Sinclair Broadcast Group Inc (NASDAQ:SBGI) Q4 2022 Earnings Call dated Feb. 22, 2023.
Corporate Participants:
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Billie-Jo McIntire — Assistant Vice President, Investor Relations
Chris Ripley — President & Chief Executive Officer
Rob Weisbord — Chief Operating Officer
Steven Zenker — Senior Vice President, Investor Relations
Analysts:
Daniel Kurnos — The Benchmark Company — Analyst
Barton Crockett — Rosenblatt Securities — Analyst
Steven Cahall — Wells Fargo — Analyst
Aaron Watts — Deutsche Bank — Analyst
David Hamburger — Morgan Stanley — Analyst
Benjamin Soff — Deutsche — Analyst
David Karnovsky — JPMorgan — Analyst
Presentation:
Operator
Greetings. Welcome to the Sinclair Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Lucy Rutishauser, Executive Vice President and Chief Financial Officer. Ma’am, you may begin.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Thank you, operator. Participating on the call with me today are Chris Ripley, President and CEO; Rob Weisbord, President of Broadcast and Chief Operating Officer; and Steve Zenker, Senior Vice President of Investor Relations.
Before we begin, I want to remind everyone that slides and supplemental information for today’s earnings call are available on our website, sbgi.net, on the Investor Information page and on the earnings webcast page. Billie-Jo McIntire will make our forward-looking statement disclaimer.
Billie-Jo McIntire — Assistant Vice President, Investor Relations
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 fourth 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.
In addition, given the deconsolidation of Diamond on March 1, 2022, and in order to have a meaningful discussion around comparative results and trends, all discussions of prior financial period results during this call reflect Sinclair only pro forma numbers, and thus exclude Diamond and any intercompany transactions with them and exclude businesses sold in the prior 12 months.
For actual results, including the periods of time it was consolidated, please refer to this morning’s earnings release. Chris Ripley will now give an update on the strategic direction of the company.
Chris Ripley — President & Chief Executive Officer
Good morning, everyone. Sinclair had a solid finish to 2022, capping a year which set records for our broadcast and other total advertising revenues, distribution revenues and media revenues. Political ad sales for the year surpassed the previous midterm election year by over 30%, demonstrating the strong value proposition that TV continues to offer to political candidates and issue advocates.
The strength certainly bodes well for the 2024 political season. Fourth quarter media revenues, adjusted EBITDA and adjusted free cash flow all fell within our guidance range. Rob and Lucy will cover the specifics on the quarter in just a bit. We entered 2023 financially strong, positioned to weather any economic headwinds that maybe encountered, with $1.5 billion of liquidity and no debt maturities until well into 2026. And with Diamond deconsolidated and operating independently of Sinclair, we can focus on our broadcast business, Tennis Channel, growth networks, our 4 growth pillars and our investment portfolio.
2023 will be a year of investment on a number of fronts, including investments in technology. There are 7 major areas that we are prioritizing, including news, NextGen related activities, ad tech, content, customer data management, IT security and our ongoing move of our operations into the cloud. These new initiatives, which total approximately $75 million of spend in 2023, will allow us to essentially manage our entire enterprise, enabling greater quality, productivity and efficiency by sharing content workflows and manpower across our entire organization helping drive future profitability.
We continue to make progress in moving forward the NextGen broadcast technology in conjunction with our partners. As of the end of 2022, nearly two-thirds of the households in Sinclair’s footprint had NextGen broadcast available to them. Building on the testing and validation progress that was made in 2022, we are ramping up spending in 2023 on initiatives around the new technology, which we expect to begin to generate revenues in 2024.
These initiatives include continuing the progress on testing the NextGen broadcast technology for automotive applications with Hyundai Mobis, SK Telecom and CAST.ERA. Late in 2022, we participated in a demonstration with these partners around in-vehicle video, including advanced geo-targeting capabilities for advertising. This collaboration was the first under an MoU we have with Hyundai Mobis, and we continue our important work with Saankhya Labs.
We are currently collaborating with them on several projects, including chips for mobile devices, direct to mobile services and cellularized broadcast radio heads. This year, Tennis Channel celebrates the brand’s 20th anniversary, building on its 2022 successes for what we hope is an even bigger 2023. After a breakthrough year, launching its national FAST channel exclusively on Samsung TV Plus, T2, Sinclair’s second original 24×7 Live Pro tennis network, will now begin rolling out on other free streaming platforms, expanding total homes reached by tens of millions and TC International’s worldwide regional platform expansion plans continue with France, Spain, Australia and Latin America, all targeted new markets.
