Sinclair/Diamond Sports bankruptcy watch

[nfotiu]

I think the big independents like YES and NESN more or less rise and fall on the strength of their teams.  FWIW, NESN double its viewership from 2020 this year.  As for MASN, wouldn't it be hysterical if the Nats ended up with one of the better deals (relative to the 16 teams getting nothing).

Ratings are not overly significant.   Ad revenues are in the 7 digit range, while carriage fees are 9 digits.  The contracts are all complicated, but generally speaking the team owned RSNs should have a softer fall as cable subscribers decline.   NESN might go from 200 million-180-160.. etc.     A Sinclair station might be committed to paying a baseball team 70 million/year and a hockey team 40 million, and see their carriage revenue go from 140 mill-120-100-80 and it suddenly makes no sense to stay in business.   

[nfotiu]

https://www.barrettsportsmedia.com/2022/08/30/diamond-sports-rsn-sale/

It looks like Sinclair is going to try to get rid of these.   

The only thing that could make any sense is for the teams to buy them at a big discount.   Teams can take them on, and have a soft landing as subscribers wind down vs losing their tv deals altogether if they go bankrupt. 

I still think this is going to be a seismic shift for mlb and nhl as there are many teams who get a very large portion of their revenues from RSNs.

[HalfSmokes]

I'd love to see the Nats buy another team's rights

[imref]

I'd love to see the Nats buy another team's rights

We should buy the Padres rights.

[nfotiu]

https://nypost.com/2022/09/20/mlb-nba-and-nhl-may-buy-biggest-owner-of-regional-sports-tv-networks-sources/?utm_source=twitter_sitebuttons&utm_medium=site%20buttons&utm_campaign=site%20buttons

It looks like the leagues and teams are inevitably going to own these one way or the other.    Crazy that they were valued at 20 billion when Disney bought the Fox assets, only got 10 billion from Sinclair and now Sinclair is hoping to offload them for 3 billion.

It will be a complicated mess for the leagues to figure this all out though.   For the last couple years or so, they've been paying the teams more than they bring in in revenue, so how does the league balance that out when some teams (ie Angels) bring in much bigger rights than others without the revenue to back that up.

“They will offer it to all three leagues,” one source close to the talks said. “There is a reasonable likelihood this will all happen. That’s where this is heading.”

Sinclair CEO Chris Ripley
Sinclair CEO Chris Ripley
Sinclair Broadcast Group
If a deal isn’t reached in what is being described as a “grand solution,” there is a growing possibility creditors — mostly hedge funds that have scooped up Diamond’s distressed debt — could force Diamond and its Bally RSNs into bankruptcy in the next three to six months, sources said. 

While Diamond does have the cash on hand to survive through next year, it is technically insolvent and creditors could soon force it into bankruptcy, sources close to the situation said.
“I believe Diamond is getting pressure from hedge funds to call the liquidation question early,” a source close to Diamond opined.

Diamond has been telling the leagues in recent days if it goes bankrupt it will be able to keep broadcasting games, but will not need to pay teams their rights fees as it will have protection from creditors, sources close to the talks said.

[HalfSmokes]

What happens with teams who have deals with other networks? Are they supposed to subsidize the Sinclair teams?

[machpost]

Would MLB swoop in and buy them out? I seem to recall reading at some point that they would like to control all the broadcasting rights.

[nfotiu]

What happens with teams who have deals with other networks? Are they supposed to subsidize the Sinclair teams?

It's going to be a mess to unpack, that's for sure.   

Take the Angels example, they currently get 150 million (probably more because these tend to escalate over the contract) for the next 9 or so years.    If the revenue they bring in is only 75 million (and falling) and production costs are 5 - 10 million, does the league say to them, they'll get 65 million and be happy they get that?   The alternative if the league buys them is they go bankrupt and maybe not pay the Angels at all.   

[nfotiu]

Bankruptcy is looking more likely and more imminent now.   

https://seekingalpha.com/news/3918394-sinclair-broadcasts-diamond-sports-networks-potential-sale-may-fail-report

Now creditors may be willing to take their chances in a potential bankruptcy court in the first half of next year, the NYP said, citing sources close to the talks. Creditors are likely to use the courts to reject Diamond's unprofitable contracts with sports teams.

https://nypost.com/2022/12/18/mlb-nba-and-nhl-unlikely-to-save-tv-regional-sports-networks-sources/

That means Diamond’s slew of unprofitable broadcasting contracts will likely be rejected — and its decades-old, cable-TV-based business model will go out the window as deals are cut to stream lives games online, sources said. MLB could potentially step in as a temporary platform next year, but the streaming rights are expected to eventually end up with Big Tech companies like Apple, Amazon and Facebook, sources said.

[imref]

Just need Elon Musk to step in and buy them.

[HalfSmokes]

Bankruptcy is looking more likely and more imminent now.   

https://seekingalpha.com/news/3918394-sinclair-broadcasts-diamond-sports-networks-potential-sale-may-fail-report

https://nypost.com/2022/12/18/mlb-nba-and-nhl-unlikely-to-save-tv-regional-sports-networks-sources/

Sinclair doesn’t have streaming rights. If they go under, leagues can cut them out of streaming deals

[machpost]

Is it really that easy to nullify these contracts through bankruptcy? Is there no mechanism for the teams to endlessly appeal the decisions, thereby dragging this out for years?

