How bad has it gotten between Sinclair Broadcasting and its one time affiliate, Diamond Sports Group, the corporate owner of the Bally Sports Regional Networks? Sinclair in a legal filing is threatening to evict DSG from its offices.
A little corporate history. Sinclair bought the 19 regional sports channels, at the time covering 42 NHL, NBA and MLB teams, for $9.6 billion in 2019, a deal ladened with debt. It created an affiliate Diamond Sports Group to house the channels, and charged DSG a management fee of $4 million annually per RSN, plus incentives, according to Sinclair (DSG claims the figure is far higher).
Suffering under the effects of cord cutting, a too-slow approach to digital distribution and heavy debt, Sinclair put DSG into Chapter 11 in March. The RSN company has been moving away from Sinclair ever since, including filing last month a lawsuit against its former parent “seeking over $1.5 billion in damages” for allegedly overcharging on fees.
That figure is from Sinclair’s scorching response this week to its former offspring’s lawsuit, which Sinclair describes as “acerbic.” That’s not surprising given DSG accused Sinclair’s fees as being “extortionate.”
Sinclair, not the most beloved company, nevertheless paints itself as bending over backward to aid DSG, accusing its former affiliate of not paying management fees in full and now owing more than $140 million.
How bitter is the feud between former family members? Sinclair observes in its filing that it has provided Diamond its New York office space (leased under Sinclair’s name), and free rent for space at a number of other Sinclair facilities.
So, in a footnote to that item, Sinclair’s lawyers write, “Sinclair believes it is under no contractual or legal obligation to continue allowing the Debtors to occupy Sinclair leased office space…Accordingly, the Debtors have no entitlement to continue occupying Sinclair offices.
“And even if any of these informal arrangements are considered an ‘unexpired lease’ within the meaning of section 365 of the Bankruptcy Code, the Debtors (DSG) did not seek to extend the statutory deadline set forth in (the Code) with respect to these arrangements, and thus those leases would be deemed rejected as of approximately July 14, 2023. Section 365…requires, upon deemed rejection, a debtor-tenant to `immediately surrender that nonresidential real property’ to the landlord. Sinclair reserves all rights to effectuate such surrender in this regard.”
Sinclair’s management covers tasks like negotiating distribution deals, keeping the books, affiliate sales and marketing, legal and other administrative roles. Sinclair wants DSG to reject, or walk away from, the management contract in the Chapter 11, but argues Diamond is stringing the process along to get a discounted fee.
“Currently, the full MSA (Management Services Agreement) contract rate is approximately $12.8 million per month, encompassing both core services and incentive fees for carriage agreements that continue to generate value for the estates, but Diamond has been paying only $4.4 million per month for postpetition MSA Services,” Sinclair argued in the filing.
Sinclair compares its position with the one MLB faced when DSG declined to pay four of its teams their rights fees. MLB brought an emergency petition, and ultimately the bankruptcy judge ruled DSG had to pay the full fees.
Sinclair is also accusing DSG of illegally poaching its senior director of programmatic monetization, which according to his Linkedin profile, is Kevin Connelly, now Senior Director, Programmatic Sales & Business Development for Bally Sports.
“Diamond has acknowledged that it is contractually prohibited from soliciting Sinclair employees in the Adversary Complaint,” Sinclair wrote. “Given this former employee’s knowledge of Sinclair’s business and operations, Diamond is now in a position to use that information to Sinclair’s detriment.”
Sinclair notes that DSG is already assuming distribution talks, with huge contracts with DirecTV and Comcast expiring soon. But Sinclair, noting DirecTV’s filing saying it is nowhere near an agreement, took a shot at DSG.
“Diamond informed Sinclair that it intended to negotiate major distribution agreements with certain distributors directly on its own, rather than rely on Sinclair’s business team who had been leveraging Sinclair’s own commercial relationships to achieve better commercial terms… than Diamond could achieve on its own. Predictably, this decision has led to disastrous results.”