Pickleball continues its phenomenal growth trajectory and Tennis Channel is now delivering this pro and participatory sport, including all the top professionals, celebrity-led teams and grassroots excitement to more viewers than ever in 2023. As previously discussed, we expect our net retrans to grow over the next 3-year period, but will do so at differing rates. With 50% of our Big 4 subscribers renewing in the second half of 2023 and another 40% front-end loaded in 2024, we expect net retrans to decline in ’23, but grow in ’24 and ’25, such that our 3-year CAGR grows low single-digit percentage.
When considering the investments we are making in 2023, along with the timing of our retrans renewal cycle and the absence of political revenues, we expect EBITDA in ’23 to be lower than ’22. We also expect lower free cash flow as a result of these factors as well as the absence of a large tax refund received in Q4 of 2022. Lucy will go over the details of what we expect in 2023 in her section.
In terms of our investment portfolio, during the fourth quarter, we received distributions of $23 million and made investments of $8 million. For all of 2022, the portfolio generated $119 million in cash distributions to us, consisting of return of capital of $38 million and $81 million of gains from sales and distributions of excess profits. Factoring in $33 million of investments made during the year, net cash generated from the investment portfolio for the year was $86 million.
We remain committed to monetizing our assets where appropriate to benefit all our shareholders. As a reminder, the assets we acquired since 2014 in this portfolio have generated an IRR of approximately 19%. Despite the strong track record and what we estimate to be a fair market value of $1.2 billion, we believe there is approximately $17 per share of value from these investments not reflected in the stock price.
Before I turn it over to Rob, I want to touch on a few other areas. Regarding our ESG activities, at the end of 2022 we have converted almost half of our lighting to LED and have also transitioned over 70% of our transmitters and 38% of our HVAC units to higher efficiency solutions. These actions should significantly reduce our energy usage. This year, we plan to begin working with an outside firm to analyze our current and past energy usage and make recommendations to lower our electricity costs going forward. This will allow us to formulate a baseline of energy consumption and report out energy usage targets and actual savings in the future.
In 2022, we helped raise close to $12 million in funds for nonprofits, schools, local disaster relief and other charitable causes, partnering with over 300 local organizations and conducting company-wide campaigns with Feeding America, Project RELO and Global Red Cross.
We also collected more than 330,000 pounds of food, provided close to 4.5 million meals and collected over 400,000 toys, diapers and hygiene products for those in need, and donated over 5,700 hours of airtime and public service messaging.
In 2023, we’ll be launching a new charitable program where Sinclair will match certain employees’ donations to registered charities. In addition, Sinclair will be launching a company-wide Sinclair Day of Service in April, encouraging all of our employees to dedicate the day to strengthening ties to their communities.
These actions are just the latest chapter in Sinclair’s unwavering support of the people and communities that we serve. As we entered 2023, the economic climate continues to be uncertain as to whether the economy would enter a recession. And today, we still have little clarity on the economy’s direction. However, we have been taking steps to deal with whatever direction consumer demand takes. We’ve been curbing our expenses without impacting the growth initiatives I have mentioned earlier.
One final note, regarding the loss of carriage on our CBS stations on fubo, as you may recall, the networks control these negotiations and affiliates are not currently permitted by the networks to negotiate the carriage of our stations with virtual distributors. The networks negotiate these agreements and then give us an opt-in to whatever terms they come up with. If we don’t opt in, they provide a national fee.
In this instance, the CBS Affiliate Board unanimously believe that the offer CBS presented at the broadcast stations meaningfully undervalued the important local content that our stations provide. Fubo is also seemingly getting caught in the crossfire here, so to speak, as it’s our understanding that they were not given the opportunity to negotiate with us directly. We welcome the opportunity to come up with a more equitable solution and continue to believe we should have the ability to negotiate with these agreements ourselves as we do with the hundreds of legacy cable, telco and satellite companies with no interference from the networks.
I’ll now turn it over to Rob.
Rob Weisbord — Chief Operating Officer
Thank you, Chris. The air trends we saw in the fourth quarter was not unexpected with political setting a midterm record and core advertising relatively even with a year ago or down mid-single digits when adjusting for the cyber incident in 2021’s fourth quarter. Of course, political crowd out was the primary reason for core being down.
While we don’t have good comps on category color by month versus the prior year, due to the cyber incident we can look to 4 years ago to get an idea of how the quarter played out pre and post the elections. Post elections, December was a weak month versus 4 years ago, and that weakness has extended into first quarter of this year, albeit at a lower percentage decline.
