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MLB preps for Sinclair bankruptcy restructuring

We could see a drastic overhaul of MLB’s broadcast revenues with a potential Sinclair bankruptcy filing, as the firm looks at a $8.6 billion debt restructuring that could interrupt and decrease team payments.

The sports-broadcasting giant is looking at a Chapter 11 filing, allowing it to restructure some $8.6 billion in debt. It also allows the giant to skip some debt payments and seek to renegotiate broadcast deals with teams partnering with Bally Sports. The bankruptcy filing will not be a surprise to anyone in the industry or a regular reader of this site: last fall Sinclair officials met with reps from all three league partners–MLB, NHL and NBA–about potential changes within the industry: “While there are some corporate mechanisms at play–Sinclair could distribute equity in Diamond Sports to creditors, who would then oversee a fire sale of assets to MLB, NBA and NHL–the Post is quoting plenty of folks who see the sale as an inevitability, not a potential, given Sinclair’s heavy debt load.”

Bloomberg is reporting that Sinclair, via its Diamond Sports Group LLC subsidiary, is indeed contemplating a plan to offer equity to its largest creditors to erase the debt, allowing the likes of Prudential Financial and Fidelity to liquidate that equity, the leagues the target of these fire sales. Having MLB control cable and streaming rights for the 21 regional sports networks owned by Sinclair would accelerate the inevitable movement toward a streaming-first broadcast strategy–a move already underway, as apparently MLB is refusing to overhaul its rights strategies to bail out Sinclair. From Bloomberg:

“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….

Diamond’s financial struggles are a bad omen for the industry at large, given the amount of revenue from media rights influences how much players get paid, among other things. As the cable-TV business contracts, some sports and media executives are warning that teams and leagues will need to accept smaller rights payments going forward….

But the MLB is emerging as a stumbling block to Diamond’s new streaming efforts, said one person. The league has resisted giving the company more streaming rights, fearing it could get tied up in a potential bankruptcy, and has started exploring taking its local broadcast rights back, another person said.

There really is no upside for MLB to bail out Diamond Sports: yes, there will likely be some short-term pain for teams and MLB. MLB was once a pioneer in the streaming world–BAM and BAMTech were ahead of their time–but at some point MLB decided to take the cash while selling BAMTech to Disney and rely on its broadcasting partners to lead a streaming strategy, preferring not to disrupt the lucrative status quo.

But the center cannot hold given how quickly fans viewing habits are changing, with cord-cutting accelerating and younger viewers less interested in sports programming. Should MLB concentrate on its considerable, yet rapidly aging fan base, or should it adopt a new streaming plan more aimed to those younger mobile users? This is a more existential challenge to MLB than many in the industry will admit publicly, so it will be fascinating to see how MLB reacts to these challenges. In the midst of chaos, there is also opportunity.

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