Greetings, and welcome to the Sinclair Broadcast Group third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require an operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lucy Rutishauser, 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, and Rob Weisbord, President of Broadcast and Chief Advertising Revenue Officer. 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 third 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, 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. These last eight months since the arrival of COVID have tested all of us in numerous ways, requiring us to react quickly to a changing and challenging environment. Amidst all the upheaval that COVID has caused, I could not be more pleased with how our company has met these challenges head-on, ensuring our customers and consumers are receiving the quality content and programming that have defined Sinclair over its history. Our third quarter results were better than we expected, with adjusted EBITDA of $736 million, which is almost double last year's as-reported third quarter level and 15% higher than pro forma third quarter 2019, which assumes we owned the RSNs for the entire quarter. As compared to our third quarter 2020 guidance, adjusted EBITDA was 19% above the upper end of our range, while adjusted free cash flow was $551 million in the quarter.
Lucy will get into the finer details of the financials in a few minutes, but first, I want to give you an update on each of our segments, starting with broadcast. The strong political ad environment was a standout in the third quarter, outperforming our expectations and more than offsetting the decline in broadcast and other core ad revenues, which was in the middle of our previously provided guidance. The political strength continued right up until the Election Day, with the total company recording approximately $363 million of political advertising this year, a 35% increase over the previous record year of 2012. Despite crowd-out from political, September core ad revenues improved over July and August for the segment. The rate of subscriber churn in the third quarter improved slightly as compared to second quarter churn.
Year-over-year subscription churn on a same station basis in the third quarter for the broadcast segment was in mid-single digits. During the quarter, we continued to see substantial progress in multiple ATSC 3.0 related activities. NextGen TV has rolled out in eight of our markets, and industry goal is to be in 25 of the top 40 markets and 45 total markets by the end of 2021. We received the first NextGen mobile phone prototypes with full 3.0 functionality, another important milestone in giving broadcasters access to mobile audiences for the first time. Also, the groundwork has now been laid for national datacasting, enabling the integration of broadcast and broadband delivery in the cloud. It is exciting to see the industry continue to move NextGen forward and the FCC publicly support this efficient spectrum policy.
In fact, the commission has touted the benefits of ATSC 3.0 as it is seeking to streamline how broadcasters can more easily provide broadcast Internet services. The FCC has laid the groundwork for a new and competitive datacasting pipe that merges broadcast and broadband services and will support broadcasters as they compete and provide complements to existing technologies, including 5G. Preparation for the January launch of The National Desk, our new headline news service, continued during the quarter. The service will appear on approximately 50 of our MyNet and The CW stations across the country, as well as our free ad-supported app, STIRR.
The effort embodies what we do best at Sinclair, provide viewers timely and meaningful content using our vast network of resources to produce unique and differentiated programming that can be utilized on multiple platforms. The National Desk will cover stories of local importance and national interest that are unfolding in real-time and will be focused on the stories themselves and not on commentary. We couldn't be more excited to begin our next chapter of news reporting at Sinclair. In our local sports segment, the revenue for the quarter exceeded our guidance as advertisers embraced the return of live sports in late July. Segment ad revenue exceeded our third quarter 2020 guidance and was up 27% for the quarter as compared to pro forma 2019 quarter, which assumes we owned the RSNs for the entire quarter.
Political, though a small part of the ad base, aided the increase, as did the inclusion of Marquee. Absent those two factors, and despite less game inventory than third quarter last year, core advertising increased mid-single digits. Subscriber churn in the third quarter for local sports segment was high single digits. Unfortunately, the RSNs were dropped recently by YouTube and Hulu. In the case of YouTube, they had already dropped the larger cities at the end of February. Since they recently increased consumer pricing, we were surprised that they also dropped valuable content on the heels of that price increase. Despite the fact that there are currently no live regular season games on the RSNs, as COVID has pushed back the start of the NBA and NHL seasons, we have received a fair amount of emails and calls regarding both platforms dropping the RSNs.
