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Wednesday, May 31, 2023

Diamond Sports Group fails to pay Padres, loses broadcast rights

Diamond Sports Group has decided not to pay the San Diego Padres their latest rights fee, a monumental development that will revert the team’s broadcasting rights to Major League Baseball and establish precedent for an uncertain, rapidly evolving landscape.

Diamond, the Sinclair subsidiary that operates under the name Bally Sports, skipped its payment to the Padres a couple of weeks ago and had until the end of its grace period on Tuesday to make the team whole and maintain their long-term agreement. Choosing not to meant Tuesday’s game against the Miami Marlins was the last Padres game under the Bally Sports umbrella. Moving forward—starting Wednesday, continuing through the end of the season and resuming in perpetuity—MLB will air Padres games through its streaming service and on different cable channels.

MLB will provide Padres games through its MLB.TV app for free through Sunday. After that, in-market fans can continue to stream games for $19.99 a month or $74.99 for the rest of the regular season on and (postseason games air on national platforms). Through this process, Padres games will no longer be subject to blackouts. Local fans can also watch Padres games through a variety of cable providers—AT&T U-Verse, DirecTV, Cox and Spectrum—on a different channel. fuboTV will also continue to air Padres games through its platform.

RoyalsRetro (AG#1F) Posted: May 31, 2023 at 09:16 AM | 27 comment(s) Login to Bookmark
  Tags: bally sports, padres, sinclair

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   1. Froot Loops Posted: May 31, 2023 at 09:54 AM (#6130885)
The phrasing of this strikes me as funny - Bally "decided not to pay" its contractually obligated payment. As if I "decided not to pay" my mortgage this month. Anyway, it sounds like this will expand access to Padres broadcasts, which I hope the other teams notice.
   2. Tom Goes to the Ballpark Posted: May 31, 2023 at 10:54 AM (#6130895)
Other teams will notice that the Padres are going to lose tens of millions of dollars in exchange for increased local access.
   3. . . . . . . Posted: May 31, 2023 at 10:57 AM (#6130896)
The phrasing of this strikes me as funny - Bally "decided not to pay" its contractually obligated payment. As if I "decided not to pay" my mortgage this month.

But the phrasing of the article is correct, and your understanding of how it works is wrong. Essentially DSG (and its DIP financing sources) is deciding that broadcasting Padres games for either the judicially-determined FMV or contract price (TBD, the court hasn't ruled yet, and the law is somewhat ambiguous) is not worth it to DSG, which means either that the FMV is inflated or DSG is not equipped to generate enough revenue from the broadcasts to justify the cost, compared to other broadcasters/streamers.

If the expected return was big enough, the DIP lenders would front them the money to pay. Bally has plenty of liquidity from its DIP loan.
   4. Ziggy: social distancing since 1980 Posted: May 31, 2023 at 12:00 PM (#6130902)
So then why don't the Padres sue for the money?
   5. It's regretful that PASTE was able to get out Posted: May 31, 2023 at 12:33 PM (#6130907)
Well, first, they still might.

Second, because by the time the legal process finally resolves it, there won't be any money.

Third, even if there were any money by then, they'd just be taking it out of the pockets of other MLB owners. Bally doesn't have the money for them all and is just picking which ones to pay at this point.
   6. Mayor Blomberg Posted: May 31, 2023 at 01:21 PM (#6130914)
Diamond has paid only half its rights fees to the Cincinnati Reds, Texas Rangers, Arizona Diamondbacks and Cleveland Guardians. A hearing is scheduled for Wednesday in Houston, during which a bankruptcy judge will preside over Diamond's claims that it should essentially pay lesser rights fees to those teams in order to account for the market forces that have diminished the traditional cable model in recent years. The judge's ruling, which might not be made until late Thursday afternoon, will play a big role in Diamond determining which other contracts it keeps or sheds as part of the bankruptcy process.

