICAL   Industry: Television Station Groups Sinclair Broadcast Group (SBG) is all about TV now. The company owns or provides programming to more than 60 TV stations in about 40 markets, reaching nearly 25% of US households. SBG, which focuses on local advertising revenue, has affiliates for all the major networks (ABC, CBS, NBC, FOX, UPN, and WB), allowing access to first-run programming. The company sold some 55 radio stations to Entercom Communications so it can focus on television. It also has been investing in Internet firms. The four sons of founder Julian Sinclair Smith (including chairman and CEO David Smith) control about 95% of the company.  2003 Sales:  1 Yr. Sales Growth:  2003 Net Income:  2003 Employees:  +738,700,000  +1.00%  +24,400,000

Managing a public company creates an enormous fiduciary responsibility.  Under the  recent Sarbanes/Oxley legislation to fight corporate corruption and cronyism, the CEO of a public company has a much greater responsibility for the proper stewardship of the company.  In this case, it is clear that David Smith, the CEO has done a terrible job of producing revenue for the TV stations owned by Sinclair.  And due to the Communications Act of 1996, the asset value of radio and TV has soared dramatically.   Therefore, David Smith should be held responsible for the poor performance of the company stock because of his lack of objectivity in utilizing his TV licenses to provide the most revenue and market value for his shareholders. 

In my opinion, the company will be forced to change its programming or sell it’s valuable TV licenses to another company if Mr. Smith does not get his act together.  He has a lot of institutional investors that probably have lost lots of value because of his bad programming decisions.  Here is a list of those institutional investors:

Top 20 Holders Institutions Shares Held Change % O/S Turnover Style EARNEST Partners, LLC 4,946,278 151,630 10.80% Mod Core Value Gabelli Asset Management Company 3,960,000 270,500 8.64% Low GARP Westfield Capital Management Company, Inc. 2,616,950 -35,950 5.71% High Core Growth Morgan Stanley Investment Management Inc. (US) 2,526,303 -7,686 5.51% Mod GARP Neuberger Berman, LLC 2,266,809 -1,293,134 4.95% Mod GARP Putnam Investment Management, L.L.C. 2,081,861 221,730 4.54% Mod Core Growth Perry Capital, L.L.C. 1,911,452 511,452 4.17% High Hedge Fund Barclays Global Investors, N.A. 1,801,161 100,128 3.93% Low Index Janus Capital Management LLC 1,417,887 -152,303 3.09% Mod Aggres. Gr. Vanguard Group, Inc. 1,146,836 77,101 2.50% Low Index INVESCO Capital Management Inc. 1,118,958 130,338 2.44% High Core Value Columbia Management Advisors, Inc. 1,094,830 -6,200 2.39% Mod GARP J.P. Morgan Investment Management Inc. ( New York ) 793,242 -175,000 1.73% Mod GARP BlackRock Financial Management (Value) 788,200 229,200 1.72% High Deep Value State Street Global Advisors (US) 678,530 -36,003 1.48% Low Index TCS Capital Management, LLC 656,500 0 1.43% High Hedge Fund BlackRock Financial Management (Growth) 640,235 321,975 1.40% High Growth Liberty Ridge Capital, Inc. 572,100 -277,100 1.25% High Momentum Kirr, Marbach & Company, LLC 564,635 6,700 1.23% Mod GARP Trinity Investment Management Corporation 503,200 250,800 1.10% High Deep Value

 Sheldon Drobny is CPA and Venture Capitalist and co-founder of Air America Radio; email at sdrobny@paradigmventure.com