Sinclair Broadcast Group Inc.'s regional sports business filed for bankruptcy Tuesday after cord-cutting consumers left the company unable to service its debt and keep paying for the broadcast rights agreements it had with professional sports teams.
Diamond Sports Group LLC enters chapter 11 aiming to renegotiate its broadcast contracts with teams and to restructure its more than $8 billion of total debt stemming from Sinclair's 2019 deal to purchase the business from Walt Disney Co.
Diamond is the local broadcaster of about half the teams in the MLB and NBA, and about a third of NHL teams. Diamond faced high fixed costs under its broadcast contracts that have become uneconomical for the company as viewers cancel cable subscriptions amid a broader shift toward streaming.
In response to that shift, Diamond has been working on pivoting to a more streaming-focused direct-to-consumer model. The company has reached deals for local-streaming rights with five MLB teams in its baseball markets, and is working on acquiring the streaming rights for the remaining nine teams, The Wall Street Journal reported this month.
However, the MLB has been resistant to giving over those streaming rights, and its leadership ultimately wants to blow up the regional-sports-network model, the Journal reported. MLB Commissioner Rob Manfred has said the league is prepared to produce games and forge new distribution deals with cable, satellite and digital companies while also carrying games on its own platform, MLB.TV.
Diamond has had more luck negotiating with the NBA, and last year struck a year-to-year rights deal to play certain games on its streaming platform Bally Sports+, provided that Diamond meets certain conditions.
The NBA and Diamond have discussed a potential extension of that agreement, even if it has filed for bankruptcy, as long as the league is assured that its teams will continue to be paid, according to people familiar with the matter.
A group of Diamond creditors — including PGIM Inc., the money-management arm of insurer Prudential; Fidelity Investments; and several hedge funds such as Mudrick Capital Management LP — is expected to take ownership of the company, the Journal previously reported.
Sinclair is expected to give up almost all of its equity in the restructured Diamond, which said Tuesday it is finalizing a restructuring agreement with creditors.
That deal would leave Diamond's roughly $600 million first-lien loan unimpaired, while other secured and unsecured creditors would exchange their debt claims for equity, eliminating roughly $8 billion of debt.
Paul Weiss Rifkind Wharton & Garrison LLP is serving as Diamond's legal counsel, while AlixPartners LLP is the company's restructuring adviser.