Sinclair Broadcast Group took a huge gamble with subsidiary Diamond Sports Group. It went head-to-head against MLB over game broadcasting in a multibillion-dollar gamble that saw it go bust on Thursday.
Diamond had gobbled up the regional broadcasting rights of the games of various leagues, including 42 teams across MLB, the NBA and the NHL that became part of its Bally Sports brand. The goal was to parlay those contracts into direct-to-consumer digital streaming rights that would eventually include sports betting, but Diamond got ahead of itself.
It racked up debt of over $9 billion along the way, but never had the digital contracts in place. MLB balked at the idea, crushing Diamond’s plans and leading it to bankruptcy. In a bankruptcy court hearing that wrapped up yesterday, a judge told the company that it won’t be able to get off the hook that easily, Bloomberg reports.
Diamond Loses Focus
Judge Chris Lopez decided that Diamond is responsible for the full amount of its MLB contract. The ruling came after two days of ineffective appeals by Diamond that brought to light the animosity between MLB and the regional sports network that represents almost half of the league’s clubs.
If Diamond fails to pay the complete amount of its regional TV rights agreement with the Arizona Diamondbacks, the Cleveland Guardians and others, the teams have the right to withdraw from the Bally Sports channel contracts in their areas and enter new agreements under MLB’s purview.
In March, Diamond initiated bankruptcy restructuring to reposition the businesses following a major decline in market value. This aligns with the recent decrease in the pay-TV economy as more consumers switch from cable to digital and streaming options.
Additionally, Diamond suggested that teams relinquish streaming rights to increase revenue for its own streaming service, Bally Sports Plus. However, this proposal is being fiercely opposed by MLB and Commission Rob Manfred.
Bad Breaks For Diamond
In compliance with a previous court ruling, Diamond had been able to reduce its payments to the MLB teams by up to 50%. As part of its bankruptcy plea, though, it wanted to permanently alter the contracts at a reduced rate.
MLB disagreed and Lopez sided with the league. Diamond will have to pay the original contract price in full to all parties or the teams will be able to follow the same path the San Diego Padres took earlier this week.
The company holds the broadcasting rights to 13 MLB teams – one less than it did at the beginning of this week. Diamond cut off payments to the Padres, breaking its $1.2-billion contract and leaving team fans in the dark. This was after Diamond promised in March that its bankruptcy wouldn’t cause any broadcast interruptions.
However, the Padres recovered quickly. It set up a new broadcasting deal with MLB that removed Bally Sports San Diego out of the picture and, in some cases, put games in front of fans for free.
Play Nice Or Go Home
Judge Lopez left the door open for the two sides to work out their issues. He didn’t set an ultimatum for Diamond to make up its mind and suggested it and MLB brass continue discussing a possible solution.
That’s going to be difficult. Manfred is no fan of Sinclair or its executive chairman David Smith. This is partly because MLB lost a bidding war against the company to purchase the Fox Sports Network channels that eventually formed part of Bally Sports.
That’s not the only reason, though. Manfred also believes Smith tried to blackmail him into making a rights deal. He allegedly threatened to bankrupt the company if the two couldn’t reach an agreement.
Sinclair has rejected the allegation repeatedly, although Diamond is now in bankruptcy. Next up, either the threat comes true or MLB calls the bluff and Sinclair backs down.
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