Phoenix Suns And Mercury Bailing From RSN

Most Chapter 11 Bankruptcy cases are fairly straight forward, with creditors agreeing to take pennies on the dollar or swap debt for equity. Not so for Diamond Sports Group, a subsidiary of Sinclair Broadcast Group
SBGI
, which owns the largest group of Regional Sports Networks (RSNs) in the country. The NBA’s Phoenix Suns and WNBA’s Phoenix Mercury reportedly have had enough, and are breaking away from the traditional RSN model, splitting its rights between TV stations and a new direct-to-consumer (DTC offering) enabled by Kiswe.

The deal is unique in that the Diamond bankruptcy case is in its infancy and a lot remains to be decided. But another striking aspect of this deal is it triples the footprint of people who will be able to watch the channel, with cable, satellite, rabbit ears or a subscription to a DTC service. The teams are basically abandoning ship on the Bally Sports Arizona RSN, which aired the two Phoenix teams.

Other teams on Bally Sports Arizona include MLB’s Arizona Diamondbacks (which Diamond Sports is in arrears on rights fee payments, a move likely meant to pressure the Diamondbacks to give it online rights for its Bally Sports Plus platform) and the NHL’s Arizona Coyotes.

Texas U.S. Bankruptcy Judge Christopher Lopez recently ruled that Diamond must pay half of what it owes to four of the five MLB franchises that it has deals with (Arizona Diamondbacks, Cleveland Guardians, Texas Rangers, Minnesota Twins, with no ruling yet on the Cincinnati Reds). Diamond had been withholding TV rights payments for the 2023 season.

From the view of the MLB, they are thinking the Chapter 11 trustee may rescind some or all of the league’s contracts and they could then offer MLB games through its Extra Innings and MLB.TV apps, while at the same time regionalizing the MLB Network (which is now a national service).

The Suns and Mercury games will now be available in 2.8 million households (and throughout the state of Arizona later this summer), while Bally Sports Arizona has less than 1.0 million subs. Prior to all of this turmoil, it was estimated that Bally Sports Arizona was going to generate over $125 million in revenue in 2023 but have negative cash flow of almost -$14 million. Thus, there is definitely no potential for the channel unless it slashes programming costs dramatically.

“By going entirely over the air and building our own DTC product, the Suns and Mercury will now be accessible to millions more fans in Arizona and globally. Success comes from new and innovative ways to invest in our players, continue our mission to build a world-class organization on and off the floor and make our product available to as many people as possible,” Suns and Mercury governor Mat Ishbia said in a press release.

There was no price-tag reported on the transaction, which calls for the NBA’s Phoenix Suns and the WNBA Phoenix Mercury to license games to Gray Television in a five-year deal (broadcasting at least 70 games per year on KTVK, KPHA and KPHE—a statewide platform (AZ Family Sports Network)), while Kiswe will help create a Suns and Mercury branded direct-to-consumer (DTC) streaming platform.

The deal is “subject to the approval of the NBA and WNBA and any required resolution with the incumbent regional sports partner,” the teams said in a press release. Diamond Sports is obviously not pleased. “The Phoenix Suns breached our contract and violated bankruptcy law, and Diamond Sports Group will pursue all remedies against any parties that attempt to exercise control over our property interests while we reorganize,” Diamond Sports said in a written statement. “This is an improper effort by the Suns to change their broadcasting partner without permitting Diamond to exercise our contractual rights,” they said in the release.

The Suns dispute this position. “Diamond’s position is totally inaccurate. We are moving forward with this deal and could not be more excited about what it means for our fans and our future,” Josh Bartlestein, the CEO of the Suns and Mercury, said in a statement.

Bally Sports Arizona reportedly has the right to match any offer that the teams get, putting more financial pressure on a company already struggling through a bankruptcy.

Endeavor and WME Sports advised on the Suns transaction, so expect more such deals to be drummed up by this massive talent agency. Lee Berke, from LHB Sports, represented Gray Television and Kiswe.

I wrote recently about how Warner Bros. Discovery wants to completely abandon ship on its RSNs, going so far as to threaten to file the RSNs for Chapter 7 bankruptcy, so the Suns/Mercury announcement isn’t a complete surprise. However, with so many RSNs struggling currently, it does make you wonder what the next shoe to drop will be. This financial crisis could easily spill over into the basic cable network industry, particularly those that have long-term sports deals with annual price escalators.

NBA Commissioner Adam Silver put the state of the RSN business in perspective at the Sports Business Journal World Congress of Sports in New York recently when he said, “The bundle is broken. It’s clearly broken. Our regional sports networks—Sinclair in particular. They paid $10 billion. It’s not clear it’s a good deal at $5 billion.”

Source: https://www.forbes.com/sites/derekbaine/2023/05/01/diamond-sports-bankruptcy-setback–phoenix-suns-and-mercury-bailing-from-rsn/