Warner Looks to Offload ‘Orphan’ AT&T SportsNet Channels as Broader RSN Industry Faces Not an ‘Implosion,’ but Certainly a Major Reset
No, regional sports networks aren't going away anytime soon, analyst tells Next TV, but the coming months will see some big changes
As Sinclair continues to play bankruptcy chicken with its creditors and league partners in an attempt to restructure more than $9 billion in debt tied to its Bally Sports channels, Warner Bros. Discovery has reportedly told teams tied to its four regional sports networks (opens in new tab) that they have until March 31 to buy back their TV rights.
According to Sports Business Journal, WBD told 10 teams affiliated with Major League Baseball, the National Basketball Association and the National Hockey League they have until March 31 to negotiate a buyback of their rights. If an agreement can’t be made, WBD will conduct a Chapter 7 liquidation filing.
Also read: Is WBD Cool to the RSN Biz, Too? Light AT&T SportsNet Envelopes Stir Concerns Among Sports Media Watchers
WBD’s declaration means that currently, key revenue streams from TV rights for a collective 52 teams across three major sports leagues are in limbo, factoring in the 42 teams impacted by the Bally Sports issue.
And things are tough all over for regional sports networks, which routinely generated profit margins of 50% or more just four years ago.
Earlier this month, for instance, The Walt Disney Co. disclosed that its SEC Network ended 2022 with 51 million subscribers, down 14% since 2019. (See page 7 on Disney's 10K (opens in new tab) filing.)
NBCUniversal, meanwhile, said it has only 15 million remaining customers for its five NBC Sports RSNs, down from 21 million in 2021. (That's page 8 on Comcast's 2022 10K (opens in new tab). Some of that loss can be attributed to NBCU selling its share of its Washington/Baltimore RSN back to its partner teams a year ago.)
And the moribund Pac-12 Networks might, according to a published report, sign a distribution deal with Apple “because no one else will give them money,” a individual familiar with the negotiation told Next TV.
“The RSNs are definitely the hot-house flowers of pay TV,” Patrick Crakes, a former Fox executive turned sports media consultant also told Next TV.
The “decade-long phenomenon that is cord-cutting“ is taking are particularly acute toll on programming networks with narrowly focused content, Crakes explained, but this shouldn’t fool anyone to believe the leagues will suddenly shift their rights to streaming.
”Nobody has been able to make that work yet, including Netflix,” Crakes said, noting the more than decade — and billions of dollars — of deficit spending it took the streaming giant to get to a place where it could report a profit.
Also read: Scripps Sports: Phones ‘Already Ringing’ as Regional Sports Nets Implode
On Friday morning during an earnings call, E.W. Scripps CEO Adam Symson said his phone has been ”ringing off the hook” with those seeking to discuss moving live sports programming on RSNs to local broadcast, as the RSN business experiences what he called an ”implosion.”
Crakes bristles at that hyperbolic word choice — there’s simply too much tread left on the RSN business, he said, and the OTT ”plus” business simply can't generate replacement revenue yet.
To Crakes’s thinking, the RSN business has indeed peaked, but channels can still yield margins of 10% to 20% for those such as NBCU who aren’t carrying any debt on them.
And he believes that once the dust settles with the current Sinclair and WBD restructurings, that’s exactly the kind of mature business RSNs will settle into — one that will let both media companies and pro sports team partners bide their time until digital models do generate enough revenue to support the lifestyles in which they’ve all become accustomed.
Sinclair Has 'Very Effectively Used Bankruptcy'
While MLB commissioner Rob Manfred seemed to issued a stern ultimatum when he suggested nearly two weeks ago that pro baseball was prepared to replace TV distribution for 14 of its teams should a bankruptcy filing by Sinclair’s Diamond Sports Group disrupt TV rights revenue, Crakes doesn't think the MLB really has any such alternatives.
Digital distribution can’t replace the 10% to 30% of overall revenue teams receive from their RSN deals with Diamond. It’s still overwhelmingly in their best interest to find a way for Sinclair, Diamond and Bally Sports to go on.
Diamond, Crakes also said, isn’t actually as cash-strapped as many have been led to believe. But the cost of maintaining all the debt on the Bally Sports channels has reduced margins to razor-thin levels. Sinclair, he explained, has “very effectively used bankruptcy” to move forward with a reshuffling of the deck, hoping to trade equity in the 19 Bally Sports channels for its debt.
Sinclair hopes to come out of all this as a minority owner of an RSN group that generates around 15% margins, debt-free, with a new ownership group — perhaps private equity — in control.
Meanwhile, some of the 19 Bally Sports channels might be offloaded to other RSN groups, such as NBC Sports, that could provide a better fit for them, Crakes said, noting the networks’ origins under Fox Sports ownership.
”That portfolio was designed for us at Fox in a different era, where they would be bundled with news channels and FX and local affiliates,” Crakes said.
As for the AT&T SportsNet channels serving Denver, Houston and Pittsburgh, they were inherited by AT&T amid its DirecTV purchase in 2015, and then spun off with WarnerMedia and tied up into the $43 billion merger with Discovery.
Crakes called this AT&T SportsNet portfolio — which also includes a minority stake in Root Sports Seattle — an ”orphan,“ a poor fit for an indebted WBD that’s conducted around $4 billion in synergy cuts recently.
In fact, AT&T itself tried to sell the channels to Sinclair, before Sinclair paid $10.6 billion for the Fox Sports networks in 2019, later rebranding them as “Bally Sports.”
AT&T, too, is leveraging the bankruptcy threat to push its debt and team partners to help restructure the AT&T SportsNet business.
“The teams are going to work with the distributors to keep the value chain intact,” Crakes predicted. The RSN business is “never going to be a growth business again,” but it will reemerge after the Sinclair and WBD restructurings as still viable, at least in the near term. ■
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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!