With Financial Turmoil At Bally Sports Networks, Major Leagues Gear Up For A Future Without Cable

‘Linear’ broadcast TV combined with streaming games offer the best alternatives to reach the most fans, insiders say. But regional sports networks like the one owned by Sinclair are getting in the way.

It’s happened to every sports fan – that panic when the big game is about to begin and it’s not on the channel it’s usually on, triggering a frantic search for the first pitch or the opening tip.

Imagine hunkering down for an evening of sports fandom and not being able to find the game at all.

That’s the worst-case scenario that three major sports leagues are scrambling to avoid after the owner of Bally Sports Networks, cable-TV home to 19 professional teams from Cleveland to Los Angeles and Florida to Minnesota, announced last week it was putting off an interest payment due February 15 on $8 billion of debt.

The $140 million payment postponement by Diamond Sports Group won’t immediately affect coverage of Major League Baseball, the National Basketball Association and the National Hockey League. Diamond, which pays about $1.8 billion in annual rights fees, has enough cash to sustain payments for the next year, according to people with knowledge of the financials.

But insiders tell Forbes that Diamond could be headed to a bankruptcy filing, which would send leagues on a frantic search for alternatives. Because each of the Bally regional sports networks has a separate deal with the teams it broadcasts, the leagues are putting together emergency plans to avoid blackouts of local games, with MLB and the NBA preparing to take over production of games and strike deals with local TV stations, the insiders told Forbes.

Though the regional sports network business model is far from dead – both the Yankees and the Red Sox have thriving cable channels, for example – the financial woes of Diamond Sports and its owner, Sinclair Broadcast Group, are a sign that sports media is at a crossroads. Leagues want to create a new set of media rights, but regional sports networks are in the way. Fans complain they can’t watch their favorite teams without a cable subscription, and due to cable contracts, in-market games aren’t available live on league-run streaming outlets like NBA League Pass and MLB.TV. That disadvantages younger fans. To solve the dilemma, media executives are gearing up for a future without cable, when leagues will shift back to airing games on local TV channels and Gen Z is free to stream all it wants. At stake are billions of dollars in a global market that’s estimated at $55 billion and rising.

“It’s a massive opportunity,” Ryan Smith, billionaire owner of the NBA’s Utah Jazz, told Forbes. “I think the challenge is getting in the room with everyone. Locally, how do we carve out something that plays for the next ten years?”

With its 2023 season about to begin, MLB has a lot to lose from a Diamond outage, according to people with inside knowledge who asked not to be named. Behind the scenes, the league has been outspoken about its intention that teams be paid the full amount they’re owed and threatening to pull local media rights if Diamond misses consecutive installments.

Baseball is prepared for the future, MLB commissioner Rob Manfred told reporters Wednesday at a spring training press conference in Arizona. “We think it will be both linear in a traditional cable bundle and digital on our own platforms,” he said. “We hope Diamond figures out a way to pay the clubs and broadcast the games like they’re contractually obligated to do.”

The NBA, too, is making contingency plans, insiders told Forbes. The league doesn’t face the same issues as MLB because its season is half over and clubs have already been paid large portions of local rights fees.

TV money, however, is part of the league’s basketball-related income – what the NBA calls BRI – which it shares with players. A drop in BRI would lower the NBA’s salary cap, meaning less money for player salaries. It’s the last thing the NBA needs as it negotiates a new collective bargaining agreement with the players’ union.

The NBA’s national media rights deal expires after the 2024 season. The league is exploring what’s known as free ad-supported television, or FAST, and is considering a global rights package that would combine local, national and international games.

“We are engaged in discussions with Diamond and are committed to ensuring that NBA fans in the markets served by Bally Sports have continued access to all local games,” the NBA said in a statement to Forbes.

The NHL, however, has reason to worry. Hockey clubs rely more on regional sports network money because its national rights fees aren’t as lucrative as those of the other leagues. The NHL brings in about $625 million annually from its national deals with ESPN and Turner Sports, while MLB and the NBA have national agreements of $1.8 billion and $2.6 billion respectively. The average NHL team is now valued at more than $1 billion for the first time. If the flow of cable money slows, that could end.

“That to me is going to be the story,” Dan Cohen, executive vice president of Octagon’s global media rights division, told Forbes. “The NHL are the ones that will feel the biggest pinch if this doesn’t get resolved.”

The NHL didn’t respond to requests for comment.

Sinclair, which has over 100 local TV stations in 85 markets, bought 21 regional sports networks, at the time known as Fox Sports Networks, from Disney in 2019 for $10.6 billion, giving it the cable rights to more than 40 professional sports teams. In 2021, Sinclair rebranded the stations to Bally Sports in a deal reportedly worth $85 million.

Among the teams on Bally’s roster are MLB’s Angels, Cardinals, Guardians, Padres, Rangers, Royals and Tigers, and the NBA’s Bucks, Cavaliers, Clippers, Grizzlies, Mavericks, Spurs and Suns.

For years, cable has been bleeding subscribers. Today, the number of U.S. households with cable is approximately 62 million, down from 70 million in 2022 and 100 million in 2014, according to Neilsen. “That business model is clearly ready to shift because of the prevalence of cord cutting,” said Jed Meyer, senior vice president at global research firm Kantar Group.

The pandemic’s pause in sports competition didn’t help Sinclair either. The company reported a $3.2 billion loss in the third quarter of 2020.

The regional sports networks and the debt Sinclair took on to buy them have been a “veritable albatross around their necks,” said media expert Alan Wolk.

Shaking off that albatross won’t come easily if cable networks are able to maintain their grip on American sports broadcasting. For now, however, Sinclair’s Diamond Sports Group said it intends to use the 30-day grace period on its debt payment “to continue progressing its ongoing discussions with creditors and other key stakeholders regarding potential strategic alternatives and deleveraging transactions to best position Diamond Sports Group for the future.”


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Source: https://www.forbes.com/sites/jabariyoung/2023/02/17/with-financial-turmoil-at-bally-sports-networks-major-sports-leagues-gear-up-for-a-future-without-cable/