Missing A Debt Payment, Diamond Sports Is On The Verge Of Bankruptcy; Upending Local Sports Revenue Model

The Diamond Sports Group, which runs Bally Sports, a group of Regional Sports Networks (RSNs) owned by Sinclair Broadcasting, is expected to file for bankruptcy. According to a number of reports, Diamond Sports missed a $140 million interest-only payment resulting in a Chapter 11 debt restructuring and a 30-day “grace period”.

If as expected Bally Sports files for bankruptcy it could impact Sinclair’s $55 billion sports-media rights business. On a larger scale, it could also upend a revenue model between local sports franchises, RSNs, cable systems, advertisers and viewers that first began nearly fifty years ago.

The RSNs had been owned by Fox and was part of Disney’s acquisition of various Fox assets. Since Disney owned ESPN, government regulators forced them to sell the RSNs. In an auction, Sinclair acquired the RSNs for $10.6 billion in 2019, a price far below the $20 billion originally expected by Disney. The interest on the debt is a result of Sinclair borrowing $8.6 billion to acquire 19 RSNs.

Short term the loss in broadcast dollars could hinder the revenue for a number of MLB, NBA and NHL franchises. S&P Global Ratings says Diamond Sports owes around $1.8 billion in rights fees to teams this year with an additional $600 million on the interest payments from its debt. At the moment Diamond Sports has a reported $585 million in cash.

The 19 Bally RSNs have the rights to 42 franchises across MLB, NBA and NHL, all benefiting from the lucrative and consistent broadcast revenue that RSNs have been providing for decades. With Diamond Sports filing for bankruptcy and looking to restructure its debt, a number of local sports franchises could find themselves in financial difficulties. Once in bankruptcy Diamond Sports could renegotiate some of the contracts resulting in a decline in payments or cancel the contractual agreement entirely, with the possibility local teams take back their media rights and potentially resell them.

The 42 professional sports franchises that could be financially impacted with Diamond Sports declaring bankruptcy:

MLB (14): Arizona Diamondbacks, Atlanta Braves, Cincinnati Reds, Cleveland Guardians, Detroit Tigers, Kansas City Royals, Los Angeles Angels, Miami Marlins, Milwaukee Brewers, Minnesota Twins, St. Louis Cardinals, San Diego Padres, Tampa Bay Rays, Texas Rangers

NBA (16): Atlanta Hawks, Charlotte Hornets, Cleveland Cavaliers, Dallas Mavericks, Detroit Pistons, Indiana Pacers, Los Angeles Clippers, Memphis Grizzlies, Miami Heat, Milwaukee Bucks, Minnesota Timberwolves, New Orleans Pelicans, Oklahoma City Thunder, Orlando Magic, Phoenix Suns, San Antonio Spurs

NHL (12): Anaheim Ducks, Arizona Coyotes, Carolina Hurricanes, Columbus Blue Jackets, Dallas Stars, Detroit Red Wings, Florida Panthers, Los Angeles Kings, Minnesota Wild, Nashville Predators, St. Louis Blues, Tampa Bay Lightning

MLB Commissioner Rob Manfred told the Associated Press if Diamond Sports is unable to air any games this season, they will take over the distribution via streaming and/or cable. This would enable fans to continue to watch local market games. Moreover, MLB recently announced the hiring of Billy Chambers, a former executive at Sinclair and Fox Sports as EVP, local media. In this new position, Chambers will be charged with finding the “most effective means to distribute games to fans in local markets throughout the country.”

Its estimated annual local broadcast revenue accounts for 21% of MLBs overall $10.8 billion. An estimated 90% of RSNs revenue comes from the monthly subscriber fees they charge MVPDs and vMVPDs. These carriage fees are among the highest in the cable industry. Because of its high carriage fees, at times, negotiations have reached an impasse resulting in RSNs being blacked out. Presently, Bally Sports has no carriage deals with DISH, Sling TV and YouTube TV among other distributors. Bally Sports current carriage agreement with Charter CommunicationsCHTR
is expiring on February 28.

Also, impacting the revenue of Bally Sports (and other RSNs) has been cord cutting. In the past ten years the number of cable subscribers nationwide have dropped from 103 million households to 66 million households resulting in revenue losses in carriage fees and ad dollars. Last November Diamond Sports said they had a third quarter loss of $1.2 billion and a 10% drop-off in subscribers over the first nine months of 2022. Additionally, in third quarter 2022, Diamond Sports reported a 5% decline in ad revenue to $112 million. Sinclair’s fourth quarter 2022 earnings report is scheduled for February 22.

To compete with cord cutting, last September Diamond Sports launched Bally+ a streaming service that allowed viewers to bypass cable and watch games directly for $20 a month or $190 per annum. (Diamond Sports had to negotiate the streaming rights with each team.) At the onset Bally+ was available in five RSN’s; Detroit, Florida, Kansas City, Wisconsin and Sun regions. Early feedback has been less than stellar with reports the app is prone to crashing, Also, it has not been generating the anticipated revenue. An à la carte package which would charge viewers to watch a particular game or the end of a game as a potential revenue source has been under consideration.

Last June NESN which televises the Boston Red Sox and Boston Bruins games became the first RSN to launch their own direct-to-consumer (DTC) streaming service called NESN 360. Available only in New England, subscribers can pay either $30 monthly or $330 annually to stream 220+ live games. The annual subscription came with eight tickets to a 2022 Red Sox game. Axios reports in its first few months in-game streams on NESN 360 were up 40%. Helping to facilitate the launch is NESN is owned by the Red Sox and Bruins.

It’s also been reported the New York Yankees are also looking into launching a direct-to-consumer streaming service bypassing the YES Network. The Yankees are partial owners of the YES Network which is the highest rated RSN in the country. The streaming service could be launched as soon as the start of the 2023 season.

There have also been rumors MLB may be looking into launching their own nationwide streaming product which would include their popular MLB.tv which streams all games not televised locally as well as in-market games. This would minimize the need of RSNs and eliminate the ongoing blackouts that annoy fans. .

Last season, MLB struck an agreement with NBCUs Peacock to exclusively stream an early Sunday afternoon baseball each week. Also, last season, Apple TV+ began to exclusively stream a Friday night game every week.

For years it was thought that RSNs, by exclusively televising in-market games live would slow down cord-cutting. That is no longer the case. Live streaming is now the future of local sports.