Greetings, and Welcome to Sinclair Broadcast Group's second quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lucy Rutishauser, and she is Executive Vice President and Chief Financial Officer. Thank you. You may begin.
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 Officer, and Steve Zenker, Vice President of Investor Relations. 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 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 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 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 take you through our operating highlights.
Good morning, everyone, and thank you for joining us. I want to start off by expressing how honored and proud we are at Sinclair having recently been added to the Fortune 500. What started 50 years ago as a single UHF station in Baltimore has grown into a sizable, diversified media and technology company with best-in-class local news and sports content. We look forward to even greater accomplishments in the years ahead. Now getting to the results. We are pleased to report a strong second quarter, which came in at the upper end, and in many cases, exceeded our expectations and guidance as the ad market continued to recover and we continued to prudently manage our costs. Of particular note, the local sports segment performed well.
Ad revenues on a per-game basis were higher than forecast and were up over the second quarter of 2019, a trend we expect to continue over the remainder of the year. Local sports distribution revenue was aided by lower distributor rebates than expected. Our broadcast and other business media revenue came in at the high end of our guidance range. Core advertising, adjusted for station sales, was down only 1.5% from the second quarter of 2019, and distribution revenues exceeded our guidance. Adjusted EBITDA also exceeded guidance, driven by lower-than-expected expenses in a number of areas. Total company adjusted EBITDA was $433 million, well above the high end of our guidance range of $378 million, with both segments exceeding expectations, driven in large part by lower-than-expected expenses in the quarter. Lucy will give you more details later in the call.
Finally, total company adjusted free cash flow beat the high end of expectations by $55 million. Adjusted free cash flow per share is almost $17, or $1.264 billion in total over the trailing 12 months. Viewership stats for our regional sports content have held up well compared to 2019, far outperforming national NBA, NHL, and MLB viewership comparisons over the same period. This really underscores the power of local content. The demographics of our viewership continue to show strength in younger viewer cohorts, groups which are a key focus in our efforts around making sports viewing more interactive and personalized, attributes favored by younger viewers. Now I'd like to give you an update on Tennis Channel. In July, Tennis Channel completed a long-term rights renewal with the All England Lawn Tennis Club that will see Wimbledon, the world's oldest tennis tournament, remain on the network through 2036.
The channel saw its highest-rated June ever, culminating in the most-watched match in the channel's history, a French Open men's semifinal that generated over 5,000 average viewers. In late May, Tennis Channel unveiled a new app and website that gives fans an unprecedented experience with the most access to tennis statistics and news than anything previously on the market, which currently rates a 4.8 out of five stars on the App Store. Standalone subscription service, Tennis Channel Plus, streamed more than 8 million hours in the first half of the year, was the number two paid sports app in America during the French Open, and top 10 for all paid apps on iTunes. The network continues to expand its global reach with Tennis Channel international games in Germany, Austria, Switzerland, and Greece. During this time, Tennis Channel also earned 15 Telly Awards for excellence in video and television.
On the topic of sports, I'd like to spend some time addressing our direct-to-consumer, or D2C, efforts. We continue to push forward on our business plans and have made many key hires as we march towards our initial product launch date, targeted for the first half of 2022. You may have seen materials disclosed via an 8-K in June as a result of expiring non-disclosure agreements with certain Diamond creditors, in which we provided an overview of how we think about the D2C product. We continue to engage with the advisors of various stakeholder groups on financings and exchange offers for Diamond. There is no question video consumption habits have and are continuing to change, with people opting to consume content outside of traditional linear channels. We need to be able to provide them with content however and wherever they want to receive it.
Having said that, we believe that demand for sports content within the traditional cable and satellite bundle will continue to be strong, as is evidenced by the rating strength of local sports that I referenced. In fact, our proprietary research shows that any cannibalization that a D2C product may have on cable and satellite subscribers is expected to be relatively low. We also believe distributors will continue to value local sports content as important programming, not only because their customers desire it, but because it remains economically attractive for distributors. Cable and satellite providers, as well as virtual MVPDs that carry the RSNs will continue to benefit from obtaining this programming from us at a favorable wholesale price, which provides the consumer a good value for their cable, satellite, or virtual subscription. D2C is not expected to appeal to everyone.
Consumers that are most likely to gravitate towards the product are the younger demographic cohorts, who are more likely to be cord cutters or cord nevers, who desire a more interactive, personalized, and community-driven experience. We've done focus group studies on what functions and features the younger generation wants from a sports app. They are more focused on the community of fandom, interactive elements that they can engage and talk about with other fans, as well as contest rewards, promotions, games, merchandising, and of course, legalized sports betting where permitted. For some fans, watching the entire game is less important than being entertained by the experiences built around the games and their home teams. Importantly, the economics of monetizing a D2C user are different from your traditional linear local sports viewer.
