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Sinclair raided Diamond Sports coffers because bankruptcy was inevitable: lawsuit

MLBThe battle over baseball’s streaming strategies took an unexpected turn into uncharted waters when Diamond Sports Group launched a lawsuit against parent Sinclair, claiming the larger firm drained up to $1.5 billion from the subsidiary housing regional sports networks purchased from Fox.

The raid of operating funds by Sinclair came almost immediately after the acquisition of Fox’s RSN assets from Disney, which had acquired them as part of a purchase of Twenty-First Century Fox’s media and film assets, including its movie library and channels like FX. The lawsuit says that Sinclair also raided Diamond coffers of fund generated when the RSNs were rebranded from Fox to Bally Sports.

The rationale was simple, according to the lawsuit: Sinclair knew bankruptcy was inevitable for Diamond, so it might as well grab the cash. From Reuters:

Diamond Sports, which broadcasts nearly half of NBA, NHL and MLB local games through its “Bally Sports” branded channels, said that Sinclair began siphoning the company’s assets away almost immediately upon acquiring it in 2019. Sinclair’s actions defrauded Diamond and its creditors, because Sinclair knew that Diamond was “careering toward bankruptcy” due to declining revenue from cable and satellite television subscriptions, according to the lawsuit.

“Throughout this entire period of precipitous decline, Sinclair unrelentingly continued to carry out its plan to ‘milk’ Diamond for Sinclair’s own benefit and to extract whatever value it could salvage before Diamond’s inevitable bankruptcy,” Diamond wrote in a complaint filed in U.S. bankruptcy court in Houston, Texas.

Diamond’s complaint alleges that Sinclair quickly used Diamond’s funds to pay off part of Sinclair’s costs in acquiring the company. Sinclair later collected “extortionate” management fees from Diamond and pocketed most of the money raised in a deal that rebranded Diamond’s channels as “Bally Sports,” according to the complaint.

The lawsuit adds a level of complexity to MLB working out some sort of industrywide streaming offering. Right now local rights are controlled by individual teams via deals with the various Diamond entities, as well as a few smaller players like NBC Sports Philadelphia after the likes of AT&T SportsNet announced a withdrawal from the sports-broadcasting world. But those remaining individual agreements are under stress: Diamond walked away from a few contracts (leaving MLB to take over Padres broadcasts) while coming up with late payments to retain rights for this season, as what happened with the Minnesota Twins.

Meanwhile, these moves may allow Diamond to retain rights to some teams beyond this season. But talk with the smart people in the industry and they’ll tell you the future of local MLB broadcasts won’t lie with Diamond or any of the current regional sports networks: they lie in a combination of direct-to-consumer streaming services and over-the-air broadcasts. Yes, those forgotten higher-digit stations, which are very well-represented as basic services on almost every cable and streaming (Roku/YouTube) service, are likely to receive a lot of attention for teams looking to put together their own media offerings.

The Phoenix Suns (NBA), for example, are heading back to over-the-air broadcasts combined with a streaming service for the 2023-2024 NBA season. In Las Vegas, the NHL’s Vegas Golden Knights signed a deal earlier this month with startup Scripps Sports to locally broadcast Golden Knights games for free to residents of Nevada and surrounding states within the team’s broadcast territory. Scripps will air Golden Knights games on its local station KMCC-TV channel 34, which will be rebranded as an independent station before the 2023-24 NHL season begins. Scripps and the Knights will partner on a direct-to-consumer streaming option as part of this partnership. 

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