I hope they stagger their decisions to create a stream of free games over the summer.
   7. . . . . . . Posted: May 31, 2023 at 01:36 PM (#6130920)
So then why don't the Padres sue for the money?

Because that is not how bankruptcy works. The contract is an asset of the debtor who has a right to either reject or assume it. The counterparty has very limited rights to cause that process to be expedited; the general rule is the debtor should be given breathing room to operate in bankruptcy for several months and to figure out a new business plan for the reorg'ed debtor that may or may not include a given contract. While the decision to reject or assume is pending (i.e., as a general rule during the case), the debtor has a right to enforce the contract against another party; but the debtor has to pay some amount to the other party. there is inconsistent law about whether the debtor must pay the contract price or a judicially determined FMV; the hearing this week is both to hear argument on the legal question as to whether or not the contract price should be deemed to be the fair price and also, if the court decides that it must consider whether a lower FMV is the appropriate price, for parties to submit evidence on what that FMV should be.
   8. Starring Bradley Scotchman as RMc Posted: May 31, 2023 at 06:27 PM (#6130950)
Later headline: "Diamond Sports Group loses broadcast rights, looks between the sofa cushions".
   9. Stevey Posted: June 01, 2023 at 08:39 AM (#6131027)
Edit, misread.
   10. RoyalsRetro (AG#1F) Posted: June 01, 2023 at 09:15 AM (#6131031)
MLB to send Padres at least 80 percent money owed by Bally Sports, Rob Manfred says.

“We arrived at that number as something that would prevent financial distress at the club level, the ability to pay players and those sorts of things,” Manfred said in federal bankruptcy court in Houston. “We didn’t feel like we should be in the position of guaranteeing somebody else’s payments, but we wanted them to have enough cash flow to prevent a disruption of our business.”

The 80 percent guarantee is only for this season and also applies to the 13 other teams whose games are carried by Bally Sports, an official briefed on the arrangement who was not authorized to speak publicly said. Bally Sports and its parent company Diamond Sports were the broadcast partner of 14 MLB teams until midnight entering Wednesday, when they ceased to carry Padres games. Diamond and Bally are in bankruptcy proceedings.

“Clubs had cash flow concerns,” Manfred said.

Overall, Manfred painted the way Diamond and Sinclair did business in a poor light.

“We had a lot of complaints from clubs,” Manfred said. “They would schedule meetings and not show up, and it just, it didn’t go well.”
   11. Pat Rapper's Delight (as quoted on MLB Network) Posted: June 01, 2023 at 10:02 AM (#6131035)
“We had a lot of complaints from clubs,” Manfred said. “They would schedule meetings and not show up, and it just, it didn’t go well.”

Oh, boo hoo. MLB was all smiles and glad-handing when they were getting in bed with a company like Sinclair. Lie down with dogs, get fleas.
   12. RoyalsRetro (AG#1F) Posted: June 01, 2023 at 10:24 AM (#6131038)
MLB was all smiles and glad-handing when they were getting in bed with a company like Sinclair.

In fairness, they were Fox Sports back then. Sinclair bought them when the FCC forced Disney to sell those networks.
   13. Stevey Posted: June 01, 2023 at 11:06 AM (#6131043)
“RSNs, whoever the hell owned them, had made hundreds and hundreds of millions of dollars in profit off these long-term agreements. 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 gonna squeeze you and make you take lower rights fees,’ didn’t sit very well with us.”

I wonder, Mr. Manfred, how does it "sit" with you when MLB team owners demand concessions out of cities, or try to go back on the COVID deal with the PA, or just about anything that group of 30 billionaires do?
   14. The Yankee Clapper Posted: June 01, 2023 at 10:06 PM (#6131191)
Diamond Sports Group must pay full rights fees to Twins, Guardians, Diamondback & Rangers:
A U.S. bankruptcy judge ruled in favor of Major League Baseball and four of its teams in Houston on Thursday, forcing Diamond Sports Group, which runs broadcasts under the name Bally Sports, to fully pay the contracts in question.

