The Chapter 11 bankruptcy proceedings at Diamond Sports (the current Sinclair spinoff, but about to be run by creditors), the company that owns and operates the Bally Sports-branded regional sports networks, have taken another major turn. In initial talk around that bankruptcy (which was only formally filed for this week, but had been under discussion for a month thanks to its clock being triggered by a 30-day grace period after a missed payment to creditors), there were plenty of suggestions that Diamond might continue paying teams despite the bankruptcy proceedings, and that the company might emerge with new ownership but the same portfolio. Well, John Ourand of Sports Business Journal reports there’s now officially a missed payment, with the company not making a payment to the Arizona Diamondbacks (for Bally Sports Arizona broadcasts) by the end of a grace period. And there are chances of more on the way, with Diamond also behind (but still within a grace period) with the San Diego Padres:
Source: Diamond Sports Group misses rights fee payment to the Diamondbacks.
Diamond is late on its rights fee payment to the Padres but still within a grace period to pay without penalty.
SBJ's story: https://t.co/y97w3rHadH
— John Ourand (@Ourand_SBJ) March 17, 2023
This comes after a lot of change to the overall situation and the public comments on it over the last few months. Ourand initially reported the missed Diamondbacks payment (starting the grace period) last Friday, but included a Diamond statement that they were just trying to “maximize flexibility.” “We’ve been making our rights payments to teams with the exception of the Diamondbacks, where we have exercised a contractual grace period in order to maximize flexibility, especially given that we do not have DTC rights. We are continuing to broadcast games and are operating our business as usual.” But it’s now far from business as usual.
Following that Friday discussion, Sunday saw Josh Kosman of The New York Post weigh in with a report. That report said Diamond was “expected to use the bankruptcy proceedings to reject the contracts of at least four teams to which it pays more in rights fees than it collects back through cable contracts and ads,” specifically citing the Diamondbacks, Padres, Cleveland Guardians, and Cincinnati Reds. And Kosman had previously written in December that “Diamond’s slew of unprofitable broadcasting contracts will likely be rejected” in bankruptcy proceedings. He wrote in there that “Most of Diamond’s MLB contracts are unprofitable, while maybe half its NBA deals are losing money and a handful of its NHL agreements are in the red, according to a source.”
Back in December, Diamond strongly disputed Kosman’s report on the idea of rejecting contracts in bankruptcy, calling it “unequivocally false.” And a January Bloomberg report on them heading towards bankruptcy included “a person familiar with the matter” who “downplayed the prospect that Diamond would discontinue rights payments in a bankruptcy.” But that’s now happening, and that changes the equation of the Diamond bankruptcy, at least for the Dimaondbacks.
The actually-missed payment to the Diamondbacks puts them in a similar situation to the AT&T SportsNet teams with their missed rights payments to the Colorado Rockies, Houston Astros, and Pittsburgh Pirates. There are already conversations ongoing there about MLB and/or individual teams stepping in to take over those networks, and it’s possible we’ll get some of those with the Diamondbacks as well (and perhaps with the Padres and other teams if we get to actually-missed payments there). However, Ourand notes that “Even though Diamond has not made its payment to the D-Backs, rights do not automatically revert to MLB or the team, who will work through the bankruptcy court to try and get control of the rights. Sources expect Diamond to continue producing and carrying those games for FS Arizona for the time being.”
So there may not be any short-term change on the broadcasting side for the Diamondbacks. And there may not be much long-term change either. There are many possible scenarios as to how this could play out, including Diamond Sports agreeing to make a payment to regain rights if they get some of what they’re looking for. Their particular complaints include a lack of over-the-top streaming rights and the length (until 2035) and price (a reported $31 million annually). It’s also quite possible the creditor equity restructuring at Diamond (which officially kicked in with Tuesday’s bankruptcy filing) changes their willingness to work with the Diamondbacks on the existing contract.
It’s also possible the Diamondbacks and/or MLB wind up acquiring the rights and/or the network, and wind up doing something similar to the current broadcast setup for at least the short term. But this could also lead to dramatic change, perhaps especially down the road (it’s hard to make changes in-season). And one actually-missed payment (after all the public claims from Diamond that that wouldn’t happen) significantly alters the bankruptcy conversation around the Bally Sports RSNs. And it suggests there may be more missed payments coming with other teams.