Bally Sports Southwest missed a debt payment that could impact TV viewing of sports games in Texas. Fortunately, nothing should change in the short term.
If the parent company of Bally, Diamond Sports Group, which owns broadcast rights to the Dallas Mavericks, Dallas Stars, Dallas Wings and Texas Rangers, goes bankrupt, the regional sports network could lose its broadcasting rights, and fans would have to look elsewhere to watch their favorite teams.
A similar fate could await BallyBet, Bally’s sports betting app. While Texas sports betting is currently illegal, Ballys Sports Southwest is a customer-acquisition pipeline for BallyBet, which operates in other legal betting states in the region. If Bally Sports Southwest shuts down, it would damage the profitability of Bally’s online sports books throughout the southwest.
Regional sports networks losing money from ‘cord cutters’
So many people are choosing to “cut the cord” with cable companies in favor of online subscription services that cable companies are feeling the squeeze. Fewer customers means less money for cable companies, which means they can’t afford to keep regional sports networks.
As a result, Bally is losing money at an alarming pace. After missing the $140 million payment, insiders expect the company to file for bankruptcy.
Diamond Sports admitted as much in a financial statement filed back in September.
“Our Bally RSNs have been negatively impacted by elevated levels of subscriber erosion which we believe was influenced in part by shifting consumer behaviors resulting from media fragmentation, the current economic environment and unrelated uncertainties. These factors are expected to have a negative impact on future projected revenues and margins of our Bally RSNs.”
What this means Texans who want to watch their local teams
Most experts believe fans will still be able to watch their teams on the current channels they’ve used all season. The future does not look so bright.
It will depend on whether cable companies are able to restructure their business models to compete with streaming services. That seems unlikely. Unfortunately, regional sports channels could be the first to be cut by the cable companies.
Maury Brown, who covers the business of sports for Forbes, told NBC Dallas Fort-Worth that things look bleak.
“I think one of the bigger questions is, ‘Does the entire model change?’ For most people, if they have a cable provider, they get their sports interspersed with other things. It is called a bundle. That would likely go away. [The regional sports network model] is only sustainable as long as you have a solid customer base. If you look at how linear television, traditional television is, subscribers have been peeling away from it in droves. So, if you don’t have that subscriber money coming in, then, of course, the ability to sustain those rights fees back to the teams becomes much more difficult.”
Hopefully, streaming service providers would then step in to buy up the broadcast rights.
Diamond Sports sits in a precarious position
Missing the payment kicks in a 30-day grace period. Diamond can attempt to restructure its debt and negotiate with creditors. Ultimately, it will probably go bankrupt. Diamond Sports is currently $8.4 billion in debt, according to Bloomberg, and that amount is growing.
In 2019, before COVID-19 brought the world to an abrupt halt, Sinclair Broadcast Group, which owns Diamond, bought all of the regional sports networks owned by the Walt Disney Company for around $10 billion. The company is certainly feeling buyer’s remorse four years later.
In the first quarter of this year, Diamond Sports has nearly $1 billion in rights payments due. A large majority is owed to Major League Baseball teams. It reportedly has just $585 million in cash at its disposal.
Those numbers seem staggering, but it’s costly to buy the broadcast rights of professional teams. For example, Bally pays the Texas Rangers $100 million a year to broadcast its games each season. Expand that out across the 19 networks under the Bally Sports umbrella, which includes the rights to broadcast games of 42 different professional sports teams.
- 16 NBA teams
- 14 MLB teams
- 12 NHL teams
That is how Diamond Sports Group – which owns the most regional sports networks in the world – can become billions of dollars in debt.
Major League Baseball has a Plan B
With so much uncertainty, MLB has taken steps to prepare for the worst-case scenario. It could provide a roadmap for other leagues.
According to MLB Commissioner Rob Manfred, Diamond has assured the league that it will pay baseball teams for their broadcast rights this upcoming season. However, Manfred said this situation is an “unfolding story,” which seems to indicate the league has come up with a plan if Diamond is unable to live up to its commitments.
Mansfred confirmed to MarketWatch that the league has a Plan B.
“We are prepared no matter what happens with respect to Diamond to make sure the games are available to fans in their local markets. We think it will be both linear in the traditional cable bundle and digitally on our own platforms, but that remains to be seen.”