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Bally Sports’ financial woes won’t keep you from seeing Dallas sports teams yet

Bally Sports Southwest’s parent company, Diamond Sports, could default on interest payment Feb. 15, triggering potential bankruptcy.

Update (Feb. 15): Diamond Sports elected to skip its $140 million interest payment on Wednesday and has entered a 30-day grace period that is expected to lead to a bankruptcy filing, putting into question the company’s future of broadcasting Rangers, Mavs, Stars and many other professional sports teams’ games.

Original story (Feb. 7): Another staredown looms between the Rangers, Mavs and Stars and the company that broadcasts their games in North Texas.

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But the last thing you need to worry about is whether you will be able to watch games while they are staring.

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You should be able to see the Mavericks play at Denver on Feb. 15. Tipoff time is 8 p.m., even though Bally Sports Southwest’s parent company, Diamond Sports, is expected to skip a $140 million interest-only payment due to creditors.

The worry is everything that comes after.

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Diamond Sports, a subsidiary of Sinclair Broadcast Group, is facing a financial crisis under the weight of $8.6 billion in debt, according to a January report from Bloomberg News. Skipping the interest payment in February would start a 30-day grace period that could eventually lead to a bankruptcy filing. It could start to topple other dominoes leading to a crisis across the current pro sports landscape.

“I don’t think consumers are going to care about this until team payrolls are affected,” said John Ourand, who covers sports media and broadcasting for Sports Business Journal.

Ah, there’s the rub. Ultimately, this is not so much about where you can watch your favorite team, but, in worst-case scenario, how that team functions. A delay — or default — in the huge local broadcasting rights fees due teams could mean a significant reduction in operating income. That could eventually impact areas such as business operations and, ultimately, team payrolls. At a minimum, it probably puts the brakes on the exponential growth of local TV broadcasting rights.

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Whether things ever approach the worst-case scenario starts with the complicated situation Diamond Sports must work through with its creditors and three pro sports leagues: MLB, the NBA and NHL. In working through all this, the parties must also consider the future of broadcasting and the value of fixed-rate revenue stream that comes from selling local over-the-air rights vs. the growing, but still-developing streaming marketplace.

This is hardly just a local issue. Diamond operates 19 regional sports networks that encompass 42 teams across the three leagues. And, 35 of the WNBA’s Dallas Wings’ 36 games in 2022 were on Bally Sports Southwest’s platforms.

Baseball payments draw near

The first real test case may be baseball. Consider the potential impact on the Rangers, for example. They negotiated one of the first megadeals for a local team more than a decade ago. The deal pays them nearly $100 million annually split into quarterly payments. The first of those payments is due in March. The Rangers, who open the regular season March 31, have over $200 million in guaranteed contracts for players alone. Tying up the broadcast payments in a bankruptcy proceeding could create debt burdens for the club.

The Stars are due a payment in April, too, and a smaller one for the first round of the NHL playoffs.

The hope is that the leagues and Diamond can untangle the mess and re-emerge with a more stable local broadcast model for both teams and consumers.

For now, nobody really wants to discuss the worst-case scenarios, though it is certainly on minds. MLB recently hired Billy Chambers as its executive vice president for local media. Chambers was chief financial officer and chief operating officer of the regional sports network (RSN) division when it was held by Fox. The RSN situation will be atop the agenda for MLB owners at their quarterly meetings scheduled for this week in Florida.

MLB is also well-positioned to withstand this kind of issue. Its broadcasting wing is advanced and, in the event of default, it could, for example, aggressively step in, take its local rights back and sell them directly to distributors who would then air games perhaps over the channel previously dedicated to the RSN.

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Teams are choosing their words carefully — if they say anything at all.

“We certainly expect that there will be no disruption in the televising of Texas Rangers games for the upcoming season,” Rangers spokesman John Blake said. “We are confident that a long-term solution will be accomplished for the RSN issue.”

Stars President Brad Alberts said, “At the moment, it’s not a crisis for our team. We hope for business as usual as [the sides] try to work through things.”

Mavs owner Mark Cuban did not respond to a request for comment.

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The Rangers’ first BSSW broadcast is a March 20 exhibition against Cleveland, just after that 30-day grace period ends. By then, Diamond’s strategy for re-organization should be clearer. Or it could move toward default on all -- or just some- - of its networks. According to the Bloomberg report, Diamond has $585 million in cash on hand, so it could skip the interest payment and still pay out the rights fees on selected networks it wants to retain.

