On June 18, 2024, Houston bankruptcy judge Chris Lopez will decide if Diamond Sports Group has come up with the right restructuring plan to finally exit a Chapter 11 restructuring process that began in March of the previous year.
Diamond Sports Group, the bankrupt Sinclair Broadcast Group subsidiary that manages the Bally Sports regional channels, seemed almost certain to face liquidation as recently as early January.
But then its fortunes began to turn around.
In early February, Diamond filed three bankruptcy court motions, indicating that it had somehow, some way, through mediation, reached agreements with the Texas Rangers, Minnesota Twins and Cleveland Guardians to keep the team on its regional sports network through Major League Baseball's regular season.
With the NBA, NHL and MLB agreeing to stick around, and its estranged parent company, Sinclair, willing to settle bad blood, Diamond embarked on a series of successful renewal negotiations, shoring its core distribution business, securing multiyear deals with Charter Communications, DirecTV and Cox Communications.
On April 30, Diamond and its CEO, David Preschlack, found themselves one renewal away from completing perhaps the most stunning comeback in sports media history. Alas, Diamond could not reach an agreement with Comcast, once again putting the whole gambit in jeopardy.
This could be the end of RSNs as we know it Watershed moment in sports media history Major implications for NBA, NHL and MLB https://t.co/vnKMvxtkbuMay 1, 2024
So how did we get here? Next TV contributor Scott Lehane details Diamond's long, arduous journey.
Seemed Logical at the Time
In August 2019, Sinclair Broadcast Group acquired 21 Fox Regional Sports Networks (RSNs) from the Walt Disney Co., along with Fox College Sports. The purchase price was $9.6 billion, valuing the business at $10.6 billion. Byron Allen’s Allen Media Group also came on board as an equity partner. The current roster includes 17 Bally-branded RSNs, which are listed here along with a couple that have since folded.
The RSNs were absorbed into a newly created subsidiary, Diamond Sports Group, and the customer-facing offering was rebranded as Bally Sports in March 2021 as part of a 10-year deal with sportsbook and casino operator Bally’s.
Sinclair CEO Chris Ripley said at the time: “We are very excited about the transformational aspects the RSN acquisition will have on Sinclair and are eager to bring those opportunities to life ... We have an exciting future ahead of us.”
Indeed, the future looked bright back in those heady days before COVID-19, when major league sports were still almost exclusively on cable and it was generally understood throughout the video industry that holding live sports rights gave you a license to print money. Sports fans seemed willing to pay just about anything.
Fast-forward a few short years and Diamond Sports is on the verge of emerging, bruised and battered, from a 10-month bankruptcy proceeding that saw the company fight tooth and nail to salvage some kind of viable business model.
Things changed quickly. How did this happen?
The Short Story
Sinclair was in the right place, but at the wrong time. The acquisition came just as cord-cutting in the pay TV industry was hitting an inflection point and distributors were starting to balk at the exorbitant sports-driven price increases of the past.
The COVID-19 pandemic put a damper on sports viewership in general with canceled games, truncated seasons and games played in empty stadiums. Then inflation started eating into household budgets, further fueling cord-cutting. Rising interest rates made it harder to service Diamond’s $8.6 billion in debt. Meanwhile, streamers were starting to flex their financial muscle on the sports rights marketplace, driving up prices and expectations from the leagues themselves.
In the fall of 2021, Diamond Sports Group unveiled plans to expand its linear pay TV service into a direct-to-consumer streaming platform. And while the company was eventually able to score streaming rights deals with the NBA and NHL, MLB commissioner Rob Manfred balked at the proposal. “We’ve been very clear with them from the beginning that we see both those sets of rights as extraordinarily valuable to baseball, and we're not just going to throw them in to help Sinclair out,” he said.
In November 2021, Diamond Sports Group bonds tumbled on news that Sinclair Broadcast Group wasn’t even able to secure carriage rights for the RSNs as part of its broader retransmission deal with Dish.
It was a major blow to the group’s plans. According to Multichannel News at the time: “Sinclair had been counting on the Dish agreement to include the RSNs -- in earlier filings the broadcaster had appeared to include revenue from Dish as a portion of its overall projections for the linear networks.”
Playing the 'Plus' Game
In July 2022, the company finally launched its Bally Sports Plus direct-to-consumer streaming service in five markets where Bally Sports had managed to secure streaming rights from the local MLB teams.
For $19.99 a month, or $189.99 a year, the app enabled fans to watch games without subscribing to a multichannel pay-TV provider. The app is available on Roku, Amazon Fire TV and Android TV devices. It’s also supported on iOS and Android mobile.
In September 2022, Bally Sports Plus expanded to all 19 markets in the Bally Sports regional sports networks empire.
