A Missed $140 Million Payment Sends Sports TV Negotiations Into Overdrive
But the terms of any agreement could shift substantially, and there is no guarantee there will be one at all. If most of the involved parties are unable to come to an agreement, Diamond Sports would most likely file for a free-fall bankruptcy, in which the bankruptcy court would play a much larger role and the leagues and the creditors would be in greater danger of not being paid at all.
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For decades, regional sports networks were some of the most lucrative channels in the cable bundle. Ten years ago, 100 million households in the United States subscribed to a cable or satellite television package, and nearly every one of those households received one or more regional sports networks, like YES Network in New York City or NBC Sports Bay Area in San Francisco, in those packages. The fees that households paid for those channels, a few dollars a month, were and remain among the highest paid for any channel.
Armed with the revenue from high fees, regional sports networks have paid ever-escalating costs to teams to show their games, like the reported $8.35 billion Time Warner Cable paid for the rights to show Los Angeles Dodgers games. This has led to rising revenues, and team valuations, across professional sports.
Some of that dynamic is being upended. Only around 70 million U.S. households now pay for some form of television, and the rate of cord-cutting is only accelerating. Some television operators, like Dish Network, have dropped some regional sports networks from their offerings, believing it was not worth increasing the price of receiving television for the large percentage of households who watch little or no sports.
There are also disagreements over digital rights. Generally, regional sports networks and local games are only available through traditional television packages, or through a digital bundle — like with Hulu or YouTube TV — that mimics traditional television. Fans cannot pay for only regional sports networks, or to watch only their favorite team’s games.
The Diamond Sports regional networks would like the rights to sell local games digitally. But while teams are allowed to sell the rights to watch their own games on television, generally the leagues control digital rights and have been reluctant to sell them to pay television operators. Diamond Sports has managed to strike some agreements for digital rights, like with 16 N.B.A. teams, but not on terms Diamond Sports believes are favorable enough.
Despite the challenges to and the decline of cable, the regional sports networks still generate a lot of cash. Diamond Sports’ financial filings show that its problems have been made more urgent because of its heavy debt load.
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