Could the Bally Sports RSNs be on the market?
It seems like a possibility. On Monday night, John Ourand of the Sports Business Journal reported that Sinclair had hired a pair of investment banks, LionTree and Moelis.
Liontree is the bank hired by The Athletic last year to look for a buyer, initially seeking $750 million but eventually settling for $550 million. The bank was also involved in Ted Leonsis’ purchase of NBC Sports Washington last week. They’re also no stranger to Sinclair – last year, the bank worked with the company to raise $250 million for the direct-to-consumer product that eventually launched as Bally Sports+ this summer.
Ourand detailed why the banks were hired, noting they were “working to improve the sports group’s capital structure.”
The bankers have not reached out to potential bidders yet. Instead, they are working to improve the sports group’s capital structure to make it more attractive to potential suitors or investors, sources said. It’s unlikely that the bankers will find buyers or investors — at least not right away — because Diamond Sports Group is operating with upwards of $8 billion in debt.
The problem: creditors will not want to restructure until they have an idea who likely buyers are. But buyers will be scared away until the bankers can make the company’s balance sheet look more attractive. The bankers have to try and serve both masters at the same time.
One option that apparently is on the table: the bankers could try to persuade creditors to forgive debt, convert it to equity and try to bring in a partner — either one of the leagues or a deep-pocketed tech or media company like Apple, Amazon, Fanatics or DraftKings.
Sinclair bought the RSNs from Disney in 2019 for nearly $10 billion. Since then, the RSNs have been plagued by carriage disputes and the pandemic. In late 2020, Sinclair took a writedown of $4.2 billion on the RSNs.
Ourand’s piece also discusses a potential bankruptcy for the Diamond Sports Group, Sinclair’s subsidiary that operates the RSNs. Spoiler: it wouldn’t be good news for any teams whose games air on a Bally Sports RSN!
But a report today from an influential financial service called Reorg Research suggests that a Chapter 11 bankruptcy would be a worst-case scenario for leagues and teams that have deals with Diamond Sports.
In such a scenario, the report says, “Diamond would likely not be required to make ongoing postpetition payments to counterparties under the rights contracts until either the assumption of a particular contract (at which time Diamond would be obligated to cure any past defaults, including nonpayment) or confirmation of a plan (at which time the counterparty would be entitled to payment in full of an administrative expense claim for postpetition value provided to the debtors).”
That means that in Chapter 11, Diamond will be allowed to continue showing games without making payments to teams — even during a long restructuring that takes 18 months. That would be a debacle for the teams and the leagues.
“Debacle” sums it up pretty well.
Anyway, Sinclair has to be hoping that Bally Sports+ is a smash hit this fall among NHL and NBA fans, or this could be an exceptionally cold winter for the company and its RSNs.