The national launch was timed to the NBA and NHL seasons, since Sinclair had national streaming rights deals with the pro basketball and hockey leagues allowing it to stream all eligible games for each team contracted under its RSN rights umbrella.
“Launching a streaming service like Bally Sports Plus across 19 different regions, all with unique content offerings, is an unprecedented undertaking,” said Michael Schneider, COO and GM of Bally Sports Plus.
Company execs pinned some high hopes on the DTC streaming service as the antidote to the accelerating quarterly decline in pay-TV subscribers.
In a November 2022 investor call, Sinclair CEO Chris Ripley reported that “We have seen encouraging demand for the service despite relatively low product awareness in the marketplace.”
He didn’t offer any subscriber numbers, but the company’s third quarter of 2022 was a blood bath. Diamond Sports reported a net loss of $1.2 billion, compared to a loss of $132 million in 2021. Revenue fell 10% to $684 million. Distribution revenues were down 11% to $565 million and ad revenues dropped 5% to $112 million.
On the call, Ripley was forced to shoot down persistent rumors that the company was considering unloading Diamond Sports in a fire sale.
He admitted that the company had retained advisors LionTree and Moelis & Co., but stressed that, “There’s no sale process, but they’re talking to parties about deleveraging, strategic partnerships and things of that nature.”
The only tally of Bally Sports Plus subscribers came last June, amid a vitriolic court exchange with MLB commissioner Rob Manfred when the company revealed that that its Bally Sports Plus streaming app only had 203,000 subscribers, 55% of the company’s goal, nine months after its national rollout.
The Next Chapter Goes to 11
It was soon clear that Diamond Sports Group was heading for bankruptcy. In January, Bloomberg was first to report that Diamond was preparing to skip its mid-February $140 million interest-only payment servicing around $8.6 billion in debt and pursue Chapter 11 restructuring instead.
And in February, the company carried through, missing an interest payment in order to preserve cash flow. Diamond then took advantage of a 30-day grace period to hold discussions with creditors “regarding strategic alternatives and deleveraging transactions to best position Diamond Sports Group for the future.”
Almost immediately, S&P Global Ratings downgraded Diamond Sports Group’s credit rating to D from CCC.
Diamond officially filed for chapter 11 protection in Texas on March 14, 2023. What followed was a lengthy series of legal maneuvers in front of Houston bankruptcy Judge Christopher Lopez overseeing the company’s restructuring.
Bankruptcy protections gave the company the ability to renegotiate some of its rights deals, shedding its less profitable contracts while holding on to others in an effort to salvage a viable business model.
This led to some acrimonious legal maneuverings, putting particular strain on the company’s relations with Major Leage Baseball (MLB) as most of the drama played out during baseball’s regular season.
Early on, Major League Baseball pledged support for any of its teams that Diamond stopped paying.
As 2023 spring training kicked off, Major League Baseball commissioner Rob Manfred spent most of his press conference fielding questions about the league’s contingencies for Diamond filing for chapter 11.
"We've been really clear that if Diamond doesn't pay, under every single one of the broadcast agreements, that creates a termination right, and our clubs will proceed to terminate those contracts," the commissioner said.
"In the event that MLB stepped in, what we would do is we would produce the games, we would make use of our asset, the MLB Network, to do that. We would go directly to distributors -- meaning Comcast, Charter, the big distributors -- and make an agreement to have those games distributed on cable networks," Manfred explained.
He also staked out a streaming claim for MLB.tv to give fans the option to buy an out-of-market package alongside in-market games, “which I see as a huge improvement for fans," Manfred said.
After Diamond missed payments to certain teams, Major League Baseball tried to get court approval to rip up several contracts, including deals with the Arizona Diamondbacks, Cleveland Guardians, Texas Rangers and Minnesota Twins. However, in April, the bankruptcy judge ruled that Diamond could pay half of what it owed each team, and still keep the clubs under the Bally Sports umbrella.
Lopez explained that he was adhering to restructuring norms, where debtors are ordered to “pay the uncontested and reserve for the disputed portion of it.”
In May, when Diamond Sports Group cut the San Diego Padres loose, MLB stepped in to provide Padres games through its MLB.TV app and helped set up a new cable channel for Padres fans in partnership with a number of local pay-TV providers, including DirecTV, Cox, Charter and vMVPD service Fubo.
As the bankruptcy restructuring dragged on, numerous other baseball teams, including the Cincinnati Reds, came close to breaking loose from their contracts and going it alone. But with an assist from the bankruptcy court, Diamond always managed to make its minimum payments at the last possible minute to keep them contractually bound.
