STRATEGIC PARTNERSHIP - SINCLAIR BROADCAST GROUP

12 Months Ended

Dec. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Sinclair Agreement

STRATEGIC PARTNERSHIP - SINCLAIR BROADCAST GROUP

In 2020, the Company and Sinclair entered into a Framework Agreement (the “Framework Agreement”) providing for a long-term strategic relationship between Sinclair and the Company. Under the Framework Agreement, the Company paid annual fees in cash, issued warrants and options and agreed to share tax benefits and received naming, integration and other rights, including access to Sinclair’s Tennis Channel, Stadium Sports Network and STIRR streaming service. Under a Commercial Agreement (the “Commercial Agreement”) contemplated by the Framework Agreement, the Company was required to pay annual fees to Diamond Sports Group (“Diamond”), a Sinclair subsidiary, for naming rights over Diamond’s regional sports networks (“RSNs”) and other consideration which escalated annually and total $88.0 million over a 10-year term.

In March 2023, Diamond commenced reorganization proceedings under Chapter 11 of the Bankruptcy Code, and in July 2023, Diamond commenced litigation against Sinclair, Bally’s and others as part of its bankruptcy proceedings. Subsequent to December 31, 2023, Diamond agreed to settle its claims against all defendants, including Bally’s. Pursuant to the settlement terms, Diamond would receive payments from Sinclair and would reject the Commercial Agreement. Bally’s would continue to have naming rights on Diamond’s RSNs through the 2024 major league baseball season at no cost to either party (unless Diamond agrees with a new counterparty that will pay for such naming rights). Bally’s, in turn, would receive a release of all claims Diamond may have against it. Separately, Bally’s and Sinclair agreed that their relative rights and obligations under the Framework Agreement and all agreements contemplated thereby would terminate, except for rights and obligations in respect of certain local broadcast television station integrations under the Commercial Agreement, and except for their respective rights and obligations under the Option Agreement (regarding the Options referenced below), the Warrant Agreement (regarding the Penny Warrants referenced below), the Performance Warrant Agreement (regarding the Performance Warrants referenced below), the Registration Rights Agreement, the Investor Rights Agreement and the Tax Receivable Agreement. Bally’s obligation to pay Diamond for the naming rights terminated upon the bankruptcy court’s approval of the settlement terms, which the court approved on March 1, 2024. Refer to Note 22 “Commitments and Contingencies” for further information.

The Company accounted for this relationship as an asset acquisition in accordance with the “Acquisition of Assets Rather Than a Business” subsections of ASC 805-50, Business Combinations—Related Issues, using a cost accumulation model. The total intangible asset (“Commercial rights intangible asset”) represents the present value of the naming rights fees and other consideration, including the fair value of the warrants and options, and an estimate of the tax-sharing payments, each explained below. The Commercial rights intangible asset, net of accumulated amortization, was $225.9 million and $255.6 million as of December 31, 2023 and 2022, respectively. Amortization was $30.9 million, $33.3 million and $25.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Refer to Note 10 “Goodwill and Intangible Assets” for further information.

The present value of the naming rights fees was recorded as part of intangible assets, with a corresponding liability, which accreted through interest expense through the termination date of the Commercial Agreement. The total value of the liability as of December 31, 2023 and 2022 was $57.7 million and $59.3 million, respectively. The short-term portion of the liability, which was $8.0 million and $6.0 million as of December 31, 2023 and 2022, respectively, is recorded within “Accrued liabilities” and the long-term portion of the liability, which was $49.7 million and $53.3 million as of December 31 2023 and 2022, respectively, is reflected as “Commercial rights liability” in our consolidated balance sheets. Accretion expense reported in “Interest expense, net” in our consolidated statements of operations was $4.4 million, $4.4 million and $4.3 million for years ended December 31, 2023, 2022 and 2021.

Under the Framework Agreement, the Company issued to Sinclair (i) an immediately exercisable warrant to purchase up to 4,915,726 shares of the Company at an exercise price of $0.01 per share (“the Penny Warrants”), (ii) a warrant to purchase up to a maximum of 3,279,337 additional shares of the Company at a price of $0.01 per share subject to the achievement of various performance metrics (the “Performance Warrants”), and (iii) an option to purchase up to 1,639,669 additional shares in four tranches with purchase prices ranging from $30.00 to $45.00 per share, exercisable over a seven-year period beginning on the fourth anniversary of the November 18, 2020 closing (the “Options”). The exercise and purchase prices and the number of shares issuable upon exercise of the warrants and options are subject to customary anti-dilution adjustments.

The Penny Warrants and Options are equity classified instruments under ASC 815. The fair value of the Penny Warrants approximates the fair value of the underlying shares and was $150.4 million on November 18, 2020 at issuance, and was recorded to “Additional paid-in-capital” in the consolidated balance sheets, with an offset to the Commercial rights intangible asset. The Company recorded $59.7 million, related to the Options, as of December 31, 2023 and 2022, and is included within “Additional paid-in capital” in the consolidated balance sheets.

The Performance Warrants are accounted for as a derivative liability because the underlying performance metrics represent an adjustment to the settlement amount that is not indexed to the Company’s own stock and thus equity classification is precluded under ASC 815. Refer to Note 12 “Fair Value Measurements” for further information.

Under the Framework Agreement, the Company is required to share 60% of the tax benefit it realizes from the Penny Warrants, Options, Performance Warrants and other related payments. Changes in the estimate of the tax benefit to be realized and tax rates in effect at the time, among other changes, was treated as an adjustment to the intangible asset. The liability for these obligations was $19.1 million and $19.4 million as of December 31, 2023 and 2022, respectively, and is reflected in our consolidated balance sheets. The change in value of the liability is included in “Other non-operating expenses, net” in our consolidated statements of operations.