Sports broadcasting could be radically changed by the bankruptcy of Diamond Sports Group

Diamond Sports Group, or DSG, a subsidiary of Sinclair Broadcast Group and owner of the largest group of U.S. regional sports networks, or RSNs, filed for bankruptcy yesterday. It wasn’t a surprise, it was a long time ago. What will happen next can be surprising. some leagues hope to reclaim their sporting rights, while others may prefer the status quo.

This is not an ideal situation as many RSNs focus on multiple sports. So a huge gap in the programming schedule could cause more consumers to switch away from satellite and cable.

The timing of DSG’s bankruptcy filing was due to the expiration of a 30-day grace period for a $140 million interest payment due on February 15. Essentially, the DSG had run out of options. While DSG was gracious about the reorganization, stating that it expects to “continue as usual in the Chapter 11 process,” Major League Baseball or MLB, however, weren’t so sure.

They issued the following statement, stating that, “Despite the Diamond’s financial condition, there is every expectation that they will continue to televise all of the games they are prepared to play during the bankruptcy process. Major League Baseball is prepared to produce and distribute games to fans in their local markets in the event that Diamond or any other regional sports network is unable to do so under their agreements with our club.

They added: “…We have hired additional experienced local media professionals to strengthen our capabilities in anticipation of this development.” There are currently 52 MLB, NBA and NHL teams that have franchise deals with Bally Sports Networks.

Former Sinclair subsidiary DSG has 19 Bally Sports-branded RSNs acquired from The Walt Disney Corporation in a deal that valued its assets at nearly $10 billion, at more than $122 per subscriber. The channels were part of a larger deal when Disney bought a myriad of programming assets from News Corporation in 2018, when they were valued at more than twice the value of nearly $22 billion and more than $250 billion. However, the government demanded that Disney dispose of the assets due to antitrust concerns, leading to a fire sale.

At the time, many believed that Sinclair had landed the deal of the century, with popular sports channels at half price. However, cord-cutting (when people switch from cable or satellite to online services like Netflix and Hulu) and cord-shaving (when consumers downgrade to cheaper packages) accelerated.

The Chapter 11 filing will see DSG become an independent company, with Sinclair seeking to exchange its debt position for equity in the new company. While DSG said it is “well capitalized and has about $425 million in cash to fund its business and restructuring,” it actually has about $8 billion in debt and has defaulted on its payments.

While “first-lien lenders,” who own about $650 million, will get their money back, subordinated and unsecured debt holders expect just under 10 cents on the dollar, taking into account debt trading.

Most cable and satellite subscribers do not know that these RSNs require them to be included in the basic package. This means you pay for them whether you watch them or not. And they’re expensive, about $5/sub per month each, and with 2-5 of them in each market, that can add up quickly. And $5/sub/month is the wholesale rate. it probably runs you closer to $7/month per channel including markup.

NBA commissioner Adam Silver said last month at the Sports Business Journal Sports World Congress in New York. “The package is broken. It’s obviously broken. Our regional sports networks, particularly Sinclair. They paid 10 billion dollars. It’s not clear that it’s a good deal for $5 billion.”

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