Yesterday’s bankruptcy hearing between Major League Baseball (MLB) and Diamond Sports Group (DSG) was, in a word, acrimonious. The first day of testimony to determine whether or not Diamond Sports Group is obligated to pay the Arizona Diamondbacks, Cleveland Guardians, Minnesota Twins and Texas Rangers the full sum of their television rights contracts contained explosive details of business processes and the relationship between the plaintiff and defendant.
It took place just one day after Diamond Sports Group neglected not to pay the San Diego Padres their latest rights payment and relinquished the team’s local broadcast rights to the league itself. While it may seem somewhat abrupt, this practice is a means of contract termination permitted under Chapter 11 bankruptcy.
The league, however, was prepared for such a scenario and is ready to take over local broadcasts for the 13 other teams airing on Bally Sports’ regional sports networks (RSNs). Commissioner Rob Manfred divulged that in order to make up for lost profits, the league will pay the afflicted teams a minimum of 80% the money owed.
“We arrived at that number as something that would prevent financial distress at the club level, [the] ability to pay players and those things,” Manfred said. “We wanted them to have enough cash flow to prevent a disruption of our business.”
Manfred detailed the league’s discomfit with public comments made by president and chief executive officer of Sinclair Broadcast Group, Chris Ripley. Manfred said Ripley outlined his goal of creating a digital business that would require gambling, merchandising and ticketing rights that the company simply did not possess, and was subsequently raising public funds from that rhetoric. Manfred says he told Ripley on several occasions that what he was doing was irresponsible and that Sinclair Broadcast Group would not secure those rights.
Sinclair Broadcast Group executive chairman David Smith met with Manfred in New York, N.Y. where he requested the company receive direct-to-consumer broadcast rights to strengthen its Bally Sports Plus app. Diamond Sports Group chief executive officer David Preschlack revealed the app currently has approximately 203,000 subscribers, only 55% of the corporate goal.
Manfred vehemently shot down Smith’s proposal, explaining that people cannot always get what they want. Smith, who invested $2 billion in the purchase of the regional sports network, outlined exactly the way things would, and have, played out.
“He said, ‘So what I’m going to do [is] I’m going to keep this going long enough until I get my $2 billion out, and then I’m going to start squeezing your clubs to take their rights fees down in order to make sure that I stay profitable in the RSN business. And if they don’t agree to that, I’m going to put the entity into bankruptcy and then I’m going to selectively reject contracts,’” the Major League Baseball Commissioner said.
He responded vowing the league would serve its fans by being prepared to produce and distribute broadcasts themselves every time the company rejects or even threatens rejection of a contract.
“RSNs, whoever the hell owned them, had made hundreds and hundreds of millions of dollars in profit off these long-term agreements,” Manfred said. “And we felt that because they had enjoyed that long period of huge profits, that when things started to look like they were maybe not quite as profitable – to turn around and say, ‘We’re going to squeeze you and make you take lower rights fees,’ didn’t sit very well with us.”
