Deregulation Play of the Decade

The entire traditional television broadcasting industry is a sleeping giant. Valuations are at all time lows. The levered names are priced like they are going to go bankrupt. Despite all of this, debt markets have been open to the names with many of the levered plays refinancing and extending their debt for years into the future.

But what is more interesting is the deregulatory moves the Federal Communications Commission (FCC) has made over the past few days. These deregulatory moves are extremely bullish for broadcasters which could result in a significant amount of value being unlocked over the next two years.

The bullish narrative started when President Trump was elected to serve as the President of the United States for the next four years. Once officially elected as President, Trump signed an executive order designating Brendan Carr to serve as the chairman of the FCC.

For those who do not follow the sector closely, Brendan Carr has been extremely vocal about deregulation. He is pro local broadcasters and against big tech. Once he was elected, every single broadcaster talked about him in their earnings calls and some even put out press releases congratulating him.

The second positive news following the appointment of Carr was the rapid approval of Gray Media’s acquisition of KXLT-TV in Rochester, Minnesota. On March 11, 2025, The FCC granted a waiver of its local ownership rules to allow Gray Media to acquire KXLT-TV in Rochester, Minnesota, a television market where Gray already owns KTTC-TV. This waiver was the FCC’s first approval of a new combination of two full-power, top-four ranked, same-market television stations in over five years. In addition, the FCC’s waiver comes just two months after the parties applied for the approval of the transaction, the shortest processing time for a duopoly waiver in the FCC’s history.

This waiver of a duopoly is important as it shows the FCC is allowing broadcasters to start making deals happen. Consolidating stations and controlling more than one station in a single market results in a significant lift in incremental margins as studios merge and employee headcount is rationalized.

Finally, in the past two days the Chairman of the FCC has tweeted two extremely bullish tweets.

The first one was titled “Delete, Delete, Delete”. This tweet highlighted that the new policy will allow the FCC to go through every single burdensome regulatory rule and make a change. On the broadcaster side, this means there is a high chance that station caps are lifted and M&A begins.

The next day Chairman Carr tweeted a letter stating that the FCC needs go get authority back from Congress to conduct a spectrum auction. If Congress gives authority back to the FCC to conduct a spectrum auction, there is a massive amount of value that will get unlocked. In the first incentive auction conducted in 2017, TV broadcasters unlocked $20 billion of value by selling 84 megahertz of spectrum. If a second spectrum auction occurs, a similar sized, if not more, value will be unlocked.

With the backdrop of a massive deregulatory initiative, broadcasting stocks are sleeping giants and the market is asleep at the wheel.

Almost all are trading at all-time lows and valuations look compelling.

The one that I am going to be writing about today likely has the most torque to the upside given the absolute low valuation, combined with the highly levered balance sheet.

Here are some stats to consider:

• The stock is trading near all time lows with a market cap of $230 million and an enterprise value of $3.2 billion. You are buying a highly levered equity stub that appears to be priced to head towards bankruptcy.

• Management just recently successfully refinanced the debt and has pushed out near-term maturities to 2027 and better.

• The company is keen on selling assets and repaying debt. The company sold a single tower site for $20 million in December and is in agreement to sell a building for $40 million which should close by Q1.

• The company is marketing a high performing asset with an intent to sell. The Street has estimated values for this asset of $300-450 million. Should this asset be sold, the leverage will come down significantly.

• On the Q4 earnings call, the company spoke positively on the deregulatory environment and started the call off pumping up Branden Carr and his efforts.

• In addition, the management team mentioned in the earnings call that there will be M&A and that the company will be looking to sell stations in this environment should M&A occur.

• Finally, the company recently entered into a joint venture with three other major broadcasters to target a $7.5 billion TAM for spectrum leasing revenue. This company has a 25% economic interest in this joint venture and if revenues start to flow, the cash flow margins could be higher than 75%.

Given the rapidly moving regulatory environment, it appears as if a significant amount of M&A is on the table. Since this company is highly levered and looking to reduce debt, the company is likely to start selling assets as quickly as possible. The company owns desirable assets that generate a significant amount of cash flow. And in the hands of another broadcaster, these cash flows can be amplified.

The company is highly levered, but given the environment and the potential to sell assets and paydown debt, there is a significant amount of torque to the upside should this thesis play out. I haven’t seen an environment this bullish for broadcasters before and the writing appears to be on the wall that transactions will start to happen. The stock is significantly undervalued and beaten down. Should this deregulatory environment play out, there could be multi-bagger upside ahead. The stock is a $2.00 and change and just three years ago the stock was over $20 per share — and that was without a massive deregulatory environment.