The Reds were ready to break free from Bally Sports Ohio in early May. The team had even lined up a new linear channel on DirecTV and Charter Spectrum, but Diamond rendered payment on the last day of the grace period.
In early June, the Judge told Diamond to either pay the Arizona Diamondbacks, Cleveland Guardians, Texas Rangers and Minnesota Twins their full contracted rates, or cut them free.
Major League Baseball told the court that it would be happy to just tear up the contract for the Arizona Diamondbacks in order to set up a new channel to broadcast Diamondbacks games locally, in partnership with local pay-TV operators, much as the league did for the San Diego Padres.
In July, the Court allowed Diamond to drop the Arizona Diamondbacks, tearing up what Diamond called a “profitless, 20-year, $1.5 billion local TV rights marriage.” Major league baseball quicky set up a new cable channel that carried Diamondback games through the rest of the season.
At the time, DirecTV also petitioned the court asking to set aside its contract with the Bally Sports Arizona RSN, after losing the Diamondbacks, plus the NBA’s Phoenix Suns and the WNBA’s Phoenix Mercury who let their existing rights deals with Diamond expire in April and partnered with Gray TV to broadcast their games on local stations.
All that remained in terms of big-league contracts for Bally Sports Arizona was a deal with the NHL’s dessert hockey team, the Arizona Coyotes. When the RSN finally walked away from the Coyotes, local broadcaster E.W. Scripps pounced on the opportunity, snatching up 81 of their 82 regular season games for its KNXV Phoenix station.
A Long, Arduous Restructuring Process
As the restructuring process dragged on with little progress to show, the parties started venting their frustrations publicly.
In August, after the Judge granted Diamond’s first request for an extension of its bankruptcy protections, NHL lawyers warned the court that they may seek injunctive relief if a restructuring plan couldn’t be worked out soon.
At the end of September, Diamond asked for a second extension to its chapter 11 protections giving the company until Jan. 29 to solicit approval of the restructuring plan from its creditors.
DirecTV accused the company of squandering precious time and resources in a costly battle with Major League Baseball.
MLB opposed the extension saying, that Diamond had “made no progress toward reorganization and no progress in negotiations with their creditors.”
But at the time, the company was able to show that it had made at least one small step forward with short-term carriage renewal deals with Comcast and DirecTV to keep Bally Sports on the air for another year.
Dealing With an Estranged Parent
Sinclair’s relationship with its troubled corporate child spawned a dramatic little side show to the bankruptcy proceedings.
Since early 2022, Sinclair has been trying to nudge Diamond Sports Group out of the nest and get it off the corporate balance sheet.
In July 2022, Sinclair Broadcast Group brought in former Hulu and Fox executive Randy Freer to chair a new five-member board of managers to oversee Diamond Sports Group.
On its Q2 earnings report in August 2022, Sinclair separated its finances from Diamond’s.
In December of 2022, Diamond Sports Group tapped former NBC Sports Regional Networks president, David Preschlack, as its first CEO as part of a plan to make Diamond more independent.
In March 2023, shortly after seeking chapter 11 bankruptcy protection, former Universal TV exec and Sinclair-appointee Steve Rosenberg was ousted as Diamond Sports president as the group really started taking control of its own affairs and looking out for its own interests.
Then last Summer, Diamond filed an explosive lawsuit against its former corporate parent, Sinclair Broadcast Group, accusing the company of “milking” Diamond for more than $100 million annually in purported management fees and saddling the company with $1.5 billion in debt as part of its exit strategy.
Diamond also alleged that Sinclair had inappropriately paid back most of a $1.025 billion investment from JP Morgan Chase that helped the company acquire the Fox RSNs, while leaving other primary creditors waiting. The company also claimed that Sinclair was profiting from the $100 million naming rights deal with casino operator Bally's Corp.
Sinclair responded that it had held off billing the company for months in an effort to support Diamond’s liquidity. If Diamond didn’t want Sinclair’s management services, it was welcome to take its business elsewhere, but it was $140 million in arrears at the time.
In September, Sinclair Broadcast Group and JP Morgan asked the bankruptcy court to dismiss Diamond’s claims, saying that the allegations “present a series of ordinary business transactions and extraordinary efforts by Sinclair to support the Diamond enterprise, including in the face of a global pandemic and unprecedented business disruption."
Sinclair even offed to buy back Diamond Sports Group (for pennies on the dollar). As part of the $850 million offer, Diamond would drop it’s $1.5 billion suit against Sinclair.
In November, David Seligman, outside counsel for Sinclair Broadcast Group, testified before the Houston bankruptcy court, giving a grim assessment of his client's estranged subsidiary.
“To Sinclair folks who originally acquired Diamond, they’re kind of bummed … they’re bummed that this business that they put in a billion and a half of equity value in, is now going to be shut down,” Seligman said. “There’s going to be people losing their jobs … Diamond’s business is going to go away.”
