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The Street
The Street
Daniel Kline

Key sports company stares down Chapter 7 bankruptcy

Bankruptcies help companies sort out their finances, but they also add a layer of complication. 

Once a company files a Chapter 11 bankruptcy petition, it puts its affairs under the scrutiny of a court. Instead of the company negotiating with its creditors, vendors and others directly, it needs the court's approval to make any deals. 

That in turn can prompt events that the company may not have wanted. It also takes decision-making power away from the company and, in many cases, gives more control to creditors.

Related: Two bankrupt big-name retailers make brick-and-mortar comebacks

In the case of Diamond Sports Group, a collection of regional sports networks operating under the Ballys name, it has been a wild ride since the company filed Chapter 11 bankruptcy in March. 

Diamond Sports has a deal with Sinclair Broadcasting Group and the holders of the majority of its debt to "eliminate over $8 billion of the company’s outstanding debt," according to a news release.  

Diamond had previously been a subsidiary of Sinclair. Under the bankruptcy deal, it was expected to become a stand-alone company.  

"Sinclair is expected to continue to provide management services during the proceeding and to provide transition services for a period after Diamond emerges from Chapter 11," the company said.

This seemed like a path to save the collection of 19 Bally sports channels, which Sinclair had purchased from Fox for $10.6 billion in 2019. 

The various channels had local rights to Major League Baseball, National Hockey League and National Basketball Association games.

The Chapter 11 filing seemed as if it would lead to a true reorganization that would allow the company to continue operating. 

A new report, however, suggests that won't be the case.

Ballys Sports carries NBA games.

Image source: USA TODAY Sports

Bally Sports networks headed to liquidation

While the Chapter 11 plan seemed set to lead to viable regional sports networks under the Diamond Sports Group banner, that's not what Sinclair's outside counsel, David Seligman, believes will happen, NextTV.com reported.

"To Sinclair folks who originally acquired Diamond, they’re kind of bummed. … [They’re] bummed that this business that they put in a billion and a half of equity value in is now going to be shut down,” Seligman said Nov. 15 in testimony delivered in the U.S. Bankruptcy Court in Houston. “There’s going to be people losing their jobs. … Diamond’s business is going to go away.”

That's discouraging not just for workers but for fans used to watching games on those stations. 

Lawyers for DSG, however, in court made it clear that while operating through 2024 and the liquidating is one possible outcome, it's not the only one. The compan yhas reached an agreement with its NBA partners to broadcast their contracted games for 2024 at a lower rate and then return the rights to the respective teams going forward.

A similar deal with the NHL appears likely, according to statements made in court. No deal with Major League Baseball has been reached.

What's next for Diamond Sports Group?

Sinclair clearly believes that making deals to come out of 2024 with no sports rights means the end of the company. In theory, nothing is stopping the new company from pursuing new deals with its partner league's going forward.

Currently, there's a lawsuit in which Diamond Sports Group is seeking to get back $1.5 billion it believes Sinclair improperly took out of the company.

"For years after Sinclair’s 2019 acquisition of the regional sports networks now owned by Diamond, Sinclair pursued a strategy of — in the words of defendant David Smith, Sinclair’s current executive chairman and former longtime CEO and the scion of its founding family — 'milk[ing]' Diamond for more than $100 million annually in purported management fees 'and whatever else I can take out of the company' before it filed for bankruptcy," Diamond says in its lawsuit, Next TV reported.

Diamond executives believe that Seligman and Sinclair want the company steered into oblivion. But that could just be a matter of semantics as at the end of 2024, should the current Chapter 11 plan be carried out, Diamond Sports would have no rights to sell to cable providers.

That will leave it as an empty shell with no product, whether or not a formal Chapter 7 bankruptcy gets filed.

The company, however, maintains in its comments in court, that new rights deals are possible which could keep some version of DSG alive. 

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