Bally Sports Defaults On MLB Payments, Bankruptcy Court Orders 50% Payment

Bally Sports, a group of Regional Sports Networks owned by Sinclair Broadcast Group
SBGI
and operated by the Diamond Sports Group has defaulted on previously agreed to payments with five Major League Baseball teams. Bally Sports had listed these teams as among the least profitable (a.k.a. “money losers”) ball clubs. Despite not making their scheduled payments, Bally Sports continues to televise their games.

In response, MLB has filed an emergency court motion on behalf of the teams impacted, demanding for payment or their contractual agreements be nullified. Diamond Sports had filed for Chapter 11 bankruptcy protection for their 19 RSNs on March 15. In total, Bally Sports televises the games of 14 MLB clubs.

The five teams impacted are the Cleveland Guardians, Minnesota Twins, Arizona Diamondbacks, Texas Rangers and Cincinnati Reds. The Reds are not part of the MLB lawsuit. Other teams can join the lawsuit if Bally Sports misses their scheduled payments.

According to The Athletic, MLB filed an emergency court motion saying, “The debtor RSNs made this decision even though they continue to use the clubs’ valuable intellectual property every day. By continuing to broadcast Guardians and Twins games, they generate post-petition revenue, yet boldly refuse to pay the clubs.”

The MLB adds, “What is extraordinary is that the Debtor RSNs now, for the first time … allege that they have some ‘right’ to pay less than the contract rate for those games. This is not the law.” In the motion, the MLB noted clubs are ready to take over broadcasting the games if need be or seek an alternative broadcast partner.

Diamond Sports has recognized they have defaulted on their payments to MLB teams. They argue bankruptcy laws enable them to restructure their financial agreements based on the valuation of the current market. The continued prevalence of cord cutting has had an impact on its revenue. RSNs command among the highest subscriber fees in the cable TV industry.

Jeremy VanEtten, Director, at Gavin/Solmonese notes, “In this case, Diamond is trying to have it ‘both ways.’ They want to enjoy the benefits of their contract without having to perform on the contract after filing. Whether the contracts are ultimately renegotiated or transferred to a third party is a separate matter. A Debtor, although they enjoy many protections and benefits, cannot expect their vendors and counterparties to continue to provide services without pay.”

VanEtten continues, “The bankruptcy code is designed to encourage parties in interest to be part of the process and has provisions to protect companies from this type of scenario. In my opinion, Diamond should and will begin paying and perhaps what they are trying to do here is get an early reduction in costs If the contracts are lost now, they lose the ability to renegotiate or assign the contracts down the road which would be a significant loss on this incredibly valuable asset.”

Sportico reported on April 19, U.S. Bankruptcy Judge Christopher Lopez had ordered Diamond Sports to pay Arizona Diamondbacks, Cleveland Guardians, Minnesota Twins and Texas Rangers half of what they are owed in rights fees, with the balance to be determined later. The order is an interim measure and may be altered in upcoming hearings. Judge Lopez has encouraged MLB and Bally Sports to “come up with a number or percentage” to address the payment debate. The next hearing is set for May 10.

Minnesota Twins and Cleveland Guardians: Bally Sports North and Bally Sports Great Lakes both defaulted on a fee payment to the Minnesota Twins and Cleveland Guardians respectively that were scheduled for April 1.

The Cleveland Plain Dealer reported in 2022, the Cleveland Guardians revenue was $267 million. Another source reported the Guardians are paid $55 million annually (20% of total revenue) by Bally Sports Great Lakes.

The Minnesota Twins receive $42 million annually in fees from Bally Sports North. The RSN has announced they plan on televising 153 Minnesota Twins games this season. The Twins agreement with Bally Sports expires at the conclusion of the 2023 season.

Arizona Diamondbacks: On March 17 it was reported Bally Sports had missed a $30.8 million payment due the Arizona Diamondbacks. The Diamondbacks filed a separate a motion seeking full pay or termination. One reason Diamond Sports selected Arizona for non-payment was in 2022 the Diamondbacks had the second lowest rated TV ratings of Bally 14 RSN’s (only Miami was lower).

Sportico reports Arizona’s legacy rights fees account for Diamond Sports fourth priciest contract, with annual payouts of $68 million. The club said Diamond Sports is “forcing the Diamondbacks to fund [its] business.” The Diamondbacks are also a part of the emergency court motion demanding Bally Sports make their payments.

Texas Rangers: On April 18, the Texas Rangers did not receive a scheduled payment due from Bally Sports. As a result, the ballclub and MLB filed a motion to the Texas bankruptcy court that oversees Bally Sports financial difficulties. The Athletic estimates the Rangers’ annual rights fees to be $111 million. One day after Diamond Sports filed for bankruptcy the Rangers had agreed to a 30-day standstill agreement.

According to reports, in the court filing the Texas Rangers wrote, “That ‘there ain’t no such thing as a free lunch’ is a well-recognized, simple, but axiomatic economic principle. Everyone understands it — everyone, apparently, except the debtors [Diamond]. Here, they are getting lunch — using the right to create content based on the Rangers’ baseball games, and in turn selling that content to distributors — but without paying for it.” Adding, “The Rangers now join the growing list of MLB teams being held hostage by the debtors.”.

Cincinnati Reds: On April 17 the Diamond Sports notified the Cincinnati Reds they would miss a scheduled payment. Since the Reds have an equity stake in Bally Sports Ohio, they will not be a part of the bankruptcy hearings of the other MLB teams. (San Diego Padres, Los Angeles Angels, Kansas City Royals, St. Louis Cardinals and Miami Marlins also have part ownership of their respective Bally RSN.)

Diamond Sports has a 15-day grace period without a penalty, if the RSN fails to make the payment, MLB could take over beginning on Saturday May 6 when Cincinnati will play the Chicago White Sox. (The May 5 game will be streamed on Apple TV+.) Last season Reds games ranked among the lowest rated games. The Reds receive a reported $48 million a year from Bally Sports Ohio.

In the event of a Bally Sports forfeiture, Sports Business Journal reports MLB could distribute the games. The league has a “handshake agreement” with Spectrum Cable and DirecTV, the two largest distributors in the market. The games would not be seen on Bally Sports Ohio but could be televised locally on MLB’s cable network. The Reds announcers, including Hall of Famer Barry Larkin, would continue in their roles.

The San Diego Padres which lose $20 million annually was a club Diamond Sports was also expected to default payments on. With significant investments with players (the club has the third highest MLB payroll (behind the New York Mets and New York Yankees), the club is expected to contend this year boosting ratings and revenue. The Padres advanced to the NLCS last season.

Several other clubs including the Detroit Tigers, Milwaukee Brewers and Tampa Bay Rays have reserved the right to join MLBs motion if Diamond Sports defaults on future payments.