A struggling subsidiary of Hunter Valley-based Sinclair Broadcast Group, which owns regional sports networks, is heading toward bankruptcy restructuring, according to reports.
Diamond Sports Group, owner of the largest U.S. cable sports channel that shows more than half of all MLB, NHL and NBA teams, is considering restructuring $8.6 billion in debt through Chapter 11 bankruptcy, according to Bloomberg.
Sinclair reported on Nov. 28 that it lost value for the second time since it bought Bally Sports Regional Sports Networks from The Walt Disney Co. for $10.6 billion in 2019. Diamond, the subsidiary that Sinclair created to own the networks, wrote that the book value of the 19 rebranded networks fell by $1 billion in the most recent third quarter, when it lost $1.2 billion, and said cable subscriber losses were significant. .
Sinclair took a $4.2 billion charge for goodwill and intangible assets after the pandemic disrupted 2020 sporting events as national sports leagues canceled games and shortened seasons at the height of the coronavirus pandemic .
Bloomberg reported, citing people familiar with the matter, that Diamond is expected to be unable to pay the $140 million in interest due in mid-February.
A spokesman for Diamond declined to comment on Tuesday’s report.
The outcome of any potential restructuring would raise questions about the future of regional rights revenue for professional sports leagues, experts said.
Under one alternative, Diamond’s largest lender would gain ownership through a Chapter 11 bankruptcy reorganization, sources told Bloomberg. Those lenders, including Prudential Financial, Fidelity, Hein Park Capital Management and Mudrick Capital Management, declined to comment on the report.
In November, Diamond said Bally’s network was being impacted by a loss of subscribers, “which we believe is partly driven by shifts in consumer behavior.”
With the loss of cable subscribers, Diamond has looked to other sources of revenue, including launching last year a new sports streaming service that doesn’t require a cable subscription. Bally Sports+, a direct-to-consumer streaming service that launched in September in 14 NBA and NHL markets, as well as on Roku, has untapped potential, Sinclair CEO Chris Ripley said in November.
“As market awareness builds and more people outside the bundle come in to watch their favorite home teams, it will certainly compensate for some of the losses we’re taking,” Ripley said.
By adding gaming elements, an e-commerce component and targeted advertising, the streaming service could eventually generate revenue beyond subscriptions, he said.
In a conference call with analysts at the time, Ripley did not rule out a sale of the sports network, although he said no sale was in the works. Advisers to investment banks LionTree and Moelis “are talking to various parties about deleveraging, strategic partnerships and things of that nature,” he said.
The streaming effort has been hampered by MLB’s refusal to grant the company additional streaming rights, sources told Bloomberg.
Major League Baseball said in a statement earlier this month that it hired a former Diamond executive to oversee the league’s management and distribution of local media rights starting Wednesday. Billy Chambers, CFO and COO of Bally Networks, will serve as MLB’s new executive vice president of local media.
“He will work closely with the 30 clubs to distribute games to fans in local markets across the country in the most efficient manner,” the league said in a statement.
Baseball Commissioner Robert D. Manfred Jr. added that Chambers “will play an integral role in how we navigate the rapidly evolving local media landscape going forward.”
Bloomberg reported that Diamond could terminate his contract with the team under Chapter 11 of the U.S. bankruptcy code, which would allow the team to reclaim media rights. The report says Diamond is in trouble this year for paying teams and the league about $2 billion in television rights.
Sinclair shares were up 47 cents at $20.72 in afternoon trading on Tuesday.
