Diamond Sports Group, the arm of Sinclair Broadcasting responsible for operating various Bally-branded regional sports networks, officially filed for Chapter 11 bankruptcy in the Southern District of Texas on Tuesday afternoon. It was initially reported that the filing would take place on Friday, but I guess they saw no reason to delay a process that has been inevitable for quite some time now.
The writing was on the wall even as Sinclair was finalizing its $10-11 billion purchase of those former Fox Sports RSNs from Disney in 2019 because the traditional broadcast bubble had already burst. DSG might have been able to make something work had the purchase been much smaller, but trying to steer a ship of nearly two dozen different stations responsible for the coverage of multiple MLB, NBA, and NHL teams was far too costly and complex.
“The DSG Board of Managers has been evaluating strategic opportunities with the support of its advisors and in coordination with creditors to position the Company for long term success and has determined that the best path forward for the Company and its stakeholders is to restructure through a Chapter 11 process,” CEO David Preschlack explained. “We are utilizing this process to reset our capital structure and strengthen our balance sheet through the elimination of approximately $8 billion of debt.”
DSG claims to have around $425 million in cash on hand to continue operating as usual during the bankruptcy filing, though it will try to restructure most of its MLB deals. Four of the 14 teams currently broadcast on Bally networks, however, will have their contracts rejected. That group consists of the Diamondbacks, Guardians, Padres, and Reds, the latter of which can ill afford to see a major revenue stream dry up when ownership is already crying poor.
MLB has obviously known about all of this for some time and has plans in place to offer free in-market streaming for the impacted teams until a long-term solution can be found. Many believe this could lead to the league taking over broadcast rights for a majority of its teams in order to bring about a system in which no games are blacked out, though some teams — the Cubs, Yankees, Dodgers, and Red Sox come to mind — aren’t going to want to share their disproportionately larger pieces of the pie.
As a reminder, MLB’s blackout rules aren’t a matter of trying to force fans to go to games, they’re about protecting the interests of local broadcast partners. Those interests have changed as cord-cutting and streaming become the norm, but the league is obviously reluctant to rock the boat when such a huge portion of its ever-increasing revenue comes from broadcast partnerships.
Most of that is rooted in postseason rights fees, though, and national deals aren’t going away even if the local rights morph into an MLB-controlled streamer. The bigger issue is how some of these individual teams are impacted, particularly when we’ve got owners complaining that they don’t make money. Most of them are already pissed about Steve Cohen’s massive spending, and the Mets aren’t a Bally Sports team. How is Bill DeWitt Jr. going to feel when the Cardinals lose tens of millions in annual revenue following a restructuring of their TV deal?
The Padres are another interesting case given their increasing investment in long-term contracts over the last few seasons. This situation isn’t going away anytime soon and it’s going to be at the heart of the next CBA negotiations, which the league and owners have already begun laying the groundwork for in public statements.
As reluctant as I’ve been to give the Cubs credit for Marquee’s rollout and ongoing broadcast strategy (other than the MiLB stuff, which owns), the decision to maintain ownership of the network separate from Sinclair’s other holdings was very smart. Or maybe it was just lucky, as I think the choice was rooted more in greed and/or pride than any sort of foresight into the state of the market. Just imagine if they’d have been able to work out their own deal around the time the Dodgers hit the jackpot with SportsNet LA.
Ed. note: I really like a lot of the people at Marquee on both personal and professional levels, so my opinion isn’t about the talent for the most part. It’s more a matter of the people pulling the strings.
The Cubs missed the boat there in large part due to their existing deals with WGN and NBC Sports Chicago, the continuation of which were contingencies of the team’s sale, though one has to think buyouts would have been possible. Then there’s the botched carriage rollout they had spoken for years about wanting to avoid after seeing how poorly the Dodgers handled things by cutting off access for half of their Southern California fanbase.
Anyway, the whole point here is that this development is going to fundamentally alter the way Major League Baseball is consumed. While that might end up being a good thing for fans and teams alike in the long run, this kind of shocking disruption is rarely patched up without serious difficulty and discomfort. Let’s hope the league figures out an amenable solution in relatively short order, because there’s a very real possibility that this ends up as a big part of what could be disastrous labor strife in a few years.