Having fans access games via an app that is on our platform gives us a direct line to the viewer, and as a result, unlocks a whole set of opportunities to engage and monetize these consumers. Given the direct relationship with viewers, we're able to create a metaverse or marketplace where we can serve up a more personalized and optimized experience for the viewer. At the same time, the platform supports targeted advertising, which commands a premium price, as well as creates marketing opportunities for other interactive elements within the viewing experience that can also be monetized. Having said all that, we do believe the market opportunity for D2C is attractive. If just 5% of our homes that we reach with our RSNs were to subscribe to a local sports D2C service, it would represent 4.4 million households.
While the subscription revenues alone would be meaningful, we would expect the total revenue to be around double that level due to the advertising and other monetization opportunities that I just mentioned. Our research shows that a 5% penetration rate is very achievable with minimal cannibalization to the traditional MVPD subscribers. I would like to address the valuation of our securities, which we believe are significantly undervalued. It may help to walk you through a sum of the parts valuation of the company to demonstrate the true value of Sinclair. I will start with the four assets that are not explicitly part of our broadcast or local sports segment, that nonetheless have real value that must be considered in a sum of the parts valuation.
The first of these assets is our stake in Bally's, for which we have penny warrants to purchase 7.9 million shares and another 3.3 million in penny warrants that can be earned subject to performance targets, which we believe are very achievable, and options for another 1.6 million shares at various strike prices for a grand total of 12.8 million share equivalents. At Bally's' current share price, these warrants and options would be worth over $600 million, with a cost to exercise of approximately $60 million. There is the value of our licensed spectrum, which we have quantified in the past at an approximate valuation of $1.7 billion based on applying a $1 per megahertz POP valuation, which was the average price in the last FCC spectrum auction.
Third is an approximate remaining $1.2 billion net present value tax shelter benefit that came as the result of our RSN purchase back in 2019. Fourth, there are non-core businesses and equity stakes we have in such things as Playfly, Saankhya Labs, Dielectric, ONE Media, and dozens more investments, which together we believe have a book value of approximately $200 million, and which we believe have significantly higher market value. We have a strong history of deriving value from our non-core asset investments. When you include what we believe the value of just these four groups of assets are worth alone, they equate to a per share value well over what the share price is today, even after accounting for the cost to monetize these assets. We do not believe this value is reflected in our market price based on where our stock is trading today.
When you put even a conservative valuation on our 185 TV stations, Tennis Channel, Stadium, NewsON, STIRR and/or RSNs, and account for the net debt of Sinclair, you will get a per share value that is more than double the current level of where our stock is trading today. Finally, I'd like to highlight some of our work we've been doing to demonstrate our commitment to corporate social responsibility and sustainability through our ESG initiatives within the company. While our organization has been involved with many activities in these areas in the past, we have taken steps over the last 18 months to better measure and quantify our progress in these areas, as well as put a framework in place to more formalize these efforts. We have formed several internal groups to help actively guide our activities in all three areas of ESG.
In addition to our ESG committee, which is made up of executive leadership, we also have formed working groups dedicated to sustainability, employee experience, and diversity and inclusion. The sustainability group is tasked with finding ways to help lower Sinclair's carbon footprint through lowering the company's electricity consumption, purchasing greener supplies, and recycling. We have started to measure our efforts in these areas to be able to compile and report our progress in the future. Already, we've identified 14 GW hours of annualized energy savings potential from just replacing our lights with LED lighting, and those efforts are underway. We are also working on quantifying expected electricity savings from HVAC and transmitter replacements, which we plan to roll out over the next five years.
Of course, as we are able to measure these actual savings we get from these activities, we will be able to report them to you in the future. In terms of environmentally friendly purchasing activities, we are proud to be one of only 19 organizations that Office Depot recently recognized for being a leader in green purchasing. This award is given to organizations that have a high degree of expenditures with eco-friendly attributes such as recycled content, energy efficiency, and reduced use of harsh chemicals. Soon, we'll be launching a contest within our company to ask all of our employees to suggest ways they believe we can reduce our carbon footprint. We believe it is important that all of our employees are thinking responsibly about the future of our planet for generations to come.
We also have made good progress on the social responsibility front, which we break into two areas, community outreach and workforce wellbeing. Sinclair has a long history of supporting the communities in which we operate and in national causes such as disaster relief, blood drives, and airing public service announcements for a variety of causes. 2020 was the first year in which we sought to measure and aggregate our community-wide initiatives across our many TV stations, RSNs and other businesses. The results were amazing. In just 2020 alone, in what was certainly not a normal year due to the pandemic, Sinclair engaged in partnerships with over 340 charitable organizations. Our efforts during the year raised over $37 million, in addition to collecting over 9 million pounds of food, providing 2 million meals, and gathering over 320,000 toys, backpacks, school supplies, and coats.
