Scripps/Ion Spinoffs Could Hit Hiccups at FCC

“We crafted our divestitures plan in order to meet both the letter and the spirit of the FCC rules around ownership as they stand today,” emailed a Scripps spokesperson. “We have no reason to believe they will change.” Methuselah Advisors didn’t comment Thursday. “We have made all regulatory filings and expect the process to take a few months to complete,” Scripps said.

The 26 divested stations would be sold to Inyo Broadcasting, a new company headed by interim CEO John Chachas and Chief Operating Officer Louis Zachary, Methuselah's two managing principals. Methuselah and Chachas worked on the 2014 Scripps/Journal deal, and Methuselah is the broker on the Scripps/Ion transaction. After sale to Inyo, the divested stations would have a renewable “arm’s length, long-term affiliation agreement with Scripps” and operate as Ion affiliates, airing content from Scripps, said the companies' purchase exhibits. The deal gives Scripps the right to buy the Inyo stations back in the future and sell the stations’ national advertising. Scripps would retain the stations’ non-license assets.

This arrangement could be seen to echo the divestiture plan for the failed Sinclair/Tribune, said broadcast industry officials and Free Press Research Director Derek Turner. “Sinclair used relatives and company-connected lawyers to head up their shell companies,” emailed Turner. “Scripps isn’t quite as blatant, but it is not really trying to disguise what is going on here.” Deciding whether the Scripps-Methuselah relationship and the affiliation arrangement constitute arm's length will be “up to the FCC,” the Scripps spokesperson emailed.

Since Sinclair/Tribune was designated for hearing, broadcasters floating deals to the agency have largely avoided provisions that might draw the same attention from the FCC. In that context, the arrangements proposed by Scripps appear “aggressive,” one broadcast official said.

It's likely that Scripps is prepared to change the divestiture plan if it draws FCC fire, said media brokers and broadcast attorneys. Aside from that, the proposed deal isn’t seen likely to hit regulatory snags -- it doesn’t include markets with top-four overlaps and won’t run afoul of DOJ concerns about local ad markets, industry officials said.

Due to the UHF discount, the deal would leave new Scripps at just under the 39% national ownership cap. The UHF discount was seen as vulnerable as recently as 2019 (see 1903110076). The FCC’s last attempt to get rid of it grandfathered in existing combinations, which included Ion then. If Scripps/Ion is approved ahead of FCC action on the discount, it would presumably also be grandfathered, said industry officials and Turner, who opposes continuing the discount. “Scripps likely need not worry about a future FCC who actually cares about the public interest and enforcing the law, as the Commission has a very long history of grandfathering in combinations formed before it makes changes to its rules,” he wrote.

The prospect of action on the UHF discount if Democratic nominee Joe Biden takes the White House is seen as one motivator of the deal’s timing, said brokers and industry officials. Another factor is likely the ascent of ATSC 3.0 and prospects for broadcasters to further monetize their spectrum, said Patrick Communications broker Gregory Guy. The transaction would net Scripps “a huge swath of spectrum,” he said.

Despite reduced deal volume because of the pandemic, brokers are extremely busy with a host of deals that don’t require financing, such as station swaps, Guy said. “COVID is not a reason not to do a deal,” media broker Frank Kalil said. “If you are passionate about getting a deal done, you can.”