The Ohio Cup trophy above a Bally Sports logo before a game between the Cincinnati Reds and the Cleveland Guardians at Progressive Field in Cleveland, May 17, 2022.
George Kubas | Diamond Images | Getty Images
The courtroom continues to heat up for Diamond Sports Group, the largest owner of regional sports networks.
On Thursday, a bankruptcy judge approved Diamond’s request to bring in mediators as it negotiates with creditors to reach a reorganization plan. The company said in court filings that it must meet “substantial progress of the plan” before the upcoming NBA and NHL seasons begin in October.
“I think sports are part of the fabric of America, and many fans from day one want to know how and when their teams are going to play,” Judge Christopher Lopez said during Thursday’s hearing, adding that all sides should participate in the discussions. to reach a resolution.
Two judges from the US Bankruptcy Court for the Southern District of Texas – Judges David Jones and Marvin Isgur – will preside as mediators.
Last week, Diamond won court approval to extend the amount of time it has to come up with a reorganization plan.
Diamond filed for bankruptcy protection earlier this year, weighed down by more than $8 billion in debt and significant headwinds that have hit regional sports network businesses as more consumers ditch their cable subscriptions in favor of streaming.
The company and some of its creditors at earlier points in the case, including during a hearing last week, “indicated that mediation could help (Diamond) resolve myriad issues it faces on its path to reorganization.”
Diamond has until Sept. 30 to submit a reorganization plan, weeks before the 2023-24 NBA and NHL seasons open. It is vital for Diamond to continue to provide local games on its networks. Since its filing, it has already seen some teams leave its Bally Sports channels due to a breakdown in rights fee talks.
The prospect of local gaming rights being up for grabs attracted broadcast station owners – including Nexstar Media Group, Gray TV and EW Scripps Co. – looking to carry the games, CNBC previously reported. The Phoenix Suns recently left a Bally Sports network for such a deal.
In addition to shedding its heavy weight, Diamond is looking to reset some of its rights contracts with teams to reflect so-called market rates.
Last week, a lawyer for the NHL said the league had constructive talks with Diamond, but that “time is of the essence” before next season.
During the bankruptcy process so far, Diamond has faced numerous conflicts — including an ongoing battle with MLB over streaming rights and team rights fees, which led Diamond to divest some teams from its Bally Sports channels and the recent its lawsuit against the parent company. Sinclair.
On Wednesday, Diamond revealed the details behind the lawsuit.
In 2019, Sinclair acquired the portfolio of networks — formerly known as Fox Sports — from Disney for $10.6 billion, a required divestiture that was part of Disney’s purchase of Fox Corp.’s assets. from the 21st century.
Diamond’s more than $8 billion in debt stems from the deal, which also imposed between $400 million and $650 million in debt payments, the company said in court filings.
In the several years since then, Diamond’s businesses, pay TV providers and other cable channels have seen an accelerated deterioration in their business.
Diamond now claims that the Sinclair ownership only exacerbated his problems.
In court filings, the company said Sinclair had “milked” Diamond for more than $100 million annually in management fees since the acquisition, despite knowing the dire state of the business. In addition, Diamond alleges that Sinclair, in a “nefarious strategy … wrongfully induced Diamond to transfer more than $1.5 billion in cash and other consideration to Sinclair.”
This was because Diamond alleges that Sinclair knew the RSN business was “going bankrupt and continued after Diamond was clearly insolvent”.
“Sinclair has been informed of a lawsuit filed by Diamond Sports Group in connection with their ongoing bankruptcy proceedings. We firmly believe the allegations in this lawsuit are without merit and we intend to vigorously defend against them,” a Sinclair spokesperson said in a statement.
Diamond last year appointed a new board and management to run its RSN business as it faced an inevitable bankruptcy filing. Diamond is now an unconsolidated and independently managed subsidiary of Sinclair.