Since Sinclair’s August 2019 purchase of the former Fox Sports regional sports networks (they acquired those networks under a subsidiary called Diamond Sports Group, in partnership with Byron Allen’s Entertainment Studios, and rebranded the networks to the Bally Sports brand this January), there’s been a lot of talk about their plans to offer a direct-to-consumer streaming option. There have been reports of their attempts to raise large amounts of money to launch that, and discussions of how much gambling content they want to incorporate there. But the whole idea has sometimes seemed like it’s still facing a number of challenges, including from distributors who specifically said they didn’t sign off (counter to previous claims from Sinclair CEO Chris Ripley). And the latest one seems to be coming from Major League Baseball itself, and coming around a conversation about Diamond Sports debt restructuring (which has been an issue for at least a year). John Ourand of Sports Business Journal has more there:
In an 8-K filing last week, Sinclair said negotiations for its subsidiary, Diamond Sports Group, to restructure its RSN debt expanded beyond its creditors to include “commercial partners.” One of those commercial partners appears to be MLB, according to a report from LevFin Insights, a publication that covers the leveraged loan and high-yield bond markets.
According to the report, Diamond Sports neared a deal with a group of its creditors “when Major League Baseball entered the picture” around two weeks ago. MLB’s involvement came when Diamond Sports and its creditors approached the league for permission to stream its games on a direct-to-consumer service. MLB responded by requesting an equity stake in any planned streaming service that featured MLB games, “a new wrinkle that complicated matters too much to complete on time.” The company then “needed to cleanse participants in the negotiation,” the report said.
Sources suggested that MLB actively engaging with Diamond Sports could be seen as a good sign for Sinclair, even if baseball’s involvement caused a Diamond Sports’ deal with its creditors to be delayed. Top execs from leagues, teams and media companies privately have believed that Diamond Sports is headed to bankruptcy. It’s unclear whether word of MLB’s involvement will change that.
So there are two separate but interesting things here. One is the further discussion of a possible Diamond Sports bankruptcy, which we covered earlier around talk of even current non-media companies like Fanatics maybe looking at these assets. (That grew out of another SBJ report.) This adds to that, and it suggests that MLB may wind up playing a role in those talks, whether those end with a deal to avoid bankruptcy that includes MLB equity, a deal that doesn’t include that, or no deal. Beyond that, it’s certainly fascinating that MLB is contemplating trying to get an equity stake in this direct-to-consumer business (which, we should note, still appears to be a long way from actually happening).
Of course, any direct-to-consumer approach based on the RSNs would not be entirely baseball. These RSNs also have significant deals with NBA and NHL teams in particular, plus some other sports. But baseball is the crucial sport here, with most of these RSNs specifically based around local baseball rights; the amount of baseball inventory (162 games per team per season) has long been thought of as key to selling a channel, and would likely be key to selling whatever direct-to-consumer approach they wind up on. So this certainly has an impact on MLB and its teams. Whether that’s worth an equity stake for them (and how that interplays with the rights their teams have already signed over) can be discussed, but MLB is likely to wind up affected by these restructuring talks, so there’s some logic to them looking to get involved here.
It’s unclear as of yet if this will actually lead to MLB investing in Diamond Sports and receiving an equity stake. And there are pros and cons to that idea. On one hand, this might be seen as a bailout of a company that’s already facing significant financial issues, and it would likely have to be a substantial investment to make this actually work. And that’s not ideal for MLB, as that’s really them paying themselves; that would mean the central office would pay into Diamond, which then pays the individual MLB teams.
But on the other hand, this would be MLB buying into these RSNs at a remarkable low point (they’re widely considered to be worth much less now than they were when Sinclair bought them). And there’s at least some potential for this business to see dramatic growth if they do come up with a viable over-the-top option. And that brings up some memories of past MLB technology investments like BAMTech (previously MLB Advanced Media); they created a service they specifically needed, then later benefited from selling that equity.
At any rate, there’s a lot to ponder with this report, and with what could be ahead for Diamond Sports. All of this could go a number of different ways; maybe MLB and Diamond don’t come to a deal, maybe Diamond actually hits bankruptcy, maybe it reaches a non-MLB deal with creditors, maybe another company like Fanatics comes in, or maybe MLB does wind up investing. But its’ certainly interesting to have these reports of MLB seeking an equity stake out there. We’ll see what comes of that.