Bally’s Sports Kansas City parent company expected to go bankrupt, what does that mean for the Royals?

Will the Royals be on your TV?

Diamond Sports Group, the Sinclair Broadcasting-owned subsidiary that operates Bally Sports Kansas City, skipped a $140 million interest payment last week, triggering a 30-day grace period that will almost certainly preface a bankruptcy filing. Diamond Sports owns and operates 19 Bally-branded regional sports networks (RSNs), 14 of which own the rights to broadcast MLB teams, plus a minority stake in two additional baseball RSNs in Marquee Sports for the Cubs and YES Network for the Yankees.

The potential bankruptcy filing for a company that purchased these networks for $10 billion in 2019 has sent shockwaves through the industry and has caused concern in baseball. Let’s talk about what’s going on and how it affects the Royals.

Why is Diamond Sports going bankrupt?

The first reaction from Royals fans about the potential bankruptcy of Diamond Sports might be “no kidding, ya knucklehead, you didn’t make games available to viewers!” Royals fans are no doubt frustrated over the company’s tough negotiating stance with streaming providers that led to Bally Sports Kansas City being dropped by YouTubeTV, SlingTV, and DISH Network.

It hasn’t helped that Diamond Sports has made it difficult to watch games, or that they bought these networks just before a pandemic, or that by one conservative estimate, cable is losing 5 percent of its customer base each year. Bally Sports did roll out a direct-to-consumer streaming option last summer for $19.99 per month. But baseball refused to transfer all of their streaming rights to Bally’s, and the service knowns as Bally Sports+ was only available in a few markets (including Kansas City).

Despite those obstacles, this was a profitable company in 2021 and 2022. As Ben Clemens from Fangraphs points out, “this bankruptcy has to do with debt service, not a catastrophic business failure.”

Sinclair wanted to be a major broadcast player, so they took on $8.6 billion in debt to purchase the RSNs from Disney. The purchase boosted stock prices by 15 percent as CEO Chris Ripley dreamed of integrating sports gambling with their broadcasts. But the profits weren’t profitable enough. Diamond Sports – which was created to keep the RSNs at an arm’s length from Sinclair, perhaps an indication they knew how risky this endeavor would be – is too saddled with debt to dig out of their hole.

Maybe had they found a way to work out deals with streaming carriers that could have softened the blow. The pandemic certainly didn’t help. It also didn’t help that Sinclair authorized about $1.8 billion in stock buybacks, money that could have been used to pay back the enormous debt of their subsidiary. But Clemens writes that “in some sense, this bankruptcy was preordained.”

What will happen next with Bally Sports Kansas City?

Now that they have skipped an interest payment, Diamond Sports will have to undergo a restructuring of $8.6 billion in debt that will likely leave the top lenders – firms like Prudential Financial, Fidelity, Hein Park Capital Management and Mudrick Capital Management – as the new owners. They’re not in the business of broadcasting sports, so they’ll likely sell the RSNs to a buyer. Disney was forced to sell off the RSNs to get their acquisition of Twenty-First Century Fox approved by the Justice Department, so don’t expect them to re-acquire the RSNs.

A potential bankruptcy filing allows for a restructuring or cancellation of current TV contracts. MLB would have the leverage in working out a new deal – if Diamond Sports can’t secure broadcast rights, it is essentially worthless. Baseball could be brought in as an equity investor in what emerges out of bankruptcy. Diamond Sports looked to stay afloat last fall by getting MLB, the NBA, and NHL involved as equity partners. Baseball recently hired Billy Chambers, a former executive at Sinclair and Fox Sports, creating a new position of executive vice president for local media for him, a clear sign they will have more of a role in the local distribution of games.

So will Royals games be on television?

Diamond Sports will have to make payments to teams in the first quarter, and with $1.8 billion due in payments to teams this year, and only $585 million in cash-on-hand, it seems unlikely they’ll meet all their obligations. If Diamond Sports misses their payment, MLB could take back their media rights. Commissioner Rob Manfred asserted baseball would do just that to make sure games are aired.

“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. In the event that MLB stepped in, what we would do is we would produce the games, we would make use of our asset, the MLB Network, to do that. We would go directly to distributors — meaning Comcast, Charter, the big distributors — and make an agreement to have those games distributed on cable networks.

“We would also be seeking flexibility on the digital side, so that when you look at MLB.tv, you’d go in, you can buy your out-of-market package like you’ve always had, but you would have the option to buy up into in-market games, which I see as a huge improvement for fans.”

MLB could either add local rights as part of their MLB Network and MLBTV packages with no blackout restrictions, or help teams produce their own local broadcast options. Long-term, they could also re-sell their rights to another bidder, perhaps a more preferable option due to the revenues they could generate from a bidding war.

Could baseball sell all their content to one streaming platform, as MLS recently did with Apple TV? That may be the future of sports TV, according to Greg Bouris, the director of the undergraduate sports management program at Adelphi University:

“Unless a direct model has a guarantee, at the team level, the thinking is, ‘If it’s not RSNs, it’s going to be Amazon, a Hulu.’”

MLB has begun looking at this model already which would combine local rights with its out-of-market Extra Innings package with no blackout restrictions. But right now the local streaming market is fragmented. Diamond Sports owns the rights to less than half the league, with other teams engaged in local TV deals that will stretch beyond the next decade. MLB would have to secure those local rights to be able to provide one platform. That may be a goal down the road, but it is not an option just yet.

As far as the Royals, they seem confident that games will air as scheduled.

“MLB has been focused on this,” the Royals said in a written statement about Bally’s financial troubles, “and has a variety of contingencies in place to make sure fans have access to our games. We’ve had numerous conversations with MLB, and there is no higher priority.”

Too many parties have too much money invested in getting baseball broadcast for games not to air.

Will this affect Royals player payroll?

It is possible that the restructured television deals this year reduce payments in the near future in exchange for larger payments down the road or an equity stake. Manfred admitted that MLB would not be able to replace 100 percent of local revenues owed to teams in the short-term.

Right now the Royals get around $48-52 million each year from Bally Sports Kansas City in a deal that was signed in 2020 and was expected to last 6-8 years. If MLB takes back the rights, those Royals broadcast rights could be re-sold to another bidder, but after years of losing, the Royals may not be in as good a position as other teams in demanding a high price.

But remember, 48 percent of local revenues are shared equally. So even if the Royals take a bit of a hit, it is mitigated a bit if other teams do better in new TV deals. That may still leave the Royals worse off relative to the rest of the league, but the ownership group won’t necessarily be in the poorhouse.