By Phillip Swann
The TV Answer Man –@tvanswerman

TV Answer Man, what’s the latest with Major League Baseball and the Bally Sports owner? Are they going to settle this thing and allow the games to be on without blackout or will they stay with Bally? Fill us in, please. — Roger, Fort Worth, Texas.

Roger, Diamond Sports, the owner and operator for the 19 Bally Sports regional sports networks, last March filed for Chapter 11 bankruptcy protection in the Southern District of Texas. The company, which pays enormous amounts to the teams and leagues for their broadcast rights, has been losing money due to shrinking carriage fees from pay TV operators.

The bankruptcy court has set a May 31 hearing on Diamond’s request to reduce its payments to the teams. The RSN company argues that the contracts should be modified due to the changing economic conditions, and, in the case of Major League Baseball, the league has withheld the rights to stream the games on the Bally Sports Plus app which would help offset the declining pay TV fees.

However, Major League Baseball on Friday (May 19) filed a motion to reject those claims with some of the most scathing rhetoric in the dispute yet, accusing Diamond and its former parent, Sinclair, with ‘incompetence’ and ‘mismanagement.’ (The motion will serve as the league’s position in the May 31 hearing.)

League attorneys say Sinclair negotiated the contracts and therefore should honor them.

“The Debtors’ (Diamond Sports) position that the contract rates are now unreasonable is based on a mere assertion that they are no longer able to run a profitable business,” the motion states. “That is not the standard. The value of the rights should be assessed by the reference to the market for those rights — the value they would have to a well-capitalized and competently managed operator. The Debtors are, unfortunately, neither.”

MLB says Diamond’s financial troubles were caused by Sinclair’s ‘mismanagement’ and overleveraging the business when it purchased the 19 channels from Fox Sports in 2019.  The league says Sinclair benefitted from the overleveraging because it inflated its value as a corporation. But the ‘billions dollars of debt’ incurred in the purchase left Diamond as a financially troubled unit unable to turn a profit because it had to pay off the debt with carriage fees and advertising revenue. (Diamond became the owner of the 19 Bally Sports channels when it declared bankruptcy in March.)

“Effectively all of this funded debt was incurred to support Sinclair’s August 2019 acquisition of the Debtors (including the contracts the Debtors now claim are mispriced) and related subsequent re-financings. It was not incurred to provide the Debtors with working capital to operate their business,” the motion states. “In the less than three and a half years between Sinclair’s
acquisition of the Debtors in August 2019 and September 30, 2022 (the date of the last reported
financials), the Debtors paid over $1.432 billion to service this extremely high debt load.”

Finally, the league argues that Diamond’s position that the agreements already include the direct-to-consumer (DTC) streaming rights for Bally Sports Plus is “disingenuous.” MLB notes that Sinclair has noted in various corporate financial reports over the last year that it only had the streaming rights to five of the 14 MLB teams it carries on its 19 Bally Sports pay TV networks.

The league contends that if Diamond cannot make its agreed-upon payments to the teams, the company should reject the agreement and allow MLB to take back the regional broadcast rights.

“The (teams) should not be forced to accept the ongoing, every-day use of their unique, exclusive and valuable intellectual property for the benefit of the Debtors and all stakeholders without compensation. Accordingly, the Clubs need relief from the automatic stay so that, if defaults are not timely cured, they may terminate and seek alternative broadcast partners,” the MLB states in conclusion.

Diamond may file a new motion to challenge the MLB’s claims. If so, the TV Answer Man will update this story here.

Until then, happy viewing and stay safe!

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— Phillip Swann