Bankruptcy, media giants walking away from team contracts, leagues scrambling to throw liferafts. The much-hyped armageddon, doomsday has arrived this week for the regional sports network universe.
But is the upheaval really as bad as it seems, and what does it mean for fans? Short answers: No; and fans should ultimately have more viewing choices, but unfortunately, likely higher costs.
Advertisement
Diamond Sports, the company that owns the Bally Sports Regional Network, which carries 14 MLB teams, 16 in the NBA, and 14 NHL squads on 19 RSNs, will likely file for bankruptcy protection this week. Meanwhile, Warner Brothers Discovery said in a statement it will walk away from its deals with regional sports channels that carry three MLB teams by the end of March, leaving baseball fans, in particular, worried whether the games of the 17 teams in the strike zone will air come Opening Days in a few weeks.
While the RSNs carry NHL and NBA games too, those seasons are near an end and the media mess does not pose as great a threat immediately.
There are still many unknowns — Diamond appears likely to seek to keep some but not all of the teams carried by its 19 RSNs — but two tenets appear clear: the games will be on in some capacity, and viewers over time will need to pay more to watch as clubs begin the painful shift away from channels carried under the traditional cable bundle. The sports fan has for decades been subsidized by the cable bundle, paying a fraction of what the games would cost as a stand-alone. It’s why leagues and teams fought sports tiers for so long, and why selling streams raises prices.
“Let’s say you have $4 a month” that a cable consumer pays for an RSN, explained sports consultant Marc Ganis, every subscriber pays it. “If only 20 percent buy (a new standalone option), just to get the same amount of subscription, you’ve got to pay a multiple of five for those who want it. That’s just mathematics.”
That said, separating from cable, even partially, can lead to more options, access, and different ways to watch as the streaming migration continues. Still, that will carry a cost for consumers.
“If you take a step back, this is the first time that this many baseball games, this many soccer games, or this many college sporting events will have been available for consumers to find somewhere, whether it’s streaming or on a linear basis,” said William Mao, senior vice president of media rights consulting at Octagon. “And so if that does necessitate an increase in overall wallet, that share of wallet or the size of that wallet will be different for different consumers.”
Advertisement
Put a different way, imagine your team had been only on an RSN. Moving forward, some games may air on the old-fashioned local affiliate channels in the market, and also on a streaming option. There might be an RSN in this paradigm, but what the channel gets paid from the cable operator will be dramatically less than today because streaming strips the games of exclusivity.
“The RSN needs to be reinvented,” said sports media consultant Lee Berke. “And that means offering up their content on a range of screens at revamped pricing. You’re going to have games available on free broadcast TV games, available on streaming, you’re going to revamp your economics. Right now, your economics are based upon essentially exclusivity or near exclusivity for these games, on the traditional cable pay TV bundle.”
How many teams get flung into that world right away is unclear. Of Diamond’s 19 RSNs, a person close to MLB said the Sinclair Broadcasting subsidiary has indicated to the league that it plans to walk away from the ones that carry the Cincinnati Reds, Cleveland Guardians, Arizona Diamondbacks, and Texas Rangers. In a bankruptcy, Diamond is looking at the RSNs the way a bankrupt retailer would look at store leases: discarding the ones that don’t work economically and keeping the ones that do.
Warner Brother Discovery’s calculus is different because RSNs are not a core business as it is for Diamond. The teams affected are the Houston Astros, Colorado Rockies and Pittsburgh Pirates. Because the Pittsburgh RSN also carries the Penguins, which shares common owners with the New England Sports Network, the person close to MLB said that channel could step in.
“In the past, this was a pretty thriving business,” Luis Silberwasser, chairman and CEO of Warner Brothers Discovery Sports told the SportsPro streaming conference Tuesday morning, “it has changed over the last sort of, I would say, two to three years.
Advertisement
“Ideally, we will have a transition with the teams and we will be able to always sort of make sure that the fans are not affected by this. We’ve been very transparent and we’ve talked to all the teams, we talked to all the leagues about a smooth transition on this plan. And I think we’ll do that and it’s been a good conversation both on the league level and also on the teams’ level. And I think we’ll navigate this sort of tough period but in a very smooth way and a good outcome.”
Bob Thompson, the former president of Fox Sports Networks and co-founder of the Big Ten Network, does not believe the sky is falling and predicts Warner Brothers will not leave by the end of the month as it indicated. For one, he said the TV trucks and crew necessary to carry the games on the RSNs are already booked.
“This whole idea that, ‘Oh, we’re going to pull them, we’re going to turn them off on the 31st (of March),’ I just, there’s a lot of things that will happen before that,” he said.
“There will continue to be regional feeds and regional linear telecasts,” Thompson added of the coming RSN world. “Most of those will be on the existing RSNs. Some will be on some form of reconstituted or hybrid RSN. Some will be streamed. ”
MLB has said it has a Plan B if Diamond and Warner Brothers walk away from the RSN contracts, as the league is building its own regional media division. However, Rob Manfred, MLB commissioner, also has said if Diamond abandons even one media deal, they all go, which protends a bankruptcy court battle with Diamond.
Manfred commented on the situation to reporters last month.
“We’ve been really clear that if Diamond doesn’t pay under every single one of the broadcast agreements, that creates a termination right, and our clubs will proceed to terminate those contracts,” Manfred said.
That may be a tough position in bankruptcy court, however. The bankruptcy judge gets to decide what contracts a debtor like Diamond can “discharge” and will have the final say.
GO DEEPER
What the Bally Sports saga means for NBA, NHL, MLB broadcasts: Everything you need to know
MLB would like to wipe the slate clean and create a system where there is a mix of linear and streaming options, both in-market and out-of-market. But even if the league gets the 14 MLB teams in Diamond — a very unlikely if — other teams have existing, well-established RSNs they either own or have equity in, including the New York Yankees, Boston Red Sox, Seattle Mariners, Chicago Cubs and Baltimore Orioles. The Red Sox already have a streaming option through NESN, with the Yankees expected to have one soon. It’s hard to see these teams abandoning their RSNs to join a nationalized MLB media initiative.
Advertisement
Diamond is a victim of both the cord-cutting wave that thus far has reduced cable subscribers by over one-third from the peak, and roughly $10 billion of debt parent Sinclair incurred in buying the RSNs from Walt Disney Co. in 2019. Last month, Diamond skipped a $150 million debt payment, and the 30-day negotiated grace period ends this week, which is why a Chapter 11 filing is likely.
If Diamond can get out from under the debt load, its thinking is the RSN business is not irretrievably broken. Thompson points out that if RSNs were a 30-percent-margin business before cord-cutting, it would still be a 20-percent margin industry today.
Indeed, the current environment is not a reflection of the value of sports in the media. Baseball games on RSNs routinely are top-rated programs on the days they air. The issue is as more viewers abandon the cable bundle, the economics of fans paying cable operators, followed by cable operators paying RSNs, to the RSNs paying the teams, is breaking down.
“The one thing is that this is not a crisis in terms of the value of sports content, sports games, teams are being watched and the ratings are strong and much stronger than virtually any other television category,” said Berke, the sports media consultant. “It’s not the ratings that are a problem. It’s the business model that’s a problem and changing the business model that needs to be done in order to help everybody concerned fully realize the value of the sports content that they’re offering up.”
(Top photo: Mark Cunningham / MLB Photos via Getty Images)