Diamond Sports Group LLC has reached a deal under which the regional sports network operator would emerge from Chapter 11 bankruptcy protection and partner with a major streamer. Now, Diamond has to get all of its stakeholders to agree to the plan.
Backed by most of its largest creditor groups, Diamond's restructuring agreement would trade on a $450 million loan to finance the bankruptcy proceedings and pay down debt. It also reached a $495 million agreement with parent Sinclair Inc. to settle litigation stemming from an alleged misappropriation of $1.5 billion in funds that Sinclair took out of the company before it entered Chapter 11 bankruptcy protection.
Perhaps most importantly, Amazon.com Inc. plans to invest $115 million in Diamond, which operates 18 RSNs under the Bally Sports banner. In exchange, the Prime Video operator would get a minority stake in Diamond and provide direct-to-consumer services for the more than 15 NBA, 11 NHL and five MLB teams to which Diamond holds local streaming rights.
If everything is approved by the courts and creditors, Amazon's investment will save Diamond from the liquidation that many observers expected after the 2024 sports seasons, said S&P Global Market Intelligence Kagan principal analyst Justin Nielson, who specializes in the broadcast industry. But Nielson noted that the deal is not a panacea.
"This Amazon agreement and minority investment gives DSG a lifeline to exit bankruptcy, but the underlying linear business model for RSNs is still flawed. Major sports rights deals going forward will have to evolve to create the best fan experience while allowing their distribution partners to be profitable," Nielson said. He added that he expects sports rights packages to continue shifting toward hybrid deals that include broadcast, multichannel and streaming services.
Plan under review
As part of the Chapter 11 plan, the principal debt holders would convert their debt into equity positions and become Diamond's principal owners. In a release announcing its plans, Diamond said 85% of the company's first-lien debt holders, more than half of its second-lien debt holders and over two-thirds of unsecured bondholders agreed to the restructuring plan.
However, the transactions have yet to be detailed in the Houston court overseeing bankruptcy proceedings, with representatives for MLB, NBA and another creditors' group stressing that they must assess the details before making any decision regarding the proposals.
A Diamond lawyer said during a Jan. 17 call that pleadings would be filed within the next week.
The reorganization initiatives mark the latest turn in a legal saga that saw Diamond Sports, the nation's largest operator of RSNs, file for Chapter 11 in March 2023 in the US Bankruptcy Court in the Southern District of Texas. Contributing to the company's bankruptcy filing was a declining linear subscriber landscape and more than $8 billion in debt.
Since then, Diamond has issued a mountain of court filings; missed payments to multiple MLB teams; rejected contracts with baseball's San Diego Padres and Arizona Diamondbacks; and shuttered two of its RSNs. All this has taken place as Diamond has looked to assuage creditors, leagues and teams while keeping itself afloat.
Amazon steps in
A lawyer for Amazon said on the Jan. 17 call that the streamer had been working on its deal with Diamond for months.
It was unclear at press time how Amazon might price direct-to-consumer subscriptions for the local sports teams. The Bally Sports+ local streaming offerings currently retail for $19.99 per month.
Nationally, Prime Video's coverage of the NFL's "Thursday Night Football" package is made available to Amazon customers at no additional fee. Similarly, Prime Video has also streamed some 20 New York Yankees games in each of the past two seasons within the MLB team's TV territory at no additional charge.
Diamond and Amazon hold respective 20% and 15% stakes in YES Network (US), the regional sports network home to the Yankees and NBA Brooklyn Nets.
Follow the money
Under the reorganization plan, Diamond would sell its YES stake with proceeds. Additionally, Bally's naming rights deal for the RSNs would end with the 2024 MLB season and Diamond could seek a new monetization stream through a new partner.
Through cooperation agreements, the NHL and NBA received assurances from Diamond that its clubs would have their games televised and receive their payments for the current 2023-24 seasons, with the rights then reverting to the leagues after the Bally RSNs' coverage of the circuits' first playoff rounds.
The NBA agreement with Diamond also allowed clubs to offer 10-game packages to local broadcast station groups, including Gray Television. A source familiar with Diamond's thinking said while the RSN operator would look to pivot from handing back rights to the league at the end of the 2023-24 seasons, Diamond would not look to abolish the local station agreements.
As for MLB, Diamond had previously been working on an agreement with the league that would have concluded after MLB's regular 2024 season next fall.
During the bankruptcy status call Jan. 17, a Diamond lawyer said the company would cover its broadcasting and payment commitments to nine MLB clubs this season. Moreover, it is continuing to work toward new modified pacts with three other teams. One of those clubs is believed to be the Texas Rangers, and a lawyer for the defending World Series champion was on the call. The other two are thought to be the Cleveland Guardians and the Minnesota Twins, whose contract with Bally Sports North ended with the 2023 MLB season.
Stakeholders weigh in
Lawyers for MLB and the NBA both said they had just been apprised of the latest developments and would have to assess the restructuring proposals before making any comment or reaching decisions. The NHL did not speak on the call.
A representative for another creditors' committee said it was "a milestone day" for Diamond. The lawyer noted that while the committee was apprised of developments, it did not actively help negotiate the restructuring agreements. The creditors are most interested in seeing the term sheet and attendant fees, the lawyer said. Moreover, the lawyer raised questions about the terms of the $495 million Sinclair settlement in light of litigation that totaled $1.5 billion.
To that end, Sinclair will pay Diamond $495 million in cash and provide ongoing management and transition services to support the company's reorganization and separation from Sinclair's operations. Under the restructuring agreement, the proceeds from the Sinclair settlement would be used to support the reorganization plan and fund distributions to certain creditors.
"We are thrilled to have reached a comprehensive restructuring agreement that provides a detailed framework for a reorganization plan and substantial new financing that will enable Diamond to operate and thrive beyond 2024," said Diamond CEO David Preschlack in a statement.
The executive expressed gratitude for the support from Amazon and a group of "our largest creditors who clearly believe in the value-creating potential of this business. Diamond's near-term focus will be on implementing the [Restructuring Support Agreement] and emerging from bankruptcy as a going concern for the benefit of our investors, our employees, our team, league and distribution partners, and the millions of fans who will continue to enjoy our broadcasts."
Diamond Sports employs some 680 people.