Sports Broadcasting May Be Radically Altered With Diamond Sports Group Bankruptcy

Diamond Sports Group, or DSG, a subsidiary of Sinclair Broadcast Group and the owner of the largest group of regional sports networks in the U.S., or RSNs, filed for bankruptcy yesterday. That was not a surprise, it has been a long time coming. What may be surprising is what happens next—some leagues are hoping to take back their sports rights while others may prefer the status quo.

This is not an ideal situation as many RSNs are focused on multiple sports. Thus, leaving a huge gap in the programming schedule could cause even more consumers to defect from satellite and cable.

The timing of the DSG bankruptcy filing was due to the expiration of a 30-day grace period on a $140 million interest payment which was due on February 15 which was due to expire. Essentially, DSG had run out of options. Although DSG was bullish on the restructuring stating it expects to, “continue in the ordinary course during the Chapter 11 process,” Major League Baseball, or MLB, however, was not so sure. 

They issued the following statement stating that “Despite Diamond’s economic situation, there is every expectation that they will continue televising all games they are committed to during the bankruptcy process. Major League Baseball is ready to produce and distribute games to fans in their local markets in the event that Diamond or any other regional sports network is unable to do so a required by their agreements with our club.” 

They added, “…We have hired additional seasoned local media professionals to bolster our capabilities in anticipation of this development.” There are currently 52 MLB, NBA and NHL teams that have licensing deals with the Bally Sports Networks. 

The former subsidiary of Sinclair, DSG, owns 19 Bally Sports branded RSNs, which were acquired from The Walt Disney Corporation in a deal that valued the assets at almost $10 billion, more than $122 per subscriber. The channels were part of a larger deal when Disney bought myriad programming assets from  News Corporation in 2018 when they were valued at more than twice that—almost $22 billion and more than $250 sub. However, the government required that Disney divest the assets due to antitrust concerns, resulting in a fire sale.

At the time, it was believed by many that Sinclair got the deal of the century, purchasing the popular sports channels at half off. However, cord cutting (when people leave cable or satellite and go to online services like Netflix and Hulu) and cord shaving (when consumers downgrade to cheaper packages) accelerated.

With the Chapter 11 filing, DSG will become an independent company, with Sinclair pushing to swap out its debt position for equity in the new company. Although DSG noted that they are “well-capitalized with approximately $425 million of cash on hand to fund its business and restructuring,” in fact it has about $ 8 billion in debt and has defaulted on its payments. 

While “first-lien lenders” who are owned about $650 million will get their money back, secondary and unsecured debt holders are only expecting under 10 cents on the dollar given where the debt is trading. 

What many subscribers to cable and satellite do not know is that these RSNs require that they be put in the basic package. This means that you pay for them whether you watch them or not. And they are expensive—around $5/sub per month each, and with 2-5 of them in each market this can add up quickly. And the $5/sub/month is the wholesale rate—it probably costs you closer to $7/month per channel including the mark-up.

NBA Commissioner Adam Silver said at the Sports Business Journal World Congress of Sports in New York last month, “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.”