By The TV Answer Man team
TV Answer Man, can you explain something for me. Diamond Sports, the Bally Sports company, is ending its deal with the Arizona Coyotes and it already got rid of the Padres and Diamondbacks and a few others. How can they do that? Don’t they have to honor their contracts and keep broadcasting their games? — Jason, town withheld.
Jason, that’s a great question. Diamond Sports, which filed bankruptcy last March, yesterday filed to terminate its Arizona Coyotes TV deal. Earlier this year, it opted out of the Phoenix Suns deal and terminated the San Diego Padres and Arizona Diamondbacks contracts. The company, which owns the Bally Sports regional sports networks, is attempting to reorganize and, as part of that effort, it has terminated deals it believes will not be profitable in the future. But how is Diamond permitted to do that. Doesn’t it have to live up to those contracts? And how can Diamond become a profitable company if it exits so many team agreements? Here’s the how and why a company in bankruptcy will seek to terminate an existing agreement:
Financial Strain
When a company faces bankruptcy, it means that its financial resources are severely depleted. At this stage, every penny counts. Contracts that were once affordable might now pose an unbearable financial burden. By terminating contracts that require substantial payments, the company can allocate its scarce resources more efficiently, focusing on critical operations and debt obligations. Under bankruptcy law, the presiding bankruptcy judge can approve the termination of a contract and will do so if he or she believes it will help the company reorganize and pay back the company’s creditors.
Reorganization and Restructuring
Bankruptcy often entails a process of reorganization and restructuring to facilitate the company’s revival. During this period, a company might need to shed non-essential contracts or those that do not align with the redefined business goals. By terminating such contracts, the company can streamline its operations, reduce complexity, and create a more agile and sustainable business model.
Avoidance of Legal Complications
In some cases, contracts may have clauses that allow for termination under specific circumstances, such as bankruptcy. By proactively terminating contracts based on these clauses, the company can avoid legal disputes and potential litigation. This helps in safeguarding the company’s limited resources, which are better utilized in addressing immediate financial concerns. In Diamond’s case, it appears that its team agreements do not have this clause. Instead, the company has petitioned the bankruptcy court to approve the contract’s termination.
Renegotiation of Unfavorable Terms
Bankruptcy provides a unique opportunity for a company to renegotiate contracts that were signed under unfavorable terms. By terminating such contracts, the company can engage in renegotiations with stakeholders, aiming for more favorable terms that align with its current financial standing. This process can lead to the creation of agreements that are sustainable and supportive of the company’s recovery efforts. Diamond Sports has attempted to use the bankruptcy process to reduce its fees to the teams and those discussions remain ongoing.
While bankruptcy has allowed Diamond Sports an opportunity to stay in business, it has created a burden for the teams and leagues which have had to scramble to find alternative ways to broadcast games without losing significant revenue sources. Major League Baseball, by example, this season took over the broadcasts for the Padres and Diamondbacks, but the league acknowledges that it’s not generating as much revenue as it did via Diamond.
Jason, hope that helps. Happy viewing and stay safe!
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