Pacing for January and February is down low-single digits versus last year, aided by the Super Bowl running on FOX this year. While March is pacing down slightly higher, but the month has not broken yet. For the first quarter of 2023, we are seeing growth in several categories, including auto, legal and entertainment and sports betting is relatively flat, an improvement from last year’s trend as new gaming markets recently came online in Ohio and Maryland.
Services continues to be weaker on insurance ad declines. Pharmaceuticals and food are some of the other large categories exhibiting weaknesses. We saw good ad demand for the Super Bowl, which was on our 41 FOX affiliates earlier this month. In 2023, we expect our newly implemented yield management tools to help us better understand our advertising revenue dynamics, allowing us to more effectively analyze our ad units and inventory sellout levels across all our platforms and to optimize our pricing.
Also, the first phase of our unified ad platform will be launching sometime in March. We are also working with Anthony Zuiker, the creative visionary of numerous popular entertainment shows, including CSI on Entertainment and original news programming episodes. Finally, I would like to thank the field for the fundraising that Chris mentioned earlier, in generating $12 million for our communities in charity donations.
Now I will turn it over to Lucy for the financials.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Thank you, Rob. So as a reminder, you can follow along with our slide deck and our financial supplements on our website. Also as a reminder, in the fourth quarter of 2021, we experienced a cybersecurity ransomware incident, which negatively impacted media revenues by approximately $63 million in that period.
Turning to the fourth quarter of 2022, media revenues were up 19% versus the same period a year ago, driven by higher political ad revenues and higher core advertising, offset by lower distribution revenues and a lower management fee. Adjusting for the cyber incident impact, media revenues would have been up 10%. For the year, media revenues were also up 10% or almost 8% cyber adjusted.
Total advertising for the quarter and year were record highs, driven by strong political revenues. As compared to the last midterm election year in 2018, total advertising was up 3% for both the quarter and the year. Total advertising for the fourth quarter increased almost 60% over 2021 or up 31% when adjusting for the cyber incident.
Core advertising, adjusted for the cyber incident, declined high-single digits on political crowd-out, which is expected given the record levels of political. The $952 million of media revenues was within our guidance range with political slightly under guidance and core advertising at the high end of guidance. Distribution revenue decreased 2% versus last year, slightly below our guidance range, primarily due to higher-than-expected subscriber churn, which continues to be in the mid-single-digit range year-over-year.
Media expenses were 7% higher in this year’s fourth quarter versus last year on higher network programming fees, higher sales expense on the favorable revenue and higher G&A expenses, but were favorable to guidance. Adjusted EBITDA for the quarter grew over the fourth quarter of last year, mainly on the strength in political revenues, partially offset by the Diamond management fee deferral and the higher expenses discussed.
As compared to guidance, our $309 million of adjusted EBITDA came in at the high end of our guidance range. For the year, pro forma adjusted EBITDA was $890 million. Adjusted free cash flow in the quarter also was within our guidance range with adjusted free cash flow per share of approximately $5.75 for the quarter and diluted earnings per share of $0.79. The quarter benefited from $158 million of tax refunds related to prior year audits.
For the year, pro forma adjusted free cash flow was $847 million, representing a 95% adjusted EBITDA conversion ratio and over $11.50 per share. We increased our cash balance by $277 million during the quarter for an ending balance of $884 million, and when combined with our undrawn revolver put our liquidity at more than $1.5 billion at quarter end.
Looking back over 2022, we took several actions to increase shareholder value, including raising our dividend by 25% to an annualized $1 per share; buying back approximately 5 million shares or 7% of our shares outstanding; and repurchasing $118 million of face value of our 2027 notes at a discount. This month, we purchased the remaining outstanding Diamond preferred units, which had a coupon of over 12% and for which Sinclair had a guarantee of collection. The units were purchased for $190 million, which was at a 5% discount to their accretive value. Variable debt at the end of the fourth quarter was $4.265 billion, and STG’s first-lien indebtedness ratio on a trailing 8 quarters was 3.1 times, while total net leverage through the bonds was 4.0 times.
Turning to our first quarter ’23 guidance. As it relates to comparisons to Q1 of ’22, we will talk to pro formas, which exclude Diamond, which was deconsolidated in March of 2022, and therefore, was in 2 months of our actuals last year. We expect media revenues to decrease approximately 6% to 9% versus first quarter 2022’s pro forma media revenues of $818 million.
