Judge: DSG must fully pay MLB teams' contracts

A U.S. bankruptcy judge in Houston ruled in favor of Major League Baseball and four of its teams Thursday, forcing Diamond Sports Group, the RSN operator that airs broadcasts under the name Bally Sports, to fully pay the contracts in question.

Diamond, navigating through bankruptcy proceedings, had argued it should pay the Minnesota Twins, Cleveland Guardians, Arizona Diamondbacks and Texas Rangers less than what the current deals call for, noting that the rapid rate of cord-cutting throughout the United States has significantly devalued the assets. But Judge Chris Lopez, presiding over a case that lasted two full days and included prolonged testimony from MLB commissioner Rob Manfred, ultimately stated that “the contract rate is the right answer here.”

The decision likely set a crucial precedent that undercuts Diamond’s hope to lower costs by decreasing the value of previously agreed upon contracts, particularly with 28 NBA and NHL teams also under its purview.

“Profitability is certainly decreasing for each team,” Lopez said as part of his ruling. “But again, this doesn’t mean that the contract rate and those fees under those contracts is not reasonable.”

The Twins, Guardians, D-backs and Rangers had already been paid 75% of what they were owed as a means to hold them over until the conclusion of the hearing. Lopez, in opting not to adjust their contracts, ruled that they can hold on to those funds and that Diamond needs to pay the remaining 25% “in the ordinary course of business.” Lopez, who described his ruling as a “very difficult decision,” did not set a deadline for when Diamond must decide whether to keep or hold on to those contracts.

Diamond, a Sinclair subsidiary, took on more than $8 billion of debt to purchase the broadcasting rights for 42 teams across MLB, NBA and NHL from Fox in 2019, then gradually suffered through the proliferation of over-the-top streaming services and was forced into Chapter 11 bankruptcy reorganization in March. Diamond owned the rights to 14 major league teams but lost the San Diego Padres earlier this week when it did not make its scheduled rights-fee payment by the end of a grace period.

MLB has been running Padres broadcasts since Wednesday, offering the games blackout-free through its streaming service, MLB.TV, and on different channels through various cable companies. The league has promised to do the same for any other team that falls out of Diamond’s purview. The judge’s ruling could push Diamond to shed the D-backs, Guardians, Twins and Rangers in the near future, and perhaps also some of the other nine major league teams under its ownership.

“MLB appreciates the ruling from the federal bankruptcy court in Houston requiring Diamond to pay the full contractual rate to clubs,” the league wrote in a statement. “As always, we hope Diamond will continue to broadcast games and meet its contractual obligations to clubs. As with the Padres, MLB will stand ready to make games available to fans if Diamond fails to meet its obligations.”

Diamond has long stated that it needs to secure streaming rights in order to prop up its Bally Sports+ app and run a more sustainable business, but it currently holds the streaming rights to only five major league teams: the Kansas City Royals, Milwaukee Brewers, Tampa Bay Rays, Detroit Tigers and Miami Marlins. MLB has shown no interest in providing streaming rights for the others. The two-day hearing, which lasted a total of about 20 hours, underscored the hostility that has festered between the two sides over the past four years.

“I am asking the parties to talk,” Lopez said. “I’m not asking the parties to agree — I’m asking the parties to talk. That’s the request. I’m not going to force you into the room, but I am asking you to talk.”

During his near two-hour testimony Wednesday, Manfred stated that MLB promised Bally-owned teams they would generate at least 80% of the revenue they were expecting through their broadcast deals in 2023; whatever is not ultimately paid by Diamond will be backstopped by the league. Manfred also said MLB tried to buy the regional sports networks when they were initially for sale but came up about $900 million short of Diamond’s winning bid, adding that he would attempt to buy them again if the situation presented itself.

The revelation helped MLB’s argument.

“They believe that their rights are valuable, and that they can get as much or more for them, and they’re willing to put money on the table for them,” Lopez said, alluding to Manfred’s testimony. “They just can’t.”