As expected — two days earlier than anticipated, in fact — Diamond Sports Group has filed for bankruptcy, with the Sinclair Broadcast Group subsidiary looking to shed $8 billion in debt tied to its 19 Bally Sports Group regional sports networks.
Diamond said the Bally Sports channels will maintain their rights contracts with pro teams and keep up with presenting their games on television. It further stated that it will use the proceedings to restructure and strengthen its balance sheet, and it’s “well-capitalized with approximately $425 million of cash on hand to fund its business and restructuring.”
But when the smoke clears on the execution of the current restructuring agreement, the majority of equity in Diamond will be owned by the subsidiary's secondary and unsecured creditors, and Diamond will become an independent company.
Sinclair is essentially swapping equity for debt relief here.
Diamond said its “first-lien lenders,” which account for around $650 million in debt, will be “unimpaired.” Bloomberg reported last month that first-lien debt was valued at 92 cents on the dollar to settle, but the secondary and unsecured debt would, in the event of a likely bankruptcy filing, trade at under 10 cents on the dollar.
This signals “a near-total wipeout for subordinated creditors,” the news service said.
Diamond “will continue broadcasting games and connecting fans across the country with the sports and teams they love. With the support of our creditors, we expect to execute a prompt and efficient reorganization and to emerge from the restructuring process as a stronger company,” Diamond CEO David Preschlack said in a statement.
The announcement that Sinclair and Diamond have managed to forge a restructuring agreement with its creditors, and its partner sports leagues and teams, adds at least some notion of stability to a now fragile regional sports network ecosystem that seemed, at least at times last month, on the verge of an epic Silicon Valley Bank-style collapse.
Large TV rights deals with RSN groups, including Bally Sports, underwrite the bloated player salary budgets of most pro teams. It would be an austere challenge for the 52 MLB, NBA and NHL teams under the Bally Sports umbrella to suddenly have to replace lost RSN revenue should Bally Sports have completely collapsed.
Alas, the enterprise was too big to fail, and Sinclair forced its creditors and its league partners into restructuring via Tuesday's filing in a Texas federal bankruptcy court.
How It Began
Sinclair purchased 19 Fox Sports RSNs from Fox for $10.6 billion, just as the conglomerate's entertainment assets were being sold to Disney back in 2019.
Equity analysts didn't necessarily laud the deal at the time, but margins on the Fox Sports channels stood at around 50%, so nobody really freaked out about it.
But then, cord-cutting accelerated, and sports rights fees with teams kept on going up and up. And then something big and bad happened -- Dish Network, the No. 4 pay TV operator in America, refused to license the rebranded Bally Sports channels when it re-upped its broader deal with Sinclair back in 2021.
The lost distribution whittled the Bally Sports margin to only around 15%, which made the more than $9 billion of debt tied to them even more burdensome.
Sinclair had plenty of cash on hand so that its debt and rights payments might not have been an issue for some time, but it chose to engage in two pricey stock buyback initiatives. These benefitted the bottom lines of CEO Chris Ripley and other top Sinclair executives, but it brought the issue of the Bally Sports debt to a head quicker.
How It's Going
Sports media consultant Patrick Crakes, a former Fox Sports executive dialed in nicely to the negotiations, told Next TV several weeks ago that Diamond still had enough cash on hand to soldier on at least through the near term.
But there was little sunlight on the horizon. For example, the Bally Sports Plus direct-to-consumer streaming play revealed little sign that it would at any point soon deliver game-changing revenue, as Sinclair executives told investors earlier it might.
Diamond's league partners noticed this and understood they couldn't come close to replacing Bally's revenue by streaming their own games.
In the end, the bankruptcy filing put Sinclair in the driver's seat, allowing it to restructure its RSN business in such a way that it owns far less of it ... but owes far less on it, as well.
And with a functional Bally Sports controlling local TV rights for 14 Major League Baseball teams as Opening Day arrives in two weeks, fans won't face disruption in seeing their favorite teams on television.
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Daniel Frankel is the managing editor of Next TV, an internet publishing vertical focused on the business of video streaming. A Los Angeles-based writer and editor who has covered the media and technology industries for more than two decades, Daniel has worked on staff for publications including E! Online, Electronic Media, Mediaweek, Variety, paidContent and GigaOm. You can start living a healthier life with greater wealth and prosperity by following Daniel on Twitter today!