Diamond Sports Group, a struggling subsidiary of Sinclair Broadcast Group that owns regional sports networks, filed for a bankruptcy reorganization late Tuesday, burdened by more than $8 billion in debt.
The move, expected after Diamond chose to miss a debt payment last month, sent Sinclair’s stock tumbling, down more than 8% to $13.32 a share in afternoon trading on Wednesday.
Diamond said in an announcement Tuesday evening that it’s finalizing a “restructuring support” agreement with holders of a majority of the company’s debt and with Sinclair that will eliminate much of the outstanding debt.
It filed for Chapter 11 protection in U.S. Bankruptcy Court for the Southern District of Texas. Chapter 11 of the bankruptcy code allows companies to continue operating as they try to restructure their finances.
While it works through bankruptcy to restructure and strengthen its balance sheet, Diamond said it expects its 19 Bally Sports regional sports networks to continue broadcasting live sports in states such as Arizona, California, Florida, Michigan and Ohio. The company is the nation’s largest owner of cable TV sports channels that showcase more than half of all MLB, NHL and NBA teams.
Sinclair holds the rights to broadcast games for 14 MLB teams, nearly half in the league, including the Detroit Tigers, Kansas City Royals, Los Angeles Angels, Texas Rangers and others. The season starts March 30.
The restructuring agreement would allow Diamond to separate its business from Sinclair and become a standalone company. In Chapter 11, such a restructuring would require the agreement of Diamond’s creditors and the federal bankruptcy judge.
Diamond’s board of managers has been working with advisers and in coordination with creditors to “position the company for long-term success and has determined that the best path forward for the company and its stakeholders is to restructure through a Chapter 11 process,” Diamond’s CEO David Preschlack said in a statement.
Diamond said it has about $425 million cash on hand to fund its business and restructuring.
Sinclair, the nation’s largest owner of local television stations, had reported Nov. 28 that it took a large loss on the value of the regional sports networks for the second time since buying them in 2019 for $10.6 billion from The Walt Disney Co.
Diamond, the Sinclair subsidiary created to hold those networks, wrote off $1 billion of the rebranded 19 networks’ book value in the recent third quarter, when it reported a loss of $1.2 billion.
At the height of the coronavirus pandemic in 2020 after national sports leagues canceled games and cut seasons short, Sinclair took a $4.2 billion charge to goodwill and intangible assets related to the sports networks. Diamond also has operated in an environment in which viewers are increasingly turning to streaming services instead of paying for cable.
Under the restructuring agreement, Diamond’s’ secured and unsecured creditors will be offered equity and warrants issued by a reorganized Diamond. Sinclair is expected to continue to provide management services during the bankruptcy and to provide transition services for a period after Diamond emerges from Chapter 11.
“With the support of our creditors, we expect to execute a prompt and efficient reorganization and to emerge from the restructuring process as a stronger company,” Preschlack said in the announcement.
Experts have said the outcome of any restructuring would raise questions about the future of regional broadcasting rights revenue for the professional sports leagues.
Speaking to reporters last month at the start of spring training, MLB Commissioner Rob Manfred said the league was prepared in the event Diamond was unable to pay rights fees amid any restructuring.
“Obviously, we want all of our broadcast partners to be successful,” Manfred said according to ESPN. “We don’t want them to have financial difficulties, and we have been spending a lot of time and effort trying to work with them, figure out where they are.
”Obviously, our first choice would be that Diamond pay the clubs what they’re contractually obligated to pay them, but because I guess I’m a contingency planner by nature, we are prepared no matter what happens with respect to Diamond to make sure that games are available to fans in their local markets.”
Manfred added that games likely would be available via cable bundles and digitally on MLB platforms, but “that remains to be seen,” ESPN reported.
Preschlack said in Tuesday’s announcement that the company expects to work with its team and league partners throughout the process and beyond.
He said Diamond’s employees “remain focused on producing high quality sports games that our fans have come to expect.”