First quarter’s core advertising is expected to be flat to down mid-single-digit percent versus first quarter of last year, with the decline in core primarily driven by mild macroeconomic weakness. Media expenses are expected to be $604 million to $610 million for the quarter and $2.392 billion to $2.407 billion for the year, which includes roughly $75 million for new investments in technology and our pillars of growth that Chris discussed.
First quarter adjusted EBITDA is expected to be between $99 million and $113 million compared to $200 million pro forma last year, with the decline primarily the result of the absence of political lower net retrans as discussed and the management fee change. Adjusted free cash flow for the quarter is expected to be $43 million to $59 million.
And with that, I would like to open it up to questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] Your first question for today is coming from Dan Kurnos at Benchmark.
Daniel Kurnos — The Benchmark Company — Analyst
Great. Thanks. Good morning. Chris, thanks for all the really helpful color, especially around retrans, net retrans in the fubo deal. I don’t know if there’s any additional color beyond what you stated that you can give on whether the network was trying to clawback incremental economics or if it really was in arguments around your ability to negotiate with the virtuals, which I know has been sort of a lobbying point for the broadcasters. It makes a ton of sense. So maybe that first. And then in addition on the outlook, helpful on the timing of subs, your guide still low singles on net retrans. Can you talk a little bit more about sort of the interplay as you see it between either mix or rate as well as how much reverse is coming down to keep you confident in that outlook?
Chris Ripley — President & Chief Executive Officer
Sure. So on your first question related to fubo, it is financially not a very impactful situation given the size of fubo. But as I mentioned in my remarks, the affiliate Board concluded that the offer was — just meaningfully undervalued the global content that our stations provide. And that was really the main driver of the decision. That being said, I will say that there’s a growing consensus within the broadcast community and also within D.C. that this situation with the virtuals, it needs to change, that it really is not consistent with the way the industry is set up and the way market power should be used. So that’s what I’ll say on fubo.
And then as it relates to your question on retrans, I’ll restate what we said, which is that we are expecting a down year on net retrans here in ’23, but up in ’24 and ’25. Our 3-year CAGR is low-single digits over that period. What is, I think, important to understand in terms of the dynamics — and you touched on this in your question, is that the growth of reverse retrans has significantly moderated over the last year or so. So you’re not seeing this dynamic where the growth rates on both gross and reverse being all that different.
Daniel Kurnos — The Benchmark Company — Analyst
Got it. And if I could ask one more, just, Chris, on your expense guide, how do we think about kind of the ROI? How much of the $75 million is what we would consider sort of onetime? And then when will we really start to see the flow through either to revenue or EBITDA if it’s like a cloud migration as you mentioned?
Chris Ripley — President & Chief Executive Officer
Right. So the $75 million that we’re spending is largely on transformation efforts and a big part of that this year will be our moves to the cloud, which does result in significant opex and capex savings in the forward years starting in ’24, but really making a big impact to ’25 and beyond. And so they do — we wouldn’t be spending these if they didn’t have either a commensurate cost savings in the future or a capability that we needed to enhance revenues or growth opportunities. And this will be the heaviest year in terms of that transformation spend, and it will start to on a net basis versus the benefits come down in ’24 and start to really pay off thereafter.
Daniel Kurnos — The Benchmark Company — Analyst
Got it. Great. Thanks for all the color. Appreciate it.
Operator
Your next question for today is coming from Barton Crockett of Rosenblatt Securities.
Barton Crockett — Rosenblatt Securities — Analyst
Okay. And thanks for taking the question. I appreciate now that you’re guiding for some revenues to come from NextGen, ATSC in 2024. And I was wondering if you could give us — since it’s just kind of, hopefully, the start of the new era, a little bit more color. I mean, is this kind of start really small? Noticeable? Where do you see the revenues kind of starting? And how do you see the momentum playing out for that from the start of 2024 going forward?
Chris Ripley — President & Chief Executive Officer
I think it’s fair to say that a lot has been accomplished so far in 3.0. We have a number of different proof of concepts that we are running through last year and this year. I do expect the revenue to be modest in the beginning. And it’s our view that the consumer benefits and monetization for the U.S. market really needs to get a good push here from the FCC, which is why we’re asking for the task force. And specifically, we believe the FCC needs to set a sunset date for 1.0. When that happens that’s when you’re going to really see scaling of both consumer benefits and monetization within the U.S. market.
Now other markets, which we’re very focused on are moving much more quickly, such as Korea or India. And in India, we’re very focused on we think to be a very quick transition into consumer benefits and monetization. We’ve got two trials going on with the direct-to-mobile services in Bangalore and Delhi with our partners at Saankhya Labs and the local government broadcaster there in India.
