Sinclair Broadcast Group’s regional sports networks division, Diamond Sports Group, has officially missed the deadline for a $30.8 million TV rights payment to Major League Baseball's Arizona Diamondbacks, signaling that the restructuring plan Diamond entered into bankruptcy with earlier this week has more than a few outs to get before it retires the side.
For now, with the Diamondbacks set to open their 2023 regular season on the road against the Los Angeles Dodgers on March 30, it appears there will be no disruption to Diamond’s Bally Sports Arizona channel carrying the games.
MLB commissioner Rob Manfred has said he's willing to step in and terminate rights deals for teams that Diamond hasn’t paid, and stream games to fans on the baseball’s dime. But it's unclear as to how much say the Texas federal bankruptcy court will have over those kinds of decisions.
A lot is about to be decided, and it does appear that Diamond will default on other clubs.
Diamond’s 19 Bally Sports RSNs are losing money on a significant number of the 52 MLB, National Basketball Association and National Hockey League teams carried by the channels. However, the Diamondbacks are said to be one of four MLB teams on which Diamond is losing a lot of money. The others are the Cincinnati Reds, the Cleveland Guardians and the San Diego Padres.
Diamond reportedly still hasn't rendered its payment to the Padres, although, unlike its situation with Arizona, it’s still within the grace period on that bill.
This mess all started in 2019, when Sinclair Broadcast Group paid $10.6 billion to acquire 19 Fox Sports regional channels, which were generating average profit margins of 50% or more at the time. Four years before it sold its RSNs, Fox signed the Diamondbacks to a 20-year TV rights deal valued at $1.5 billion.
After four years of relentless cord-cutting, and abandonment by key pay TV partners including Dish Network, Sinclair and Diamond are making margins of only around 15% on their RSNs, with some losing dough outright for teams like the Padres, Cincinnati Reds, Cleveland Guardians and Diamondbacks.
At one point, Sinclair had plenty of cash on hand to keep making rights payments and squeaking by on lower margins, but it burned up a lot of cash conducting two stock buybacks that burnished the compensation of its senior executives.
So it wasn't just market conditions that caused this potential failure, which has undermined investor confidence in the whole Pro Sports Industrial Complex.
In any event, Sinclair and Diamond have now put the whole enterprise into bankruptcy court, with a plan seemingly worked out with creditors to exchange equity for around $8 billion in debt relief.
But as the issue with the Diamondbacks reveals, Diamond still has a long road to walk with its team and league partners to get to the other debt-free side.
Notable was a bankruptcy court hearing on Thursday, covered by Reuters, during which Diamond accused MLB of pushing it into bankruptcy by refusing to insist that all 14 MLB teams under the Bally Sports umbrella participate in Diamond’s Bally Sports Plus direct-to-consumer streaming play.
To date, only four MLB teams are participating in Bally Sports Plus, which Sinclair had told investors might bridge the revenue gap from lost pay TV distribution in the RSN business. So far, it hasn’t come close to doing that.
Diamond accused the league of trying to start its own DTC operation and push Bally Sports out of the market.
“The [MLB] commissioner’s office has made it clear that they want to take back the rights and go it alone, which will effectively drive us out of the market if they are successful,” Diamond attorney Andrew Goldman told Bankruptcy Judge Christopher Lopez.
MLB lawyer James Bromley responded that Diamond can't force MLB into a DTC service just to make up for the failing pay TV/RSN model.
“We're dealing with a broken model, and it’s not the responsibility of the MLB to fix that model,” Bromley said. ▪️