There may be even more of a consumer backlash when the league seasons start back up. Together, YouTube and Hulu made up approximately 10% of the gross RSN distribution revenue for the month of September. The loss of these two virtual distributors, elevated subscriber churn, and the impact of COVID and the economy have contributed to us taking a non-cash impairment charge this quarter in the segment. Lucy will cover this in more detail in just a minute. While it is true that churn has been higher than what we expected when we made the RSN purchase, it is important to remember that the growth opportunities we envisioned for the business did not revolve around expectations of growth in subscribers. Our churn assumptions at the time would certainly not have anticipated the effects of COVID or the challenges of DirecTV.
What excited us most was the opportunity to capitalize on initiatives to monetize future growth opportunities in legalized sports betting, advertising, digital, programming, and other distribution platforms, including direct-to-consumer. We have already made good progress on several of these initiatives. For example, we are utilizing content from Stadium and Tennis Channel to provide incremental live and recorded sports programming to the RSNs. Work continues on a new sports app that is intended to give viewers a more dynamic and personalized viewing experience. The app is an important part of our growth strategy for the RSNs as people are increasingly choose to access live games via digital means. The increased functionality of the app will allow for greater interactivity and superior viewing experience that we expect will eventually include the ability to participate in sports betting and other gamification activities such as social games focused on fandom.
Our new platform will monetize the hundreds of millions of impressions that are currently not being optimized on the existing digital platform. We plan to launch the new app at the beginning of baseball season in the spring. I have talked previously about the gamification of the sports viewing experience. We have taken steps in this direction as well. J.R. McCabe just joined Sinclair as our Chief Business Officer of Direct-to-Consumer and Gamification. His hiring, along with a minority investment we recently made in Playfly Sports, are intended to help diversify our revenue streams by tapping into fast-growing sports-related industries that complement our existing sports businesses. Playfly recently combined three companies that excel in providing multimedia rights solutions for college, high school, and esports into one larger company. They are now a leading company managing exclusive college and high school sports across the United States.
Our Playfly investment fits in well with our efforts around creating interactivity and gamification elements to sports content, enhancing viewership and engagement. Now I'll turn it over to Lucy to go through the financials in more detail.
Thank you, Chris. First, some housekeeping items to note. As a reminder, the RSNs were acquired in late August of last year. 2019's third quarter reported results do not reflect a full quarter comparison. As such, in many cases, I will speak to pro forma 2019 results, which is a more meaningful comparison and assumes we own the RSNs in those periods. I will also be referencing certain pro forma numbers for our broadcast business, which reflects the sale of two stations, Harlingen and Lexington, this year. Of course, the as-reported numbers can be found in our earnings release from this morning. Also as we discussed on last quarter's earnings call, distribution revenues in the local sports segment reflects an accrued deduction for the estimated rebates to be paid to the MVPDs based on the minimum games delivered.
The rebate amount in the third quarter was $128 million, and for the year, the accrued revenue deduction is estimated to be $371 million, which gets paid after 2020. Offsetting this amount are overpayments owed to us by the teams, which reduces sports rights cash payments and which are expected to be realized in 2020. As Chris mentioned, the resurgence of COVID, the lack of a vaccine, and the resulting economic impact makes visibility for the business extremely low. So we will not be providing guidance or commentary around financial expectations for 2021 at this time. During the third quarter, we estimated an impairment loss on the local sports segment of approximately $4.2 billion, relating to goodwill and indefinite-lived intangible assets of $2.6 billion and $1.6 billion, respectively.
This was driven by a decline in distribution revenue brought on by a number of factors, including the recent loss of two virtual MVPDs, as well as elevated levels of subscriber erosion influenced by numerous factors, including fragmentation of content distribution platforms, shifting consumer behaviors, the current economic environment, and the COVID-19 pandemic. In addition, the company estimated a deferred income tax benefit of approximately $1.1 billion for the quarter in connection with the impairment loss. The company is in the process of finalizing the impairment analysis and related tax impact, which will be completed in time for the filing of the third quarter 10-Q. The impairment loss and related tax impact do not affect the company's cash position, cash flow from operating activities, or debt covenants. Now, turning to the third quarter consolidated company results. What a quarter it was.
