Suns/Mercury Move From RSN To DTC Service Voided By Bankruptcy Judge

A Federal Bankruptcy Judge in Texas on Wednesday issued a ruling which put a halt to the NBA’s Phoenix Suns and The WNBA’s Mercury plans to abandon Regional Sports Network (RSN) Bally Sports Arizona (a subsidiary of Diamond Arizona) as its media partner. They had planned to sell next season’s local rights to Gray Television
GTN
while starting a Suns/Mercury branded Direct-to-Consumer (DTC Service).

Texas Judge Christopher Lopez ruled that the Phoenix Suns must first try to negotiate a new deal with Diamond, although he did note that the new deal that the Suns signed with Gray violated the rights of its current broadcast partner Diamond Sports Group.

Judge Lopez ruled that the Sun’s new deal was void because it interfered with Diamond Sports’ contractual right to negotiate a contract extension. He did not rule on Diamond Sports Group’s request for monetary damages, but left the door open to do so at a later date.

This comes as no surprise. The Judge in this case has repeatedly asked the two sides to try and work out a deal between themselves on a number of other issues. However, this will be a tough one as negotiations in the past haven’t been successful.

The Diamond Sports Group Chapter 11 bankruptcy is the result of poor economics in general for RSNs and many teams being unwilling to take a major haircut on their rights fees, causing the teams to search for alternate solutions (although it’s estimated the deal with Gray was significantly lower than the one that they had with Diamond).

Diamond previously filed suit against the NBA and WNBA teams as well as suing Gray Television (which the Suns/Mercury sold the TV rights to) and Kiswe Mobile Inc. (a streaming service which had been hired to develop a Suns/Mercury direct-to-consumer (DTC) app) for tortious interference.

Diamond Sports Group, a division of Sinclair Broadcast Group
SBGI
, had asked the Bankruptcy Court for an Emergency stay. “The Sun’s failure to comply with their contractual duties, and Diamond Arizona’s potential loss of approximately 70 games of NBA content provided by the Suns each season, puts Diamond Arizona’s business at significant peril, thereby threatening its ability to reorganize,” Diamond stated in its emergence motion for stay.

“The Suns deliberate disregard of its contractual duties to Diamond Arizona is specifically the type of action the automatic stay is meant to protect against,” Diamond wrote, referring to the freezing of all contracts and pending litigation which kicks in when a company files for Chapter 11 Bankruptcy. This argument was successful.

In this case, there are some murky issues because the Suns contract ran out after the last season. However, because of the automatic stay of the contract, it gives Diamond the first right of refusal. Diamond technically has the right to spoil the deal if Diamond were to offer a competitive bid (something it is trying to avoid because of the bankruptcy proceedings).

The Judge appears to agree with the argument that Diamond Arizona was provided written notice of the deal with Gray and Kiswe Mobile, but it didn’t have enough time to evaluate the offer. “Diamond Arizona was given barely any notice at all, let alone an opportunity to evaluate or accept Gray and Kiswe’s Replacement Offer, as required, before the Suns, Gray and Kiswe announced the Replacement Agreement with the Suns, in clear disregard of the Agreement,” Diamond wrote in the emergency stay order.

Despite the adversary ruling in the Suns/Mercury case, It’s likely that more teams will sell their rights to local TV stations and/or go DTC. The NHL’s Vegas Golden Nights, for instance announced on May 5 it will bail from AT&T SportsNet, which may be going dark. Scripps announced it will broadcast the games on its local TV station channel 34, which currently airs programming from Ion.

The Suns ratings on Bally Sports Arizona were up 29% versus the prior season according to Nielsen, so the departure of the team would be a devastating blow to the RSN, which generated almost $120 million in revenue in 2022 although cash flow was negative.