The E.W. Scripps Company SSP 0.00%↑ is a local television broadcaster with more than 60 local television stations. Scripps television stations reach 25% of the nation’s television households and include 18 ABC affiliates, 11 NBC affiliate, nine CBS affiliates and four Fox affiliates. The company also owns 11 independent stations and 10 low powered stations. The company also owns Scripps Networks which include Scripps News, Court TV, ION, Bounce, Grit, ION Mystery, ION Plus and Laff, which reach nearly every TV in the United States through over-the-air broadcast, cable/satellite, connected TV and other digital distribution.

My thesis for E.W. Scripps is as follows:

• E.W. Scripps stock price has collapsed and is now trading near all time lows. The valuation is at rock bottom multiples. On 2024 political adjusted numbers the company is trading at a 130% levered free cash flow yield and in a non-political year the cash flow yield is around 62%. Last twelve months EV/EBITDA is 5.0x. With a stock price of $2.69, the company has a market cap of $231 million and an enterprise value of $3.2 billion. The enterprise value excludes the $600 million Series A Preferred stock. The preferred stock is owned by Berkshire Hathaway and is redeemable at the option of Scripps on January 7th, 2026. Scripps elected to defer the first quarter 2024 dividend payment which increased the dividend from 8% per annum to 9%. Annual dividend payments are $54 million per year and I view the preferred as a semi-permanent part of the capital structure.

• Despite the collapse in the valuation, the company remains highly free cash flow positive. Scripps generated $365 million of cash from operations the full year of 2024 and outlaid $65 million of capex. 2024 was a political year where the company generated record political revenue of $342 million. There will be little, if any political revenue in 2025, but the company should continue to remain free cash flow positive. In non-political years, the company tends to generate $200 million of cash from operations. With capex guided at $55-60 million, Scripps could generate $145 million of free cash flow, which is a levered free cash flow yield of 62%.

• The company has successfully refinanced their debt and took down leverage by an entire turn in 2024. The company successfully executed a transaction support agreement with the majority of its 2026 and 2028 term loan holders to push out the nearest-term maturity while also extending a portion of its 2028 term loan. The company also entered into commitment letters with accounts receivable securitization providers for a new A/R securitization facility for $350 million and its revolving banks to extend a portion of its revolving credit facility through July 2027 once the transaction closes. This significantly de-risks the balance sheet and sets the company up to execute on asset sales and more de-leveraging.

• The company is shopping around its valuable Bounce Media asset. Bounce Media was acquired in 2017, with the Katz Broadcasting acquisition for a purchase price of $292 million. Since then revenues have doubled at Bounce and the audience has grow materially. Rumors are the company is looking to get $300-600 million for the asset. Should the company be able to successfully sell Bounce Media, it will be a significant de-leveraging event and continue to de-risk the balance sheet.

• The recent appointment of Brenden Carr to FCC Chairman could spur significant deregulation, leading to industry wide M&A and multiple re-ratings. Brenden Carr was elected to be the FCC Chairman after Trump won the Presidential election. Carr has been a long-term proponent of deregulation to allow local TV station owners to better compete against tech companies who have 100% of the market share. Local television companies can only broadcast to 39% of the United States television screens despite tech companies touching 100% of the population in the United States and even more in the world. Carr also criticized the FCC’s handling of the failed Tegna-Standard General deal, which the FCC essentially blocked. Nextstar Media NXST 1.22%↑ has publicly called out Carr to be an outstanding choice and even John Malone sees M&A activity stepping up in a big way now that the regime change is coming in Washington, D.C. If station caps are lifted there will be a massive amount of M&A and “land grab” from well capitalized television broadcasters (think Nextstar and TEGNA) to acquire additional stations or even do station swaps. If a broadcaster is able to own more than one Big 4 station in a single market, the incremental margins would be significant as you could cut back on production and engineering costs and really see cash flow drop to the bottom line. If station caps are lifted I also suspect multiples to rise.