And specifically, some of our projects that we’re working for the last several years on with Saankhya will go to market at the end of the year. So the chip — the 3.0 chip at Saankhya prototype into mobile phones will be ready to go to market and first targets being televisions and dongles. But ultimately, it is the only chip that will be on the market which is suitable for mobile and personal devices.
And the broadcast radio head will also go to market at the end of this year, which will be needed for any cellularized build-out of the broadcast spectrum, which is how we expect India to roll out, also Korea is looking at that specifically and to the extent that single-frequency networks get built here in the U.S, this is the type of technology that will be needed for that.
And then the third significant project we have going on with Saankhya, which will also be ready for commercialization later on this year, is the operating system required — the software required to run components of that network on a sort of more telco basis rather than a broadcast basis.
And so we’re very, very excited about what’s playing on in India and how quickly that market is moving. We are cautiously optimistic about the concepts that we’re working on here in the U.S. and the ability to generate revenue from those next year, but we do recognize that the FCC needs to do its part in advancing 3.0 and really giving the U.S. consumer the true benefits that this technology promises.
Barton Crockett — Rosenblatt Securities — Analyst
And if I could just follow up on the FCC commentary. I thought the expectation was that this would be pretty fully deployed across major U.S. markets by 2024. So what is it that you gain with sunsetting if you have that kind of broad reach, what would you gain if 1.0 was sunset in terms of the monetization ability there?
Chris Ripley — President & Chief Executive Officer
Right. So look, I’m not taking anything away from the efforts of the industry, which should amount to over 75% of the markets covered in 3.0 this year. So I think it’s an incredible effort from everyone in the industry to do that. The reason why things I don’t believe will be material in 3.0 until the FCC sunsets 1.0 is that when you take a look at just the availability of excess spectrum in those markets, it’s fairly small. And so when you talk about rolling out other services on the broadcast, that time we need more availability of 3.0 spectrum. And that sort of move, I believe, will only happen once people get line of sight on 1.0 sunsetting.
Barton Crockett — Rosenblatt Securities — Analyst
Okay. And then following up on that, what’s your sense of the prospects for that in terms of — do you think that there’s a fight or do you think there’s kind of unanimity? Is there any political kind of posturing that could get in the way of sunsetting?
Chris Ripley — President & Chief Executive Officer
There is broad industry consensus around this transition and moving — ultimately, it’s not good for anyone, not good for the consumer, not good for the industry to have to support two different standards. And so the industry is 100% behind the notion of sunsetting 1.0 and supporting just one standard. And from a consumer perspective, it makes no sense to have two standards out there as well in terms of the promise of what 3.0 can deliver, the consumer won’t be fully realized until we fully make that transition. So it’s good for the consumer. The industry is on board. I don’t believe there really is any reason the FCC wouldn’t want this because it’s very pro-consumer. And it’s just a matter of getting through the process.
Barton Crockett — Rosenblatt Securities — Analyst
Okay, that’s very helpful. Thank you.
Operator
Your next question is coming from Steven Cahall at Wells Fargo.
Steven Cahall — Wells Fargo — Analyst
Thank you. So maybe just to start off on retrans. So Chris, you talked about it now being down for the year. I think the prior guide was down low-single digits. I guess the churn is probably the delta in there, but I would just love your perspective on maybe what’s changed since the last update on retrans. And kind of a bigger point here is, I think you’re the only broadcaster that’s actually seeing gross retrans revenue down on a year-on-year basis. I was wondering if you have any view as to why that might be? Do you think it’s just the structure of how the pricing is done in your deals? Or is there anything else that’s different in your retrans negotiations versus your peer group?
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Yes. So Steve, I’ll take the first part of that question. So we previously pointed to 2023 net retrans to be down low single-digit percent. And that was really given that the distributor renewals don’t happen until the back half of this year for us. However, recent MVPD subscriber reports, which you all have seen, reflect the churn is increasing. So if that continues, our ’23 net retrans could be lower than our previous commentary, which was down low-single digits.
What I’ll say though right now is we’re not ready to provide either a new outlook or we confirm that prior guidance. And the reason being is we’re only 50 days into the year. We’re seeing subscriber churn by the MVPDs increasing, but industry reports are still showing churn to moderate. So right now, we’re not either reconfirming or reguiding for that low-single digits. But I do want to point out, as Chris mentioned, because we have so many renewals that come up at the back half of this year and into ’24, we are still calling for the 3-year CAGR to grow low-single digits because we can control rates, right? We negotiate those, but what we can’t control is the churn and really what ’23 is all about is where the churn goes.
