JUPITER, Fla. — The Cardinals' parent company, broadcast partner Bally Sports Midwest and several other regional sports networks that carry Major League Baseball to millions of fans filed for bankruptcy protection late Tuesday night.
Diamond Sports Group, the largest owner of regional sports networks, announced that it has filed for Chapter 11 protection so it can “eliminate more than $8 billion in outstanding debt.”
In a statement, the company said it “will continue to operate as usual” during the bankruptcy and restructuring process, and that its vast slate of live games, such as the Blues and Cardinals at Bally Sports Midwest, will continue to be broadcast. David Preschlack, CEO of Diamond, said in the statement that his group's networks “will continue to broadcast games and connect fans across the country with the sports and teams they love.”
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This long-awaited dive by Diamond Sports Group comes just two weeks before the start of the Major League Baseball regular season, and its owners have been preparing for it.
The announcement accelerates what was already an entitlement calculation.
It could signal changes in how the leagues distribute games.
Major League Baseball described it as an opening to “reimagine” how it reaches “an even greater number of entertainers.”
Calling Diamond's statement “unfortunate,” MLB said Tuesday night that it would distribute games to local market fans if Diamond Sports Group or any other RSN defaults on an agreement.
The Cardinals are one of 14 Major League Baseball teams with which Diamond Sports Group has a rights agreement, and the Blues are one of 14 National Hockey League teams with broadcasting rights agreements with Diamond Sports Group. The Cardinals are in the midst of a $1.1 billion rights deal with Bally Sports Midwest that includes partial ownership in the network, and the team has attributed its planned payroll increase to increases over time in that rights fee. The Cardinals' rights fee revenue is slated to approach $70 million for 2023 with the bulk of the billion-dollar deal coming in subsequent years as annual payments increase to $80 million.
The Cardinals reiterated this spring that the placement and potential bankruptcy of Diamond Sports Group was a concern. They didn't expect it to change their operations for next season, although president Bill DeWitt Jr. he said it could be a factor in the next few years.
“It's a concern and a fluid situation,” DeWitt said at the team's Winter Warm-up in January. “There is no question. Something is going to happen sooner or later. It's a big part of our revenue stream. We have nice royalty fees. The model (regional sports networks) is at risk.”
Bally Sports Midwest declined to comment, directing the Post-Dispatch to release Diamond in the deposition.
As the regular season approaches with Opening Day set for March 30 at Busch Stadium against Toronto, the Cardinals expect their broadcast to continue to be available as scheduled via cable, satellite and streaming providers.
Among the results of this restructuring could be Diamond selling its regional sports networks or seeking deals specifically with other outlets and cable providers.
There's also the possibility that leagues or teams could take control of their broadcasts and launch a direct-to-consumer medium, though they initially lose the wealth that came from the rights to eventually use another vein. Major League Baseball is beefing up its offices with broadcast executives and game programming for immediate response and what could eventually be the league and its owners reaching fans directly through an MLB-owned broadcast entity.
“Today's bankruptcy filing by Diamond Sports Group is an unfortunate development that we expected,” MLB said in a statement. “Despite Diamond's financial condition, there is every expectation that they will continue to televise all of the games they have committed to during the bankruptcy process. … In the long term, we will iterate our distribution model to address the changing media climate and ultimately reach an even greater number of fans.”
Over the past decade, mushrooming rights fees have been a major driver of team revenue, club value and player wages. The Cardinals were able to take advantage of their strong ratings and strong brand to see their rights fees increase during this period. The bankruptcy comes just before the time some groups expect payments that help power the year.
Diamond may try to keep some of its teams but drop others.
The New York Post reported last week that Diamond could be looking to “drop contracts to at least four teams,” and those teams were identified as the big-spending Reds, Diamondbacks, Guardians and San Diego Padres.
Another result of the changes coming – and perhaps coming quickly – to regional sports broadcasting is the end of blackouts that are outdated and restrictive in the streaming era.
Cardinals president Bill DeWitt III called the blackout policies “problematic” and “outdated” and said the team hopes “that will be resolved through this change in local media rights.”
Diamond, which operates as Bally Sports for RSN, had a 30-day period during which to try to renegotiate deals for the $140 million owed or file for bankruptcy.
A total of 46 professional sports teams operate on the Diamond networks.
The steep decline from the royalty-fee jackpot of the past decade to the current predicament is related to the decline of cable and the rise of streaming alternatives that have upended the long-standing cable subscription model. Live sporting events were seen as DVR-proof and attractive to advertisers because they were appointment viewing rather than on-demand entertainment. But as cable subscribers declined, so did helium, keeping the cost of sports fees high. In the 11 years from 2010 to 2021, the number of US households that purchased some form of cable subscription increased from 91% to 60%, and the decline continues.
Chapter 11 offers time and protection to a business struggling to find ways to restructure its debt and other obligations while under judicial supervision.
Sinclair Broadcast Group is by far the largest owner of Diamond Sports Group.
The bankruptcy was filed in the Southern District of Texas.
“We are using this process to restore our capital structure and strengthen our balance sheet through the elimination of approximately $8 billion of debt,” Preslak said in the statement. “The financial flexibility achieved through this restructuring will allow DSG to grow our business while continuing to provide outstanding live sports productions for our fans.”
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