After two days of acrimonious hearings that intensely showcased the vitriol existing between Major League Baseball and the regional sports networks subsidiary that partners with nearly half its teams, a Texas bankruptcy court judge on Thursday sided with baseball.
Sinclair subsidiary Diamond Sports Group must pay the full rate stipulated by its local TV rights contracts with the Arizona Diamondbacks, Cleveland Guardians, Minnesota Twins and Texas Rangers. Otherwise, the MLB teams are free to exit their Bally Sports regional cable channel deals and present their games under a new arrangement established by the league.
Diamond has more than $9 billion in debt and is losing money on a number of the 42 NBA, NHL and MLB teams contracted within the Bally Sports portfolio of regional sports networks.
The subsidiary entered bankruptcy restructuring in March, aiming to reset those money-losing deals to a “market rate,” commensurate with the diminished pay TV economics associated with recent severe cord-cutting. Diamond also wants the teams to relinquish their direct-to-consumer streaming rights so that additional revenue could be generated via OTT service Bally Sports Plus. MLB is staunchly against this.
Judge Chris Lopez sided with the MLB — a deal is a deal.
“Profitability is certainly decreasing for each team,” Lopez said. “But again, this doesn't mean that the contract rate and those fees under those contracts is not reasonable."
Diamond had been paying the four MLB teams, per court order, 50%-75% of what it owes them so far for the 2023 baseball season, pending a hoped-for reset of the deals.
Now, Diamond has to pay the full contract rate to each team. If it doesn't, the teams are free to follow the model established earlier this week by the San Diego Padres.
The 20-year, $1.2 billion deal between the Padres and Diamond was also a money-loser for the subsidiary. But unlike the four aforementioned MLB franchises, the Padres owned part of Bally Sports San Diego. And since the court’s jurisdiction doesn’t extend to joint ventures, the team was able to move quickly and establish its own distribution with MLB on Tuesday, when Diamond announced it would no longer pay the club for TV rights.
Notably, Judge Lopez called Thursday's decision “difficult,” and he didn't set a deadline for Diamond to decide whether or not to pay the clubs. He also urged MLB and Diamond to continue to negotiate, despite the obvious acrimony frequently on display during 20 hours of testimony on Wednesday and Thursday.
MLB’s argument was enhanced by revelations that it promised the 14 MLB clubs in the Bally Sports portfolio (now 13 with the loss of the Padres) that they'd generate at least 80% of the revenue they were expecting in 2023. MLB said it was willing to backstop this promise.
MLB commissioner Rob Manfred, who revealed once again during testimony that he is no fan of Sinclair and its executive chairman, David Smith, also said that the league had bid against Sinclair for the Fox Sports Networks channels that became Bally Sports, only to lose out by a margin of around $900 million.
“MLB appreciates the ruling from the federal bankruptcy court in Houston requiring Diamond to pay the full contractual rate to clubs,” the league said in a statement. “As always, we hope Diamond will continue to broadcast games and meet its contractual obligations to clubs. As with the Padres, MLB will stand ready to make games available to fans if Diamond fails to meet its obligations.”
