Sinclair’s Diamond Sports files for Chapter 11 bankruptcy, plans to shed $8B in debt

Sinclair’s embattled Diamond Sports Group took a widely anticipated step Tuesday and filed a Chapter 11 bankruptcy petition as it looks to reorganize its regional sports networks business under federal court protection in Texas, with a plan to clear $8 billion in debt.

Diamond said it’s finalizing a restructuring support agreement (RSA) with its largest debt holders and Sinclair Broadcast Group that will see Diamond emerge as a standalone company. The petition was filed in the U.S. Bankruptcy Court for the Southern District of Texas.

Diamond operates 19 Bally Sports regional sports networks (RSNs), which serve as the home for 42 MLB, NBA and NHL teams, producing approximately 4,500 live regional professional telecasts each year along with locally produced sports events and programs.

“We are utilizing this process to reset our capital structure and strengthen our balance sheet through the elimination of approximately $8 billion of debt,” said David Preschlack, CEO of Diamond who was appointed in December, in a statement. “The financial flexibility attained through this restructuring will allow DSG to evolve our business while continuing to provide exceptional live sports productions for our fans.”

Under the plan, first lien lenders (or first priority creditors who are most protected) will be unimpaired, meaning expected to receive a full recovery. Other secured and unsecured creditors will receive equity in the reorganized Diamond. The RSN owner expects to continue operating business, including maintaining rights contracts with teams and airing games on TV, with approximately $425 million of cash on hand to fund its business and restructuring plans.

“DSG will continue broadcasting games and connecting fans across the country with the sports and teams they love,” Preschlack continued. “With the support of our creditors, we expect to execute a prompt and efficient reorganization and to emerge from the restructuring process as a stronger company.”

Diamond has filed a slew of customary “first-day” relief motions, seeking authority to continue to pay employee wages and benefits, and honor customer programs. That includes a request to honor prepetition customer program obligations related to distribution, advertising and DTC, estimated at approximately $46.5 million in cash outstanding.

According to fillings, as of the petition date, Diamond has more than $8.8 billion in aggregate debt, in addition to other obligations from regular business, including contractual obligations to their league and team partners. Diamond listed $1 billion to $10 billion in both assets and liabilities in its Chapter 11 filing.

The bankruptcy filing was not unexpected, with Bloomberg reporting in January that Diamond was in the early stages of a complex process to restructure debt under Chapter 11 as it looked to resolve around $8.6 billion owed to pro sports leagues for licensing games. In February, a bankruptcy filing looked imminent as Sinclair missed a $140 million interest payment to creditors.

Diamond is expected to continue making payments for rights fees to 13 of the 14 pro sports teams that Bally Sports carries live events for, though The Desk noted The Arizona Diamondbacks won’t be paid during the initial stages of the restructuring process.

Diamond Sports seeking Chapter 11 protection is a major example of a struggling regional sports network model. Sinclair scooped up the now Bally Sports RSNs back in 2019 from Disney for $9.6 billion (at the time partly to satisfy regulatory concerns over Disney’s acquisition of 21st Century Fox assets). However, the RSNs faced financial pressure as sports rights fees continued to rise and subscriptions to traditional pay TV declined, and finding distribution for RSNs became more challenging. In 2021 Dish Network chose to exclude Bally Sports RSNs from a distribution agreement it renewed with Sinclair, after having dropped the channels earlier in 2019. Hulu and YouTube TV dropped the channels in 2020. Higher sports fees alongside less distribution and continued cord-cutting impacted Diamond’s ability to deal with Sinclair’s debt burden related to the acquisition.

In an effort to tap new avenues, Diamond last year debuted its own direct-to-consumer service, Bally Sports+.

According to The Desk, Diamond Sports owes more than $1.8 billion in unsecured debt to U.S. Bank, as well as $77.2 million to Dolan Broadcast (MSG Networks owner), and $40 million to DirecTV. It filed a motion requesting authority to submit a consolidated list of creditors and 30 largest unsecured creditors.

A hearing on first-day motions is scheduled for March 16.