The San Juan Daily Star
A missed $140 million payment sends sports TV negotiations into overdrive
By Kevin Draper
Diamond Sports Group, which owns and operates 19 regional sports networks that televise about a third of all MLB, NBA and NHL games, said earlier this week that it would not make a $140 million interest payment on its nearly $9 billion of debt, setting the stage for a possible bankruptcy filing next month and building pressure for the leagues and others amid a sea change in how fans watch sports throughout the United States.
The missed payment triggered a 30-day grace period, and Diamond Sports said on Wednesday that it intended to keep talking with the leagues and its creditors to come up with more favorable arrangements to televise games during that time.
The sports networks, which are branded Bally Sports and include channels like Bally Sports Florida and Bally Sports San Diego, exist mainly because Diamond Sports pays hefty fees to teams for the rights to show their games locally, and cable customers pay fees in their cable bills that keep the channels afloat. The company owes teams about $2 billion in rights fees this year, according to its most recent financial filing, and the fees have continued to increase even as fewer Americans stick with cable television, meaning less revenue for Diamond Sports.
The missed payment won’t have immediate effects on the production of game broadcasts, with the NHL and NBA in the middle of their seasons, but if Diamond Sports enters bankruptcy or stops making payments without a clear agreement to dig out with its creditors and the leagues, it could throw the games into television limbo and threaten one of the biggest moneymakers for sports teams that are used to spending big on athletes, coaches and others.
Diamond Sports has been in financial trouble from nearly the moment it was conceived.
In 2017, The Walt Disney Co., which controls ESPN, reached an agreement to buy most of 21st Century Fox’s assets. They included its portfolio of regional sports networks, which operated under the Fox Sports banner. But to secure regulatory approval of the deal, Disney agreed to sell the regional sports networks to keep the core of Fox’s wide range of media, including hit television shows and movies.
Most of the regional sports networks were bought in 2019 by Sinclair Broadcast Group, the largest operator of local television stations in the country, in a deal worth $10.6 billion. Sinclair created a wholly owned subsidiary, Diamond Sports Group, to operate the networks, and loaded it up with $8 billion in debt to finance the purchase.
For months, Diamond Sports, which reported $585 million cash on hand in its latest financial filing, has been discussing its bleak outlook with Sinclair, its creditors and the sports leagues. But the missed payment starts a 30-day timer to craft an acceptable deal before Diamond Sports could default on its debt.
All the parties have been broadly negotiating a deal in which Diamond Sports would enter Chapter 11 bankruptcy with a reorganization plan, according to two people involved in the negotiations. The people spoke on condition of anonymity because they were not authorized to speak publicly about the negotiations.
Although no deal has been made, the people said the companies had been negotiating a bankruptcy in which Sinclair would give up most of its ownership stake in Diamond Sports, while creditors would take the equity in exchange for restructuring or forgiving up to $8 billion of its debts. Sports leagues would grant additional rights to Diamond Sports, particularly digital rights, to help put the regional sports network on stronger footing to seek more loans or a sale.
But the terms of any agreement could shift substantially, and there is no guarantee there will be one at all. If most of the involved parties are unable to come to an agreement, Diamond Sports would most likely file for a free-fall bankruptcy, in which the bankruptcy court would play a much larger role and the leagues and the creditors would be in greater danger of not being paid at all.
For decades, regional sports networks were some of the most lucrative channels in the cable bundle. Ten years ago, 100 million households in the United States subscribed to a cable or satellite television package, and nearly every one of those households received one or more regional sports networks, like YES Network in New York City or NBC Sports Bay Area in San Francisco, in those packages. The fees that households paid for those channels, a few dollars a month, were and remain among the highest paid for any channel.
Armed with the revenue from high fees, regional sports networks have paid ever-escalating costs to teams to show their games, like the reported $8.35 billion Time Warner Cable paid for the rights to show Los Angeles Dodgers games. This has led to rising revenues, and team valuations, across professional sports.
Some of that dynamic is being upended. Only around 70 million U.S. households now pay for some form of television, and the rate of cord-cutting is only accelerating. Some television operators, like Dish Network, have dropped some regional sports networks from their offerings, believing it was not worth increasing the price of receiving television for the large percentage of households who watch little or no sports.
Despite the challenges to and the decline of cable, the regional sports networks still generate a lot of cash. Diamond Sports’ financial filings show that its problems have been made more urgent because of its heavy debt load.
If Diamond Sports is unable to come to an agreement with its creditors and ceases or reduces rights payments, Major League Baseball is likely to feel the pain first. The NBA and NHL regular seasons are almost over, and most rights payments have already been made. But the baseball season starts in March, and teams are counting on receiving payments over the next several months.
Rob Manfred, the MLB commissioner, said on Wednesday that if Diamond Sports were unable or unwilling to broadcast games, the league would find a way to do so on its own, most likely by hiring its own production crews and showing the games both digitally and on traditional television.
He warned that baseball would move quickly away from Diamond Sports if it did not pay clubs what they are owed.
“If Diamond doesn’t pay under every single one of the broadcast agreements, that creates a termination right and our clubs will proceed to terminate those contracts,” Manfred said.