MLB Wins Ruling in Diamond RSN Bankruptcy Fight
U.S. Bankruptcy Judge Christopher Lopez on Thursday sided with Major League Baseball in its ongoing dispute with Diamond Sports Group.
The ruling came after a contentious, multi-day hearing involving, on one side, Diamond—a collection of 19 regional sports networks (RSNs) doing business as Bally Sports that filed for Chapter 11 bankruptcy in March—and MLB, the Arizona Diamondbacks, Cleveland Guardians, Texas Rangers and the Minnesota Twins on the other.
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MLB and the teams had motioned to compel Diamond to pay those teams in full under telecast rights agreements or, if Diamond refused, require Diamond to reject those agreements. If Diamond is forced to reject, that would be a breach of contract, which would in turn enable MLB and teams to regain control of broadcasting rights.
On Thursday night, Lopez held that the correct legal standard for allowing Diamond to pay less money to MLB teams is whether or not the telecast rights contracts’ values are “clearly unreasonable.” He found Diamond did not meet that high threshold. Diamond must therefore meet payment obligations according to dates stipulated in their contracts with teams.
Lopez acknowledged that the economic landscape for RSNs has worsened considerably in recent years, but he stressed, there is “market risk in every contract.” Lopez added that if he rewrites contracts for Diamond, other parties in bankruptcy could ask for similar requests. He said times change and mentioned it “costs $18 to get a sandwich in downtown Houston” while referencing the impact of inflation and supply chain issues.
The judge also underscored that MLB is a “willing” party to “put money on the table” to buy telecast rights from teams that Diamond is unable or unwilling to buy. On Tuesday, the telecast rights agreement between Diamond and the San Diego Padres ended, with Diamond saying the economics of the Padres’ contract “were not aligned with market realities,” and the Padres regained control of the team’s TV broadcasts.
Lopez suggested it was unfair that MLB teams must, per telecast rights agreements, provide broadcasts rights to Diamond while Diamond is using bankruptcy to not pay all that they contractually owe for those rights.
Witnesses included Diamond CEO David Preschlack and MLB commissioner Rob Manfred. With the hearing going past 18 hours, the attorneys, who are from prominent NYC firms, have likely made a small fortune in billable hours.
During the hearing, Diamond complained that MLB wouldn’t “negotiate” direct-to-consumer (DTC) streaming rights for all the teams, a characterization that an MLB attorney blasted as “blackmail” given Diamond’s reference to DTC rights for all the teams. MLB wants to see other teams contractually bound to Diamond also gain control of their TV rights.
Last month Lopez ordered Diamond to pay 50% of what it owes teams in rights fees as an interim measure. The judge reasoned that middle-ground resolution was consistent with bankruptcy law and reflected the two sides’ debate over whether telecast rights deals signed in the late 2000s and early 2010s are overpriced given sharp declines in cable TV subscriptions.
Over the Wednesday and Thursday proceedings, MLB and the teams insisted Diamond must fulfill its payment obligations under the contracts, and that Diamond using market changes as an excuse fails to meet the relevant legal standard of “clear and convincing evidence” for altering what Diamond owes.
Diamond argued in the hearing that its financial troubles have nothing to do with any mismanagement. The company contends it has competently made business decisions in face of seismic and rapid disruptions to how consumer watch broadcasts.
To that end, Diamond blames cord-cutting and satellite distributors dropping RSNs as triggering a massive drop—in some cases over 30%—in subscribers and distribution revenue from 2016 to 2023. Under that calculation, the accompanying value of telecast deals correspondingly declined, too.
Diamond also took time to discuss its efforts to innovate and enhance its portfolio. For instance, Diamond says it attempted to negotiate carriage fees from YouTube and other streaming services, but they were deterred by large rights fees paid to MLB teams.
Diamond arguably had some aspects of bankruptcy law on its side. By petitioning for bankruptcy under Chapter 11, Diamond gained an “automatic stay,” an order to prevent the petitioning company from sustaining economic damage during the bankruptcy process and limiting creditors’ ability to collect. Diamond losing its contracts with MLB teams would adversely impact its portfolio.
MLB and the teams forcefully challenged Diamond’s depiction of the law and events. They argued the judge can’t fix Diamond’s financial woes—one team attorney quipped perhaps the judge should “issue an injunction to stop people from cutting cords.”
MLB and the teams insist the value of rights hasn’t dropped, only that there is more competition for those rights in a market that features streaming and DTC. As MLB sees it, Diamond’s business model, which relies on RSNs, is antiquated and hasn’t adapted quickly enough to offer the highest and best use of the underlying asset: live game broadcasts. Baseball’s attorneys also note that Diamond’s deals with teams lack backend rights, which are at issue with Diamond’s litigation involving the Phoenix Suns’ attempting to move games to free TV.
(This article has been updated in the headline and throughout the story to reflect the court’s ruling.)