We recently chose the recipients of our seventh annual diversity scholarship awarded to minority students who demonstrate a promising future in the broadcast industry. Another important component of our community efforts and central to our company mission is our dedication to raising issues of local importance through deep investigative reporting on our stations, which helped us earn 350 awards in 2020 alone. This is just scratching the surface of how we give back. There are numerous community forums we sponsor and facilitate, such as parades, health expos, and most importantly, town halls that allow the voices of the community to be heard. The other aspect of our social focus is the wellbeing of our workforce, our most important asset.
We've taken steps over the last 18 months affirming our commitment to our employees, such as forming employee-led work groups focusing on diversity and inclusion and the employee experience, as well as adding positions to focus on developing these important areas. We also have increased our recruiting outreach efforts to historically Black colleges and universities, launching a new employee recognition program, and have enhanced our learning management system so that our employees can have a more active role in furthering their learning and development and career progression efforts. Lastly, we've made good progress on the governance front. We recently announced the expansion of our board of directors from 9- 11 members and already added Laurie R. Beyer, a new independent director and female board member. Ms. Beyer has an impressive background and unique perspective and has joined our audit committee.
We also announced that we hired our first Chief Information Security Officer, and earlier in the year, we added our first chief compliance officer. I continue to be energized by the commitment and focus of our management team and our entire employee base, who make a difference every day to our clients, our viewers, and our communities. With that, I'll turn it over to Lucy for a deeper commentary on our financials. Lucy?
Thank you, Chris. Good morning, everyone. As Chris mentioned, we had a strong second quarter across all of our segments, coming in at the high end of guidance and in most cases, beating expectations. Additional financial details and comparisons can be found on our public website. Turning to broadcast and corporate and other businesses, they came in at the high end of media revenue guidance and beat on media expenses and adjusted EBITDA. Media revenues for the quarter increased 18% to $789 million versus the same period a year ago, due primarily to stronger ad revenues as last year's second quarter was significantly impacted by the pandemic. Comparing the results to the second quarter of 2019, which is perhaps a more meaningful comparison, media revenues increased 9% after adjusting for stations sold. That's driven primarily by higher distribution revenue.
Second quarter broadcast and other core advertising sales increased 51% compared to the same period a year ago and were down just over 1% from 2019 pro forma. While the automotive category was the primary driver of the decline versus the second quarter of 2019, solid growth in our largest category, services, as well as strength in the sports betting and pharmaceutical categories, offset much of the decrease. Distribution revenues for broadcast and other increased 3% versus last year and was above our guidance range. Media expenses were 15% higher in this year's second quarter versus last year. That's on higher network programming fees, higher variable interest entity expenses, which we're required to consolidate in our financials, as well as last year's spending being limited to essential cost only due to the pandemic.
Media expenses, however, were favorable to our guidance on both continued cost management efforts across multiple areas, as well as timing of expenses during the year. Adjusted EBITDA, excluding $12 million for non-recurring items, was $193 million, up 33% from the second quarter a year ago and exceeding guidance. Turning to the local sports segment. As discussed on previous earnings calls, distribution revenues and sports rights payments in the local sports segment can be impacted by the actual number of games delivered versus minimum game guarantees, which can result in rebates to be paid to distributors or to be received from the teams. As a result, our prior estimate of rebates due to our distributors was reduced this quarter by $11 million, as we provided more games than expected and which benefited our local sports revenue in the quarter.
From a cash payment standpoint, there remains $180 million of distribution rebates to be paid, of which $15 million is expected to be paid in the second half of 2021 and $173 million is expected to be paid in the first half of 2022. In addition, rebates owed to us from the teams increased by $3 million for the year, which reduces our local sports rights payments. Media revenues for the local sports segment increased 36% to $838 million as compared to the second quarter a year ago. The increase was the result of higher advertising revenues as no professional games were played in the second quarter last year, lower distributor rebates with the $11 million credit taken this quarter, and the absence of $124 million rebate accrual booked in the second quarter of last year.
Excluding the impact of the distributor rebates, media revenues were up 12% on the higher advertising revenues. As compared to pro forma second quarter of 2019, core advertising was favorable, in part due to more games played. Media revenues exceeded the high end of guidance. Local sports media expenses for the second quarter were up from a year ago, as there were no professional sports played in the second quarter of last year, and therefore, no sports rights amortization or production costs for professional games reflected in last year's second quarter results. Of note is that our production costs per game are down from 2019, benefiting from certain cost savings implemented since the start of COVID that we believe should be sustainable going forward.
