Sinclair subsidiary Diamond Sports Group has already used federal bankruptcy protection to walk away from one Major League Baseball team, the San Diego Padres, with which it has a money-losing distribution deal.
And it’s looking more and more like Diamond will banish more MLB teams from its Bally Sports portfolio of regional sports networks.
But a hard deadline approaches: According to recent bankruptcy court filings, Diamond has until Thursday to either pay the Texas Rangers for 2023 local TV rights or cut the team loose from its Bally Sports contract.
Diamond has payments to three other MLB teams due on July 1.
This time, there doesn't appear to be any grace period.
Last week, Diamond's lawyers asked the U.S. Bankruptcy Court for the Southern District of Texas in Houston, which is overseeing its restructuring, to clarify what happens to money it has already paid MLB clubs should it decide to tear up their contracts. Since payments are made for games that are in the future, Diamond doesn’t want end up paying for rights it doesn’t use.
Reads a Diamond motion filed on June 7: “For example, if the Debtors were to make a telecast rights fee payment to a Club on July 1, 2023 that covers the remainder of the MLB season, and the Debtors were to subsequently reject the Agreement with that Club effective as of August 1, 2023 and cease broadcasting that Club’s games (when the season otherwise goes through the middle of September), that particular Club would have received more in payment than it is entitled to as an administrative expense claim.”
Diamond added, ”As the Debtors previewed at the Hearing, and as the Court recognized, the Debtors are in the process of determining whether to assume or reject one or more of the Agreements.“
U.S. Bankruptcy Judge Chris Lopez rejected that motion, saying he’ll clarify any reimbursements when Diamond files to reject the contracts.
A little necessary backstory here: Diamond, the subsidiary set to manage Sinclair’s 19 Bally Sports-branded local sports cable channels, entered bankruptcy in March, aiming to shed $8 billion in debt by swapping equity with creditors and renegotiating deals gone bad among its 42 MLB, NBA and NHL team partners.
Diamond not only wanted the Padres, for example, to take less than the $1.2 billion over 20 years it agreed to pay for TV rights, it wanted the club to surrender its direct-to-consumer streaming rights to subscription service Bally Sports Plus.
Backed by MLB, the Padres demurred. And since the club owned part of Bally Sports San Diego, it fell under different bankruptcy court guidelines. Diamond simply walked away from the Padres, and the club, working with MLB, established a new pay TV channel.
Diamond had been waiting for the court to restructure deals on four MLB teams that were under court jurisdiction — the Arizona Diamondbacks, Cleveland Guardians, Minnesota Twins and Texas Rangers — before rendering them complete payments for the ongoing 2023 season.
On June 2, after acrimonious testimony between Diamond and MLB Commissioner Rob Manfred, Lopez sided with an MLB motion and ordered Diamond to get up to date in full with those four teams, per existing contracts.
Speculation since then is Diamond will soon tear up its contracts with all or some of those teams. And the subsidiary’s motion seems to confirm that it’s thinking about doing just that.
