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Regional Sports Networks Are In Trouble But How Did They Get There?

Billions of dollars are owed and nut the money is not there to pay the bills

WASHINGTON — Diamond Sports Group (DSG) the parent company of Bally’s owners of 19 regional networks they control yesterday filed for Chapter 11 bankruptcy as was expected. The move came after it missed a $140 million interest payment last month

The Bally’s sports portfolio includes broadcast rights to 42 professional teams — 14 baseball, 16 NBA and 12 NHL. They operate regional sports networks from California to Florida and this case will be viewed by the entire sports business world as a test case for how not to run a business. 

For now, there should be no interruption in any way to those who follow their favorite teams on Bally’s. Major League Baseball, the NBA and NHL are all keeping a watchful eye on what is going on with the regional sports giant. 

FORT MYERS, FL- MARCH 14: Michael A. Taylor #2 of the Minnesota Twins looks on during a spring training game against the Pittsburgh Pirates on March 14, 2023, at the Hammond Stadium in Fort Myers, Florida. (Photo by Brace Hemmelgarn/Minnesota Twins/Getty Images)

In a statement received by Zenger News the company spoke about their plans going forward and how they expected to regroup in some way that would benefit the teams they represent.

“DSG will continue broadcasting games and connecting fans across the country with the sports and teams they love,” Diamond Sports CEO David Preschlack said in a statement. “We look forward to working constructively with our team and league partners and all DSG stakeholders throughout this process and beyond.”

In 2019 Disney sold the group regional sports networks to Sinclair Broadcasting for a reported $10 billion dollars. The Department of Justice forced the sale after Disney purchased 21st Century Fox. 

As the 2023 Major League Baseball season is drawing near and Diamond will owe $1 billion dollars to the baseball teams they broadcast as opening day is just a couple of weeks away. Meanwhile, MLB Productions has set up a regional division just in case they have to step in and handle the broadcasts.

“Diamond Sports Group’s bankruptcy declaration today is an unfortunate development that we have been expecting. Despite Diamond’s economic situation, there is every expectation that they will continue televising all games they are committed to during the bankruptcy process,” MLB said in a statement late Tuesday night. “Over the long term, we will re-imagine our distribution model to address the changing media climate and ultimately reach an even larger number of fans.”

Translating the MLB statement look for them to take back the rights if things go sideways with Diamond. The brass at MLB as well as their counterparts at the NHL and NBA are getting ready with a direct-to-consumer package not dissimilar to the MLS-Apple TV+ model. It would allow fans to buy a Major League Package that would include home broadcasts which up until now have been blacked on the league offering. The same plans are in the works with the NHL and NBA.

This comes on the heels of AT&T SportsNet parent company Warner Bros. Discovery, informing their sports partners of a deadline of the end of March to reclaim their rights as the company is now longer interested in being in the regional cable business. They own the rights to Colorado Rockies, Houston Astros and Pittsburgh Pirates.

In Houston the Astros and the Rockets are working together to create their own network. It is in the early stages but look for teams in cities around the country to begin to work together in a partnership that COULD allow them to keep a larger part of the revenue.

We have seen that model work well in Boston with NESN, New York with the YES Network and other teams are in conversations about forming their own direct to consumer option with a cable component for those more traditional viewers. 

So, how did this happen?

There was a day when regional sports networks were flush with cash, and they paid out big rights fees to the local teams who were their partners. Well, those days are long gone and cable model that not only fueled the regional sports networks but also ESPN, TNT, TBS, FS1, USA as well as many non-sports networks fed off the cable companies who were paying anywhere from $2 a sub to a high mark of $6 bucks from the mid-eighties until about 2016 when more and more people cut the cord. The boom began with the 1984 Cable Act established policies in the areas of ownership, channel usage, franchise provisions and renewals, subscriber rates and allowed cable providers to create what we now know as bundling.

The ability for cable outlets to charge subscribers for a set number of channels even if the consumer never watched them, but it opened the door to big payday’s for many channels. ESPN, TNT, TBS and others at one point in time were getting as much as six dollars a month from 100 million subscribers. 

GLENDALE, ARIZONA – MARCH 10: Clayton Kershaw #22 of the Los Angeles Dodgers pitches in the first inning against the Los Angeles Angels during a spring training game at Camelback Ranch on March 10, 2023, in Glendale, Arizona. (Photo by Dylan Buell/Getty Images)

The abundance of cash saw ESPN and others overpay for rights fees. There were crazy regional rights fees like the $7 billion deal the Los Angeles Dodgers signed in 2013 with Time Warner that the perfect example of reckless spending, that started a chain reaction where teams where getting long term multi-billion dollar deals from San Diego to Philadelphia.

Well now some of those checks are coming due, and we see it on a local level. In the Pac-12 melodrama most recently we saw Disney pull back on a rights deal because for one time they realized even they have a budget now.  

It has been a consistent downward trend for cable with the loss of about 25 percent of their subscribers that suddenly forced regional sports networks as well as the national power houses to become more creative. ESPN+, Paramount+, Peacock, Amazon, Apple TV+, Google/YouTube taping into the streaming direct to consumer market.  

We are about to see a shift in how sports rights are approached with a very good chance of partnerships. This week we watch March Madness a deal where CBS and the Turner Network (now WDS) partnered to purchase the NCAA Men’s Basketball Tournament rights.

Live sports remains both something fans will pay for but also something that rights fees and production costs put a strain on those who are bidding. Look for more partnerships as the new NBA deal will be out to market soon, and as baseball, the NBA and NHL, look to solve the regional sports crisis. 

Meanwhile, the day is coming where for better or for worse you will be paying the teams and the leagues directly to watch your favorite sports either on cable or streaming. 

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