Rob Manfred Dec 7, 2022; San Diego, CA, USA; MLB commissioner Rob Manfred looks on during the presentation of the Allan H. Selling Award for philanthropic excellence during the 2022 MLB Winter Meetings at Manchester Grand Hyatt. Mandatory Credit: Orlando Ramirez-USA TODAY Sports

The Diamond Sports (the parent company of the Bally Sports-branded regional sports networks) bankruptcy proceedings have thus far seen two different possible outcomes for individual teams affected. The first is Diamond still making rights fee payments to them and keeping their existing contract; that’s happened (albeit late in many cases, and with less than full payment in others) with almost every team. The second outcome is one that’s only been seen with the San Diego Padres so far, with Diamond opting to stop paying them and MLB stepping in to broadcast their games locally. The Padres’ situation could be duplicated elsewhere if Diamond stops paying other teams, but it hasn’t yet.

There’s a third potential outcome, though. That would be Diamond and a team agreeing to alter an existing contract, giving Diamond some of the rights fee reductions and/or streaming rights they’ve been lobbying for. There have been some individual talks on that front, including between the company and the Arizona Diamondbacks. And Josh Kosman of The New York Post reported Monday evening that Diamond is now “close” to getting the Diamondbacks to agree to a reduced deal:

Diamond is close to negotiating a 20% discount for a five-year deal with the Diamondbacks that would also give the broadcaster valuable streaming rights it doesn’t presently own, sources told The Post.

“They’ve cut a deal that’s much more attractive to Diamond,” a source with direct knowledge of the situation said.

Altering a sports broadcast deal in the middle of its run is quite unusual. That doesn’t usually happen; rare past exceptions have included Turner stepping away from UEFA Champions League rights early and CBS taking those over ahead of schedule (which was partly about pandemic-altered timelines), the Big 12 recovering teams’ local rights to package them to ESPN+ alongside championship games, and Longhorn Network going away once Texas joins the SEC. But beyond that, once a network agrees to pay a certain amount for certain rights, that’s usually happening even if that contract no longer looks good to one side or the other (hello, ACC rights through 2036).

The general idea of renegotiating contracts around a bankruptcy has been seen in many bankruptcy processes elsewhere, though. The principle there has creditors agreeing to take less in order to still get something. And there are plenty of cases where that makes sense, especially when it’s already a fulfilled or partly-fulfilled contract and/or where less-than-anticipated revenue from the contract looks still higher than what the creditor could get by taking their goods or services elsewhere. And that last bit is the key here.

If the Diamondbacks do agree to this deal, they’re saying that they don’t think they can replace the value of their existing contract (a 20-year, $1.5 billion deal signed in 2015, so an average of $75 million a year; however, Forbes‘ Mike Ozanian estimated they got $68 million last year, so it may be backloaded) either by broadcasting games through MLB or finding/launching a new RSN. Indeed, Kosman’s report has them willing to take quite a lot off of that. A 20 percent discount would mean that this deal would be worth an average of $60 million a year, $15 million less, and it would come with extra value for Diamond in those streaming rights, which would let the Diamondbacks be included in Bally Sports+. (There also would be the much shorter term here, which could benefit either side depending on what the situation looks like at the end of the contract.)

And per those Forbes numbers, the Diamondbacks made the 13th-most in local media rights last year. Under this reduction, if it led to an actual pay of $60 million a year (and it might be less, if “20 percent off” is based on what’s currently paid in a backloaded contract rather than its average annual value), they’d fall behind the Pittsburgh Pirates and Baltimore Orioles into a tie for 15th-most. So while the Diamondbacks’ contract is longer than many other MLB local media deals, it’s far from the richest one out there. And they do play in the 11th-largest U.S. TV market. So it’s interesting that the team seems to think they’re better off taking less than expected from Diamond rather than trying to broadcast games themselves through MLB or strike a deal elsewhere. But Kosman writes that as per his sources, MLB commissioner Rob Manfred (who has veto power over teams’ broadcasting deals) “is threatening to block Diamond’s plans if the Diamondbacks deal is presented in its current form at a bankruptcy court hearing slated for July 17.”

Would Manfred actually do that? It would seem unusual for a commissioner to intervene that directly in a local broadcasting deal for one team. After all, the commissioner works for the combined MLB owners, and this would be him going against one of those owners. But there are potentially some reasons to do this from the league side. Allowing a RSN to reduce its contract at all, much less this dramatically, would buttress the claims Diamond has been making about these deals (which, again, they agreed to) not reflecting current market values, something MLB has strongly disputed to date. And allowing for one contract reduction might pave the way for many other ones.

However, there’s another factor to keep in mind here. If teams are not getting rights fee money from Diamond, they still have to get it from somewhere. MLB has said they’ll pay 80 percent of expected media revenue for teams themselves, so that would be the same percentage the Diamondbacks would lose under this reported deal. And while there are some revenues for MLB from assuming these rights (which, again, they have only done with the Padres so far), from both per-subscriber fees from multichannel video providers, on-broadcast advertising, and local OTT subscriptions sold through MLB.tv, there are broadcast production costs as well (to say nothing of the salaries of the local broadcasting department MLB set up to handle these situations), and it’s far from clear that the revenues will come close to the 80 percent MLB is guaranteeing. So that guarantee may not be sustainable for long. And in fact, one owner told Kosman he only supports the guarantee for this season, and he doesn’t think Manfred will actually block this deal.

Indeed, the plan doesn’t sit well with owners of big-market teams like Yankees, Mets, Cubs, Dodgers and Red Sox – which all have their own regional broadcast deals. While the team owners back paying other clubs 80% of their lost Diamond media rights fees, they only support it for this season, sources said.

“I’m not paying past one year,” an MLB owner told The Post.

…That puts Manfred in a bind over blocking the Diamondbacks deal since the team may be in worse financial peril next year without Diamond’s reduced offer, sources said.

“I don’t believe Rob will reject the Arizona deal. I think it’s a complete bluff,” the MLB owner said.

…The MLB owner said the commissioner has been given a short leash in the Diamondbacks negotiations.

“Nobody has faith in Manfred creating an MLB network”, the MLB owner said.

This sets up as a tough situation for Manfred and the league office.  Taking a contract reduction creates a potentially troubling precedent, especially with Diamond having deals with 13 different MLB teams. But overruling one of your own teams is tough as well. And while MLB has set up the executives and infrastructure to be able to handle taking over local broadcasts, even on short notice, that comes with its own costs and challenges. And it’s unclear that that plan will produce revenues close to what teams were getting from Diamond, and the owner quoted here certainly seems skeptical of that (and not eager to have MLB take more team rights). We’ll see if this deal between Diamond and the Diamondbacks does cross the finish line, and if so, whether Manfred decides to allow it or not.

[The New York Post]

About Andrew Bucholtz

Andrew Bucholtz has been covering sports media for Awful Announcing since 2012. He is also a staff writer for The Comeback. His previous work includes time at Yahoo! Sports Canada and Black Press.