We beat our expectations for media revenues, adjusted EBITDA, and adjusted free cash flow. Consolidated media revenue for the third quarter increased 42%, or $449 million from the third quarter of 2019 due to the inclusion of a full quarter of the local sports segment. On a pro forma basis, total company media revenues of $1.516 billion declined $53 million versus last year's third quarter media revenues of $1.569 billion , but was up 5% excluding the distributor rebate on incremental political ad revenue. On a pro forma basis, total advertising revenues increased 17%, while core advertising declined mid-single digits, which was better than our third quarter guidance. As compared to guidance, media revenues were above the upper end of the range we gave on our last earnings call by $23 million.
We expect full year as reported 2020 media revenues to be in the $5.828 billion-$5.853 billion range, with fourth quarter revenues benefiting from the strong political ad environment. Consolidated media operating expenses in the third quarter were $1.289 billion or $1.286 billion on a pro forma basis, which was an increase of 22% compared to last year's pro forma $1.057 billion , as sports rights amortization expense increased due to a shift in timing and mix for league play. Versus our guidance, media operating expenses were below our expectations, primarily due to cost control measures. Third quarter adjusted EBITDA, which excludes the impairment in non-recurring legal, litigation, COVID, transaction, and regulatory items of $13 million, increased 97% to $736 million, due in large part to the inclusion of a full quarter of the local sports segment.
On a pro forma basis, adjusted EBITDA of $735 million increased $96 million from last year's $639 million, driven by lower sports rights payments and higher advertising revenue. Adjusted EBITDA for the quarter was $115 million higher than the high end of guidance. We expect full year 2020 adjusted EBITDA of $1.857 billion- $1.878 billion. Third quarter consolidated adjusted free cash flow, which excludes the impairment in the non-recurring items, was $551 million, which was $140 million above the high end of our guidance. Pro forma free cash flow of $550 million was $199 million over third quarter 2019 pro forma free cash flow of $351 million . We expect full year 2020 adjusted free cash flow of $1.113 billion- $1.139 billion. Diluted loss per share on 75 million weighted average common shares was $42.66 for the quarter, reflecting the impairment taken in the quarter.
When adjusting for the impairment and the other non-recurring items, diluted earnings per share was $2.13 for the quarter. Neither credit silo's revolver was drawn during the quarter. In September, we entered into a three-year, $250 million accounts receivables facility in the Diamond silo, providing for incremental low-cost funding for general corporate purposes and potential acquisitions. As of the end of the quarter, the balance borrowed under the facility was $74 million and was $196 million at the end of October. We have not repurchased shares since our last earnings call. As a reminder, for the nine months year-to-date, just over 19 million shares, representing 21% of the total shares and almost 30% of the float as of year-end 2019, had been repurchased. Now for the segment details.
For the broadcast and other segments third quarter, political was more than 30% higher than our expectations and the primary driver for the 12% increase in media revenue versus the same period last year. While core advertising was within guidance, political was $105 million as compared to our expectation of $75 million-$80 million for the quarter. The distribution revenues increased 9%, reflecting guidance. For the broadcast and other segment, media revenues totaled $817 million, which exceeded the high end of our guidance range by $12 million. Media expenses were $21 million higher in this year's third quarter versus last year, primarily on network programming fees, but were better than our guidance on cost control measures across most expense categories. Adjusted EBITDA of $271 million was a $62 million increase over the prior year period and again exceeded our expectations. Turning to the local sports segment for the third quarter.
Media revenues for the segment of $727 million were more than double the prior year period, aided by a full quarter of RSN results versus a partial period a year ago. Compared to guidance, media revenues came in at the top end of the range. Excluding the $128 million distributor rebate accrual, media revenues were only $2 million below last year's pro forma revenue of $858 million, even though the prior year included one month of DISH carriage fees. Breaking this down further, the decline in distribution revenue to $597 million was offset by the pro forma total advertising revenue increase of 27% versus last year, which includes Marquee, higher political revenues, and increased revenue per game.
Local sports media expenses of $801 million were $211 million, or 36%, higher than pro forma third quarter a year ago, with the vast majority of the increase due to the timing of the sports rights amortization expense with the MLB's regular season being played solely in the third quarter of 2020, and in addition to having NBA and NHL games in the third quarter of this year. Media expenses were about $10 million less than guidance, due primarily to lower promotion and production expenses. Diamond also paid less in management fees to STG during the quarter than guidance, which had assumed certain allocation of expenses that DSG ended up paying for directly. Local sports adjusted EBITDA of $464 million for the quarter was higher than pro forma results of $425 million last year and well above our guidance range of $402 million-$410 million.