Also included in this year's second quarter expenses was approximately $23 million of transition services and other one-time costs primarily related to the move of our RSN production facilities, the new Bally Sports app, and the rebrand. Media expenses were favorable to our guidance, in part due to timing and in part due to expense controls. Our local sports adjusted EBITDA for the second quarter, excluding the $23 million for non-recurring items, was $240 million, up significantly from the prior year and exceeded the high end of our guidance. For the consolidated company, Sinclair's total company media revenues for the second quarter increased 27% from the second quarter of 2020 to $1.6 billion. Adjusted EBITDA, which excludes $35 million of one-time expenses, increased to $433 million. Again, compared to expectations, media revenues were within guidance and adjusted EBITDA exceeded the high end of our guidance range.
Second quarter consolidated adjusted free cash flow, which excludes the adjustments, was $290 million, which is $55 million higher than the upper end of our guidance. For the quarter, we had $4.41 of diluted loss per share on 75 million weighted average common shares, compared to $3.12 of diluted income per share a year ago. Adjusting for the non-recurring items, loss per share was $4.02 for the quarter versus income per share of $3.21 a year ago. Turning to the consolidated company balance sheet. Consolidated cash at the end of the quarter was $964 million, including $539 million at STG and $408 million at Diamond. Neither credit silos revolver was drawn during the quarter, and as of the quarter end, the balance borrowed under our accounts receivables facility was $183 million.
Total debt at the end of the second quarter was $12,539 billion, and the net leverage ratio for consolidated Sinclair 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 4.5%, and 3.9x on a net leverage basis through the bond, which is in our target leverage range. Diamond's first lien indebtedness ratio on a trailing four quarters was 6.9x on a covenant of 6.25%, which only springs if the revolver is drawn over 35%. Diamond's net leverage was 9x . During the quarter, we paid down $14 million of debt and paid $15 million in common stock dividends.
Turning to our third quarter and full year guidance for our broadcast and other segments, while our guidance reflects third quarter media revenue down approximately 1%- 3% to $792 million-$806 million versus third quarter of last year. This is driven primarily by the absence of political revenues in a nonelection year. If you compare to pro forma third quarter of 2019, media revenues would be up 9%- 11%. Excluding the impact of political ad revenue, third quarter core advertising is expected to be up approximately high teen percent versus third quarter of last year and flat to up low single digit percent versus third quarter of 2019. Third quarter adjusted EBITDA is expected to be between $167 million and $179 million, compared to $271 million last year, primarily on the absence of political revenue.
For the local sports segment, third quarter media revenue is expected to be up 6%-13%, to $769 million-$824 million, versus Q3 2020. As a reminder, last year's third quarter included a distribution revenue rebate accrual of $128 million. For the full year, media revenues are expected to be up 15%-20%. Third quarter adjusted EBITDA is expected to be $255 million-$308 million, and full year adjusted EBITDA is expected to be $512 million-$652 million, which is higher than our prior guidance. That's primarily on more favorable ad revenues and lower sports rights payments. For the consolidated company, third quarter media revenues are expected to be up 1%-5%, to $1.5 billion-$1.6 billion. Third quarter adjusted EBITDA expected to be $422 million-$488 million and third quarter adjusted free cash flow of $221 million-$282 million. With that, operator, I'd like to open it up to questions.
Thank you. Our first question comes from Dan Kurnos with The Benchmark Company. Please proceed with your question.
Great. Thanks. Good morning. Nice EBITDA in the quarter, guys. Lucy, just a quick housekeeping question because I think I missed it. What did you say political was in the quarter?
Political in second quarter was about $5 million.
Okay, perfect. Thanks. Chris, just high level, obviously there's a ton of conversation around the RSNs, no surprise, and the DTC push. We talked about the pivot a little bit from a narrative perspective last quarter. As we think about the balance of the year, we just had NHL couldn't come to terms with the IOC for the 2022 Olympics. I think you guys are still working through with the leagues here. You've been subject to many rumors, including expanding the RSN footprint. How do we think about how comprehensive a strategy or a footprint you'd like to have going into next year? How much would that impact the conversation you're having with the leagues? Is there any way that you can accelerate the timing of the DTC offering, understanding that standing something up like this is not an overnight proposition?
Thanks, Dan. Look, I think, hopefully you can tell from our comments, there's a lot of things going on simultaneously. We are building the D2C product as we speak that will build upon the app that we've already launched. It does take a while to build, to put out a best-in-class product, which is what we intend to do. I don't necessarily think we can accelerate timing of launch, ahead of first half of 2022, as I mentioned. We're putting all the pieces in place to hit that timing. In terms of the leagues and consolidation, it's all connected, as you've noted. Anything that we have put out publicly like that 8-K is very conservative, and that all it assumes is that we move the existing rights that we have over the top.
