Warner Bros. Discovery Regional Sports Networks May File For Chapter 7 Bankruptcy

The steady decline of cable networks, both basic and regional sports networks, has been apparent in recent years as cord cutting and cord shaving have been key themes amongst consumers. Although there have been a slew of indie cable nets that have gone dark in recent years, major cable networks and regional sports networks (RSNs) have seemed able to weather the storm until Friday when The Hollywood Reporter stated that Warner Bros. Discovery (WBD) is exiting the RSN business.

However, it won’t do so in the usual way—via putting the channels on the market and selling them to the highest bidder. Rather, WBD reportedly sent a letter to the owner of teams that it airs on its four RSN subsidiaries do not have the money to pay upcoming rights fees and WBD will not fund any shortfalls. WBD has proposed handing control of the RSNs over to the teams and leagues, or putting them into Chapter 7 bankruptcy.

It owns three AT&T SportsNet channels in Denver, Houston & Pittsburgh with a minority interest in Roots Sports in Seattle (with the Mainers owning the other 60%).

According to Sports Business Journal, WBD has notified 10 teams associated with the NBA (Blazers, Jazz, Rockets), NHL (Kraken, Penguins, Golden Knights) and MLB (Astros, Mariners, Pirates, Rockies) that they have until March 31 to negotiate a buyback of their rights. Sinclair Broadcast Group’sSBGI
Diamond Sports Group Subsidiary, which owns the Bally’s RSNs, is also insolvent. It has rights to 42 teams which translates into more than 50 teams which have their sports rights deals in limbo.

This is the most dire warning we have seen in the cable network industry in recent years, with the letter stating “We find ourselves running out of time and options.” WBD is a public company and, although burdened with a huge debt load, it could certainly come up with the funds to make the rights payments. The only question is how good the lawyers were in drawing up deal terms with the leagues which would allow WBD to walk away from the contracts.

Most contracts of this size require the parent company to assume the liability in the event of a default, but it has not been reported yet weather the subsidiaries of WBD have signed the contracts without such a liability being assumed by the parent company. The merger of Warner Bros. and Discovery could also have murked the waters on this issue.

Typically, RSNs have had the leverage to force them onto the basic tier of cable and satellite. Thus, even non-sports fans are seeing inflated bills for their programming because these channels ae included in the basic package (even if not watched).

In any event, given the March 31 deadline that the leagues were given by WBD and the possibility that Diamond Sports Group could file for bankruptcy protection in the middle of March, it appears that a significant chunk of the Regional Sports Network industry will be upended in a few short weeks.