The simple answer regarding MLB and its problem with regional sports networks is that there is no simple answer.
Diamond Sports Group, a subsidiary of the Sinclair Broadcast Group, filed for Chapter 11 bankruptcy on March 15, two weeks before Opening Day. Many not familiar with the process assumed that MLB would be able to take over the RSNs, keep the games of the affected teams on the airwaves, and end the horrific blackout rules.
Truth is, the bankruptcy process might take the entire season to resolve. Diamond Sports Group operates 19 RSNs that carry games for 14 MLB teams, 16 NBA teams and 12 NHL teams under the Bally Sports name. There hasn’t been the panic in the NBA or NHL circles as those seasons were coming to a close at that time.
In further court filings, Diamond said it will cut fees to three MLB teams: the Arizona Diamondbacks, the Cleveland Guardians, and the Minnesota Twins. Diamond has already halted paying what it owes to those three clubs while still broadcasting games. MLB and the three teams have filed motions arguing against that plan. Another team, the Texas Rangers, notified Diamond that it wanted to terminate its deal. That move came a week prior to the Chapter 11 filing, even though Diamond said it had not missed a payment to the Rangers.
Another team joined the fray on Monday, as Diamond told the Cincinnati Reds it would not be making further payments, according to the Sports Business Journal. The Reds, unlike the other four teams mentioned, are in yet a different boat as the team owns a portion of its RSN, Bally Sports Ohio, keeping it separate from the bankruptcy proceedings. Five teams also have equity in their RSN: the Kansas City Royals, the Los Angeles Angels, the Miami Marlins, the St. Louis Cardinals and the San Diego Padres.
Let’s take a deeper look at what has happened and what could happen.
How We Got Here
It is a little stunning to think of this RSN collapse, but also not too surprising when you consider the backstory and the recent surge in cord-cutting — moving away from cable or satellite in favor of streaming services. Several cable and satellite distributors have dropped the RSNs, while streaming services have not added them due to cost. That adds up to fans not being able to watch their home teams on TV.
Everything was smooth until The Walt Disney Co. took over the 21 networks in December 2017. Further disruption came when Fox College Sports acquired 21st Century Fox and needed to sell the sports portfolio in order to obtain federal antitrust approval. Disney, as you likely know, already owned ESPN and its vast array of channels. At the time, the RSNs were under the Fox Sports Net moniker. The Disney-Fox deal was completed in March 2019 for $71.3 billion.
Disney, required to spin off the RSNs within 90 days, quickly found a buyer in the Sinclair Broadcast Group. Sinclair currently owns close to 200 local TV affiliates from various networks (ABC, NBC, CBS, Fox, etc.) and pushes a conservative political stance from a national level, while skewing away from local coverage (as covered by John Oliver on “Last Week Tonight”).
Comedian Byron Allen and his company, Allen Media Group, joined Sinclair in the RSN purchase for a $9.6 billion deal eventually completed in August 2019. But Sinclair already had its hand in the sports TV cookie jar with the Tennis Channel and had plans with the Chicago Cubs to launch a sports channel, which turned out to be Marquee. Sinclair formed Diamond to oversee the RSNs. Separately, Sinclair also purchased the YES Network, which owns broadcast rights to the New York Yankees and the NBA’s Brooklyn Nets, for $3.5 billion.
Sinclair announced in June 2021 that it was a Fortune 500 company with $5.9 billion in 2020 revenue.
What Is Chapter 11 Bankruptcy?
Most of the time when a company files for Chapter 11 bankruptcy, it leads to the shuttering of the business. But that likely is not the case with Diamond.
Chapter 11 allows the business to protect its assets while reorganizing. In other words, the business can decide which assets it wants to retain, which ones it wants to shed, which creditors get paid and how it plans to potentially raise cash. All of this must be approved by a judge.
Diamond said at the time of the bankruptcy filing that it intended to continue as a stand-alone company, with top-tier secured creditors not losing anything financially and any others potentially getting an equity stake in the company.
One key piece of a story from Daniel Kaplan of The Athletic pretty much summarizes this dispute:
“Diamond does not dispute it has the money to pay the tens of millions of dollars it owes the three teams, but argues bankruptcy law allows it to restructure the contracts to better reflect market value. When Diamond signed many of the team deals, it was before the accelerated pace of cord-cutting, a trend that helped land the company in bankruptcy court.”
Another significant element has to do with streaming rights. While Diamond holds the streaming rights for all of its NBA and NHL teams, it only does so with five of the 14 MLB teams that it broadcasts.
What Is The Resolution?
This could go in any number of directions and the next critical step is in the hands of a bankruptcy court, which will next hear oral arguments at the end of May. According to the Chapter 11 filing, Diamond owes the Diamondbacks $30.8 million. The reported annual value of the Guardians and Twins deals are $55 million and $42 million, respectively. The Diamondbacks fall into a different category as they stopped being paid just prior to the bankruptcy filing, while the Guardians and Twins were after.
In the Reds’ situation that developed on Monday, Cincinnati’s presence as a co-owner could mean the rights go back to the team after the 15-day grace period, the Sports Business Journal reported.
The best-case scenario for fans is for MLB to obtain all of the rights currently owned by Diamond. That would allow MLB to restructure contracts and stream all 14 teams on a platform such as MLB.tv. Some of the larger-market teams such as Atlanta, whose rights currently belong to Diamond, might object that they would lose money if everything was pooled together as they could get more lucrative deals on the open market. Getting a streaming service with all 30 teams is a difficult task with many obstacles.
As these proceedings continue, it wouldn’t be surprising to see the NBA and NHL get involved. There have been reports of the three leagues joining forces and creating their own streaming service. That would certainly be unique and could create a lot of options for fans.
Regardless, fans continue to be the biggest loser when it comes to being able to watch MLB games. Blackouts and TV territories are outdated and have been for some time. The clubs will get their money one way or another from Diamond.
Unfortunately, baseball fans will likely have to wait until next season for a better TV situation.
Great summary, Steve. Thank you.