Sinclair Broadcasting’s Diamond Sports Group LLC subsidiary is skipping $140 million cash in interest payments due today, while announcing it would spend the next 30 days reviewing its strategic options.
The $140 million interest payment has been a iceberg off the bow of the good ship Diamond Sports for several weeks now, so the crash isn’t exactly surprising. We reported last month the firm was considering strategic options in the face of a very challenging financial environment, looking at a Chapter 11 filing, allowing it to restructure some $8.6 billion in debt. Besides missing this debt payment, the next likely step is to renegotiate broadcast deals with teams partnering with Bally Sports. While this affects three major-league sports, our focus is on the 14 MLB teams with a Bally Sports relationship.
A 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.”
Per a Diamond Sports press statement, “The Company intends to use the 30-day grace period to continue progressing its ongoing discussions with creditors and other key stakeholders regarding potential strategic alternatives and deleveraging transactions to best position Diamond Sports Group for the future.”
What happens next may depend on how MLB officials react to what comes next. At one point a leading option was for Diamond Sports 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. MLB has set up a committee to specifically address this possibility, as confirmed by MLB Commissioner Rob Manfred: ““I think you should assume that if Diamond doesn’t broadcast, we’ll be in a position to step in. Our goal would be to make games available not only within the traditional cable bundle but on the digital side, as well.”
So expect some corporate drama. 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, with Diamond not paying out a billion dollars or so to its 14 MLB partner teams. 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 status quo ain’t so lucrative anymore, and no one expects the cable world to rebound any time soon. As we wrote: “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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