Chris Ripley — President & Chief Executive Officer
Yes. And just to reinforce that and address your specific question around us versus what other broadcasters maybe seeing is this is the confluence of various timing events that are driving the outcome in ’23. 50% of our subscribers come up for renewal in the back half of ’23 and 40% are front-end loaded to the beginning of ’24. So that’s 90% of the subscribers coming up in a pretty short window. And with increased churn, that’s hitting the front part of this year without having the benefit of step-ups on those renewals. So that’s what’s really happening here in terms of just timing of our contracts.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Yes. And Steve, one other point, net retrans for 2022 for the broadcast is up low-single digits.
Steven Cahall — Wells Fargo — Analyst
Yes. Got it. And then on the fubo issue, this seems like a rather deliberate approach by Paramount. So I’m just wondering how you see this situation getting resolved? And I think that Paramount has YouTube TV coming up in the next few months. And so do you have a view on whether or not something similar might happen? And I can’t help but think of how CBS prior to the merger was often speaking very aggressively about how they expected to reclaim more of net retrans and whether you think those two are related. And I know this is a long question, but maybe just to put in there, is the CBS affiliate renewal part of your cadence for this year?
Chris Ripley — President & Chief Executive Officer
In terms of CBS, the last question you have asked, we do not have any renewals of CBS, I think, until the year — till year-end. And I think this will eventually get resolved here in terms of fubo. YouTube will have to see these — but my take on it is that it will be resolved at some point between us and the networks in the next couple of months, but I think the bigger issue that we’re highlighting is just one of inequity in terms of how virtuals are dealt with versus traditionals. And that is something that there’s a growing consensus within the industry and within FCC [Phonetic] that, that needs to change.
Steven Cahall — Wells Fargo — Analyst
Yes. And then maybe just lastly, so we see the Q1 EBITDA guide does look like it’s a decent amount below the Q1 2021 EBITDA number, excluding Diamond’s impact at that point. I was just wondering, is there something like on the timing of cost, the Tennis Channel that’s hitting that? Or do you expect EBITDA to grow as you move through the year?
And the basis of the question is that on a trailing 8-quarter basis this year, you’ll be swapping essentially 2021 quarters for 2023 quarters. So as we just think about the net leverage of the company, if those 2023 quarters look a lot like the ’21 quarters, then it seems like your leverage could go up this year. So I just wanted to see if I’m missing any pieces there? Thank you.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Sure. So what’s really driving the EBITDA is in part the advertising environment that Rob talked about, where the guide is — wide range of guide on core advertising, right? So flat to down mid-single digits. There’s also political that we don’t have in Q1 of this year versus Q1 of last year. We do have step-ups in all of our just sort of normal compensation that’s in there where we fully are loaded for bonuses, assuming that everybody will hit their budgets.
We do have some of the initiatives that Chris talked about. It’s $75 million for the year. There is some amount in Q1 of this year. Again, those are all — will generate returns as time goes on, and we do have additional Tennis Channel rights that are higher than last year. So I would say those are the big things that are driving the EBITDA quarter-over-quarter. But again, some of those things are good expenses to have like the rights or the initiatives because they’re part of our long-term growth story.
And then on your leverage question, so what I would say is, look, we ended 2022 at 4 times total net leverage. I do expect for it to increase this year beyond our target range. And just as a reminder, the target range is high 3s, low 4s. So we do expect by the end of this year will be higher than that low 4s area. And again, that’s really primarily driven by the absence of political, the macro climate, the strategic investments, higher interest rates. Last year, we had the benefit of the cash tax refunds that we won’t have this year. And then, of course, the decline in net retrans.
Now the good thing is ’24, which is a Presidential year, is right around the corner, and we’ll start to see some benefit of that later in the year, in more like fourth quarter. But we are expecting right now another record-breaking political year next year. And so that will then help to delever the company.
Steven Cahall — Wells Fargo — Analyst
Great, thank you for the color.
Operator
Your next question for today is coming from Aaron Watts at Deutsche Bank.
Aaron Watts — Deutsche Bank — Analyst
Hi, everyone. Thanks for having me on.You covered a lot of ground. I just had three quick follow-ups really. Chris, I don’t know if you’re able to share what percent of your retransmission revenues come from virtual MVPDs versus the more traditional ones?
And then secondly, with the distribution renewals that you’ve highlighted coming up at the end of this year and beginning of next year, will you be negotiating exclusively for your stations? Or will you be continuing to negotiate for the RSNs as well with those renewals?
