NFL Could UpEnd Diamond Sports Group Chapter 11 Bankruptcy Plans

As the nation’s largest owner of regional sports networks (RSNs) Diamond Sports Group (DSG) is reportedly planning to file for a Chapter 11 bankruptcy reorganization due in large part to cord cutting and cord shaving. However, the NFL has thrown a fly in the ointment of their plans to emerge with a leaner cost structure and the RSNs and their streaming services Bally Sports Plus (BSP+) intact.

The National Football League is exploring simply taking all of the local TV rights back to its 14 teams on DSG’s Bally Sports Networks, something it would be allowed to do if DSG, a unit of Sinclair Broadcast GroupSBGI
, doesn’t make agreed upon sports rights fees payments.

This could cause a domino effect with other leagues also pulling back rights, possibly ending the life of the Bally Sports Networks and possibly causing an industry-wide end to many RSNs. The NFL, and potentially other leagues, could decide to stream all of their games on their own and/or launch their own RSNs.

Although MLB had signaled in the past that they would keep their deal in play with Bally’s 19 RSNs, they admitted after the NFL news that they are making contingency plans. “Our strong preference would be for the RSNs to be able to fulfill the agreements they signed with the clubs. However, we need to be prepared if the RSNs are unable to do so,” Noah Garden, MLB’s chief revenue officer, told Front Office Sports. “We have been contingency planning to ensure that no matter what happens with the RSNs, fans will be able to continue watching their favorite teams in their local markets.

Most of the nation’s major sporting events continue to be viewed on broadcast and cable nets although online video companies like AmazonAMZN
, AppleAAPL
and YouTube (which recently outbid Amazon Prime Video and ESPN for NFL Sunday Night Ticket) are actively bidding against them and, over time, many games that air on Disney’s flagship ESPN will likely migrate to its ESPN+ streaming service.

ComcastCMCSA
, the owner of NBC Universal has also been moving some games previously broadcast on the broadcast NBC network and some of its cable channels to its online streaming video service Peacock.

Local sports is going through a metamorphosis of its own. After Walt Disney Corp. was required to divest the Fox Regional Sports Networks it acquired in a much larger deal when it bought most of the media assets in June of 2018 from 21^st Century Fox for 15.4x cash flow, Sinclair won the bidding for the Fox Sports Networks in May of 2019. It acquired 21 RSNs and Fox College Sports for 8x cash flow—at the time it seemed like a bargain given that they had been valued at almost twice that a year earlier.

At the time, the company projected the RSNs would generate $1.6 billion in EBITDA. In fact, the company posted revenue of $2.1 billion for the first three quarters of 2022 (down 9.4% from $2.4 billion in the prior year) while posting an operating loss of $1.2 billion (after taking a $1.0 billion impairment charge. EBITDA was just $77 million.

Cord cutting and cord shaving continued to quickly erode revenues and cash flow at the channels, which were later rebranded Bally Sports Networks in a partnership with Bally’s casino, which had big plans to use the channels as sports betting platforms.

Indeed, sports betting is poised to be a huge market. The Wall Street Journal reported today that, according to the American Gaming Association, more than 40 million Americans are projected to bet $16 billion on Super Bowl LVII this weekend, due to the fact that the game is the first National Football League Championship game to be played in a state with legalized sports betting, Arizona.

Even ESPN has announced it plans to get into sports betting, although management told David Faber from CNBC that it would do it via a third party, likely to maintain its wholesome family image.

Last year, sports wagering (which is legal in 36 states and the District of Columbia) generated $7.5 billion in revenue for operators after paying out winning bets, according to the American Gaming Association. FanDuel Group and DraftKings Inc. are capitalizing on this growing trend, but Sinclair Broadcasting, which put its RSNs in a separate subsidiary called Diamond Sports Group, has not been able to move quickly enough.

Although DSG did bring to market quickly an online version of the RSNs called Bally Sports Plus, but start-up costs and a lack of some rights have hindered the channels. Management initially said the streaming services could bring in $1.3 billion to $1.9 billion in revenue within five years and somewhere between $444 million and $1.3 billion in EBITDA by 2027.

But the leagues remained skeptical of the strategy. At launch MLB had only given Sinclair rights to five of 14 teams and wanted additional payments for the streaming rights which would cut into EBITDA. MLB had been talking about launching its own streaming service next year. The NBA granted DSG streaming rights to all 16 teams in the Bally’s territories, and financial terms were not disclosed.