Sinclair and its bankrupt Diamond Sports Group unit reached a deal that could keep Diamond’s ailing Bally Sports regional networks alive beyond 2024.
Sinclair will initially give Diamond $495 million to settle their lawsuits. Sinclair expects to get more than $200 million of that back from a richer management service agreement, substantial tax benefits and receiving other assets.
Combined with a $115 million minority investment from Amazon, disclosed in the deal's term sheet, Diamond should be able to pay $350 million to senior creditors who wanted to liquidate Diamond after next year, emerge from bankruptcy and continue to run the RSNs as an independent company.
Amazon and its Amazon Channels store will become the primary place to access the Bally Sports Plus direct-to-consumer apps, bolstering its presence in the sports business.
Amazon has an option to invest another $50 million in the new company, according to the term sheet distributed by Diamond.
The regional sports business has been under pressure as cord-cutting has reduced the number of pay TV viewers, slicing distribution and advertising revenue.
Sinclair went heavily into debt when it paid $9.5 billion for 19 Fox regional sports networks. The seller was The Walt Disney Co., which acquired the RSNs when it bought 21st Century Fox, but was forced by regulators to shed them because it also owned ESPN.
Diamond was unable to pay both its creditors and the teams whose games it televised. It sought bankruptcy court protection in March and has been able to shed money-losing deals with some teams.
Diamond sued Sinclair, trying to claw back $1.5 billion in management fees it paid to the broadcaster as it was going under.
The new restructuring support agreement will end the rhubarb and enable Diamond to operate a hybrid business.
“Diamond was paying over $2 billion indeed to the leagues. The RSNs can’t generate enough revenue for the teams only being on cable,” one source familiar with the talks said. “They definitely can’t [by] going exclusively DTC. Diamond will be able to make money on cable, make money on DTC with streaming and put a number of games on broadcast, some on Sinclair stations.”
On top of that, the deal is important to Sinclair because preserving the RSNs is important to maintaining the cable bundle that generates millions in retransmission payments to Sinclair and other station groups.
“The RSNs are really one of the backbones of the cable package,” said a source familiar with the talks. “The RSNs shutting down would not have been good for anybody. This is good for the industry.”
Without the RSNs, cord-cutting would accelerate, leaving Sinclair’s stations with far fewer pay-TV subscribers.
The deal will have to be approved by the court.
"We are thrilled to have reached a comprehensive restructuring agreement that provides a detailed framework for a reorganization plan and substantial new financing that will enable Diamond to operate and thrive beyond 2024," Diamond CEO David Preschlack said.
“We are grateful for the support from Amazon and a group of our largest creditors who clearly believe in the value-creating potential of this business,“ Preschlack said. “Diamond’s near-term focus will be on implementing the RSA and emerging from bankruptcy as a going concern for the benefit of our investors, our employees, our team, league and distribution partners, and the millions of fans who will continue to enjoy our broadcasts.”
A new deal will have to be worked out between Sinclair and Bally and new, long-term deals will have to be reached with pay-TV distributors, including Comcast, which currently carry the RSNs under short-term deals.
The National Basketball Association and the National Hockey League gave Diamond one-year deals with reduced rights fees in order to stay on the air in the short-term, but are open to longer-term deals, according to a source.
Some NBA and NHL teams have already moved a handful of games to broadcast TV and others like the Phoenix Suns and the Las Vegas Golden Knights have moved all their games to broadcast.
Sinclair had a more adversarial relationship with Major League Baseball.
MLB commissioner Rob Manfred noisily balked at giving streaming rights to Sinclair and the RSNs. In bankruptcy, Diamond opted to reject its deal with several teams, including the San Diego Padres and Arizona Diamondbacks, because Diamond claimed it was losing money televising games.
Bally Sports currently has nine MLB teams under contract for the 2024 season, including the Los Angeles Angels, Atlanta Braves, Cincinnati Reds, St. Louis Cardinals, Detroit Tigers, Florida Marlins, Kansas City Royals, Milwaukee Brewers and Tampa Bay Rays. Those teams are expected will be paid the rates agreed to before the bankruptcy filing for the 2024 season. It is less clear what will happen to several other teams on Bally sports, including the Texas Rangers, the Cleveland Guardians and the Minnesota Twins.
Manfred also initially balked at Amazon’s attempt to get streaming rights to MLB teams by investing in Diamond, saying that if Amazon wanted those rights, it would have to negotiate with MLB, which has designs on creating its own streaming packages.
Also Read: MLB Hires Regional Sports Net Execs To Start Local Media Unit
Baseball would find it difficult to launch its own local streaming product because some of the most attractive teams have already done streaming deals including the New York Yankees (via YES Network), Boston Red Sox, Chicago Cubs and Los Angeles Dodgers, one observer noted. And Diamond will be retaining its rights to the Atlanta Braves.
Although Sinclair took the RSNs off its books last year, the bankruptcy and lawsuits created an issue that hung over the company. “This deal allows Sinclair to move forward,” an observer noted.
"Overall, the settlement does clear the decks for Sinclair to focus on Broadcast and Ventures, and refinancing debt,” Wells Fargo analyst Steven Cahall said.
"Diamond has been a dark cloud over Sinclair for years now,“ Cahall said. “While this marks the end to the legal liability, we think Sinclair’s broadcast retrans rates suffered from deals that include the RSNs historically. Sinclair is now trying to get those rates closer to market at a time when MVPDs are fighting back harder, and more broadcast content is moving to streaming (especially sports).”
Sources said Sinclair could get a piece of the RSN business if the deal fuels a recovery in the business.
Sinclair stock rose 17% to close at $16.05 a share Wednesday.