And then lastly, Lucy, just to follow up on your comments around leverage. I know you’ve bought back some bonds in the recent past. Curious if continuing to take advantage of the discount those bonds trade at currently would help the deleveraging process as well as you move forward and think about free cash flow priorities? Thanks.
Chris Ripley — President & Chief Executive Officer
So we don’t disclose the percentage between virtual versus traditional. And then in terms of your question on Diamond, as you know, it is now an independent entity with a separate Board and management team. And so we don’t control the decisions that happen there and nor can we necessarily speculate as to what happens with the services that we provide. So that’s all I can say on that.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Yes. I’ll go ahead and jump in. So on the buybacks, so as you know, we’re always opportunistic, whether it’s debt or equity. And as you pointed out, we bought back $118 million, which was about 25% of the 2027 notes last year to discount. So we will continue to be opportunistic on all those fronts this year. We will balance that with the commentary around leverage, around investments, around the macro environment as well. And then just remember that the net leverage is net of cash. So to the extent that you’re using cash to buy in any of the debt, it’s really the deleveraging impact will be based on the discount that you get. Otherwise, the bulk of it would not be deleveraging, only at a discount. But we’ll continue to be opportunistic, again, on all these fronts, while we balance some of the other priorities that we want to do.
Aaron Watts — Deutsche Bank — Analyst
Okay, thank you for the time.
Operator
Your next question for today is coming from David Hamburger at Morgan Stanley.
David Hamburger — Morgan Stanley — Analyst
Hi, thank you. Good morning. On February 10, you issued an 8-K that stated that you purchased the Diamond Sports preferred that was issued to JPMorgan for $190 million to extinguish that guarantee. I was just wondering if you could talk a little bit about the timing of that?
And then importantly, since Diamond chose to not pay its coupons last week, I’m just wondering are there any other financial issues associated with Diamond that we should be considering with regard to Sinclair? You did call out the management fee changes in this quarter for the 1Q guide. Curious if there’s anything around, say, the previous tax consolidation of Diamond or any other financial issues we should be aware of with regard to Sinclair specifically?
Chris Ripley — President & Chief Executive Officer
So with regard to the preferred, it really was a cost of capital issue as that has a floating dividend rate on it. And as interest rates started to go up, that dividend rate started to get quite high. As Lucy mentioned, it was over 12% when we retired it. And so that really coupled with negotiating a small discount from JPMorgan sort of played into the decision and the timing. As it relates to Diamond, as I stated earlier, we don’t control Diamond anymore. It is becoming increasingly independent. We expect that the tax benefits and the management fees that we get from Diamond will reduce over time as it becomes more and more independent.
David Hamburger — Morgan Stanley — Analyst
And is there any way that we can think about that impact on Sinclair? Are there kind of any dimensions around that you can offer us? I know historically, you haven’t really broken that out.
Chris Ripley — President & Chief Executive Officer
No, that’s not something we can give any guidance on at this time.
David Hamburger — Morgan Stanley — Analyst
Okay. Thank you very much.
Operator
Your next question for today is from Benjamin Soff at Deutsche.
Benjamin Soff — Deutsche — Analyst
Hi, guys. Thanks for taking the question. I just wanted to follow up on the comment that growth of reverse has significantly moderated over the last year. And if there are any factors that you could talk about that are causing that and whether we should expect that trend to continue over time? Thanks.
Chris Ripley — President & Chief Executive Officer
We do expect that trend to continue. And really what’s driving that is the shift in focus from the big media companies to their streaming platforms. And also just the magnitude of the reverse payments, if you reverse, went from sort of 0 to 100 in a very short period of time and it is a significant level at this point. And so you couple with the magnitude of support that we give the networks for their programming, couple that with some of the shift in focus on other platforms is what’s playing into that negotiating dynamic and the ability for us to manage the cost of our network relationships.
Benjamin Soff — Deutsche — Analyst
Thanks.
Operator
Our next question for today is from David Karnovsky at JPMorgan.
David Karnovsky — JPMorgan — Analyst
Hi. Thanks. Lucy, just going back to your commentary on the 3-year CAGR for net retrans. I think you said you were continuing to expect low single-digit growth but I thought the guide at your Investor Day was low-to-mid. So can you just clarify if there’s a change there and whether that’s due to churn? And then I think political in Q4 was just below the low end of your guide despite the Georgia runoff. Can you say if there was a bump in political ad revenue for November and December? Thanks.
