Media Bureau Investigation Into Sinclair Could Be Prelude to Settlement, Attorneys Say

The investigation was revealed in a letter of inquiry (LOI) posted online by the FCC Wednesday but taken down Thursday morning. Attorneys told us the letter may have been intended to be confidential. The FCC wouldn't comment on the circumstances of the letter's having been made public, but an agency spokesperson said the Media Bureau “is in the process of resolving an outstanding issue regarding Sinclair’s conduct as part of the last year's FCC’s review of its proposed merger with Tribune.”

A Sinclair spokesperson described the letter as the latest in continuing talks between Sinclair and the bureau. “This is not a new investigation,” the spokesperson emailed. “This is part of an ongoing discussion initiated by Sinclair to work with the FCC to respond to certain allegations raised by the" hearing designation order. However, the only previous communication between Sinclair and the bureau cited in the LOI is a confidential Sinclair filing from July 31, 2018, little more than a week before the Sinclair/Tribune deal formally dissolved. In an interview last week, Sinclair CEO Chris Ripley told us the HDO was “over” and that Sinclair wouldn't face future difficulties related to those issues from the Media Bureau (see 1906200063). “Any FCC settlement negotiated behind closed doors will leave us with more questions than answers,” said FCC Commissioner Jessica Rosenworcel in a tweet Thursday. “The FCC should hold a hearing in public on these questions and do it now.”

The LOI gives Sinclair two weeks -- until July 9 -- to produce answers to a series of questions about its relationships with companies that were to receive divested stations from the Sinclair/Tribune deal. That’s an aggressive time frame that could indicate that Sinclair was expecting the LOI, broadcast attorneys told us. If Sinclair and the FCC have been in communication about the matter, it’s a further sign of a possible settlement, said broadcast attorney and Sinclair/Tribune deal opponent Howard Weiss in an interview. If the matter is part of a settlement and doesn't result in a hearing, it's not clear how much of the Media Bureau's findings will become public, attorneys told us. The FCC didn't comment on whether results will be made available.

The LOI focuses on divestitures from the now-defunct Tribune deal in Chicago, Dallas and Houston to frequent Sinclair sidecar company Cunningham Broadcasting and to WGN-TV. The latter was created for the deal and run by Steven Fader, CEO of a company that Sinclair controlling shareholder David Smith had a controlling interest in and was a tenant and advertiser of Sinclair. The HDO suggested that Sinclair may have misled the commission about whether it wouldn’t have control over those stations after their sale. The HDO pointed to concerns about the low sale prices of the stations, and Sinclair’s business relationships with the buyers.

“This alleged deception was ostensibly aimed at allowing Sinclair to bypass the Commission’s multiple ownership limitations,” said Administrative Law Judge Jane Halprin in a March order dismissing most of the HDO’s allegations as specific to the Sinclair/Tribune deal (see 1903050075). Halprin said then the allegations about Sinclair’s possible misleading of the FCC would have to be settled in a separate future proceeding.

Attorneys had expected the alleged candor issues raised in the HDO to resurface when Sinclair’s TV stations come up for renewal in 2020. America’s Communications Association asked the FCC to raise the issues earlier, but Sinclair filed in opposition of that plan. The LOI’s origin in the Media Bureau rather than the Enforcement Bureau is a further sign that the timing could be connected with Sinclair’s renewals. The bureau “believes that delaying consideration of this matter would not be in anyone's interest,” the FCC spokesperson emailed.

The LOI's timing is puzzling, some broadcast attorneys told us. With Democrats in control of the House, a proceeding that settles or resolves the allegations against Sinclair is likely to result in highly visible congressional hearings, a longtime broadcast attorney pointed out. Several Democratic presidential hopefuls in Congress already have Sinclair in their sites, and recently called for additional scrutiny of the broadcaster’s planned purchase of regional sports networks (see 1906250067).

Sinclair will have to go through a hearing process or reach some sort of settlement with the agency to resolve the candor allegations, numerous attorneys have told us. Hearings on a matter this serious can take years to resolve, Holland & Knight broadcast attorney Charles Naftalin told us. If Sinclair is found to have misled the agency, it’s possible that it could no longer qualify to be an FCC licensee, attorneys told us. “Possible sanctions against Sinclair, including the loss of broadcast licenses, represents an opportunity to embark on a new path for an agency that has enabled the merge-at-all-costs broadcast industry for far too long,” said Free Press CEO Craig Aaron in a release.