Diamond Sports Files Motion to Reject Diamondbacks TV Contract

Things are coming to a head with a Ju.y 1st payment deadline

Diamond Sports Group, (DSG) filed a motion today to reject the Diamondbacks Television Contract. DSG broadcasts D-backs games under the Bally Sports logo. DSG filed for Chapter 11 bankruptcy on March 14th, and defaulted on a $31 million payment due to the Diamondbacks on March 16th. DSG was ordered to pay 50% of what they owed for the year towards the end of April, pending a hearing on June 1st. 

In that  June 1st hearing a judge's ruling came down on the side of the Diamondbacks and the other teams involved whereby DSG was ordered to pay the full amount of the contract owed, with a due date of July 1st. 

Today's motion,  filed a week ahead of the next scheduled hearing on June 29th, was expected.  From the filing, paragraphs 8 & 12 DSG's justifications were outlined as follows. 

The current term of the Diamondbacks Agreement extends through December 31, 2035. The rights fee payments under the Diamondbacks Agreement total tens of millions of dollars annually and increase yearly. Unfortunately, the Debtors lose significant sums on the Diamondbacks Agreement. Absent timely rejection, the next such payment would be due to the Diamondbacks on July 1, 2023. 

As a result of this ongoing analysis and other developments, the Debtors have determined, in their business judgment, that the Diamondbacks Agreement is unnecessary and burdensome to the Debtors’ estates and should be rejected. The Debtors lose significant amounts under the Diamondbacks Agreement, and thus have determined that the Diamondbacks Agreement no longer fits within the Debtors’ longer-term plans.

The root of the matter is cord cutting and diminished carriage fees, making the current Regional Sports Network business model untenable. The changes brought on by this trend were sped up and exacerbated during the Covid-19 Pandemic. It was already questionable that the deal  between DSG and the Diamondbacks would remain profitable through 2035 when the deal is scheduled to expire. 

 As viewers have increasingly "cut the cord" from cable and satellite packages, streaming rights have also  become more valuable. The Diamondbacks and MLB still control their own streaming rights as do most MLB teams.  DSG had previously argued in court that without those streaming rights they could no longer remain profitable, but earlier rulings determined that compelling teams to relinquish those rights is not the purview of the bankruptcy courts. Even with those streaming rights, based on track record, it's unlikely those would be the difference maker in restoring DSG to profitability. 

The judges ruling after the June 29th hearing will be the final determinant. That said, barring a last minute agreement between Diamondbacks ownership and DSG, which seems unlikely, MLB might end up taking over the broadcasts by the July 1st payment due date. (June 30th's game in Anaheim is already scheduled to be broadcast on Apple TV.) Presumably  MLB and the Diamondbacks are prepared for this eventuality. 

MLB had to react quickly at the end of May to take over the Padres broadcast and distribution from Bally Sports San Diego.  MLB created a special package for fans, allowing them to subscribe to a new Padres-only MLB.TV package to watch games without local blackout restrictions. (The streaming package was offered for $19.99 per month or $74.99 for the rest of the season.).   A similar package could conceivably offered to Diamondbacks fans.