[nfotiu]

Looks like they will be in bankruptcy before MLB season starts:

With financial troubles mounting, the Sinclair Broadcast Group Inc.-owned firm will likely skip $140 million in interest payments due mid-February, kickstarting a 30-day grace period, according to people familiar with the matter. A stark divide is emerging between would-be winners and losers: its $630 million first-lien loan is trading at 92 cents on the dollar, while nearly $5 billion of lower-ranked bonds change hands for under 10 cents — signaling a near-total wipeout for subordinated creditors.

How all this goes down matters. If Diamond, which operates under the Bally Sports brand, files for bankruptcy, it could potentially put at risk crucial broadcasting-rights revenue for the likes of MLB.

“You’re looking at a potential rewrite of the entire regional sports business on the other side of this restructuring,” said Davis Hebert, a senior telecom analyst at debt research firm CreditSights.

https://www.bloomberg.com/news/articles/2023-01-25/sports-broadcaster-diamond-faces-8-6-billion-debt-reckoning?utm_source=google&utm_medium=bd&cmpId=google

[machpost]

Looks like they will be in bankruptcy before MLB season starts:

https://www.bloomberg.com/news/articles/2023-01-25/sports-broadcaster-diamond-faces-8-6-billion-debt-reckoning?utm_source=google&utm_medium=bd&cmpId=google

What would bankruptcy mean for day to day operations? Will they still be on the air, producing ballgames? Surely MLB has a contingency plan in place, as I've seen them produce games for distribution on MLB.tv in situations where the local RSN did not do so.

[nfotiu]

What would bankruptcy mean for day to day operations? Will they still be on the air, producing ballgames? Surely MLB has a contingency plan in place, as I've seen them produce games for distribution on MLB.tv in situations where the local RSN did not do so.

There seems to be a lot to figure out.   They may stop paying the teams.   The likeliest scenario is MLB ends up taking over these networks and figuring out a holistic plan forward for the league.   It will be messy though.   These RSNs still pull in significant (but falling revenue), just not enough to cover payments to teams any more.   So if the league takes them over, do they keep paying the Angels 150+ million/year when the revenue for their network is likely half of that?   What about the teams that are getting more like 50 million from Sinclair?

This is going to be a pretty big correction to the economics of the league.

[welch]

How close is MASN to being bankrupt? Have they paid Baltimore while refusing to pay the Nats?

[nfotiu]

How close is MASN to being bankrupt? Have they paid Baltimore while refusing to pay the Nats?

MASN looks like a crappy, podunk network to all of us, but they're still bringing in 160 Million+ per year in subscriber fees.   Who knows who's watching that money and ensuring an Angelos kid isn't using it as their checking account, but they should still be relatively solvent at this point.

If the MLB ends up in a situation where 14 teams are left without RSNs and really know other competitors wanting to stay in the game or expand, there is a chance that some kind of nationalization of at least streaming rights occurs that could bail the Nats out of their mess.   Lots of wishful thinking there though.

[comish4lif]

Article from Baseball Prospectus on the downfall of Sinclair.

"One would think the company would have been setting money aside to meet its financial obligations, just like we were taught in kindergarten. Instead, Sinclair spent $120 million on stock buybacks in 2022, and they’re authorized for another $704 million in future buybacks. This was immediately after completing a $1 billion buyback program from 2018-2021. The amount of money they invested in their own stock through the two buyback initiatives is a little more than the amount their subsidiary, Diamond, owes to teams for broadcasting rights. Now that subsidiary heads to bankruptcy court."

https://www.baseballprospectus.com/news/article/80012/in-the-dirt-sinclair-prioritizing-buybacks-over-baseball-hurts-fans-the-most/

[JCA-CrystalCity]

Article from Baseball Prospectus on the downfall of Sinclair.https://www.baseballprospectus.com/news/article/80012/in-the-dirt-sinclair-prioritizing-buybacks-over-baseball-hurts-fans-the-most/

I forget a lot of bankruptcy law, but this sounds like a fraudulent conveyance that a court could set as side (reverse). Maybe it is impossible given the number of shareholders

[HalfSmokes]

I forget a lot of bankruptcy law, but this sounds like a fraudulent conveyance that a court could set as side (reverse). Maybe it is impossible given the number of shareholders

Probably impossible, I’m surprised they didn’t go with dividends knowing that the shares would ultimately go to zero regardless of buybacks

[imref]

https://blogs.fangraphs.com/diamond-sports-groups-bankruptcy-could-rock-the-baseball-revenue-boat/

[nfotiu]

Probably impossible, I’m surprised they didn’t go with dividends knowing that the shares would ultimately go to zero regardless of buybacks

Sinclair's stock won't go to zero.   It will just be the Diamond sports subsidiary.   They've already taken the write-offs and Diamond sports is no longer on their books.   The way it is currently structured, it makes no sense for Sinclair to funnel money into Diamond to keep them afloat.   The bottom line is they owe the sports teams more than they get in revenue, so throwing some money at Diamond to keep a money losing business afloat makes little sense.

[machpost]

https://blogs.fangraphs.com/diamond-sports-groups-bankruptcy-could-rock-the-baseball-revenue-boat/

This article does a better job than most of explaining how and why they did what they did.

[GburgNatsFan]

I'll have to go look for it, but I saw a report that MLB was looking to buy back home game rights so they could broadcast games on their platform.... here it is.

https://www.sportsbusinessjournal.com/Daily/Morning-Buzz/2023/01/12/mlb-billy-chambers.aspx

[nfotiu]

MLB is making preparations to figure this all out, and has formed a committee.  I still have a glimmer of hope that this creates some kind of national pool of local TV money and bails us out of the MASN mess.

https://www.espn.com/mlb/story/_/id/35583277/mlb-forms-economic-group-regional-tv-peril