Diamond, navigating through bankruptcy proceedings, argued it should pay the Minnesota Twins, Cleveland Guardians, Arizona Diamondbacks and Texas Rangers less than what the current deals call for, arguing that the rapid rate of cord cutting has significantly devalued the assets.

But Judge Christopher Lopez, presiding over a case that lasted two full days and included testimony from MLB commissioner Rob Manfred, ultimately stated: "I think the contract rate is the right answer here."
The Padres claim might be similar.
   15. Pat Rapper's Delight (as quoted on MLB Network) Posted: June 02, 2023 at 12:30 AM (#6131201)
Diamond, navigating through bankruptcy proceedings, argued it should pay the Minnesota Twins, Cleveland Guardians, Arizona Diamondbacks and Texas Rangers less than what the current deals call for, arguing that the rapid rate of cord cutting has significantly devalued the assets.

"Your honor, driving my new car off the lot significantly devalued the asset therefore I am entitled to pay less than the contracted monthly payment amount."
   16. The Yankee Clapper Posted: June 02, 2023 at 12:45 AM (#6131203)
I haven’t seen any reporting on the details of the bankruptcy court decision, but I suspect #15 may have it right, and it’s more that Diamond doesn’t want to pay than it can’t.
   17. cardsfanboy Posted: June 02, 2023 at 01:48 AM (#6131208)
Just from memory... before Diamond took over Fox signed most of these deals. (I'm 90% sure that is correct---after that, the rest of my comment is probably going to have some fallacies)
Fox then demanded a massive increase to the providers (Charter, Dish, Sling and others) than what they had been paying, we are talking about 3-5 dollar increase, or more. Many of these providers refused to budge as it would drastically change their pay system and ended up rejecting Fox, who then might have gained a few dollars more per provider, but lost a massive amount of range. (I was a sling subscriber at the time and had to cancel their service as that 20 a month fee was okay, but much more than that would have been stupid)

They then spent the next year with fewer subscribers, meaning their ad revenue was taking a hit, even if they made up the cost loss by the providers fee, they were losing on two fronts and winning on one.

Literally speaking if they did nothing and just asked to keep their already established deals, they are not filing bankruptcy right now. It feels that simple to me. If they asked for $1 a subscriber more they are probably making money. They absolutely #### the bed, it was apparent to every observer as it was happening that they were basically suicide bombing multiple business's with the goal of maximizing their profits, without a concern for the long term effect.
   18. tonywagner Posted: June 02, 2023 at 08:53 AM (#6131226)
Fox then demanded a massive increase to the providers (Charter, Dish, Sling and others)

That wasn’t Fox — it was after Sinclair/Diamond had bought them. The cause of the confusion is it was also before Sinclair rebranded the networks themselves, so they were still called “Fox Sports” rather than Bally.
   19. RoyalsRetro (AG#1F) Posted: June 02, 2023 at 10:16 AM (#6131234)
Good stuff from BPro:

Diamond’s entire existence as an RSN aggregator has made little sense since its inception, most notably because of the fact that about three-fourths of the purchase price that begat its existence was debt, but also because they never had any strategy to make use of the scale leveraging themselves to hell offered. (I’m not going to claim to be a business savant, but it’s hard to see DSG’s boasts of $425 million cash on hand as particularly meaningful given that the debt owed has ballooned more than a billion dollars since 2019.) How is it possible that they never secured these rights, given how (predictably) central they’ve turned out to be for finding a route to profitability? Why would teams simply relinquish them because their distributor didn’t have the business sense to secure them in the first place, when DSG is currently in court arguing to pay less to teams than the contracts it took on guaranteed? The only real motivator that the league appears to have been offered was the threat of leaving a team without any way for fans to see its games in-market—which, to be fair, would be a pretty good threat had the league been unprepared for this eventuality.

