DETROIT — It's a crisis, to be sure. But the sky's not falling. At least, not yet.
That's the biggest takeaway from the Bally Sports kerfuffle, with the regional-sports network's parent company, Diamond Sports Group, officially filing for Chapter 11 bankruptcy protection earlier this week. The move has been a long time coming, as Diamond — which owns 19 RSNs, covering 42 teams, including the Detroit Tigers, Red Wings and Pistons — looks to clear its balance sheet of $8 billion in debt amid a challenging industry, set in motion by several years of sports fans' evolving viewing habits.
In the short term, as Diamond looks to get creditors to agree to swap much of what they're owed in exchange for company equity, very little should change for sports fans. Diamond has promised it will be business as usual for fans of the NBA and NHL, whose seasons are winding down, and Major League Baseball, which, with opening day looming, has assured it's ready to step in and stream games should Diamond not be able to continue.
Long term, though, the situation appears much stickier, depending on whether Diamond actually can turn things around — once its ledger is clean, and it's not beholden to massive interest payments, like the $140 million behemoth it skipped last month, signaling bankruptcy was coming.
Several Diamond entities filed for bankruptcy in federal court in Texas on Tuesday, including Diamond Sports Net Detroit, or Bally Sports Detroit, which broadcasts more than 300 Tigers, Red Wings and Pistons games a year. Diamond's total rights-fee bill to the three Detroit times never has been made public, but it almost certainly exceeds $100 million — payments that are in great danger of not being disbursed, or at least being greatly reduced, as Diamond goes through this bankruptcy process. The payments are important to the teams, to be sure, but missing that money in the short term also isn't going to break the franchises, each of which are worth more than $1 billion.
There understandably are a lot of questions regarding the future of Diamond's RSNs, and not as many concrete answers — but we'll attempt to answer some as best we can, despite a dearth of on-the-record commentary from the principals, including the Tigers, Red Wings, Pistons and Bally Sports Detroit, all of whom have declined to comment.
How did all this start?
In 2019, after the Walt Disney Co. purchased 20th Century Fox, it was forced to sell off the 21 RSNs, an edict from the U.S. Justice Department, to avoid monopoly issues (Disney owns ESPN). Disney found a buyer in the Sinclair Broadcast Group for nearly $10 billion, and Sinclair created the Diamond Sports Group. As part of the purchase, Sinclair took on about $8 billion in debt, figuring it was a risk worth taking, given the financial success of Fox's RSNs.
So, what happened?
Two key factors. The biggest issue is cable cord-cutting. Ten years ago, 100 million households had cable subscriptions; that number is less than 70 million today. That created significantly less revenue for networks, especially RSNs — who rely heavily on locked-in payments from each cable bill — right around the same time when rights fees for pro teams was skyrocketing, a double-whammy. (The Tigers get more than $50 million a year under their latest deal, signed in 2021, and Diamond owes all of its MLB teams nearly $1 billion for 2023). The Diamond RSNs also don't have strong leverage in setting their price with cable companies, like Fox Sports did. Fox Sports had the power of its parent network, plus the popular Fox News Channel and other entities, in its corner as negotiating power, and it worked. Cable companies can much easier tell Diamond, without a mega portfolio, to take it or leave it, and leaving it hasn't been the best option, when Diamond has failed to find a strong foothold with streaming services, including its own, which launched in five markets, including Detroit, in 2022.
What's the other big issue?
Advertising dollars. RSNs pay rights fees to the pro sports teams, and in turn the RSNs get to keep all the cable fees and advertising dollars. This was a big boon for Fox Sports Detroit when the Tigers were rolling. After they made the World Series in surprising fashion in 2006, setting off arguably the longest stretch of sustained success in franchise history, the ratings were through the roof — and ad dollars were flooding in so feverishly, at one point the Tigers pushed back their start times by a few minutes just so Fox Sports Detroit could squeeze in a few more ads. Common sense (and decades of working in the newspaper industry, as the print product has been decimated in favor of the web), tells us that with significantly fewer subscriptions, there is a significantly smaller audience, and with so many fewer eyeballs, RSNs can't charge what they used to for ads. If they try to, they won't sell any.
Why would creditors accept equity?
Simple. As Mark Cuban — owner of the NBA's Dallas Mavericks, whose games are broadcast by a Diamond RSN — likes to say on "Shark Tank," 10% of a watermelon is better than 100% of a grape. In other words, something is better than nothing, which is what creditors — there are dozens of them, the biggest being U.S. Bank, which is owed nearly $2 billion — stand to gain if they don't work with Diamond. If creditors accept equity the clean balance sheet post-bankruptcy allows Diamond to eventually some stable footing, those stakes aren't likely to be worth what they're currently owed, but the losses can be greatly lessened. If Diamond fails, it becomes the grape; and if it succeeds, it becomes the watermelon.
