Diamond Sports Files Motion to Cut Ties With Diamondbacks
Three weeks after voiding its rights deal with the San Diego Padres, Diamond Sports Group is now looking to cut ties with a second MLB club. As part of an emergency motion filed with a Houston bankruptcy court, the struggling RSN owner has asked to be relieved of its contract with the Arizona Diamondbacks.
In an 11-page document filed Thursday to the United States Bankruptcy Court for the Southern District of Texas, Diamond requested that it be allowed to reject its legacy rights deal with the D-backs, “effective as of June 30, 2023.” The petition went on to state that Diamond’s contract with the D-backs, which extends through Dec. 31, 2035, “is unnecessary and burdensome,” inasmuch as the “debtors lose significant amounts [of money]” under the terms of the deal.
While Diamond did not disclose the terms of its deal with Arizona, the filing asserts that the rights fee payments “total tens of millions of dollars annually, and increase yearly.” Industry estimates peg the annual payout at north of $60 million, making it Diamond’s fourth-most-expensive MLB obligation. Arizona is among the lowest-rated teams in the Diamond Sports portfolio.
Along with the Cleveland Guardians, Minnesota Twins and Texas Rangers, the D-backs were among the four MLB franchises to have prevailed in a recent ruling over DSG, one that saw Judge Christopher Lopez order Diamond to pay each club the full value of its respective media contracts. The judge issued his ruling after two days of testimony by the likes of Diamond CEO David Preschlack, MLB commissioner Rob Manfred and former TCI chief and the founding chairman and CEO of YES Network, Leo Hindery.
In his June 1 testimony, Hindery estimated that Diamond this year has lost $4 million on its D-backs deal. Hindery told the court that it was his understanding that Diamond was contracted to pay the D-backs $61.2 million in 2023.
The requested termination date falls just one day before Diamond was due to make its next rights payment to the NL West team. The relief date was specifically chosen to avoid accruing any remnant payments over and above the original June 30 payment deadline. Judge Lopez will have to sign off on the split; a hearing has been set for June 29.
Diamond’s basis for relief is derived from a provision in the bankruptcy code that authorizes, with court approval, the rejection of any unperformed contract or unexpired lease. A debtor can reject such a contract when the judge is convinced it would prove beneficial to the debtor or its estate.
Although the D-backs are currently in first place in the NL West with a 2.5-game lead over the Giants, Diamond insists televising games after June 30 “does not fit” within its “long-term strategic plan,” and that the deal will only become “increasingly unprofitable” as the 3% annual escalators continue to kick in. And while the financial documentation isn’t always entirely clear, a Wednesday court filing would seem to indicate that Diamond now has just $46.6 million in cash on hand, or about one-ninth of the $407.1 million the company reported to the Securities Exchange Commission on March 15, when it filed for bankruptcy protection.
Diamond also contends the Diamondbacks won’t be “prejudiced” if Lopez lets the team off the hook. Diamond says the team has “been aware for months” of this possibility, having sought to compel the debtors to make a binding decision on their legacy TV deal back in April. It is Diamond’s contention that parting ways at the end of the month should give the D-backs “sufficient time to facilitate an appropriate transition to avoid disruption to fans.”
In other words, an official break would allow Arizona and MLB to establish the same sort of provisional carriage deals with local pay-TV operators and over-the-air broadcast affiliates that the Padres adopted at the beginning of the month.
The separation scenario may very well play out again in mid-July, when the grace periods for Diamond’s next payments to the Guardians, Twins and Cincinnati Reds are set to expire. Unfortunately, none of the MLB clubs that find themselves free of their legacy RSN deals will be able to generate anywhere near as much money under an ad hoc local-TV scheme as they pulled down under their RSN contracts. For the D-backs, making up for the loss of $61.2 million by way of a backup broadcast plan simply isn’t feasible.
A break from the D-backs will leave Bally Sports Arizona with a single major league sports affiliation, as the network still carries the NHL’s Coyotes games. In May, the NBA’s Phoenix Suns announced that they’d be leaving the RSN for a new over-the-air arrangement with Gray Television, although Judge Lopez threw some cold water on that defection when he halted the switch, ruling that the team had violated bankruptcy code.
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