Hold Your Applause, Please: Amazon’s RSN Bailout Not a Done Deal

While Amazon is poised to help pull Diamond Sports Group out of bankruptcy by way of a $115 million minority investment, a great deal of work needs to be done before the proposed partnership can get underway.

As expected, U.S. Bankruptcy Judge Christopher Lopez, who has overseen Diamond’s case since the company filed for Chapter 11 protection last March, did not sign off on the deal during Wednesday’s court hearing.

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“There’s lots to digest, especially when you consider where things were in the fourth quarter of last year,” Judge Lopez said, at the close of today’s session. “It is certainly a very interesting development, to say the least.”

The judge went on to say he was encouraged that Diamond now appears to be on a path toward an eventual resolution.

There is still much to untangle, however. Whenever a media company is looking to extricate itself from bankruptcy, the process can be harrowingly diffuse. In the case of Diamond, there are multiple parties eager to see the matter resolved to their satisfaction, and given the knottiness of the interrelationships between the debtors, creditors, leagues and naming-rights partners, there’s no guarantee everyone will walk away happy.

Major League Baseball, which is said to be opposed to Amazon buying its way into the streaming game, would like time to pore over the 151-page restructuring support agreement (RSA) filed by Diamond’s attorneys earlier Wednesday.

“There is a lot to digest,” said MLB counsel James Bromley, in a summation that presaged Judge Lopez’ own use of the alimentary metaphor. “It is unable to be digested because it hasn’t been purchased, cooked or served. When we get to that point, we will look at it and figure out whether it is able to be digested.”

In a pointed aside, Bromley noted that some rather extensive self-congratulatory remarks made by Diamond’s counsel at the top of the hearing were premature. “Congratulations might be better served at confirmation hearing rather than at a status conference,” he said. “We will refrain from adding our congratulations until such time that something is actually delivered.”

An attorney for one of Diamond’s unsecured creditors echoed MLB’s sentiment, suggesting that the manner in which the proposal is structured may be a case of putting the cart before the proverbial horse.

At this juncture, it’s unclear how much leeway Amazon might have to stream future MLB games if and when Judge Lopez signs off on the proposal. Diamond said it plans to televise the local games for nine MLB clubs: the Atlanta Braves, Cincinnati Reds, Los Angeles Angels, St. Louis Cardinals, Detroit Tigers, Milwaukee Brewers, Florida Marlins, Kansas City Royals and Tampa Bay Rays. Only the latter five franchises have ceded their streaming rights to the company.

An attorney speaking on behalf of Diamond said today that the company is resolved to “absolutely broadcast the 2024 season and absolutely pay [its MLB partners] for the 2024 season,” before adding that the company remains in talks with three other holdouts.

While the lawyer did not identify the three clubs with which Diamond is negotiating lower rights fees, the teams in question are the Cleveland Guardians, Minnesota Twins and Texas Rangers. “We’re not looking to fight with them at all,” Diamond’s counsel said, before adding that the teams have until Feb. 1 to let the company know if they would prefer to pursue other local media options.

In light of Wednesday’s developments, an MLB hearing scheduled for this Friday has been adjourned.

Diamond in recent months has forged short-term deals with the NBA and NHL, which are designed to keep their respective in-market TV arrangements intact through the end of each league’s current season. Those workarounds would be superseded by today’s restructuring agreement; in other words, Diamond’s standing NBA and NHL deals would no longer be subject to termination at the end of the 2023-24 seasons.

Thus far, neither league has indicated whether it will embrace or contest the RSA. Meanwhile, an attorney for Amazon said the online retailer and streaming giant was “excited about this transaction and the possibilities it provides.”

Per the RSA, Diamond’s 20% stake in YES Network is being positioned as the primary asset backing Amazon’s investment. Under the terms of the proposal, Amazon will put in $115 million for a note convertible to 15% of new Diamond stock. Nine months after Diamond exits Chapter 11, Amazon will have the option to invest another $50 million for what amounts to an additional 10% stake. In addition, Amazon will be given the luxury of appointing one member to the seven-member board of directors upon payment of the convertible note, and will gain another seat with that secondary $50 million investment.

The Amazon proposal is part of a broader restructuring agreement that includes a settlement between Diamond and its parent company, Sinclair Broadcasting. Under the terms of that agreement, Sinclair will pay Diamond $495 million, which would put to rest their outstanding lawsuit. In August, Diamond charged Sinclair with misappropriating as much as $1.5 billion from the core RSN business.

Also in the works is a divorce from Bally Sports brand, as the 10-year, $85 million naming rights deal struck in 2020 will be voided at the end of this year.

Throughout the last 10 months, Judge Lopez has been charged with mulling over the competing interests of Diamond, its individual team partners, the three leagues and various other stakeholders. A staunch adherent to the statutory language of the bankruptcy code and case precedent, the judge has encouraged the combatants to collaboratively work out solutions on their own.

The questions at the heart of the dispute—which is to say, will Diamond emerge from Chapter 11 as a viable entity and will the RSN model function in an increasingly fragmenting media universe—are not the sort of things that get answered in a status conference. For now, consider this a giant leap in the right direction.

With assistance from Brendan Coffey and Michael McCann.

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