That's due primarily to the timing of the sports rights payments, team rebates, and higher advertising revenue. Turning to the consolidated company balance sheet. Consolidated cash at the end of the quarter was $632 million, including $266 million at STG and $346 million at Diamond. Total debt at the end of the third quarter was $12.463 billion , and the net leverage ratio for consolidated Sinclair at quarter end was 6.5x . Sinclair Television Group's first lien indebtedness ratio on a trailing eight quarters was 2.5x on a covenant of 4.5, and 4.3x on a net leverage basis through the bonds. Diamond's first lien indebtedness ratio on a trailing four quarters was 6.8x on a covenant of 6.25x . As a reminder, which only springs if the revolver is drawn over 35%. Diamond's total net leverage was 8.8x .
Turning to fourth quarter and full year guidance. For our broadcast and other segments, our fourth quarter media revenue guidance is $942 million-$961 million, up approximately 16%-19% from last year's pro forma $810 million. The pro forma numbers exclude the results of our Lexington and Harlingen stations, which were sold this year. The increase in media revenue is driven by higher political and distribution revenue, which is partially offset by a projected mid to high teens percent decline in pro forma core advertising. I cannot stress enough just what a record historic year political revenues were for us, reflecting over 30% more than our pro forma previous record political year in 2012 and over 70% more than 2016's pro forma political ad revenues. We expect this should bode well for the 2022 midterm elections.
For full year pro forma, media revenues are expected to be $3.199 billion-$3.218 billion. Fourth quarter adjusted EBITDA for the broadcast and other segments is expected to be between $351 million and $367 million, compared to pro forma $272 million, with the full year 2020 pro forma adjusted EBITDA expected to be $986 million- $1.2 billion . For the local sports segment, fourth quarter media revenue is expected to be $557 million-$563 million, down 29% to last year's $788 million. The projections include $119 million for the distributor rebate accrual, the absence of the two virtual MVPDs, and the impact from a later start to the NBA and NHL seasons, which we have assumed start in the early part of 2021. For the full year, media revenues are expected to be $2.713 billion-$2.719 billion .
Fourth quarter adjusted EBITDA expected to be $235 million-$241 million, and full year adjusted EBITDA expected to be $867 million-$873 million, which reflects our estimates for both the total net reduction in sports rights payments to the teams and the total expected accrual for the rebates we owe the distributors. For the consolidated company, fourth quarter media revenues are expected to be $1.475 billion-$1.499 billion . Fourth quarter adjusted EBITDA is expected to be $586 million-$608 million, and fourth quarter adjusted free cash flow up $406 million-$432 million. For the full year, pro forma media revenues are expected at $5.814 billion-$5.838 billion . Pro forma adjusted EBITDA at $1.853 billion-$1.875 billion , and pro forma adjusted free cash flow expected at $1.109 billion-$1.136 billion.
Based on current share counts of approximately 74 million shares, this equates to pro forma free cash flow per share of approximately $15-$15.35 per share. With that, we would like to open it up to questions, operator.
At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions. Our first question is from John Janedis with Wolfe Research. Please proceed with your question.
Thank you. Good morning. Lucy, I think last quarter you talked about 85% of your subs being locked up, and Hulu and YouTube TV, I guess, are now about 10%. Can you update us on how you see the market evolving? Does that mean 95% of the subs are locked up? Is there a reason why the virtual players would find less value with RSNs in the bundle relative to traditional players? With the write-down, has your longer-term distribution outlook changed meaningfully?
Okay. I'll take a couple of those and Chris can talk to the outlook for the retrans. YouTube and Hulu did represent approximately 10% of our most recent month's gross distribution revenues in the local sports segment. On the RSN side, we really only have about 5% of the subscribers that come up next year. On the broadcast side, we have about 25% that come up next year, and those are primarily in the back half of the year. The underlying network subs are about 50%, which occur in the first half of 2021. Just to give you some sense of the cadence there. As Chris mentioned in his remarks, the broadcast churned about mid-single digits year-over-year in third quarter. The RSNs were high single digit year-over-year churn.