We create what really is a sort of rudimentary metaverse around that. We actually think the concept of a metaverse around sports is a massive opportunity, and really isn't fully appreciated in any of the projections that we have talked about or released. There is, and as I've said this before, and I'll say it again, but we believe that the consolidation of the RSN space of other complementary rights is inevitable. You're of course probably reading about various rumors about that.
We intend on being a part of that consolidation. We think it has just massive industrial logic, not only from a linear perspective, but even more so on a direct consumer perspective. We think there's a chance to be a leader in direct consumer sports here in the U.S., and whoever is that leader in the U.S. will have a great position to be a leader globally as well, just with different rights. There's a lot of moving pieces, but the picture is becoming much more clear.
Got it. Super helpful. Then, you spent a lot of time on value and value unlock. You kind of dangled a few things out there. Not really sure how we should be thinking about either timing, willingness, to kind of pursue some of those actions, in the near term, given all of the underlying that you just talked about. Maybe that helps facilitate some of the things you've talked about. Alternatively, you've historically said, after you guys purchased a just absolute massive amount of your shares previously that you were trying to be mindful of the float. I mean, has that thought process changed at this point at current levels?
Look, all of the things that we've talked about in the past are still relevant. Our float, where our net debt targets are, what our other opportunities, and investment requirements are. That all goes into the funnel, so to speak, in terms of our decision making. Hopefully you can tell from my prepared remarks that it's becoming painfully obvious that the market doesn't understand the value of Sinclair. Typically, when that type of situation happens is when we like to act.
All right. Great. Thanks for the color in the mixed quarter.
Our next question is from Steven Cahall with Wells Fargo. Please proceed with your question.
Thanks. Chris, yeah, you mentioned the 8-K and the presentation to bond holders, maybe around fresh capital for the DTC initiative. I was just wondering if you had any commentary around the cost of the DTC launch, and if you've been able to size that yet. Do you think that you could do this based on the current balance sheet and cash flows? Is it kind of a precedent condition to have fresh capital in order to launch it? As you structure that business, do you intend to put the DTC platform within the Diamond legal structure? Is the intention to keep it outside like you've done with the Bally shares?
There's a lot of questions in there that I can't answer due to confidentiality agreements that have been signed and things still in flux in terms of what the final structure and funding outcomes will be. What I can say is that when you take a look at any direct consumer strategy, the number one cost that you have is content. The second cost in a direct consumer strategy is subscriber acquisition costs. Those are your two big expenses. What's so unique about the situation we have is that we're loaded with premium sports rights more than anyone else in the country. Essentially, the content costs are already there. In terms of subscriber acquisition costs, we also have a tremendous footprint of sports across our broadcast stations, RSNs, Tennis Channel, Stadium, and of just the best sports that there are.
It's a great place to seek subscribers. We have huge advantages in launching a direct consumer strategy because of those two structural features within the Sinclair complex. The costs are. We have a significant cost advantage from anyone who would be thinking about doing this on a de novo basis. In fact, you probably just couldn't do it because you wouldn't be able to get your hands on these rights. There will be a funding requirement. It's still being worked on, the details of which we will be happy to explain once it has been finalized. There are a number of different ways to do it, and because of our advantages, it's not as significant as one may assume.
Great. Lucy, I know that you're not yet guiding to next year. I think one question folks will have is whether or not we'll see a snapback in net retrans. I think this year is kind of thought of as more of a timing issue. Is it right for us to think about the negative growth this year as a timing issue, and that we should at least see something pretty healthily positive for next year?
Steven, I'm not going to at this point, this early date, get into the 2022 guide on net retrans. What I will say is you are correct. This year we had, as we've talked about on multiple earnings calls, the mismatch between the network of renewals, the distributor renewals, and the fact that we really only had the one renewal coming up here in the third quarter, and that was all. Next year, what I will point you to is the mismatches are. You really don't have those kind of mismatches for next year. We do have some network renewals that come up at the end of this year. We also have a major distributor that comes up at the beginning of 2022. Again, you don't have the same kind of timing and mismatches that we had in 2021.
Thank you.
Our next question is from David Hamburger with Morgan Stanley. Please proceed with your question.
Hi, thanks. I hope you would oblige me with a few questions. If not, just tell me and I can follow up later. I guess I'd like to ask, can you confirm that the STG retransmission agreement expires here on August 15th? If so, I know you didn't give any commentary or comments about any update on the negotiations. You've mentioned in the past how you'll approach it? But I'm wondering, given that it's pretty imminent here, if you could give us any update on where that might stand.
