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The Street
The Street
Dan Weil

Why Your Favorite Team Could Take a Huge Financial Hit

Diamond Sports, which broadcasts the games of numerous pro sports teams through its Bally regional sports networks, defaulted last month on a payment it owed to the San Diego Padres.

The Padres ended their contract with Diamond in response. They were due to receive about $60 million from the company this year. So that’s a major hole in the budget of a team with a player-payroll of about $250 million.

Major League Baseball (MLB) said it will cover 80% of the payments due from Diamond this year to teams whom the company fails to pay. Diamond has broadcast agreements with 13 other MLB teams.

Experts say it’s likely to default on payments to other teams as well, thanks to cable subscribers dropping their service (cutting the cord) for less expensive viewing alternatives. That puts pressure on Diamond’s revenue.

Industry talk has it that Diamond may default on payments to the Arizona Diamondbacks, Cleveland Guardians, Texas Rangers and Minnesota Twins too.

“Diamond has made it clear they want to get out of unprofitable broadcasts,” says Kurt Badenhausen, a reporter for Sportico, a sport-industry publication. The company clearly wants to hold on to certain teams, he says.

“It’s ones they deem as profitable for them, or where they have secured streaming rights, which are part of their financial model moving forward.” Diamond’s inability to obtain streaming rights for the Padres helped spark the default.

Baseball Teams Face a Budget Hit

While MLB has the 80% backstop on defaulted Diamond payments for this year, it’s unlikely to continue that aid, Badenhausen says. “There’s a fear of duress for individual teams in terms of their budget planning,” he says. So long-term problems loom.

“It’s difficult to conceive teams will have $60 million-plus in local TV revenue going forward, unless they have a lot of different broadcast platforms,” says Curt Pires, president of Cap Sports Group, a media consulting firm.

In the case of the Padres, MLB has taken over production and distribution of games. They will now be available through cable carriers Spectrum and Cox and satellite carrier DirecTV.

Local Padres fans can also steam the games on MLB’s, for $19.99 a month. That’s the same price Diamond charged for its streaming service. Streaming provider Fubo also will show games.

San Diego Padres second baseman Ha-Seong Kim

© Ray Acevedo-USA TODAY Sports

The new set-up will make Padres games available in 3.2 million homes up from 1.1 million currently, MLB says. “Switching the channel number for cable broadcasts may make it difficult for fans to find games initially,” says William Mao, senior vice president of global media consulting for Octagon, a sports-entertainment agency.

“But the Padres and MLB will use all available barkers and assets to drive awareness of the new terrestrial destination for local live coverage.” Terrestrial, or over-the-air, channels are local TV stations that can be viewed without cable or satellite service.

Will Amazon or Apple Pay for Rights?

MLB is likely to find a new set of buyers for the local broadcast rights, which could include large technology companies, says Chris Marangi, a portfolio manager at Gabelli Funds. Baseball broadcasts already are available on Apple TV+ (AAPL) and Amazon Prime Video (AMZN).

Diamond’s defaults could spread to other sports too, experts say. Its Bally channels broadcast local games for 16 NBA (National Basketball Association) teams and 12 NHL (National Hockey League) teams.

But NBA and NHL teams are less dependent on revenue from local broadcasters than baseball teams. So separations from Diamond wouldn’t have as much impact for basketball and hockey teams.

Local media payments represented 23% of MLB revenue last year, compared to 13% for the NBA and 12% for the NHL, according to Sportico. And the NBA number will likely move downward with its next national TV contract that begins in 2025, Badenhausen says. The new contract could rise substantially in price from the current one.

As for viewers, if collapse of a Diamond contract means you have to switch from cable to streaming, you’re likely to pay more to watch your local team. With cable carriers including sports channels as part of a package of networks, the carriers can often afford to charge viewers less for individual channels in that package than streaming platforms do.

“The beauty of the linear [cable] model for sports viewers is that everyone is paying for content that may or may not be of interest to them,” Marangi said.

Padres fans can stream the team’s games on, for $19.99 a month. Among other streaming sports channels, YES Network, which televises the New York Yankees and Brooklyn Nets, charges $25 per month. And New England Sports Network, which televises the Boston Red Sox and Bruins, costs $30 per month.

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