Our fourth quarter estimates do reflect some slight improvement in sequential quarter churn on a same station basis. Then just on the impairment question, we're not going to get into assumptions that went into our calculations. Just know that we've followed the accounting guidance in how to calculate that.
All right. Good morning, John. To the other part of your question, look, on the one hand, we are certainly disappointed that Hulu and YouTube made the decision they did. It seemed contrary to their previous stance. Hulu, for instance, picked up Marquee at the beginning of this year, and if you take a look at all their advertising, it's very, very focused on live sports. On the other hand, due to COVID, the timing of the renewals was such that we don't have any live sports right now, and probably will not have live sports until excuse me, the beginning of next year. That's sort of a moving target right now based on what the NBA and NHL are trying to figure out for those seasons. As I think you all know, virtual MVPDs are still very much a proof of concept.
They're running at negative margins. Cost control is a big focus for all of them. I think that's what drove their current decision-making.
Chris, maybe just a quick follow-up there. On a go-forward basis, then specific to Hulu and YouTube, you referenced the increase in the pricing that they pushed through. Is the base case now assume going forward that those two don't renew? Maybe separately on cost controls, they're a bit better than we thought. Is there a way to break them down a bit more and talk to the magnitude of permanent versus temporary?
Can you repeat the last part, John? I don't know if I understood your.
Yeah, sorry. On the cost side, maybe this is a bigger picture, but across the company, the cost controls were a bit better than we thought they'd be, and I think Lucy referenced that too. Can you break them down a bit more and talk to the magnitude of permanent versus temporary in terms of costs?
Yeah. John, I'll take that one. What I would say is what we've done this year. We were one of the first ones to really take an active stance on cost control measures in the early part of March, and the company has done a great job. Without getting into how much is permanent and how much is temporary, because there's a lot that goes into this, because some are variable direct expenses, some are delayed or deferred, some are actually permanent. The way we think about it, if I was to compare our internal budget for the full year pre-COVID up against now what our guidance looks like across the entire company for both OpEx and CapEx, ignoring the rebates. We've been able to reduce our OpEx and CapEx expenses by several hundred million this year.
While we're not going to talk about 2021 estimates, it really depends what happens here with the state of the economy and the COVID pandemic as far as what that cost structure looks like going forward.
Yeah. Just in terms of these virtuals coming back, there definitely will be another conversation to be had with them when visibility on the NBA and NHL return. Of course, we can't predict what that outcome will be, but we know that that will change the dynamic.
All right. Thank you very much.
Our next question is from Dan Kurnos with The Benchmark Company. Please proceed with your question.
Great. Thanks. Good morning. Lucy, maybe you could just give us a little bit more color. You're not the only group to say this in terms of Q4 expectations on sub churn being a little bit better on the TV side. That's obviously contrary to what I think a lot of investor expectations are. If you could give us any thoughts on why you have confidence in making that statement embedded in your guidance. Chris, I'll be respectful and not try to ask anything about 2021, but just overall, obviously there's been a lot written about sort of the cash flows of Diamond and sort of working with the debt holders.
I'd just love to hear any update you can or willing to provide in terms of what options are on the table, what's being discussed, what you guys are thinking about, and kind of the sense of urgency to get something done, understanding that Hulu and YouTube are probably a bit of a surprise, but I assume you expect they'll come back when sports starts up again next year.
Dan, let me take why we have in our estimates for fourth quarter a little bit better subscriber churn, and that's really following what we saw as third quarter progressed for the reporting that we had. Mainly, if you look at the public disclosure of the traditional MVPDs, which most of the large ones have already reported now for their third quarter numbers, and remember, we're on a little bit of a lag to them. Their sequential quarters, Q2 versus Q3, showed improvement by about a full percentage point improvement. Again, given what they're saying for their video subscribers, that's why we've built our estimates to show a little bit of improvement as well.
In terms of your second question, Dan, excuse me. I can't get into specifics for obvious reasons. Our stance and positioning right now is very similar to what it was in the summer when we did the exchange offer. We look to be opportunistic. We have plenty of liquidity and headroom. There's no need to do anything. We're not out there soliciting any sort of response from any of our various stakeholders. Of course, if they have proposals to put forward, we listen to those.
