Let’s talk sportz biz for a bit.
A few days ago, the expected happened, and Bally Sports Network (no actual connection to the luxury accessories company) missed a debt payment, and is in a 30-day grace period before they are expected to file for bankruptcy.
Who is Bally?
Fox Sports, that’s who. Well before they became Bally, Fox Sports moved from ownership by Fox to become part of Disney. Disney also owns ESPN, so American regulators ordered Disney to divest of the Fox Sports channels. They were sold to Sinclair Broadcasting for (per Forbes) half of what Disney had been hoping for. The price, paid in 2019, was $10.6 billion. Sinclair borrowed $8.6 billion to make that purchase.
In the US, the prime rate in 2019 was hovering around 5%. Today it is hovering around 8%. Many people have assumed this story is one of a failing sports media landscape, but it is mostly about debt.
The Bally sports stations, called regional sports networks or RSNs, are run by Diamond Sports Group, which is the entity actually heading for bankruptcy. There are 19 Bally stations, and per Forbes they have broadcast rights to 42 sports teams in the MLB, NBA and NHL. The NHL teams are:
- Anaheim Ducks
- Arizona Coyotes
- Carolina Hurricanes
- Columbus Blue Jackets
- Dallas Stars
- Detroit Red Wings
- Florida Panthers
- Los Angeles Kings
- Minnesota Wild
- Nashville Predators
- St. Louis Blues
- Tampa Bay Lightning/
So that’s three serious playoff teams, three serious tank teams, some rebuilding teams, and few who have just felt the bubble burst under them. Oh, and the Wild, who I always struggle to know what they’re doing.
What Does This Mean?
Sports Business Journal reports that several of these teams have been extending contracts with Diamond/Bally even as it was becoming clear they were heading for a cash crunch. Tampa signed earlier this month, for example.
The difference is with MLB, where teams stopped renewing in 2021. I’ve heard from several business press sources before this crisis that MLB was thought to be trying to engineer their way out of RSN deals because they want to stream games regionally themselves. They want to own the broadcasting production, cut out these middlemen and, seemingly, walk away from the television model. Is that really true? Or partly their plan? It’s hard to know for sure, but the baseball commissioner was very firm in saying that MLB wants control:
“I don’t relish any of this,” [MLB commissioner Rob] Manfred said at a spring training media day. “I think it’s necessary to have a centrally based solution to what’s a really serious problem and move us forward to our next stage of delivering games to fans, delivering them where they want to watch them, and without the kind of blackouts that we’ve had in the old model.”
Manfred acknowledged some teams could be at risk of losing revenue, depending on the status of their regional sports networks, and that MLB is prepared to help.
“You know, we have a pretty good balance sheet in central baseball,” he said. “I think it’s safe to assume that we will provide every support that we possibly can to those clubs that are at risk.”
On 32 Thoughts on Friday, Elliotte Friedman reported that there is a feeling that some teams, including hockey teams, will continue to be paid in the coming days and weeks. In fact, some are receiving rights payments from Diamond. But the importance of a team to its market and the market importance overall may decide who gets paid in full, and who doesn’t. Which is to be expected.
Bankruptcy does not mean a business ceases to function. It often means debt restructuring takes place that makes it possible for the company to continue. Per Forbes, Diamond owes $1.8 billion in outstanding rights fees and $600 million in interest on its debt. They have less than that 600 million in cash on hand right now. They do continue to have a revenue stream however.
Their problems stem from rising interest rates, high fees they charge to TV services that caused some to balk at carrying the channels, and a rocky launch of a streaming service. There isn’t a lot of evidence that declining viewership is at play beyond the cord-cutting problems that led them to offer streaming options.
Forbes notes that NESN, our friends the Bruins’ broadcaster, have become the first RSN to launch its own streaming service. It really appears that MLB wants to go this way too. MLB is not new to this business. They spun off a company called MLB Advanced Media who were the original producers of the NHL streaming service, branded and sold by Rogers in Canada. ESPN and Rogers now produce services directly for streaming hockey in each country. MLBAM still produces the NHL’s websites.
Obviously, if some teams get less than they expected in revenue from these deals, that will lower this season’s revenue that is used to calculate the salary cap. This is particularly important this season because lost dollars means the escrow debt from the pandemic years will take longer to be paid off. The cap is supposed to stay flat until that dept is paid off.
However, as also reported on 32 Thoughts, there is a feeling from teams and agents that they believe the new NHLPA head Marty Walsh should negotiate some kind of deal to raise the cap more than $1 million next year under the belief that the escrow will be paid off very early in the season. How much the Diamond/Bally situation will impact that is a very open question.
It does not appear that the NHL is anxious to start it’s own regional streaming service like baseball is, but they are very likely to act to make sure teams get the most money possible from these deals.
Bankruptcy is a scary word, and this situation has been taken to be dire with massive cap implications. That seems overblown. But MLB has a lot more power to act than the NHL or NBA do, and it doesn’t seem to me like Manford is really terribly upset by this situation. It looks like he’s been planning for it for some time.
When Diamond’s 30 days are up, they might be able to restructure with the leagues on board with them. If they don’t, then it becomes a much more volatile situation.