Thanks, David. You are correct in terms of timing related to DISH, and it is our policy not to comment publicly on ongoing negotiations. Can't really give you more color than that.
Okay, thanks. I guess I'll follow up on Steve Cahall's question. You did recently offer some funding proposals to existing Diamond Sports creditors. Maybe just kind of even bigger picture, can you kind of tell us what were your goals you were trying to achieve with those proposals? There certainly was new money presented there. There was potentially capturing discounts. Can you talk a little bit about why an agreement was elusive and why you had to cease those negotiations with creditors themselves, understanding that you still have an open channel with advisors? Since it proved unsuccessful, how do you hope, or what are the next steps you think you'll need to do to achieve those goals now?
I think it would be wrong to say that they have been unsuccessful. It's been more of a series of moving towards a deal that is amenable to both sides. As we've said before, and I'll say again, we're not interested in just doing any deal. We're interested in doing the right deal. I think we've made progress in that regard. In terms of objectives, you really hit the nail on the head. It's raising new money, capturing discount, and those are probably the number one and number two objectives. We continue to work it and I think I would not characterize it as unsuccessful.
Okay. It looks like there were about $300 million-$500 million of new money that you were looking for. Is that a fair assessment?
At this point, we haven't really commented on those private negotiations, David.
Okay. One other question, if you'll allow me. We noticed that the adjustment to the Diamond Sports attributable EBITDA for non-wholly joint ventures, non-wholly owned joint ventures, is now up to over $100 million for the trailing four quarters. That's the highest it has ever been. I'm wondering, can you confirm that the increase is due to accounting for the recent sports rights renewals with the three MLB teams over the last 12 months, where you gave equity in the stations to the teams? If that is correct, how would that adjustment look if you were to annualize those contracts, given a couple of them were recent? Then let me just piggyback on that.
We believe you have as many as 10 sports rights contracts to renew over the next 12 months, including those NBA and NHL contracts that just expired post the conclusion of those seasons this year. It looks like all but one of those appear to be NBA or NHL teams. Are you going to take the same approach, offering equity in the stations to better variabilize those contracts like you did with the MLB teams? Is that also what's driving your expected 2%- 3% increase in sports rights payments in 2022 that you had in the cleansing materials? That's a little bit less than historical trends.
So-
I'm curious if you could.
Yeah. No, there's a lot in there, David, so we'll try to unpack it a bit. Maybe Lucy can try to answer the question about the amortization change. Undoubtedly, I'm sure it did have something to do with the fact that ownership was granted to our most recent renewals with the last three MLB teams. That is a strategy which we've been very open about in terms of substituting cash payments for equity distributions, which certainly variabilizes our cost structure. We like that. It aligns interests as well. We don't get into how many teams, which teams are coming up in the future as a matter of policy, but we tend to have teams coming up every year and equity will be part of the mix. I can't project whether that will be the ultimate outcome for each of those.
There's other ways to variabilize the cost structure. There's other ways to sort of bifurcate the cost as well. I think just to get to your comment about our projection on costs going forward in 2022, I do want to make sure that it's understood that in 2021, if you were to exclude rebates, sports rights payments would have been up less than 5% over 2020. I just want to make sure that that trend is understood because I think on the as reported, it was around 7%. When you move into 2022, we expect that to go down, as you noted, to around 2%. That's really just rolling our contracts forward in terms of renewals. Renewals can sometimes spike up the annual growth rate, as we saw in 2021. There's really two factors that go into the renewal discussion.
One is what is the market competition for those rights? The second factor is what are the team comparables for that individual team and how do they compare to the rest of the league in terms of what they're getting paid and how big they're relative to the size of their market, things like that that you would imagine sort of like a valuation that would be done on a company. In the case of deals that were recently done, I would say that we had a favorable position as it related to market competition, but unfavorable as it related to team comparable situation. Going forward on the renewals that I see in the pipeline, both of those factors are favorable as far as market competition and the team comparable situation. I think those renewals that come up will not have the type of impact that we saw on 2021.
Okay. Do you have any color on the $100 million plus of adjustments or is that something you'll follow up later about?
Yeah, David, if you can follow up with us later on that level of detail. I do want to go back and answer the prior question on the new money financing. The amount that was cleansed in the term sheets was $500 million-$600 million.
Okay, $500 million-$600 million. Okay. Just a couple quick more housekeeping. I think, Chris, you mentioned the last earnings call that the streaming rights for the NBA and NHL were up to be renewed at the end of the seasons. Can you tell us where you are on those?
