When Diamond Sports Group filed for Chapter 11 bankruptcy in March, it began selectively rejecting contracts under the auspices of restructuring its finances and outstanding $8 billion in debt. The company entered a bankruptcy hearing against Major League Baseball to determine if the Sinclair Inc. subsidiary was responsible for paying the full sum of its television rights contracts. The league, however, was at the ready and created a local media department to assume operations of local broadcasts, which ended up occurring for the San Diego Padres and Arizona Diamondbacks.
Moreover, those teams were paid at least 80% of the rights fees they would have received as part of their contracts with Diamond to protect competitive balance for the 2023 season. In the end, the bankruptcy court ruled that Diamond is still obligated to pay the full sum of rights fees to the four afflicted teams, all of whom were not paid in full leading to the lawsuit.
The issue extends beyond baseball though, as teams in the National Basketball Association and National Hockey League have 27 local media rights deals with Diamond Sports Group. Earlier in August, the NHL expressed to a bankruptcy court that it may seek emergency relief to exit the contracts if the company does not have a reorganization plan completed. The league said that it is “critical” that it knows the direction of the company by the start of the preseason on Sept. 23.
Additionally, the Phoenix Suns and Mercury were sued by Diamond when Suns Legacy Holdings decided to agree to a deal with Gray Television to broadcast its games free over-the-air and create a direct-to-consumer offering. Sports Business Journal media reporter John Ourand revealed that the dispute was dropped, which led to the ownership group finalizing the deal.
Amid all of the claims, Diamond Sports Group is now actively suing its parent company, Sinclair Inc., alleging that it garnered more than $1.5 billion because of misconduct. Some of these claims pertain to the fraudulent transfer of assets, breaches of contract and unjust enrichment, all of which have gradually transferred assets from Diamond to Sinclair. Since the former operates independently, it feels that these transactions only benefitted its parent company and harmed the creditors of the subsidiary, catalyzing the bankruptcy process amid declining cable television subscriptions.
The parent company has indicated that Diamond Sports Group does not have a restructuring plan in its purview as the Sept. 30 deadline draws closer. Diamond was hoping to have been granted a Nov. 9 deadline; however, the company is seeking to find a way to make it work for their creditors and key stakeholders. Sinclair also divulged that Diamond has almost $147 million in unpaid management services, and opted not to bill the latter the full value owed in order to preserve and support its liquidity. In order to reach a resolution, Sinclair has asked its subsidiary to either pay the money owed or repudiate the contract.
Sinclair Inc. recently reported its quarterly financial results and revealed an 8% year-over-year decline in revenue, finishing at $768 million. Diamond Sports Group’s financial results are reported separately from Sinclair’s, and it planned to finalize a restructuring support agreement shortly after the initial bankruptcy claim. Diamond Sports Group has been granted the assistance of judicial mediators to try to hasten a resolution as it relates to a reorganization plan as pressure mounts in the coming days and weeks.
“The debtors have been hard at work on an updated business plan to right-size their business and balance sheet given the tectonic shifts impacting the entire cable industry to increased subscriber churn,” Diamond Sports Group said in a motion to a Texas bankruptcy court. “The debtors believe that the time for appointment of a mediator or mediators is now.”
As the multichannel audience continues to decrease, Diamond Sports Group will also communicate with its distributors during this process, as select NBA and/or NHL teams could be rejected by the company. Sinclair affirms that Diamond has not had any discussions with the company about a master settlement agreement despite trying to commence negotiations. While it is willing to negotiate, Sinclair feels that the situation is precipitously becoming “untenable.” In fact, Sinclair does not predict the subsidiary it created in 2019 will return back to the surface, claiming that a resolution is “nowhere in sight.”