Would all creditors be offered equity?
Not necessarily. And, really, not likely. What Chapter 11 bankruptcy allows a distressed company to do, essentially, is continue working with its good contracts, and cut ties with its bad contract, or the dogs, if you will. It's similar to what the auto companies did when they went through bankruptcy — they streamlined their products, keeping the good lines, and ditching the dogs. In Diamond's case, the dogs, at least with MLB, appear to be the Arizona Diamondbacks, San Diego Padres, Cleveland Guardians and Cincinnati Reds. Diamond has indicated it won't pay rights fees to the Diamondbacks, and it wants to renegotiate with the Padres, Guardians and Reds.
What's the best possible outcome here?
Easy. Diamond succeeding. And that's a monumental task — one indicator being Warner Brothers Company, which is bailing on its RSNs that broadcast the Pittsburgh Pirates, Houston Astros and Colorado Rockies. MLB, of the three leagues impacted by the Diamond bankruptcy, appears best positioned to handle the situation, should Diamond drown. It has the infrastructure in place for streaming and traditional broadcast, and some healthy revenues, though not what they had before COVID. MLB has hired broadcast industry veterans in anticipation of taking over the broadcasts of several MLB teams, potentially for free at first, and without blackouts. But the money distributed to teams wouldn't figure to come close to the rights fees they're used to, as MLB builds a streaming subscription base — that's a tediously slow process, and also often is at the whim of teams' success. For instance, Detroit's teams all are down right now, which wouldn't lend itself to the best a-la-carte model. If there's a new season of "Ted Lasso," that'll earn Apple TV a spike in subscriptions, but how many hang on for the whole year, versus just to binge?
If MLB takes over, what will that look like?
Tough to say, for sure. MLB has indicated it will keep the broadcasters in place, and much of the production crew, though the latter could be cut down — if MLB wants to save money (what do you think?), it could use one crew, and one set of cameras for both broadcasts, home and away. That would certainly diminish the quality of the broadcast, taking away some of the "home" vibe for the target audience. There's also the question whether MLB would fund pregame and postgame shows, which aren't cheap, or if it would simply broadcast the game and call it a night. And would MLB — and the other leagues, the NBA and NHL — stick to streaming, or find a second home on cable, and if they find a home on cable, would there be content 24 hours (replays, etc.), or would the channel go dark when games aren't being broadcast? Bally Sports Detroit is 24-7, and also airs high-school football and college hockey.
If the leagues take over the broadcasts, could they simulcast the TV and radio broadcasts?
That would save money, but that's tricky, given the deals the teams have with the radio stations are separate — and vastly different — than the deals they have with the TV networks. Theoretically, some deals could be worked out, but, again, you run into a quality issue. Radio broadcasts are so different than TV broadcasts, or at least they should be. Radio broadcasts need more talk, an announcer to paint a picture — like Ernie Harwell did so well. TV broadcasts, the picture tells most of the story, so you need less talk — or, at least, you should need less talk. It's like trying to fit a square peg into a round hole. You hammer hard enough, you could probably do it eventually, but what your left with won't look — or sound — great. Just ask the Toronto Blue Jays, who went to a simulcast broadcast in 2021, and were met with some angry fans. If you tick off Canadians, you've done something wrong.
Didn't Christopher Ilitch once want to start his own RSN?
Yes. In 2018, the Ilitch family expressed interest in getting into the broadcast game, as several big-time sports franchises have, including the New York Yankees, Chicago Cubs and Los Angeles Lakers. But there's been little said about it since, and when the Tigers and Red Wings reupped with Diamond in 2021, it was a strong indicator those plans were buried. What Ilitch found was the massive expense of starting a network, with no guarantees regarding cable companies (if cable companies can tell the Dodgers to take a hike, as they have for nearly a decade, they can tell anybody to take a hike). Now, one of Ilitch's greatest strengths has been his patience — where his late father, Mike, was more impulsive. Ilitch was patient in building Little Caesars Arena, and eventually got hundreds of millions from the city. He's been patient in building District Detroit, and it looks like he'll get another windfall from the city to finally make that happen. Will patience in the RSN game pay off, too? One possible outcome here, should Diamond struggle to get back on its feet, is Ilitch could be poised to acquire Bally Sports Detroit — with all its infrastructure already in place — for potentially a song, should Diamond have to sell off assets. If Diamond has to sell off, though, it'd have to be an open-bidding process, per Chapter 11 bankruptcy rules, so creditors could get maximum return.
So, what's the deal today?
For most fans (including Detroit's), nothing has changed. Chapter 11 allows Diamond to operate business as usual, including continuing to pay employees and broadcast games. Diamond has more than $400 million in cash to do just that. It's not broke, just broken.