Lucy Rutishauser — Executive Vice President & Chief Financial Officer
Yes. So, yes, the 3-year CAGR that we previously had out there was growth of low-to-mid-single digits. Right now, we’re saying low-single digits, could still be mid-single digits. As I mentioned, we’re still early into ’23, and we have conflicting reports out there, one which the distributors are reporting where they continue to churn, but then industry reports that are looking for moderation. So right now, we’re confident in saying the 3-year CAGR would grow low single digits.
Steven Zenker — Senior Vice President, Investor Relations
On the political — on the previous election prior to this one, it was an 8-week cycle. This was brought down to a 4-week cycle and the dollars that were expected to go into the runoff did not materialize the way it did in the previous election. That’s why it’s a little bit lower from the guidance.
David Karnovsky — JPMorgan — Analyst
Thank you.
Operator
[Operator Instructions] We do have a follow-up question coming from Dan Kurnos at Benchmark.
Daniel Kurnos — The Benchmark Company — Analyst
Yes. Thanks. I don’t want to ruin it, but I guess we’ll go to a core question, 53 minutes into the call here. Rob, maybe if you could talk a little bit about the — If you can talk a little bit about maybe like local. I know you don’t break out local and national anymore, but it would kind of imply given the national weakness that local is somewhat up, but I know you don’t have great visibility, maybe a little bit of softening in March, but you’ve got some pretty easy auto comps. And it would be helpful if you could kind of give us sort of your view on sort of the broader landscape for advertising as you see it sort of playing out over the course of this year?
Rob Weisbord — Chief Operating Officer
Yes. So local was strong in Jan and Feb. The weakness we’re seeing is really on the national side. And we continue to think that we’ll see that. We’re not seeing any cancellations at all. What we’re seeing is close-in, and that’s why March is lagging right now. We expect the orders to start to come in at the end of this week And beginning of next week. And with our large CBS, we’ll be able to take advantage of March Madness, the tournament.
So automotive has rebounded off of its lower basis point, but there is inventory on the local lots, the Tier 3 lots, even though interest rates are up, people are still buying cars. I’ve had several conversations with mega dealers. And so the purchasing of cars during the COVID cycle is really used that was driving it because there was no new. And now they’re having shipments received at the Tier 3 level. So that bodes well for us.
The legal category, people are traveling again, so the travel segment and the entertainment segment is up as well. And so we’re still confident. And the way we’ve built our systems even if the economy downturns, we have various levels of packages and solutions for the advertisers, even if they cut back some budgets, we have solutions to have them remain advertising. And we have a lot of studies that those that remain in advertising during a downturn come out stronger than those that go when advertisers downturn. And so I think with our mixture of solutions that helps solidify where we are on a core basis.
Daniel Kurnos — The Benchmark Company — Analyst
Got it. That’s helpful. And Chris, is there a way to kind of size the incremental Tennis opportunity as you see it this year? Or is it more of a ’24? And I’d love an update on where Compulse is right now?
Chris Ripley — President & Chief Executive Officer
Yes. So, yes, there’s a lot going on at Tennis. International continues to expand, as I mentioned. We continue to enhance the programming. Direct-to-consumer will be also a 2024 event. And so you won’t see a financial benefit in Tennis in 2023. A lot of those initiatives are still in investment mode, but we’re very bullish about Tennis in the future as it expands globally as it gets more rights and it goes — and builds out its direct consumer presence. Sorry, what was your second question again?
Daniel Kurnos — The Benchmark Company — Analyst
Just on an update on Compulse, if you had it.
Chris Ripley — President & Chief Executive Officer
At Compulse, Compulse continues to grow nicely. We continue to mature the offering and enter into commercial relationships, which improved the business. This year, there’ll be a big focus on profitability. We do expect it to turn profitable in the back half of this year while still maintaining high growth. So we’re very pleased with the progress we’ve made in Compulse and getting it to a net contributor we think is going to be a very positive event later this year.
Steven Zenker — Senior Vice President, Investor Relations
And one more thing on Tennis, as we continue to expand the spokes [Phonetic], the major wheel of the tournaments, we expect to be launching in partnership with a leading e-tailer, a white-label tennis shop in conjunction with Tennis Channel, that will allow us to be in the merchandising business as well.
Daniel Kurnos — The Benchmark Company — Analyst
Got it. Awesome. Thanks for all the additional color. Really appreciate it.
Operator
Thank you. We have reached the time allotted for the call. And I will now turn the call over to Chris Ripley, President and Vice President, for closing remarks.
Chris Ripley — President & Chief Executive Officer
Thank you all for joining us today. If you should need more information or have additional questions, please don’t hesitate to give us a call.
Operator
[Operator Closing Remarks]