Diamond Sports must make partial rights payments to baseball teams

A federal judge overseeing the Chapter 11 bankruptcy case of Sinclair's Diamond Sports Group has ordered the regional sports broadcaster to fork over at least half of the licensing rights payments that it owes to four of five Major League Baseball (MLB) teams.

The order came the same week that the fifth team — the Texas Rangers — filed an emergency motion complaining Diamond Sports had not made its licensing payments on time, despite broadcasting games since the start of this year's baseball season in late March.

As with the other four teams, officials with the Rangers accused Diamond Sports of profiting from their games while stiffing them on payments owed. In a motion filed on Monday, a lawyer representing the Rangers invoked a familiar phrase — "there's no such thing as a free lunch" — to explain what it felt Diamond Sports was trying to get away with.

"Everyone understands [that concept] — everyone, apparently, except the Debtors," the lawyer wrote. "Here, they are getting lunch — using the right to create content based on the Rangers' baseball games, and, in turn, selling that content to distributors — but without paying for it."

The amount Diamond Sports paid for that "lunch" was redacted in a public version of the complaint made available this week (the unredacted complaint was sealed by the court). Lawyers representing the Rangers said the final tab could be adjusted "if the court later determines that a different amount is fair value."

On Wednesday, U.S. Judge Christopher Lopez decided to meet both sides in the middle, ordering Diamond Sports to pay the Rangers and three others teams — the Arizona Diamondbacks, the Cleveland Guardians and the Minnesota Twins — at least half of its most-recently missed payments. A matter involving a missed licensing payment to the Cincinnati Reds was not resolved this week.

The order followed a flurry of emergency motions filed by the teams and the MLB that sought to force Diamond Sports to pay the full amount owed or forfeit the rights to the games, with the MLB apparently ready to accept the task of broadcasting or streaming the affected games on its own.

Diamond Sports operates nearly two dozen regional sports networks under the Bally Sports brand, with the channels offering live games from 14 MLB teams. Those teams include the Atlanta Braves, Detroit Tigers, Kansas City Royals, Los Angeles Angels, Miami Marlins, Milwaukee Brewers, Minnesota Twins, St. Louis Cardinals, San Diego Padres and Tampa Bay Rays. Bally Sports also airs professional basketball and hockey games in some areas.

The channels, once branded as Fox Sports, were acquired from the Walt Disney Company in 2019 for $9.6 billion. The channels were divested by Disney in order to satisfy regulatory concerns connected with its purchase of certain film, studio and cable network assets from 21st Century Fox (now Fox Corporation).

The deal was part of Sinclair's big bet that live sports would continue to be financially lucrative. Since then, it has found itself beleaguered by misfortune, including a decision by some pay television companies to drop the channels amid rising carriage fees and the two-year coronavirus pandemic that brought sporting events to a halt.

Late last year, Sinclair tried to reverse its bad luck by launching Bally Sports Plus, a streaming service that offers live access to sports events and related programming directly to consumers.

The pivot to streaming came too little, too late. In March, Diamond Sports filed for bankruptcy protection in order to address more than $8 billion in debt — or about $1.3 billion less than what it paid to Disney for the sports channels.

"The financial flexibility attained through this restructuring will allow [Diamond Sports] to evolve our business while continuing to provide exceptional live sports productions for our fans," David Preschalack, the CEO of Diamond Sports, said in a statement.

At the time of the filing, it was widely reported that Diamond Sports was expected to continue paying most of the MLB teams whose programming it carried on Bally Sports — all except the Arizona Diamondbacks, which is owed at least $30.8 million and was listed as one of Diamond Sports' biggest creditors in early court filings.

While Diamond Sports has missed rights payments to some teams over the last few weeks, it has made on-time payments to at least eight other teams, and recently made a late payment to the San Diego Padres, according to the Sports Business Journal.

Last week, lawyers for Diamond Sports said the group had enough cash on hand to make payments to the Guardians and the Twins, and offered to place the money in escrow. The teams ultimately rejected the offer.