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As the nation’s largest owner of regional sports networks (RSNs), Diamond Sports Group (DSG) is reportedly planning to file for a Chapter 11 bankruptcy reorganization due in large part to cord cutting and cord shaving. However, the NFL has thrown a hair in the ointment of its plans to emerge with a leaner cost structure and intact RSNs and its streaming services, Bally Sports Plus (BSP+).
The National Football League is considering simply taking back all local TV rights to its 14 teams on the Bally Sports Networks from DSG, which it would be allowed to do if DSG, a unit of Sinclair Broadcast Group SBGI, did not agree sports rights fee payments.
This could create a domino effect with other leagues also withdrawing rights, possibly ending the lives of the Bally Sports Networks and possibly causing an industry-wide demise of many RSNs. The NFL, and potentially other leagues, may decide to self-stream all of their games and/or launch their own RSNs.
Although MLB had signaled in the past that they would keep their deal with Bally’s 19 RSNs in play, following the NFL news, they admitted they were making contingency plans. “Our strong preference would be that RSNs could fulfill the agreements they have signed with clubs. However, we must be prepared if the RSNs are unable to do so,” MLB chief revenue officer Noah Garden told Front Office Sports. “We have contingency plans in place to ensure fans can continue to watch their favorite teams in their local markets regardless of what happens to the RSNs.
Most of the country’s major sporting events continue to be viewed on the broadcast and cable networks, although online video companies such as AmazonAMZN, AppleAAPL and YouTube (which recently outbid Amazon Prime Video and ESPN for the NFL Sunday Night Ticket) are actively bidding against them and over time , many games airing on Disney’s flagship ESPN will likely migrate to its ESPN+ streaming service.
ComcastCMCSA, the owner of NBC Universal, has also moved some games that previously aired on the NBC network and some of its cable channels to its online streaming video service, Peacock.
The local sport is going through its own metamorphosis. After Walt Disney Corp. After selling Fox Regional Sports Networks, which it acquired in a much larger deal when it bought most of 21st Century Fox’s media assets for 15.4 times the cash flow in June 2018, Sinclair won the Fox Sports Networks bid in May 2019. It acquired 21 RSNs and Fox College Sports for 8x cash flow — at the time it seemed like a bargain given they had been valued almost twice as much a year earlier.
At the time, the company forecast that the RSNs would generate $1.6 billion in EBITDA. In fact, for the first three quarters of 2022, the company reported revenue of $2.1 billion (down 9.4% from $2.4 billion a year earlier) and an operating loss of $1.2 billion (after deducting a $1.0 billion impairment). EBITDA was only $77 million.
Cord cutting and cord shaving continued to rapidly erode the revenue and cash flow of the channels, later rebranded to Bally Sports Networks in partnership with Bally’s Casino, which had big plans to use the channels as sports betting platforms.
Indeed, sports betting is poised to become a huge market. The Wall Street Journal reported today that more than 40 million Americans are expected to wager $16 billion on Super Bowl LVII this weekend, according to the American Gaming Association, as the game is the first National Football League championship game played in a state with legalized sportsbook, Arizona.
Even ESPN has announced it is getting into sports betting, although management told CNBC’s David Faber it would do so through a third-party provider, likely to maintain its healthy family image.
Last year, sports betting (which is legal in 36 states and the District of Columbia) brought in $7.5 billion in revenue for operators after paying out winning bets, according to the American Gaming Association. FanDuel Group and DraftKings Inc. are capitalizing on this growing trend, but Sinclair Broadcasting, which housed its RSNs in a separate subsidiary called Diamond Sports Group, couldn’t move fast enough.
While DSG was quick to launch an online version of the RSNs called Bally Sports Plus, start-up costs and lack of some rights have hampered the channels. Management initially said the streaming services could bring in revenue of $1.3 billion to $1.9 billion within five years and EBITDA of between $444 billion and $1.3 billion by 2027.
But the leagues remained skeptical about the strategy. At launch, MLB had only given Sinclair rights to five of 14 teams and wanted additional payments for the streaming rights that would eat into its EBITDA. MLB had been talking about launching its own streaming service next year. The NBA granted DSG streaming rights to all 16 teams in the Bally Territories, and financial terms were not disclosed.
I have 30 years of experience analyzing traditional and online social media and am the author of dozens of books. After more than 25 years at S&P Global Market Intelligence, I am Managing Director at Media Forecasting Experts, which supports media companies in forecasting different business models and offers strategic advice.
I graduated with honors from Golden Gate University with a BS in Accounting and received both an MS Finance and an MBA with a concentration in Finance, also from Golden Gate University. I also met all the educational requirements for a Doctorate in Business Administration with a concentration in Finance from Golden Gate University.
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