Diamond is probably going away, but broadcasting should remain

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There sure seems to be trouble in regional sports network land, and the question of the day is how it will end up impacting Major League Baseball and the payments owed to them by various RSNs. There’s the well-publicized issue of what’s going on with Diamond Sports Group, which runs Bally Sports, as they announced they’re skipping a $140 million interest payment, which now gives them a 30-day grace period to figure out if they’re going to make said payment or file for bankruptcy instead. Alongside that, though, is AT&T Sports, which is run by Warner Media, and has possibly already missed out on its first slate of payments for broadcasting games. Possibly, because there have already been denials from AT&T Sports, on the matter, but we can at least treat that as a potential where there’s smoke there’s fire situation until things are known for sure one way or the other. [2/20/2023 note: This article originally linked to a Pittsburgh Post-Gazette story here, but the Post-Gazette staff is on strike. Apologies for the oversight; the link has been removed.]

MLB commissioner Rob Manfred has already come out to say that should payments be interrupted, that would be a breach of contract, and result in MLB itself negotiating with cable and satellite providers to ensure that 2023’s games remain somewhere where people can watch them. There are layers to that solution we don’t need to get into, but suffice to say it’s not as quick of a fix or as easy as a solution as just saying that’ll be the path forward suggests. Still, breaking these contracts with the RSNs would allow MLB to step away from the blackouts that plague them and their fans across the country, especially in states like Iowa, and certainly open a path to a future where local streaming packages are available for anyone who wants them: the reason MLB and its teams can’t charge for in-region streaming packages right now is because of these RSN deals and the blackouts that come from them, but if those blackouts and RSN contracts were to vanish, well, you wouldn’t need to be a Padres fan in Maine to be able to sign up for a Padres-specific streaming deal. You could be a Padres fan in San Diego and get away with that, too.

That also makes everything sound simpler than it is, as there are questions about who would be bringing in the revenue from that (the league or teams), and what the splits for said revenue would end up being if the league is handling all of those funds and then dispersing them. But the point is that the death of the RSN model could hurt quite a bit at first and then end up leaving the league and teams better off than they were — it’s not an exact comparison, but it would allow for something closer to the ownership that clubs like the Yankees and Red Sox have over their product, since they own YES and NESN, respectively, and have even built both out to be about more than just the baseball team that’s their primary draw. NESN, for instance, also profits from showing the NHL’s Boston Bruins, which means John Henry and the rest of the Fenway ownership group do, too.

There is, of course, also MLB’s rumored plan to join up with the NHL and NBA for a nationwide mega sports streaming service that would make all of them even filthier rich than they are since the middleman would be cut out, but, like with any of the plans above, there are questions about whose money that would be and who would be in charge of determining revenue splits and dispersion and all of that. So, that’s a story for another time.

What I want to draw your attention to now is a story Rob Mains wrote for Baseball Prospectus back when the rumors about Diamond’s potential bankruptcy first emerged. The reason is that it has a more measured and informative take than a lot of the coverage I’ve been seeing out there — it doesn’t help, for instance, that Manfred felt the need to say that even in a worst-case scenario where contracts are breached, MLB would still show you the the games on the schedule, because then everyone gets amped up thinking that’s a very real possibility we’re all going to have to live with. Let Mains explain what would happen were Diamond to file bankruptcy, of which there are two different kinds to consider, but only one they’d actually pursue here:

Bankruptcy is not the same as closing up shop. In the corporate world, a Chapter 11 bankruptcy, which is what Diamond would pursue, involves restructuring the amounts owed to other entities with a goal of keeping the business going. (Chapter 7 bankruptcies liquidate all assets and end operations.) There’s been speculation that the teams whose games are broadcast by Bally won’t get paid any rights fees, and/or that the games won’t air. That is highly unlikely. (In finance, we generally never say never. We do say highly unlikely.) The purpose of Chapter 11 is to keep the company going.

In Chapter 11 bankruptcies, there is a hierarchy of who gets paid. Lawyers and employees are at the top. Holders of equity (stockholders) are at the bottom. In between, secured creditors (lenders whose loans are secured by assets of the company, e.g. mortgages) are higher than unsecured creditors (entities owed money that are not backed by assets, like your credit card debt.)

In most bankruptcies, owners of equity are wiped out. Your investment becomes worthless. Since the equityholders are the owners of the company, they typically lose control of the company as well.

To fans, it probably means nothing, at least initially. As I said, we’re talking about a Chapter 11 bankruptcy. The networks will keep broadcasting. It’s possible that teams will switch to a different platform, but we’re in the middle of the NBA and NHL seasons. MLS play starts at the end of the month. MLB’s Opening Day is less than two months away. The WNBA tips off in May. It’d be a lot of work to change to a new streamer or broadcaster with such little leadtime.

You should read the entire piece, of which there is much more than what was shared above, as it basically drew these conclusions: if Diamond does file for bankruptcy, it’s only going to mean the end for Diamond’s current setup, not for the broadcasting of games. It’s entirely possible MLB itself steps in and secures the RSNs and all that comes with that for a bankruptcy-level price (as Mains noted, stock was trading for 10 cents on the dollar, which is a “There is a very small (albeit nonzero) chance you’ll ever get your money back” price. Things could change in a big way after the 2023 season for the broadcasting of MLB games, as noted above and in Mains’ own feature, and Diamond will almost certainly be out of the picture. But the broadcasting of games is going to change, not stop, and if the end result is MLB and its teams having complete control over their own product and the mechanisms with which to profit from it like the Yankees and Red Sox do with their team-owned regional networks, we might end up in a situation where there’s even more money floating around instead of less.

That being said, there are a whole lot of moving pieces here, so anyone making a definitive statement on the subject is probably less confident than they’re putting forth. I’m comfortable saying I’ve got some ideas about where everything could head, but that’s about all. What I do know is that MLB is likely to come out the other side ahead, as they always have whenever the media landscape completely changes: MLB has been around long enough that it’s introduced radio, television, cable, streaming, and ridiculously lucrative regional packages to the portfolio, and the money printer keeps going brrrrr, and faster, each time there’s something new. MLB is a lot of things, but they do know what they’re doing in this arena, and have for ages.

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