MLB takes over Padres television broadcasts after Bally Sports misses payments

After months spent preparing for this scenario, Major League Baseball is taking over the television broadcasts of one of its franchises, an unusual but potentially industry-altering step as the long-lucrative regional sports network model continues to teeter.

MLB and the San Diego Padres announced Wednesday morning that the league will take over production and distribution of all Padres games after Diamond Sports, which filed for bankruptcy in March, fell behind on rights payments to the club.

The change is immediate – beginning with the Padres’ Wednesday night game at Miami – and, the team and league hopes, will be virtually imperceptible to the average viewer. Yet it could be the first of many transitions since Bally Sports – owned by Diamond Sports, a subsidiary of Sinclair – holds the local TV rights to 14 MLB clubs.

A look at the immediate and long-term ramifications:

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Where will Padres games air?

MLB and the team announced Padres games will be available on DirecTV, Spectrum, Cox Cable and Fubo, and for the first time available for in-market streaming on MLB.TV. The league says it will expand the Padres’ reach from 1.13 million homes to 3.26 million homes in the team’s viewing area. Cox Cable has approximately 6 million customers and Spectrum around 2.5 million customers in the market.

Will the broadcasts sound different?

Not particularly. Sure, Padres TV is essentially under state control, but that doesn’t mean commissioner Rob Manfred will be on the mic. Play-by-play man Don Orsillo, analyst Mark Grant and reporter Bob Scanlan will remain in their roles.

How did it come to this?

Fox Sports was the predominant regional sports network brand – think Fox Sports North, Fox Sports West, Sun Sports, etc. – until the Walt Disney Co. sold all those holdings to Sinclair for more than $10 billion in August 2019, part of a mega-media transaction that required Disney to divest the 21 regional networks as part of its acquisition of Twenty-First Century Fox.

The Bally Sports brand was developed for the collection of 42 major sports franchises – 14 MLB, 16 NBA, 12 NHL – and much of the talent and production was retained, creating a relatively seamless transition from the Fox Sports era. Yet the $8 billion debt load Sinclair and Diamond took on in the transaction sunk the company; it filed for Chapter 11 bankruptcy protection in March, announcing a restructuring support agreement with its debtholders.

But that put the dozens of sports franchises to which it holds billions of dollars in TV rights toward the back of the line.

Will other MLB franchises meet the Padres’ fate?

Quite possibly. Diamond Sports narrowly met the grace period to deliver a rights payment to the Cincinnati Reds this month, keeping the club’s games on Bally Sports Ohio.

Yet with the season in full swing and more than a dozen clubs due millions of dollars in rights fees, it feels like a house of cards. The Reds, Texas Rangers, Minnesota Twins and Cleveland Guardians are among the nine teams that missed a rights payment this year; Diamond Sports struck an agreement to pay off some of those clubs in exchange for the direct-to-consumer streaming rights. But it’s unclear how long Diamond Sports can meet those obligations.

Why are they suffering on the balance sheet?

Cord-cutting, for one. Cable households have been exponentially shrinking in the last 15 years, from 88% penetration in 2010 to 66% this year, according to Statista. In the third quarter of 2022 alone, nearly 700,000 consumers cut the cord, an action that greatly reduces revenue for networks that depend on per-subscriber revenue.

ESPN recently waved a white flag of sorts by planning to develop a subscription-based streaming service, a significant concession to cord-cutting given that the sports broadcasting behemoth gets around $9 per cable subscriber.

Cord-cutting has alarmed networks and leagues who long have relied on the RSN business model. It also begs the question of what Sinclair was thinking when it doubled down on this teetering industry.

Does this pave the way for streaming any MLB game, anywhere?

Not necessarily – though San Diego will prove an interesting test market for what the future may look like. MLB will allow viewers in San Diego to stream Padres games through MLB.TV for $19.99 a month or $74.99 for the rest of the season – roughly a pro-rated cost of a season-long MLB TV subscription.

San Diego, then, will be the only market able to stream home broadcasts without a blackout, or a subscription to the rightsholders via a cable package. Given the tumult with Bally’s San Diego, it’s the least the league could do, really.

But it’s too early to call this a tipping point in the industry – simply because local TV contracts remain too lucrative for the league and its teams. The Los Angeles Dodgers, for instance, are in the middle of a 25-year, $8.35 billion contract with Time Warner Cable. New York’s Yankees and Mets and the Boston Red Sox own significant stakes in their own lucrative networks.

That’s a golden goose teams will defend until the end – even if it does nothing to eradicate the existential threat of cord-cutting.

Will 42 Bally sports franchises need to adapt?

Possibly. The Phoenix Suns and Mercury have already bolted, to establish their own direct-to-consumer broadcast model that new owner Matt Ishbia says “will now be accessible to millions more fans in Arizona and globally.” That arrangement runs for five years for the Suns and enables fans to watch games “with or without a pay TV subscription.”

MLB, for now, will take it upon itself that all Bally’s games remain available. But the long-term solution remains very much uncertain.

This article originally appeared on USA TODAY: MLB takes over Padres broadcasts after Bally Sports misses payments