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Broadcasting & Cable
Broadcasting & Cable
Daniel Frankel

Bally Sports Fight Gets Even Nastier: Sinclair Tells Its Bankrupt Diamond Subsidiary, Either Pay Us $140 Million For Our Management Services Or Don't Use Them Anymore

Diamond Sports Group

Diamond Sports Group has accused its estranged corporate parent, Sinclair, of "milking" around $1.5 billion out of the subsidiary via means including an over-priced management services agreement. 

On Monday, in the same jurisdictional setting -- the Houston bankruptcy court overseeing Diamond's troubled restructuring -- Sinclair Broadcast Group responded with a counterclaim. 

The essential takeaway: "You don't want our supposedly way overpriced management services? Fine. Pay us the $140 million you owe us for them, and we'll be on our way." 

In its counterclaim, Sinclair said it has held back on billing Diamond a portion of what it charges the subsidiary for management services since March of 2022 in order to "support Diamond's liquidity." 

Diamond has so far run up an outstanding management services agreement (MSA) bill of around $140 million, Sinclair said. 

And in the five months since Diamond entered bankruptcy, the subsidiary "still has not yet engaged with Sinclair regarding any comprehensive restructuring discussions about the MSA (or otherwise), nor has Diamond taken action to assume or reject the MSA, despite Sinclair’s repeated requests to engage in such comprehensive discussions," Sinclair claimed.

"The current situation is untenable," Sinclair concluded. 

"To be clear, Sinclair is amenable to Diamond’s assumption and full cure of the MSA and is willing to negotiate over mutually acceptable post-assumption terms," Sinclair added in legalese. "However, Sinclair believes that Diamond will never assume the MSA (as its counsel has made abundantly clear), and therefore should be compelled to reject the MSA now or a number of reasons.

"First," Sinclair added, "if Diamond truly believes, as it said in its adversary complaint, that the MSA is a terrible economic deal for Diamond, assumption of the MSA would be starkly inconsistent with Diamond’s fiduciary obligation to maximize estate value."

Secondly -- for Diamond to keep using Sinclair's management services for the duration of bankruptcy, without paying for them, would be "highly prejudicial" to Sinclair.

Oh, and Sinclair sees a future "nowhere in sight" in which Diamond actually emerges from bankruptcy with a restructuring plan. 

Privately, Sinclair says it has little to do these days with the subsidiary it set up in 2019 to manage the 19 regional sports networks it paid $10.6 billion to acquire. 

Now there could be even fewer ties between Sinclair and Diamond. 

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