MLB and Diamond Sports argue over late payments amid bankruptcy

Major League Baseball has asked a federal court overseeing the bankruptcy case involving Sinclair, Inc.'s Diamond Sports Group to terminate the broadcaster's rights to games played by the Cleveland Guardians and Minnesota Twins if it does not make an immediate payment connected to licensing rights.

The motion was filed in a federal court in Texas last week, and said Diamond Sports had provided notice to MLB that it would not be able to make the required licensing rights payments to the teams by its original due date, which was April 1.

In its motion, the MLB complained that Diamond Sports — which operates the Bally Sports-branded regional networks — continues to reap the benefits of the clubs' intellectual property by producing and airing their games, which haven't been paid for.

"By continuing to broadcast Guardians and Twins games, they generate post-petition revenue, yet boldly refuse to pay the Clubs," the motion said.

One day after MLB's request was made to the court, the Arizona Diamondbacks filed a similar motion seeking to strip Diamond Sports of the broadcast rights to their games if they did not make immediate payments connected to a nearly-identical rights contract.

On Monday, Diamond Sports objected to the motion, arguing MLB and the Diamondbacks' motions came less than a month into the company's Chapter 11 bankruptcy case, through which it affirmed it owed billions of dollars to dozens of stakeholders.

In its objection, Diamond Sports said MLB and the Diamondbacks failed to prove why it needed a court to weigh in on either an immediate payment or the stripping of its broadcast rights on an emergency basis.

To that point, Diamond Sports said its agreement with MLB and two of the three teams in question allowed for a grace period that would have given the broadcaster time to make the necessary rights payments. The company admitted the grace period provision in its contract with the Diamondbacks lapsed in mid-March.

As for the payments, Diamond Sports said it has the cash on hand to make good with the Guardians, the Twins and MLB, and was willing to "place into escrow the full contract amounts of the Telecast Rights Fees due on April 3, pending a resolution of the issues raised in the motions, to quell any concern that those two teams have about [Diamond Sports'] ability to make good on payments."

On Tuesday, MLB responded, saying Diamond Sports' objection to their motion was "nothing more than a tactic to delay the payment of the clubs' Telecast Rights Fees even further." Moreover, MLB said if Diamond Sports wasn't happy with the rights that were negotiated, the bankruptcy filing allowed it to terminate the agreement and revert rights back to the sports organization.

"[Diamond Sports is] trying to have it both ways," MLB argued. "They want to continue using the clubs' intellectual property and telecast rights because they recognize how fundamental these rights are to their business — for, without them, they cannot generate revenue. They simply do not want to pay for them."

MLB noted that Diamond Sports has paid telecast rights to other baseball, basketball and hockey teams, while grasping for "any and all reasons they can to delay such payment" to the Guardians and the Twins.

"[Diamond Sports is] functionally holding the clubs captive as involuntary unsecured creditors, with no assurance that they will ever be paid for the use of their intellectual property," MLB complained.

MLB said time is of the essence, and argued Diamond Sports' request to delay a hearing on the matter to mid-May wasn't reasonable. Still, it agreed to delay the hearing from the originally requested date of April 13 — this Thursday — to April 19, at which point it hopes the court will approve its motion to compel payment or return of the telecast rights.

If the judge approved MLB's motion to compel, it could have a ripple effect that sees nearly all of Diamond Sports' telecast rights to professional baseball terminated. In February, MLB Commissioner Rob Manfredi affirmed the termination of just one contract between a club and Diamond Sports could allow the MLB and its clubs to terminate all broadcast agreements.

If that happens, Manfredi said the organization would tap into its TV channel, MLB Network, to make the games available to fans while it worked out agreements with other cable networks. MLB could also offer the games directly to consumers through streaming, or make one-off deals with local broadcast stations in the teams' home markets.

"Our first hope remains that Diamond figures out a way to pay the clubs and broadcast the games like they’re contractually committed to do," Manfredi said.