Illustration by Lorenzo Gordon
The Diamond Sports Group, a coalition of 19 regional sports networks (RSNs) doing business as Bally Sports, plans to file for bankruptcy next week, according to several people familiar with the plan. The group currently controls the local broadcast rights of more than 40 teams in the NBA, NHL and MLB, and its bankruptcy would be a major blow to the cable network model that has fueled US esports lucratively for the past 50 years.
Diamond is owned by Sinclair Broadcast Group (Nasdaq: SBGI), which bought the RSNs in 2019 in a debt-ridden $9.6 billion deal. Since then, it’s struggled to get the business back on track as consumers rush to ditch cable and Diamond struggles to define its digital future.
The group has $140 million in interest payments due next week. Instead of meeting her, it plans to file Chapter 11 next week, said the people, who have been granted anonymity because the details are private.
Diamond CEO David Preschlack did not immediately respond to a message for comment. Sinclair officials did not immediately respond to requests for comment.
The bankruptcy could have a dramatic impact on some of the most popular (and valuable) sports teams in the US, particularly in the NBA, NHL and MLB, where local TV rights have provided a significant and reliable source of revenue for decades. The NFL, on the other hand, does all of its live rights nationally, and MLS’ new $2.5 billion deal with Apple is a global platform.
For the teams affected, including the Miami Heat, St. Louis Cardinals and Tampa Bay Lightning, the bankruptcy will raise some questions. For example, what happens to payments owed to teams during the Chapter 11 process? Of even greater concern is what local sports media rights will look like in the aftermath, and will leagues like the NBA or MLB be more directly involved?
MLB Commissioner Rob Manfred provided at least part of an answer earlier this week. After an owners meeting in Florida, Manfred told the Associated Press that baseball is willing to make games available over both digital and traditional cable routes if Diamond can’t do it.
The RSN model is one of the many corners of the media world that is gradually being turned on its head by the decline in cable subscribers – a “melting glacier” in the parlance of many who work in sports media. According to data from MoffettNathanson, there are 62.2 million bundled TV subscribers in the U.S., down 26% from 2019 when Sinclair bought the RSNs, and down 38% from 2014.
To curb these trends, many major media companies are shifting their business to digital options, services like ESPN+ or Paramount+, which typically lose money at first, hoping to gradually take on the economic clout of their linear counterparts. Last year, Diamond introduced its first major digital offering, Bally Sports+, which allowed fans to stream local games for $19.99 a month or $189.99 a year.
Chapter 11 bankruptcy is used to give troubled companies time to restructure their financial obligations under court supervision and in coordination with creditors. Chapter 11’s intention is to return to a profitable business with a manageable financial plan.
While Diamond took out a $635 million loan about a year ago to provide liquidity for operations this year, its financial prospects have deteriorated as the company drained its cash on large commitments. Diamond has $1.8 billion in rights fees due to the NBA, NHL and MLB this year and over $600 million in interest payments on its debt in 2023, according to S&P Global Ratings.
The company also has $3.1 billion of corporate bonds maturing in 2026 and an additional $1.7 billion in 2027. With all but $14 million of those bonds unsecured, it could bankruptcy allow RSNs to pay off some of the debt. Overall, the company has $8.6 billion in debt. Fixed income markets have signaled expectations of Diamonds Sports’ bankruptcy, with unsecured debt trading at a sell-off of 10 cents on the dollar in recent months.
These prices reflect the broader issues brewing on the horizon in recent years, concerns that have escalated in recent months. In December, days after Diamond took a $1 billion write-down on the RSNs, Diamond voted to remove Sinclair from running the group. Company executives said at the time they had enough cash to run the business through at least 2023, but warned that could change depending on broader economic forces.
Despite the distance between Diamond and its parent company, Sinclair still owns 90% of the group’s equity. Chapter 11 bankruptcy typically wipes out shareholders, who sit at the bottom of the creditor hierarchy. However, the filing is likely to have little impact on Sinclair’s stock price because investors appear to have largely written off Diamond’s value to Sinclair after the split, according to Morningstar.
Last month, Bloomberg reported that Diamond’s lawyers were preparing for a debt restructuring in bankruptcy court. The plan favored by the company and its creditors at the time, Bloomberg said, would make lenders owners in a pre-agreed Chapter 11 procedure. That could explain why Diamond could miss its upcoming interest payment — lenders may prefer that the company stop spending money before they become owners.
Diamond’s bankruptcy could also have downstream implications for the many other RSNs not under the Sinclair umbrella, including those owned by teams (like the YES Network or NBC Sports Washington) and by other media companies (like the three AT&T SportsNet -Units of Discovery) are controlled. .
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