Strapped with billions of dollars of debt and facing a changing media landscape, the largest operator of regional sports networks in the U.S. filed for bankruptcy in March. Diamond Sports Group, a subsidiary of Sinclair Broadcast Group, owns the regional sports rights to 42 teams across the NBA, MLB, and NHL under the name Bally Sports.
The bankruptcy proceedings are the latest shake-up to the traditional TV model, stacked on top of cord-cutting, the COVID-19 pandemic, and more. Right now, Diamond Sports is still airing games across all the leagues without any interruption. In response to that, The Athletic is reporting MLB has filed an emergency motion demanding Diamond Sports pay the rights fees to two teams or terminate the rights contracts so teams can take over the broadcasts. The real question though is if the long-lasting impacts will accelerate live sports rights moving to streaming or if Diamond Sports will lose its rights all together. To Geoff McQueen, managing director at strategy consulting firm L.E.K. Consulting, a move to streaming is "inevitable."
“It's going to create an inherent shift to streaming,” McQueen tells The Current. “There's no real alternative to the RSNs [regional sports networks] in this market from the traditional perspective.”
Overall, cord cutting has snipped the fundamental success of cable distribution – whether you watch sports or not, you pay to access sports channels as part of a broader cable package. Now in the a la carte world of streaming, viewers have more choice to put their money into exactly what they want to watch. This is leading to more cable providers and networks playing hardball over the cost to carry networks. Two years ago, after Dish dropped the NBC Sports Regional Networks and Mid-Atlantic Sports Network (MASN), Dish group president Brian Neylon said, "The current RSN model is fundamentally broken."
Streaming is reportedly key to the long term strategies for both Diamond Sports and MLB. A baseball source close to the situation tells The Current that MLB prefers for Diamond Sports to honor its contractual obligations with the Clubs. Since that appears to be unlikely, the league stands prepared to acquire the rights to the Clubs so that it can produce and distribute games both via linear and direct-to-consumer streaming.
MLB.TV, the league’s out-of-market streaming service, has streamed live games since 2002. Still games are blacked out on MLB.TV when viewers try to watch in-market. If MLB was able to acquire streaming rights, it could eliminate those blackouts.
On the Diamond Sports side, streaming is also a sticking point. Reuters reports Diamond Sports’ legal team made the case during the company’s first bankruptcy hearing that having MLB streaming rights is crucial to make up for lost revenue. The broadcaster’s court filings reportedly showed cable subscriptions went down by 19 million to 62 million total from 2019 to 2022.
Diamond Sports launched its own direct-to-consumer streaming service Bally Sports+ last year, offering the chance to watch live games for $19.99 a month. The broadcaster owns the streaming rights for all of the NBA and NHL teams it's connected to, but reportedly only about a third of its MLB teams.
As Diamond Sports moves deeper into streaming, it may be eroding its primary business around traditional TV. The more options consumers have to stream live sports, the less it’s necessary for them to sign up for cable. Thus, the media landscape is currently in a transition period between traditional TV, with every major entertainment company from Disney to Paramount to NBCUniversal and Diamond Sports sticking one foot in traditional TV and the other into streaming.
“Sinclair [Diamond Sports’ parent company] views [streaming] as necessary to their future,” McQueen says. “I think they do see the writing on the wall with the RSNs that, hey, we have to be ready to go the streaming route at some point in the very near future.”
The baseball source said there’s no silver bullet, but because of the pressure the RSNs are under due to the changing media consumption habits of fans, MLB needs to reimagine how distribution will look in the future. They also don’t believe Diamond Sports has demonstrated a functional path forward or the capital to invest in and lead a streaming operation. To William Mao, SVP of global media rights consulting for the marketing agency Octagon, the crux of the situation is bridging the gap between the economic models of traditional TV and streaming.
Sinclair bought the 21 RSNs that became Bally Sports for $10.6 billion in 2019, with the deal being financed with $8.2 billion in debt. In retrospect, it’s clear Sinclair likely overvalued the RSNs. Now Sinclair may look to turn part of that debt into equity. Tech companies, from Amazon to Google, have thrown billions to get into the live sports streaming game, but Mao cautioned against thinking one of them would come in and “save the day.”
“If you look at the trends of what they're going after, they're going after rights that are, if not national, international in terms of availability and exclusivity,” Mao tells The Current. “And then if you start to add some of these price tags…it makes it a lot harder to envision that they would become an immediate major player in this space.”
Another revenue driver for Diamond Sports could be getting a cut of ticket sales and merchandise on top of its distribution revenue. The baseball source mentioned above, as well as ESPN, say Diamond Sports is interested in just that, but MLB won’t budge on including those alternate forms of revenue.
Sportico recently estimated that MLB generated a record $10.9 billion last season from tickets, sponsorships, concessions, and more, including $2.25 billion from TV deals.
In the future, it could be attractive for interactive advertising to become a bigger part of streaming live sports as a whole. Live e-commerce offerings, similar to Love Island teaming up with NBCUniversal and eBay, could be integrated during games to sell merchandise, tickets to future games or even gambling bets all from the screen without missing any action.
“Those are ways that I would imagine whoever ends up going forward with the operation of this Diamond entity will need to figure out ways to turn on those levers from a revenue generation perspective,” Mao says. “If it's just business as usual, we kind of know that that doesn't work economically.”