A bankruptcy federal judge declined for now to order Diamond Sports Group to turn over its contracts with cable and digital companies over the protests of a frustrated outside counsel for Major League Baseball. A lawyer for one of those distributors, Cox Communication, all but took potshots at MLB’s position, saying negotiations with the league were “like talking to a brick wall.”
DSG, the parent company of Bally Sports Regional Networks, filed for Chapter 11 last year, and its reorganization plan is scheduled for a confirmation hearing late next month. MLB does not trust the financial projections Bally Sports is making, and wants to see the contracts to test the revenue estimates and if the plan is viable.
At the end of the hearing, when Judge Chris Lopez made clear he would not order the distributors to turn over the confidential documents, he had a back-and-forth with MLB outside counsel Jim Bromley.
“I respectfully disagree with your honor,” Bromley said when Lopez countered that MLB could learn the information it wanted during depositions scheduled for July. “And in prior depositions last year, we were simply told, ‘Absolutely not.’ Absolutely not, is not an acceptable answer.”
Lopez said if MLB could not get the information it wanted via those depositions, it could make a renewed push in his court to have him order the distributors to turn over their contracts. That does not leave much time, with less than three weeks separating the depositions from the confirmation hearing.
Lawyers for Cox Communications, Charter, and DirecTV all told the court that these documents were highly confidential and offered instead to give MLB, the NBA, and the NHL aggregate revenues, not broken down team by team.
Notably, the NBA and NHL took a less strident position than MLB, saying if they could not get the information needed to test the reorganization plan’s viability, they would return to Lopez.
Lopez scheduled another hearing for this Friday to address two other discovery issues. One is whether the cable and digital companies should be required to disclose clauses in their contract known as “most favored nation (MFN).” These are clauses that say, in this example, if Bally Sports signs a deal with one cable carrier that has more generous terms for the distributor than another carrier with an MFN, that second carrier gets the more favorable terms.
MLB’s concern is that Bally Sports could sign a new deal with Comcast, which dropped carriages of the RSNs on May 1, that triggers MFNs in other carriage deals and reduced revenue. And Lopez wants to rule on whether Amazon Prime Video’s contract to digitally distribute the RSNs should be handed over to MLB, though the parties suggested they might resolve the dispute by then.
MLB has been a thorn in the side of DSG for years, and that acrimony carried over to Cox. The cable carrier filed a letter with the court the night before the hearing outlining its position and took subtle jabs at MLB.
“[T]he Debtors should not be expected to trigger an MFN unless doing so is profit maximizing,” Cox’s motion read. “On a call last Thursday, counsel to the MLB countered that `nothing Diamond has ever done has been profit maximizing.’ Cox disagrees that assuming that the Debtors will act in a value-destroying manner is the appropriate lens through which to test the Debtors’ financial projections, and so disagrees that parsing the terms of individual MFNs to guess what could happen in a series of hypothetical, value-destroying futures that may never come to pass is relevant to testing the reasonableness of the Debtors’ projections.”
Bromley said the cable carriers should not even have been on the Zoom court hearing, saying they have not filed to intervene or to quash the discovery.
“They are simply non-parties at this point,” he said.
At its peak before the bankruptcy, DSG had 19 RSNs and deals with over 40 NBA, NHL, and MLB teams. But cord cutting and steep debt were a toxic mix and forced the company into Chapter 11. Today, DSG has 17 RSNs, deals with 11 MLB teams, and is negotiating renewals with the NBA and NHL.