Okay. I guess maybe one more, if I can, just on the use of cash, not buying back shares this quarter. I assume you believe the stock is still attractive value. I don't know how much the pending Supreme Court case factors into this, if you want to keep some capital dry in case you get more in-market relief. I don't know if we'll get the cap relief, but maybe in market changes things. Is that a factor, and how do we think about on the broadcast side, the STG side, use of capital as it relates to either M&A or share buyback?
Look, I would say on that topic that we've retired a tremendous amount of shares this year, about $350 million in total, or the average price in the $17s . We had hit all our targets and then some in terms of what we were trying to do this year. We took a pause just to see how the business would react to everything going on in the macro environment in COVID. We will continue to be opportunistic if valuations warrant it. I do think there could be some other growth opportunities on the horizon like you referenced. M&A, I think, will start to pick up here shortly. The Supreme Court picking up the case from the Third Circuit is a big deal.
As always, we balance our use of free cash flow between what can be done outside the company and what can be done with returning cash to shareholders.
Got it. That's super helpful. Just tongue in cheek, will we get outsized political in December at this point?
Who knows? We'll see how long it takes to count all the votes.
All right. Thanks everyone for the call. Appreciate it.
Thank you, Dan.
Our next question is with Aaron Watts from Deutsche Bank. Please proceed with your question.
Morning, everybody. Thanks for having me on. Just a few questions hope to run through quickly here. On the station side, Lucy, I want to make sure I heard what you said right on the core advertising environment. I think it was down 36% in second quarter. What was it down overall in the third quarter? Can you give us some monthly cadence on the improvement you saw and maybe specifically touch on the auto category?
Yeah. For the broadcast and other segments, they were down in the mid to high single- digit percent for core advertising in third quarter. Rob can speak to the cadence.
Yeah. Aaron, every month has picked up, which is encouraging, especially with the record political spending and crowd out, the core has been able to strengthen. It's too early to tell in fourth quarter as we come down from this record political spending and with COVID spiking. November appears to be the strongest month since pre-COVID, since we've gone into this pandemic. Again, with the spike, we want to hold off and see the core advertisers returning from the crowd out. We expected to see this political, but it came in in big droves in the last few weeks, which caused this crowd out.
Has the auto category continued to improve?
Yeah, it's continued to improve. We expect it to improve. It's kind of the haves and the have-not. Those that have been selling during the pandemic are being allocated those cars. We saw a strong Tier 2 with the sports segment, and Tier 3 is coming back as well.
Okay, great. Shifting over to the Diamond Sports side. Lucy, I think I heard you say that the draw on the AR facility there grew from September to October. What was that additional draw used for?
Yeah. Right now that is cash that's sitting on the balance sheet. Really the incremental draw, the better way to think about it, Aaron, is because we got that facility in place at the end of September. We had already collected most of the receivables in September. You get into October, and we grow into the receivable balance. That $196 million is more reflective of the run rate of what you would expect. That is sitting there as cash on the balance sheet. As we said, the proceeds from the facility, we would look to use those for just general corporate purposes and potential acquisitions.
Okay. You have that stub piece of preferred stock still outstanding. Is that in the mix in terms of priorities as well?
Look, we have $175 million that's outstanding. We just paid down in the third quarter, $350 million of that. Look, as we think about uses of free cash flow, it's really just sort of, at any point in time, figuring out what's in the mix of things that potentially could come up and just other potential uses is how we think of it.
Okay. Last two from me, just quickly. Lucy, you laid out kind of what the accrued rebates were for the distributors. Can you give us any color on what cash or rebates have been received from the teams or what you expect to receive in the near future?
Yeah. On a net basis, right? As we've said, we expect to get more in than what we would pay out. Really this is due to a couple things. One is variability in the contracts between what the teams have and the MVPDs. Also the fact, remember, the MVPDs, all through, even though you didn't have games, they continue to get 24/7 content. It'll probably be about $200 million on a net basis. Remember, right, the MVPDs continue to get content. We also, because we had fewer games, also had fewer advertising dollars because we didn't have those games. That's the other part of this whole equation.