An Unexpected Turnaround
It came as a bit of a surprise when things started turning around for the beleaguered Diamond Sports Group in November when it managed to carve out a deal to keep all 13 of the NBA teams on Bally Sports through the 2023-2024 season.
After this season, Diamond was supposed to relinquish linear regional-sports-network and direct-to-consumer rights early for all 13 teams, with the league taking full control.
In December, Diamond struck a similar deal with the NHL to keep the 11 clubs that were currently available via Bally Sports until the end of the regular season. The agreement allowed Diamond to reduce fees for certain clubs, but when the season ends in April, local TV and streaming rights will revert back to the league.
Finally, in December, the company hammered out a short-term deal with Major League Baseball. As part of the deal, nine of the teams will be paid their full contracted rates 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.
Not included in that deal were the Minnesota Twins, whose local TV rights deal with Diamond expired at the end of the 2023 regular season in October. The Twins are still considering their options, but the company has been searching for alternative local TV-rights arrangements to help offset the $55 million annual revenue stream that came from Bally Sports North.
But the Twins will have plenty of dance partners if they don’t end up coming back to Bally Sports. Throughout the process, local broadcasters have been circling ready to snatch up any crumbs that fell from the table.
In August news emerged that broadcast station group operators Nexstar, Scripps, Gray and even Sinclair were in conversation with the NBA and NHL about taking over their local TV deals.
Gray president and co-CEO Pat LaPlatney addressed the issue on the company’s second quarter earnings call, saying that the company was hoping to replicate what it done with the Phoenix Suns and Phoenix Mercury in other markets, with other teams and leagues.
“We see a growing recognition in the market that returning professional sports to local broadcast stations will increase marketing value, advertising sales revenues, fan engagement as well as team value,” he said.
While local sports might seem to be the perfect fit for local TV broadcasters who could really use a boost right now, Big Tech has also been waiting in the wings with boatloads of cash ready to “disrupt” the industry.
In August Bloomberg reported that Disney/ESPN, Apple, Amazon, Google and DirecTV had inquired about acquiring local TV contracts from National Basketball Association and National Hockey League teams.
But in the end, it was Amazon that clinched a deal.
Diamond’s Rehabilitation
In December, The Wall Street Journal first reported that Amazon was in talks about a multiyear investment and partnership with Diamond Sports.
The details of a plan to exit bankruptcy were finally revealed January 17. Amazon bought a stake in the company for $115 million and Sinclair Broadcast Group settled its outstanding suits with Diamond for $495 million, giving the RSNs substantial capital to go back out on the field having shed some of its least profitable operations and wiping out a fair bit of debt.
But Bloomberg reported that MLB execs were caught off guard by the announcement, calling it a “complete shock.” MLB’s bankruptcy attorney James Bromley said that the league needs time to digest the proposal “because Diamond is proposing to radically alter the way it does business with MLB and its clubs.”
Diamond's restructuring support agreement (RSA) was awaiting court approval at press time. As part of the deal, Bally Sports RSNs will now be funneled through Amazon Prime Video.
But what form it will take in the future is unclear. The big question is whether the leagues will stick around beyond the current season.
The “Cooperation Agreements” that Diamond struck with the NBA, NHL and MLB to make it out of bankruptcy protection were all short-term deals, set to expire at the end of the 2024 season. In exchange, the leagues accepted a reduced fee. It’s as though those agreements were designed to wind things down in an orderly fashion, giving the leagues time to plan for post-RSN future.
But Diamond lawyers threw a bit of a curveball into the mix when they argued in bankruptcy court that those cooperation agreements never actually took effect, so the teams are still on the hook for their original Bally Sports contracts.
In short, they want everything to go back to the way it was before this whole bankruptcy thing happened.
But everything changes with Amazon on board. Of course, to Amazon, $100 million is just chump change, but it gives them a compelling entry point into a local advertising pool that company execs have been eyeing as an underexploited growth area — a market that very much overlaps with traditional local TV advertisers.
A robust marketing push from Amazon might be enough to put Diamond back on solid footing, and just a little more Amazon pocket change could go a long way toward shoring up any lingering rights issues.
The big question is: How committed is Amazon to this? Maybe for Amazon, it’s just a strategic investment. Maybe it’s a segue into a new regional sports genre. Maybe Amazon has broader ambitions in the local sports market. Maybe they’ll end up swallowing Diamond Sports Group, or maybe they’ll just strip mine it.
And maybe … just maybe … With Amazon on the mound, local sports teams will be happy to let bygones be bygones and just play ball.
Watch this space. We’ll be updating with major developments.