The fact that the league offered $400 million for the rights to all 14 teams the group controls, in an attempt to more or less push Diamond “out of the business” is a relatively clear indication MLB thinks it has no business distributing its games. There’s also the fact that Diamond appears to be, to quote the just-departed Succession, “living in a f***ing dream world”—Per the Washington Post, Diamond CEO David Preshlak “confirmed that Diamond’s streaming service [Bally+] has just 200,000 subscribers; he said he expected that number to grow to 10 million by 2028.” That bizarre projection, combined with the statement announcing the effective end of DSG and Bally Sports San Diego’s affiliation with the Padres—“MLB forced our hand with its continued refusal to negotiate direct-to-consumer (DTC) streaming rights for all teams in our portfolio despite our proposal to pay every team in full in exchange for those rights”—paints a picture of a rudderless and borderline delusional company strategy.

MLB’s announcement that it would be taking over distribution of Padres games on cable as well as in-market streaming featured several bits of good news. First, the number of in-market fans who can access Padres games spiked massively, from 1.1 to almost 3.3 million—remember, the regional blackout map (or, Home Television Territory) for streaming means that fans as far afield as Hawaii couldn’t access Padres games through Bally Sports San Diego.
   20. RoyalsRetro (AG#1F) Posted: June 02, 2023 at 10:19 AM (#6131235)
The article also brings up a point by Joe Sheehan - the severing of teams from long-term RSN deals may discourage tanking. Teams will actually have to care about year-to-year performance and how it affects their TV ratings since the revenue streams may not be guaranteed anymore.
   21. Ron J Posted: June 02, 2023 at 10:41 AM (#6131238)
#20 Been meaning to check if there's any signal between the percentage of total revenue that is marginal revenue and the standard deviation of team winning percentage. Seems to me that the latter rose as the former declined, but that could be confirmation bias in action -- I've been predicting that for a long time.
   22. RoyalsRetro (AG#1F) Posted: June 02, 2023 at 11:01 AM (#6131243)
To be honest, I'm a bit dubious about the claim. Some teams are ratings-proof - even a shitty team like the Royals draw well locally regardless of performance, and I imagine the big market prestige franchises will get good ratings no matter what.
   23. Karl from NY Posted: June 02, 2023 at 02:21 PM (#6131269)
The phrasing of this strikes me as funny - Bally "decided not to pay" its contractually obligated payment. As if I "decided not to pay" my mortgage this month.

I have a family member who did exactly that, just decided not to pay a mortgage even though he could have just fine. It was on a house where the value was underwater enough (at the bottom of the 2008 crash) that he came out ahead by letting the bank foreclose and sell. (Not his primary residence, this was a second house he bought for other family members to live in. The foreclosure trashed his credit, but he didn't need credit for anything ever.)
   24. Walt Davis Posted: June 03, 2023 at 02:57 PM (#6131400)
I guess I'm a bit surprised that Bally (the broader corporation) has let this go on. They essentially just bought the naming rights to push their sports book business. But a sports book's rep rests entirely on "we pay what we owe." I know Bally doesn't have any direct financial skin in this game (or did they buy part of DSG?) but it's still their name being tossed about as not paying on a contract. I guess the reputational hit isn't worth having to cover DSG's debts and I suppose they stay on top of the business and sports editors to remind them it's DSG/Sinclair at fault here.
   25. McCoy Posted: June 03, 2023 at 06:09 PM (#6131424)
Re 23. I knew a guy who owned a car, wasn't insured, got into a car accident, and just walked away from the car. He figured why should he make a car payment when his car doesn't work.
   26. Captain Joe Bivens, Pointless and Wonderful Posted: June 03, 2023 at 06:38 PM (#6131426)
I'm pretty sure that in MA you have to show proof of insurance before you can get financing on a car.
   27. McCoy Posted: June 03, 2023 at 07:52 PM (#6131431)
You don't need it in Wisconsin

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