In the meantime, while leagues try to decipher exactly how Diamond will proceed, there simply isn’t much to say. Especially since Diamond isn’t saying anything. Through a Bally spokesperson, the company declined to comment on the Bloomberg report.

Marketplace changes

What comes next?

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“That’s the big question,” Ourand said. “We’re at such an early stage. There are so many questions that haven’t been answered.”

Said Maury Brown, who covers sports media for Forbes: “Short of a miracle, there doesn’t appear to be a solution where the teams get what they [contracted] for. All of the teams are going to be affected, but the open-ended question is nobody really knows what [the landscape] will look like.”

Among the things that must be considered:

Streaming vs. over-the-air value

There is no doubt the marketplace is changing due to cord-cutting from traditional cable and satellite programs. According to MoffettNathanson’s Cord Cutting Monitor, the decline in total pay TV distribution in the third quarter of 2022 was 6.3%, a record. On average, about 5 million people per year have been turning to streaming services over cable bundles. The reach of cable networks is reduced.

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At the core of it, it’s why Sinclair/Diamond/Bally is in this mess. When it spent $10.6 billion for the Fox RSN package, it got out over its skis with a market that was shrinking.

“It’s been a terrible model,” Ourand said.

Streaming services continue to gain viewership. MLB.TV, MLB’s streaming arm, reported a record 11.5 billion minutes watched in 2022, up 9.8 percent from the previous year.

But there is a happy medium. Pro sports are attractive to both types of customers. While HGTV and Food Network may have separate niche audiences, professional sports tend to be attractive as a bundle.

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“Is it dead?” Brown said of the RSN model. “It’s going to be more niche, but it’s still live sports and unscripted TV. People like that. The problem right now with cord-cutting and going to streaming services is that people have subscription overload. Are you making a consumer choose one [local team] over another. If you are, it’s going to be really dependent on [team success]. And it does not provide the kind of locked-in dollars that teams favor for cost certainty.”

Untangling tentacles of RSNs, leagues

It’s possible the leagues could get involved as some type of collective in the operation of the RSN network. But that leads to other issues related to markets and inventory.

From a technological standpoint, it’s not difficult. MLB’s technology arm is very advanced. The issue comes down to money.

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“They would have to go through a lot to get there,” Ourand said. “Who will own what shares? Is it equitable? MLB would have a lot more inventory, and that’s valuable. But the NBA could argue it’s got better demographics. It’s a question that hasn’t been answered well.”

Not to mention that while the Bally/Diamond/Sinclair share of the market is significant, it doesn’t even represent half of the teams in the NBA, NHL and MLB combined. How would teams with stable local broadcasting situations feel about the leagues stepping in to subsidize the others’ situation?

Cutting up the Diamond

While Diamond, as a whole, has been a mess, some individual RSNs are very attractive. Among them: The BSSW product.

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It includes two huge markets in D-FW and Houston (though Astros and Rockets games are broadcast on an AT&T network), but also San Antonio, Austin, Oklahoma City and New Orleans. That gives BSSW an MLB team, four NBA teams and an NHL team.

In a reorganization, it would be a valuable asset to sell off to recoup money to pay creditors. Comcast, under the NBC brand, has seven RSNs. Perhaps Amazon or Apple or even Fanatics would like to expand its footprint into broadcast sports.

On the other hand, the Southwest region could be key to a slimmed-down, more-sustainable version of a reorganized Diamond. Both Ourand and Brown contend the Southwest network is among the most attractive of the Diamond pieces.

And it’s got another advantage, Ourand said.

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“The Mavs are in a better position than most teams solely because of the owner,” he said. “With his background, [Cuban] has as much knowledge of this business and where it’s headed as any owner.”

There is a lot to sort out. It will play out over the coming months. It’s unclear exactly where it’s headed. But at least this time, it won’t start out with a message on your TV that explains games aren’t airing because of a carriage dispute.

“My gut tells me there wouldn’t be a change [to broadcast availability],” Brown said. “There will be a lot of pissed-off owners out there. But they want their product out there. That’s my gut. But I’m not sure.”

Twitter: @Evan_P_Grant

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