• The management team spoke highly of Chairman Brendan Carr on their recent earnings call. The management team of Scripps spent the beginning of the earnings call talking about positive changes the new FCC chairman could make, which spells out acquisitions, stations swaps, de-levering opportunities and significant margin improvement. Here is what management said about Carr:

  I want to start high level with an assessment of how the changes in Washington spell opportunity for our industry, for Scripps and for our investors. The appointment of Brendan Carr to serve as Chairman of the Federal Communications Commission signals a significant shift in the federal government's attitude toward local broadcast television. Carr has been a vocal advocate for reducing regulatory constraints, and he has expressed intent to revisit and potentially relax existing ownership limits for local TV stations. This free market policy shift could present new opportunities for us and our peers to strengthen the operating performance of our business through in-market and company consolidation. A change is long overdue. The current FCC ownership rules restricting the number of stations a single company can own, both within a market and nationwide, run counter to the original aim of the rules: to preserve competition and a wide range of viewpoints. In fact, given how much fragmentation has occurred in the journalism and media landscape following the digital revolution, the current ownership restrictions are creating local broadcast group economics that threaten to silence the very voices they were designed to protect. When these rules were created back before World War II, a local broadcast TV station competed with a few other stations, a newspaper or two and maybe a few radio stations for news audiences and advertisers that wanted to reach them. Today, a plethora of voices comes through digital platforms, social media, streaming services and a wide range of news outlets that fall across the political spectrum. America does not lack access to information and opinion. And yet the rules that govern our business have not kept up, putting our industry and local journalism itself at an unfair disadvantage. Easing the federal ownership restrictions would finally allow broadcasters to compete in this modern media ecosystem. With economies of scale, we will increase our ability to invest in local content and better serve our communities with objective, locally created news. We'll continue to be there for them during severe weather, natural disasters and all of the other times of crisis and joy, connecting our communities to important local information. And we'll be the platform Americans can continue to rely on to bring people together on live sports for free because these are the things that matter most to people. At Scripps, if the government sees fit to modernize the rules, you should expect us to lean into the opportunity in ways that promise to improve our operating profile, deepen our connection to the communities we serve and most definitely unlock greater value for shareholders.

• The balance sheet is too levered for Scripps to do acquisitions so they will be focused on stations swaps and outright sale of non-strategic media assets. The company does not have the balance sheet like Nexstar NXST 0.00%↑ or TEGNA TGNA 0.00%↑ to execute on acquisition in a deregulatory environment. However, the management team talked about executing in swaps and outright station sales in the earnings call: We're committing -- we're committed to work in any way necessary to unlock and maximize shareholder value. As to whether we're a buyer or a seller, I mean, honestly, I think we're very, very focused on looking at all opportunities. I don't think we have the balance sheet to be a buyer, certainly, and we've told you our highest priority is in deleveraging and paying down debt. But I do expect us to take full advantage of the opportunities to swap and potentially even to sell out of nonstrategic markets if the opportunity presents itself and it's in the best interest of shareholders

• ATSC 3.0 or NextGen TV could start ramping up over the next several years and potentially add $10.7 billion in new revenue. In 2022, BIA Advisory Services dropped a presentation on the potential of NextGen TV and stated that data casting revenue from NextGen broadcasts could bring in $5 billion of industry wide revenue by 2027 and $10.7 billion of new revenue by 2030. Per the presentation: The 2030 $10.7 billion estimate is BIA’s “middle case” scenario of 20% of total spectrum capacity being used for datacasting. In its high case, involving 27% of spectrum, those services could produce a whopping $15 billion; in the low case of using 12% of spectrum, they would still bring in $6.4 billion in 2030.” This revenue would be 80-90% incremental and drop right to the TV broadcasters bottom line. Even more interesting, on January 7th, 2025 four of the nations largest broadcasters, The E.W. Scripps Company, Gray Media, Nexstar Media Group and Sinclair launched EdgeBeam Wireless, to use ATSC 3.0 to provide faster, more secure and less expensive data delivery. Per the press release, the four companies put out target addressable markets per three industries: automotive connectivity with $3.7 billion, content delivery networks with $3.65 billion and enhanced GPS at $220 million. More importantly, this partnership creates a spectrum footprint that no individual broadcaster could achieve on its own, finally unlocking the potential of ATSC 3.0 to offer nationwide coverage for data delivery to billions. I expect the rollout to be slow, but by 2027 I think the revenue opportunity could be significant for the entire industry and most of this revenue could drop to the bottom line. Long-term, I think it is possible for television broadcasters to re-rate from “dying” media companies to growing tech companies with this development.

