The Sports Business Journal is reporting that Diamond Sports Group is expected to file for Bankruptcy  a week from today. This is no surprise to anyone who has been paying attention. But what is a little bit of a surprise is that they’ve made all of their owed payments to teams around Major League Baseball except for one – the Arizona Diamondbacks. They are not expected to make that payment according to author John Ourand.

While it appears that as of today the Reds have been paid what they are owed, there are some lingering questions as to whether that will continue. Three other teams were listed in the article as potentially “in peril” because their television deals are considered “extremely favorable to the teams”. One of those teams is the San Diego Padres. The other two teams are here in Ohio with the Cincinnati Reds (signed in October of 2016) and the Cleveland Guardians.

As the article lays out when specifically talking about the Diamondbacks, if a payment is not made it doesn’t automatically mean that Major League Baseball gets the rights to those broadcasts and can just throw them onto or MLB Network. They will certainly go after those rights, but they will have to gain the rights back in bankruptcy court. Until that happens, it’s expected that Bally Sports would continue to produce and broadcast the games. The same thing would seemingly be true for other teams around the league if that were to happen to them.

All of this means little right this second to the consumer. It seems that for a while longer at least, Bally Sports Ohio is going to continue broadcasting the Cincinnati Reds baseball games in the area. That’s going to be true whether or not they make their next payment (which at this point is unknown). Long term things get a bit more dicey, particularly for Reds ownership, as if Diamond Sports Group is no longer planning to pay Arizona because of the favorable deal they believe the team has then they may very well decide at some point in the near future to do the same thing with the Reds given their “extremely favorable” deal. Stay tuned.

11 Responses

  1. Jim t

    Doug what is your thoughts on the fact that 2 of the teams, Reds and Guardians represent two smaller markets?

    • Doug Gray

      All three of the teams that have “extremely favorable deals” are small markets. The Padres are a smaller market than Cleveland is.

      • Old Big Ed

        The Neilsen stuff that I found shows that Cleveland-Akron is 19th, San Diego 27th and Cincinnati 36th in TV market size.

        One could always quibble, because Cincinnati can also claim at least decent share of viewers in Columbus, Indy, Louisville, Lexington, whereas Cleveland is hemmed in by the lake, and can share less area due to Pittsburgh, Detroit and the Reds. San Diego has a large pond to its west; LA to its north and desert to its east, but Tijuana has over 2 million residents, and that is not nothing.

        How much DSG pays these three teams is a bit cryptic, but my understanding is that the amounts are similar — somewhere in the $50-$60mm/year range.

        San Diego’s big advantages in revenue over the Reds are not local broadcasting payments, but are (1) gate receipts — the gross municipal product of the San Diego area (not counting Tijuana) is about 60% more than that of Cincinnati, because it has more people and those people have higher average incomes; and (2) San Diego for obvious reasons is a huge tourist destination in the summer, so the Padres can draw on that. The Padres are also the only game in town, with the Chargers having left. The Pads also have less risk-averse ownership.

        The Yankees just reported $350 million in ticket sales for 2022, which does not count beer and merchandise. Jiminy.

  2. Jeffrey Oakley

    Still making payments may be a mute point. By paying some and not another the bankruptcy law states all payments made in the last 90 days must be returned.

    • Old Big Ed

      That rule (11 U.S.C. Section 547(c)(2)) does not apply to pre-petition payments made in the ordinary course of business, which the scheduled payment to a team would be in a Chapter 11 situation. It would compare, for example, to a Chapter 11 debtor’s making its ordinary electric bill, because the business needed power during the 90-day preference period. A debtor can’t prefer one creditor over the other in the same class — a debtor cannot pay a $10k debt that had long been owed to his best friend’s company 45 days before filing the petition, because it would be unfair to the other unsecured creditors (such as his ex-brother-in-law) who were not paid in the preference period.

      The Chapter 11 debtor, though, does have the ability to accept or reject leases or executory contracts, which the ongoing contract between DSG and a team would be. The idea is that the debtor that is reorganizing can reject (discontinue) those ongoing contracts that are unprofitable (like the D-Backs one apparently is), while keeping (say) the Cardinals contract, from which it can make money once the business has restructured. The restructured company would then, in theory, be able to run a profit thereafter.

      In that case, the D-Backs would be stranded, without a local TV outlet, although MLB has indicated that it has a plan in place to make sure that the coverage would continue even if DSG rejected the contract.

  3. Jim Walker

    Given the Dodgers’ mess when Spectrum won control of their TV rights, a probable worst case scenario that popped into my mind is Spectrum outbidding MLB for the Reds and Guardians rights in bankruptcy court.

    I am mired in a location where the only truly reliable broadband option is Spectrum; and, the most economical way to watch or stream the Reds is to also buy their cable.

    In areas where Spectrum does NOT = cable service, I can see them selling independent streaming of the Reds; but, I don’t think they are going to stab their cable service in the back by selling free standing streaming or cutting deals with steaming services in areas where they are the cable franchise.

  4. MBS

    If we can’t stream this year, I’ll probably be watching the MILB, and checking the box scores of the Reds. This would be a reversal of my previous habits.

  5. Votto4life

    My main concern is not where I can watch the games, but what will be the short and long term impact financially on the Reds? Have the Reds been anticipating this? Is this why they have slashed payroll?

    Who knows the answer, but from what I have read, whatever solution MLB comes up with, it will likely mean less TV revenue for the Reds.

    Or am I reading this wrong?

    • Jim Walker

      I don’t think anyone knows what the total or per team revenues from TV/ streaming will be in the post RSN era.

      Commissioner Manfred is on record that he wants MLB to be the focal point of streaming and that there also needs to be accommodation for delivery of MLB content via cable and satellite providers for situations where streaming is not available or viable.

      He has sketched a scenario in which a customer might sign up for an entire season package for one or more teams via streaming. He has gone a step further and hinted at the possibility of select series that are not part of a subscriber’s package being available for a premium addon and perhaps even on a cash and carry basis to customers without a subscription.

      Manfred’s comments seem to implicitly point to the end of blackouts in MLBTV streaming. This in turn would most likely bring some sort of revenue sharing to compensate teams for the loss of the blackout protections. Perhaps the Reds, for example, might receive a percentage the revenue brought in by the sale of season packages of other teams’ games within the Reds previous area of blackout protection. Or perhaps all the revenue from all the MLB steaming packages would be divided by all the teams based on some agreed to formula.

      However things are not likely to shake out overnight, I would not be at all surprised if MLB has to revert to some sort of transitional payments/ subsidies to some teams hardest hit by the changes flowing out of the end of the RSN era.

      • Votto4life

        Thank you for your thoughtful reply Jim. I appreciate it.

    • BK

      I don’t have any idea how the RSN money will look long term, but the impending DSG bankruptcy likely accounts for a lot of the payroll cuts the Reds have enacted this year. The good news is they likely won’t have to account for additional losses this year. So, while their top payroll capability may be lower, hopefully they will be passed the Covid losses and not in a deeper hole from lost RSN revenue.