Okay. Understood. Last one from me, I appreciate the time. Maybe this is for Chris, Your latest YouTube TV agreement was for just one season, the one that just expired in September. Is that an anomaly due to COVID, or are these distribution deals for the RSNs going to be shorter in nature, more broadly, or for the OTT distributors specifically going forward?
Yeah, that was not COVID related. That was really an anomaly related to specifically YouTube. They're just incredibly focused on cost cutting. I wouldn't read into that in terms of what happens with the other distributors.
Okay, great. Thank you for the time.
Thank you.
Our next question is with Steven Cahall with Wells Fargo. Please proceed with your question.
Thanks for taking my question. Maybe first, Chris, I know you have continued investment plans for the RSN that you talked about. I think the big issue for investors is still whether it makes sense to try to restructure the debt versus just outright walking away. Until these have stabilized, you're going to get questions from idiots like me every quarter about whether you're cannibalizing some of the retrans revenue that you could get at the stations and co-terminus deals. You did a really good job of structuring Diamond. You have a lot of ability to walk away. I'm just curious how you and the board think about the ability to create equity value with these assets versus that option and where you go from here.
Yeah, look, it's a great question, Steve. Taking a step back on sports rights, Diamond and just sort of sports rights in general. One of the core reasons we went forward with this transaction, it's still true today, is that we fundamentally believe that sports rights will be worth more in the future than they are today, this is a growth industry. It needs to change. It needs to evolve. There is going to be a cash flow valley that we'll need to traverse here as we go through this evolution. We're very excited about the growth opportunities we have at the RSNs, and we think we'll have something to talk more about on the sports betting front we think is going to be a game changer. We intend on reinventing the RSNs around gamification, around community-based fandom, and around direct-to-consumer.
That's going to be, we think, incredibly exciting and rewarding for Sinclair, and that's where we're focused.
Thanks. You must be thinking about DISH for next year at this point, just based on the fact that they lost a lot of their subs that would value the RSNs. How do you think about going into that renewal in terms of a co-terminus deal for both versus focusing more just on the TV stations and trying to maximize value on retrans?
Well, we have been very successful in negotiating package deals for all of our programming with all of the traditional MVPDs, and so I'd expect us to continue that strategy with DISH.
Thanks. Then lastly, Lucy, just wondering, now that we have a really good idea of what gross retrans is doing in 2020, was wondering if you could give any color on how you think about net retrans or maybe an update on your reverse comp cycle. Thanks.
Sure. Just to say, our guidance for full year 2020 estimates the net retrans to grow mid-single- digit percent for this year. For 2021, what I would say is it's still too early to talk about net retrans just because of the uncertainties around COVID and its effect on subscriber churn. I will say this, that when I think about the renewal cadence for next year and the fact that we only have 25% of the broadcast subs that renew in the back half of 2021, and almost 50% of the underlying network subs that come up in the first half of 2021. Given the difference, the mismatch in the number of subscribers as well as the mismatch in the renewal timing, I think it mathematically will be difficult to increase the net retrans next year.
That's great color. Thank you.
Our next question is with Alexia Quadrani with JP Morgan. Please proceed with your question.
Thank you very much. One of your RSN peers earlier this week indicated there would be a price at which they would consider maybe bringing their content direct-to-consumer. I'm curious if you think that makes sense for you guys, if that's a potential opportunity at some point, at some price point, and how you think your existing MVPD partners might react to something like that?
It's a great question. It's something we've been doing a lot of work around. It's not an either/or. We are going to do direct-to-consumer. As I mentioned, we're going to reinvent the RSNs around gamification, community, and direct-to-consumer. That doesn't mean that we're eschewing our MVPD business. It will be at a premium price to what we sell the product to MVPDs. There's sort of a wholesale and a retail price dynamic there. As I mentioned on a previous question, we're really excited about the potential of unlocking the hidden value here in the sports rights that we have.