We're having productive conversations and negotiations with all the leagues at this point. The existence of a deadline being the next season that comes up, we think will be a helpful forcing factor to finish those, drive them to the finish line.
Are you expecting an increase in the cost associated with those?
Again, we don't like to talk about terms on live negotiations. I would point back to my comments around what goes into the dynamics of a negotiation around market competition and team comparables. As it relates to the digital rights, we are the only buyer for those. There is no one else they could be sold to. We have a relatively good position.
One last just quick one. Lucy, you normally give a churn number, in your prepared remarks. We've seen better video results from most of the distributors this quarter. I was wondering if you could tell us what your assumptions are for churn, both at STG and at Diamond Sports Group.
Sure. You're correct in that the public disclosures of the distributors showed a slightly better churn. But at this point, we've left our guidance intact for what we were assuming before, which is mid-single digit percent churn for broadcast and high single digit percent churn for Diamond.
Just to add to that, David. You guys follow this, I'm sure just as close as we do, but the quarter-over-quarter trends of the recent big MVPDs are very encouraging. They don't necessarily immediately help you in a big way in year-over-year comparisons for Q3 or Q4, but they really point to much better outcomes in Q1 of 2022 and Q2 of 2022. We haven't changed our math or our guidance, as Lucy said, to be conservative. I will say we were very encouraged by what we saw, what we're seeing so far.
Okay. Thank you very much, and thank you for the question.
Our next question is from Aaron Watts with Deutsche Bank. Please proceed with your question.
Hi, everyone. Thanks for having me on. Appreciate all the details. Let me start with one on the station side. Lucy, I know you touched on auto. How much was auto down in 2Q? How's it looking in 3Q? How much of a drag do you think auto currently is on core ad pacings? I think you had mentioned up high teens for 3Q. Is auto low single-digit basis points drag, mid single-digit percent drag? Just trying to get my arms around that.
Aaron, versus 2019 for second quarter, it was low teens down. We have a strategy that we've been working with the tier three auto dealers to promote services, used cars, as well as drilling into what available inventories they have. We're segmenting where the buyers are through our omni-channel solutions that we provide to the dealers. It's obviously been in the news with the semiconductor chip shortage that the dealers are having a tough time getting vehicles. That being said, the grosses are at an all-time high. We're working through it. Again, as a reminder, our service category is our largest category, and it's been led by financial and insurance. The new category that has broken, that was asked about for a couple of years, is the sports betting company, which we're at 3x up versus 20, where we first started seeing the money. We're in a healthy position from a core advertising position.
Okay, good. That's helpful. Just one more from me. Chris, wanted to follow up on the D2C platform as you work for it to be ready for the start of MLB next year. Just for the sake of clarity, what hurdles remain in terms of rights to launch across your whole portfolio? For example, have all your team and league partners agreed to the plan? Appreciating you just made some comments on the NBA and NHL. On the other side of the coin, do you have clearance from your distribution partners to go forward with an unauthenticated D2C launch?
On the latter, we do. We have clearance, and we have the right to do that from the distributors. In terms of the teams, we do have to complete our renewals for the NHL and NBA. There are several teams that on the MLB side, which we have to secure the D2C rights for.
Okay, great. Thank you very much for the time.
Thank you.
Our next question is from David Karnovsky with JP Morgan. Please proceed with your question.
Hi, thank you. Chris, the D2C slide deck seemed to imply a monthly $19- $20 ARPU for the service. Would you expect to charge that amount, or is the price higher and you're assuming some level of seasonal churn? The guide for the steady state margins of 40% in five years, can you clarify, is that only with distribution revenue, or does it also assume a material contribution from the advertising and other features you mentioned?
To your latter question, that is all in. We do think beyond subscription revenue, there's significant opportunities, not just in advertising, but in e-commerce, in Watch and Play in fandom-based community features. That margin is based on the total revenue. What was your first question again?
Just on the ARPU for the service.
Okay
Just within 12 months, around 19 or 20, I didn't know if that was the right way to look at it, or were you assuming the average customer would have some churn and would be signed up for less than a year?
Yeah. No, there is churn built into the model. Absolutely. There are annual and monthly plans built into the model. It's not necessarily going to give you the exact price point, and I will say that cleansing deck is a moment in time. Everything is still subject to change and, final pricing plans and packaging is still something that is yet to be finalized.
Okay. In your prepared remarks, you highlighted non-core assets worth $200 million in book. I was hoping you could walk through what the more material assets are, what your long-term plans for some of those investments are, and how should investors think about applying the right market value?
