May 12, 2023; Washington, District of Columbia, USA; A general view of a bag of baseballs before the game between the Washington Nationals and the New York Mets at Nationals Park. Mandatory Credit: Scott Taetsch-USA TODAY Sports

A Wednesday Diamond Sports bankruptcy hearing further shined a light on the toxic relationship between the company and Major League Baseball.

MLB Commissioner Rob Manfred repeatedly blasted Diamond during the hearing, claiming the league got less than 24 hours notice that Diamond wouldn’t pay the San Diego Padres their past-due rights fee. That led to MLB taking over Padres broadcasts on Wednesday, though a Diamond attorney claimed the company offered to extend the end date to June 30th.

In his testimony, Manfred said “MLB is willing to backstop 80 percent of any team’s TV contract if it is canceled by Diamond,” which is relevant for the Padres at this point in time.

The commissioner also claimed that Sinclair executive chairman David Smith said the company would “start squeezing your clubs to take their rights fees down” in order for the RSNs to remain profitable.

The “chairman of Sinclair actually came to New York to see me, we met one-on-one,” Manfred said, without detailing when the meeting occurred. “And Mr. Smith, you know, said, ‘You know, we want these rights.’ And I said, ‘Well, you know, unfortunately, sometimes people want things they’re not going to get and you’re not getting these rights.’ And he said to me, ‘So let me tell you what’s going to happen.’ He says, ‘I put $2 billion into the purchase of these RSNs … so what I’m going to do is I’m going to keep this going long enough until I get my $2 billion out, OK?And then I’m going to start squeezing your clubs to take their rights fees down, OK, in order to make sure that I stay profitable in the RSN business. And if they don’t agree to that, I’m going to put the entity into bankruptcy, and then I’m going to selectively reject contracts.’”

“The rights” referred to are the digital rights for Diamond’s direct-to-consumer service, Bally Sports+. Only five MLB teams, the Brewers, Marlins, Rays, Royals, and Tigers, have sold their digital rights to Diamond.

Manfred essentially said baseball wouldn’t deprive fans of live games if Diamond attempted to reject contracts.

Recounting his memory of the encounter, the commissioner said of his reply to the chairman, “‘But let me tell you, every time you threaten to reject the contract … we’re going to be there to stand up those broadcasts for clubs so that our fans are not deprived of their games. OK, so if you think the leverage is fans are going to be screaming, you’re wrong, because we’re going to be there to stay in those games.’”

Jim Bromley, a lawyer representing MLB, said Diamond wanted “in effect, to blackmail MLB and the four clubs” involved in the hearing (the Diamondbacks, Guardians, Rangers, and Twins) to acquire their digital rights. Diamond has been attempting to acquire the digital rights to all 14 (now 13, following the Padres’ exit this week) MLB teams airing on its RSNs, and MLB has not been interested.

David Preschlack, the CEO of Diamond, pegged Bally Sports+ at just 202,000 subscribers in April following its soft launch last summer and full launch in September. That’s slightly more than half of the target amount of subscriptions. Diamond is targeting 802,000 subscriptions by the end of the year, and still has a lofty goal of ten million by 2028.

Surprisingly, we also learned MLB attempted to buy out their rights from Diamond. The offer would have been for close to $400 million, with the league also taking on the teams’ media rights contracts.

MLB offered to assume the billions of dollars of team contract obligations, pay $60 million, loan $150 million to cover losses at the unprofitable RSNs during an interim period and let Diamond keep $180 million from the profitable RSNs.

Attorney John Higgins, representing Diamond, and Manfred quibbled over whether or not Diamond responded to the offer (Preschlack said it was declined). Higgins claimed a counter offer was made on April 19th that would have kept the rights with Diamond through 2026 in exchange for the aforementioned digital rights.

Over the months this battle between MLB and Diamond has raged on, neither side has really budged in their viewpoints. Diamond wants digital rights. MLB doesn’t want to give up digital rights. Diamond Sports wants to write down contracts. MLB wants the contracts to be paid as written. Both sides have attempted compromise, Diamond offering full value for contracts in exchange for digital rights and MLB offering to buy out Diamond’s contracts, but neither has gained much traction.

Diamond’s decision this week to walk away from the Padres contract might get the ball rolling, however. MLB is now producing and distributing the team’s games on cable, satellite, and streaming platforms, *and* is selling DTC subscriptions in-market via MLB.TV. If this test case goes well, MLB will likely be confident about its attempts to replicate the situation in other markets should the time come, further bolstering their decision not to grant Diamond the digital rights. If it goes poorly, maybe MLB will shift a little bit on their stance towards those digital rights and Bally Sports+ can come within spitting distance of its aggressive subscriber goals.

But right now, it does seem like both parties are on separate islands, drifting even further apart. You’d imagine that the NBA and NHL, who granted Diamond digital rights on a league-wide basis over a shorter term, are looking at how this hearing plays out and wondering if its time to firmly choose a side.

[The Athletic, Washington Post]

About Joe Lucia

I hate your favorite team. I also sort of hate most of my favorite teams.