• Local broadcasters are winning significant sports deals from the broken regional sports network (RSN) model and could see a potential uplift in advertising revenues, retrans rates and future growth. Traditionally individual sports franchises have sold their sport broadcasting rights to cable-based RSN’s who then used the appeal of local sports to increase their distribution fees from cable subscribers. Historically, this has been a lucrative model, but cord cutting caused a dramatic decline in pay-television subscribers and carriage fees for RSNs, thus reducing exposure for teams. Now that Diamond Sports has restructured, many of these sports broadcasting deals are being struck with local broadcasters. All of these sports rights will be up for play and local broadcasters have begun to win these deals, which should result in advertising and retransmission uplift if they win enough of these deals. Tailwinds from the Diamond Sports bankruptcy will be seen with the NBA, hockey and baseball teams. Sports teams that have signed with local broadcasters are seeing 4x the amount of views and they can start to build a local franchise again.

• Brenden Carr as FCC chair could enact more positive regulatory change for vMVPDs, resulting in broadcasters directly negotiating with vMVPDs and realizing significantly higher retransmission rates that would drop directly to the bottom line. Currently TV station groups negotiate their own retrans fees from cable operators. But broadcast networks have taken control of retrans negotiations with the vMPVDs, which include services such as YouTube TV, Hulu + Live TV, Fubo TV, Sling TV and others. In the current environment, TV station groups get paid through a master agreement, resulting in broadcasters leaving significant money on the table. When vMVPDs first emerged they wanted to negotiate with network reps and not TV stations groups because they were startups and could not afford to pay full freight for broadcast signals. There was also no regulation in place at that time and no legal recourse to negotiate with TV station groups. Today, 15-20% of live television viewers are subscribed to vMVPDs and expected to grow significantly over the next decade. There is a case to be made that Carr will proposes a regulation to allow TV Groups to negotiate directly with vMVPDs. If this happens TV broadcasters can extract more value from vMVPDs and grow their retrans base.

• The valuation for E.W. Scripps is attractive and if station swaps begin to occur and Scripps starts selling assets the stock could be a multi-bagger. There is an easy case to be made that Scripps could be worth $8 dollars per share on the low which is only a $860 million market cap and an $3.8 billion enterprise value. The company was trading over $20 just in 2022 with none of this deregulatory backdrop and they were still trying to integrate and turnaround the ION Media acquisition. I think the company will start executing on station swaps and selling non-core station assets and could bring in hundreds of millions of dollars to paydown debt. If ATSC 3.0 is rolled out and the industry creates a $10 billion revenue stream, Scripps should get 25% of these revenues given their market share which is $2.5 billion of incremental revenue. Assuming only 70% drops to the bottom line (I think this is very conservative) Scripps could be generating an additional $1.75 billion of cash flow per year. Put whatever multiple you want on that incremental cash flow. You will get a share price multiples higher than the $2.00 and change Scripps is currently trading at.

• For a moonshot, I think Nexstar Media could make an entire bid for the company. Nexstar will be the consolidator in the industry and will look to add as many stations as possible in this deregulatory environment. I think acquiring Scripps is the best play for Nexstar. If Nexstar acquired Scrips, they would instantly be able to consolidate all of the overlapping stations and wipe out G&A, but they would also be able to take their joint venture interest in EdgeBeam from 25% to 50%. Also what is interesting is the commentary that Nexstar said in a 2022 conference call: "We and Scripps warehouse more spectrum in the United States than any other companies by a wide margin. We and Scripps actually have a 92% unduplicated reach of the United States with our spectrum assets. And so the cadence of conversations there have increased as to what we can do together to create a business, monetizing our spectrum …that money will begin to flow later in this decade. And by the end of the decade, 2030 that spectrum revenue could rival distribution revenue or retrans revenue for our industry and certainly for our company".

• Risks to the thesis include: core advertising revenues heading towards a terminal decline, the company not paying off their debt and declaring bankruptcy, a management team that controls the destiny of the equity through super voting shares, the inability to refinance debt, and deregulation not occurring.

Scripps is a levered broadcaster that is in the midst of a deregulatory environment. The equity value is cheap and if management is able to successfully sell assets and de-lever the company, there could be significant upside. In addition, Scripps is a sitting duck for a takeover by someone like Nexstar who is well capitalized.

Disclosure: I do not own shares of The E.W. Scripps Company SSP 0.00%↑ but I may purchase shares anytime after I publish this article. This is not investment advice. I am not an investment advisor. Do your own research.