Yeah. We're going to try, in the months to come here, to try to get more detail on that to you all as an investor community, because we do think it's really underappreciated. Something like Playfly, which we own 42% of, has just been killing it. They're a college MMR, and expanding into pro MMR and also have the preeminent sports ad agency in New York. They're really interesting and they have undoubtedly accreted in value substantially. That's something that there very well could be an exit on. Just sort of think of it like it has a tie-in to our core business, but it's more of a financial investment and we have a private equity partner that will drive the ultimate outcome there.
You've got things like Dielectric and ONE Media, which are wholly owned and chock-full of IP assets and hard assets that really don't get recognized. Beyond that, we've got things like Saankhya Labs in India, which has increased in value significantly because they are investing in ATSC 3.0, but also in 5G low energy efficient radioheads, which a lot of the global network operators are very interested in as 5G is an energy hog.
Having radioheads that are more efficient than anyone else in the marketplace, which is what Saankhya Labs has, and also an Open RAN is a unique competitive advantage. These are things that we don't really talk about because we own a minority position in Saankhya. It's not consolidated on our books, but will yield significant value in the future. It's $200 million of book value today, but we're quite confident it's multiples above that when exits come on this non-core portfolio. We will endeavor to get you more details on that in the future.
Very helpful. Thank you.
Our next question is from Lance Vitanza with Cowen and Company. Please proceed with your question.
Hi. Thanks for taking the questions. I actually have a couple if I could squeeze them in. The conversation a minute ago around the direct-to-consumer ARPU, it might have given the impression that there would be like a single price point, but I've been thinking about this as multiple plan opportunities where there may be a lower price point plan for the casual viewer and then for someone who wants more access because they're routinely wagering hundreds of dollars per month on sports, that person might want to purchase a sort of a more inclusive type of a plan. How do you think about that? Are there ultimately opportunities for sort of price discrimination here in the model?
Absolutely. Look, the model is exactly that, a model at this point. It does have things like annual plans and monthly plans. It doesn't really go beyond that in terms of complexity. When you think about how this will roll out, there is a sort of lower features-only subscription in the model too, but that's a pretty small component. There will be the opportunity to create more SKUs and more price points in the future. I don't personally believe that you should have too many choices because the consumer doesn't like that. It's called the tyranny of choice.
I think you hit on something that I actually firmly believe in, and it's not really modeled anywhere, for a person who's heavily engaged in sports betting, I envision a significant amount of income coming in from Watch and Play, which is the real-time gamification of a sporting event, where they can play it like a video game. They can be having at-risk, money-on-the-line positions that are changing every 10- 20 seconds based on their actions. I think that's going to be like in-game betting, on steroids. Actually, we're working on that experience with Bally's first up in tennis, as tennis is set up very well to do that. We're going to move that same philosophy through MLB, NBA, NHL too.
We think that ends up being a very significant revenue driver, not only for this enterprise, but we also see a world that you alluded to where people engaged in that type of activity will get subsidized or comped subscriptions from the sports books. Just as a casino would comp someone's hotel room or meals, they'll be very interested in comping people's subscriptions if they're at a certain level of play.
Makes sense.
I do think that will be part of the future.
My other question is how should we think about the liquidity at Diamond, given the $180 million or so of the rebate payments coming over the next year or so? $400 million of cash there today, is that enough? How much liquidity do you really need to run Diamond? I'm talking about before, exclusive of any incremental capital that you might want to raise to launch direct to consumer, but what's sort of the minimum liquidity that you would envision at Diamond, and do you feel comfortable from a liquidity standpoint?
Well, look, every quarter, we of course do all our outlook and our tests, and we are comfortable that there is sufficient liquidity through the next 12 months. I'll let Lucy answer what we think a minimum amount may be.
That's a little bit more of a complex question, Lance, because we are in this evolving period with the RSNs and rolling out the gamification and rolling out the app and other things.
Well, look, I think what I would say on that is that there is a little bit of seasonal change, but since most of the revenue comes through subscriptions, there isn't a need for a huge working capital cash balance at the RSNs. We're not going to cite a specific number, but it's not like other businesses where you need to keep a big cash balance.
Okay. Last for me, someone earlier had asked about where the DTC entity was going to be housed. I think the concern is that it's outside of the DSG box, just to be clear, regardless of where this box is set up, you can't run direct to consumer without the content from Diamond, right? Am I wrong on that?
Correct. No, you're not wrong on that and as I mentioned, we're still working on exactly how the funding will work and what the final structure will be. Everything will be done on an arm's length fair basis. Whatever the final structure may be, there will be a fair compensation paid for all parties involved.
Thanks, guys.
Thank you.
Thank you.
We've reached the end of the question and answer session. At this time, I'd like to turn the call back over to Chris Ripley, President and CEO, for closing comments.
Thank you all for joining us today. If you should need any 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, and we thank you for your participation.