JUPITER, Fla. — The parent company of Cardinals broadcast partner Bally Sports Midwest and numerous other regional sports networks that carry Major League Baseball to millions of fans filed for bankruptcy protection late Tuesday night.
Diamond Sports Group, the largest owner of regional sports networks, announced that it filed for Chapter 11 protection so that it can “eliminate over $8 billion (in) outstanding debt.”
In a statement, the company says it will “continue to operate in the ordinary course” during the bankruptcy and restructuring process, and that its vast catalog of live games, such as the Blues and Cardinals on Bally Sports Midwest, will continue to be broadcast. David Preschlack, Diamond’s CEO, is quoted in the statement saying that his group’s networks “will continue broadcasting games and connecting fans across the country with the sports and teams they love.”
This long-anticipated plunge by Diamond Sports Group comes just two weeks ahead of the opening of Major League Baseball’s regular season and its owners have been braced for it.
The announcement accelerates what already was a rights-fee reckoning.
It could signal changes to how leagues distribute games.
Major League Baseball described it as an opening to “reimagine” how it reaches “an even larger number of funs.”
Calling Diamond’s declaration “unfortunate,” MLB said Tuesday night that it would distribute games to fans in the local market if Diamond Sports Group or any other RSN defaults on an agreement.
The Cardinals are one of 14 Major League Baseball teams that Diamond Sports Group has a rights deal with, and the Blues are one of 14 National Hockey Leagues that have broadcast rights deals with Diamond Sports Group. The Cardinals are in the middle of a $1.1-billion rights deal with Bally Sports Midwest that includes partial ownership in the network, and the team has hitched its planned payroll growth to the increases over time in that rights fee. The Cardinals’ revenue from the rights fee is scheduled to be nearing $70 million for 2023 with the bulk of the billion-dollar deal coming in the years ahead as yearly payments rise toward $80 million.
The Cardinals have repeated this spring that Diamond Sports Group’s positioning and potential bankruptcy was a concern. They did not expect it to change their operations for the coming season, though chairman Bill DeWitt Jr. said it could be a factor in the immediate years ahead.
“It’s a concern and a fluid situation,” DeWitt said at the team’s Winter Warm-up in January. “There’s no question about it. Something is going to happen sooner or rather than later. It’s a big part of our revenue stream. We have nice rights fees. The (regional sports networks) model is at risk.”
Bally Sports Midwest declined comment, directing the Post-Dispatch to Diamond’s release on the filing.
As the regular season nears with opening day set for March 30 at Busch Stadium against Toronto, the Cardinals expect their broadcast to continue to be available, as planned, through cable, satellite, and the streaming providers.
Among the outcomes of this restructuring could be Diamond selling its regional sports networks or seeking deals for specific ones with other outlets and cable providers.
There is also the possibility that the leagues or teams wrest control of their broadcasts and launch a direct-to-consumer media, though initially losing the riches that have flowed from rights fees to eventually tap into another vein. Major League Baseball has been beefing up its offices with broadcast executives and game-planning for an immediate response and what could ultimately be the league and its owners reaching fans directly through an MLB-owned broadcast entity.
“Diamond Sports Group’s bankruptcy declaration today is an unfortunate development that we have been expecting,” MLB said in a statement. “Despite Diamond’s economic situation, there is every expectation that they will continue televising all games they are committed to during the bankruptcy process. … Over the long term, we will reimagine our distribution model to address the changing media climate and ultimately reach an even larger number of fans.”
In the past decade, mushrooming rights fees have been a major driver for team revenue, club value, and player salaries. The Cardinals were able to capitalize on their strong ratings and strong brand to see their rights fees soar during that time. The bankruptcy comes just ahead of when some teams are expecting the payments that help power a year.
Diamond may attempt to keep some of its teams but shed others.
The New York Post reported this past week that Diamond could seek to “reject the contracts on at least four teams,” and those teams were identified as the Reds, Diamondbacks, Guardians, and big-spending San Diego Padres.
Another outcome of the changes coming – and perhaps coming fast – to regional sports broadcasts is the end of blackouts that are outdated and restrictive in the streaming era.
Cardinals president Bill DeWitt III called the blackout policies “problematic” and “antiquated,” and said the team hopes “that gets solved through this local media rights changing of the guard.”
Diamond, which operates as Bally Sports for RSNs, had a 30-day period during which to try and renegotiate deals for $140 million due, or file bankruptcy.
A total of 46 professional sports teams run on Diamond networks.
The steep plummet from the rights-fees jackpot of the past decade to the current predicament is related to cord-cutting and the rise of streaming alternatives that have changed the long-held cable subscription model. Live sporting events were seen as DVR-proof and attractive to advertisers because they were appointment viewing, not on-demand entertainment. But as cable subscribers declined so too did the helium holding up the high cost of sports fees. In the 11 years from 2010 to 2021, the amount of U.S. homes purchasing some form of cable subscription spiraled from 91% to 60%, and the drop continues.
Chapter 11 offers time and protection for a struggling business to find ways to reengineer their debt and other obligations while under court supervision.
Sinclair Broadcast Group is by far the largest owner in Diamond Sports Group.
The bankruptcy filing was made in the Southern District of Texas.
“We are utilizing this process to reset our capital structure and strengthen our balance sheet through the elimination of approximately $8 billion of debt,” Preschlack said in the statement. “The financial flexibility attained through this restructuring will allow DSG to evolve our business while continuing to provide exceptional live sports productions for our fans.”
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