Just one follow-up, if I may. There's a lot of moving pieces, obviously, when looking at the core underlying advertising environment in your business. I'm curious, I totally get that we can't really discuss 2021 because there's so much unknown, but I'm curious if you think that when we get to a more normalized environment, whenever that may be, when we sort of circle the COVID impact and everything else, do you think that the core ad market kind of bounces back to the pre-COVID levels? Or do you think there's been some sort of reset in the market at a lower level, just given everything that's gone on?
Yeah, look, from our vantage point, we think things will return to normal when COVID goes away. I think one of the great data points that I mentioned earlier in my comments is that on the sports side, we were up mid-single digits on our advertising revenue. There has been a dislocation in the market because of COVID, there's no doubt about that. Our inventory still is highly valuable. In fact, it's only getting more valuable as advertising-based content shrinks and amount of avails that you can get in front of people as people migrate to more ad-free platforms continues to get more scarce. Certainly, we do a big business in digital. We've been talking about this for years, that digital is a key component to any campaign, and we go to the marketplace with a full suite of products, including spot and digital.
We don't think that COVID has caused any structural change in the market, if that's your fundamental ask.
Yes, that's it. Thank you so much.
Our next question is with David Hamburger with Morgan Stanley. Please proceed with your question.
Hi. Good morning. Thanks for the question. I'm curious, I see that you renewed your media rights agreement with the Kansas City Royals recently, and I'm wondering, at Fox Sports Kansas City, I guess as you look at managing costs and you talk about your guidance for the fourth quarter, but as you think more broadly about managing costs, can you talk a little bit about the renewal? My understanding is maybe you gave the team equity in the station. Was that part of the Midwest RSN previously? Is there a new Fox Sports Kansas City at which the team also has an equity stake? If that's the case, can you talk a little bit about the rationale for that move?
Sure. Look, I think we did give equity in that deal. We have many teams that do own significant portions of our RSNs. We believe it aligns interests better. It also variabilizes compensation for the rights as opposed to having it all on a fixed basis, which helps manage our cost base as revenues change. Going forward, that is going to be a bigger part of the equation, as we move to a more variabilized rights compensation structure.
Mm-hmm. Can you help maybe kind of quantify how much that attenuates or helps that equation? Obviously, as your distribution revenue has become more variable, given customer churn, how closely might you be able to align renewal of media rights agreements on the cost side to correspond to those types of trends, so that you see the teams participating in that?
Look, I don't have a specific number to give you, but what is undoubtedly true is that we bring a lot of value to the RSNs and our teams on multiple facets. That is something that a distributor needs that does the type of work that we do, brings the value that we do, deserves to make a margin on that. That's sort of the way we think about rights going forward and stay tuned in terms of what that may mean financially.
Just a quick follow-up on that, kind of more technical question, does that mean that now that subsidiary, that station, is no longer a guarantor or maybe even would be a designated subsidiary or unrestricted subsidiary as part of the credit agreement? As well, does that also mean that the collateral that station might have provided to the secured credit agreement and bonds has been released?
Yeah. David, the way this works is our ownership in that joint venture is pledged to the lenders. From an attributable EBITDA standpoint, what we count towards attributable EBITDA are the cash distributions that the JV pays back to Diamond. You have the pledge of our interest in the JV as well as the cash distributions back into Diamond.
Okay. No longer maybe collateral in the subsidiary, in the assets themselves, but you pledge the ownership.
The shares are collateral.
Right.
Yeah. Okay. Thank you very much. Thank you.
Thanks.
Our last question is with Zack Silver from B. Riley. Please proceed with your question.
Okay, great. Thanks for taking the question. Just on the 50% of the subscribers coming up on the reverse side in the first half of 2021, just curious to your thoughts on are these renewals long enough in duration where you think that your network partners are going to bake in your expectations for the step up in NFL rights into the negotiations? Is that more of something that may be a bigger factor in the later reverse cycles? Thanks.
Yeah, we're not seeing that as part of the discussion. I think we all recognize that the networks will have to pay up to keep NFL, and that appears to be the expected outcome. We already paid the networks a substantial sum in terms of reverse retrans. I think it would be hard for them to justify, given how much that has increased over the last few years, some sort of NFL specific increase.
Got it. Thanks, Chris.
Thank you.
We have reached the end of our question- and- answer session. I would like to turn the floor back over to Chris Ripley for concluding comments.
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