By Phillip Swann
The TV Answer Man –@tvanswerman

TV Answer Man, I have been reading your articles on Diamond Sports and the Bally Sports channels. Do you think that Diamond Sports will go out of business now that it lost the bankruptcy case with Major League Baseball. It seems like they were really betting on that to go well to go forward. — Jazz, Hermosa Beach, California. 

Jazz, a bankruptcy court judge last week ruled against Diamond Sports’ motion to reduce the payments it makes to four MLB teams (Twins, Guardians, Rangers, Diamondbacks) for the rights to carry their games. The company, which declared bankruptcy in March, could have used a favorable ruling to seek reduced payments to other teams it carries. (Diamond Sports owns the 18 Bally Sports regional sports networks which carry 13 MLB teams, 16 NBA teams and 12 NHL teams.)

Diamond Sports will now have to continue paying broadcast rights fees that were established when cable and satellite subscriptions (and the company’s carriage fees) were significantly higher. The RSN firm will have trouble generating enough revenue (through advertising and carriage fees) to offset the rights fees, particularly since cable and satellite subscriber numbers continue to shrink. (Cable and satellite operators pay a RSN company by the number of subscribers who have access to the channel. Fewer subscribers means less carriage fees.)

The MLB defeat raises the question of whether Diamond Sports, which is still a subsidiary of Sinclair Broadcasting, which owned and operated the RSNs until the March bankruptcy, can survive in the long term. Here are some positives and negatives for both sides of the question.

Positive: Diamond Sports still has the contracts.
This is the equivalent of a home field advantage. The company still holds the contracts to carry all those professional sports teams. That gives it a certain power and flexibility because the bankruptcy filing allows Diamond Sports to reorganize its holdings and choose which contracts to keep and which ones to jettison. Diamond Sports recently decided to let the San Diego Padres agreement go and it could do the same with the four MLB teams whose fees it wanted to reduce. The company could emerge from bankruptcy court a leaner but more profitable unit. Although MLB may prefer to no longer have Diamond Sports as a partner for various reasons, the company’s new legal battle with the Phoenix Suns suggests it has the right of first refusal when contracts expire.

Negative: Diamond Sports’ relationship with Major League Baseball is fractured.
MLB Commissioner Rob Manfred’s testimony in last week’s hearing clearly showed that the league is fed up with Diamond Sports and Sinclair. The commissioner suggested that the RSN unit attempted to blackmail the league in return for in-market streaming rights. This is a serious obstacle because Diamond Sports needs those in-market streaming rights to bolster its Bally Sports Plus service, which is supposed to help generate revenue to replace declining pay TV carriage fees. (Bally Sports Plus, which allows you to watch your in-market team without a pay TV bundle subscription, currently carries just five of the 14 MLB teams in the Bally Sports territories.) It seems unlikely that MLB will play ball with Diamond Sports in the future, leaving Bally Sports Plus’ future problematic. Company officials said at last week’s hearing that BSP had just 202,000 subscriptions to date.

Positive: The NBA and NHL seem inclined to work with Diamond Sports
MLB’s Manfred may be done with Diamond Sports but NBA Commissioner Adam Silver and NHL Commissioner Gary Bettman have been less contentious in their remarks about the company. They may be interested in finding a way for Diamond to continue broadcasting their games because they would prefer not to do it themselves, unlike MLB which is already doing the Padres games.

Negative: Diamond Sports’ contracts with Comcast & DIRECTV are expiring soon.
The RSN company’s carriage agreements with both DIRECTV and Comcast are scheduled to expire this fall. Failure to renew either (or both) could be a death blow for Diamond Sports. The two pay TV services combine for around 30 million subscribers. This will give Comcast and DIRECTV considerable leverage in the negotiations and could lead to a reduction in the rates they pay for carriage.

Diamond Sports has a pathway to long-term success if it can secure the Comcast/DIRECTV deals (and perhaps acquire a few new ones such as YouTube TV and Hulu Live), shed unprofitable team contracts, and somehow persuade MLB to sell the in-market streaming rights to more teams. But the failure to do two of those three things, or perhaps even one, could make it difficult for the company to survive past this year.

Jazz, hope that makes sense. Happy viewing and stay safe!

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— Phillip Swann