Bally Sports reports subscriber losses, lower cash flow as RSN model teeters

Bally Sports reports subscriber losses, lower cash flow as RSN model teeters

Diamond Sports owns 19 regional sports channels airing games of 42 , and teams, feeding those clubs substantial sums that cover a large part of their player payrolls.

Times are generally good for the economics of these sports, but hovering over these teams is the very real possibility Diamond could file for bankruptcy, or perhaps even restructure what it pays the teams, a casualty of the decline in the regional sports channel model and the inflated $9.6 billion price Diamond parent Sinclair paid in 2019 for the network of channels.

The bad news kept rolling this week, as Diamond revealed in its quarterly earnings call that subscriber levels had fallen 10 percent so far this year, and a cash flow measure would come in at half the estimate made at the start of the year. Like many traditional TV outlets, Diamond’s business is eroded by cord-cutting.

“We have seen quite a bit of (subscriber erosion) acceleration over the year,” said Scott Shapiro, Sinclair’s chief financial and operating officer, on the earnings call. “And that’s probably driving, you know, at least 75 percent of the change to (cash flow) guidance, when you look at the magnitude of where churn expectations were at the beginning of the year, to where we’re projecting for the full year.”

Bally Sports North’s Katie Storm interviews Minnesota Timberwolves center Rudy Gobert after a game. Bally Sports airs games for 42 NBA, MLB and NHL teams. (Matt Krohn / USA Today)

Diamond on the call said it has enough money to get through the end of 2023, though that depends in part on the economy not going into a tailspin next year (many economists are predicting a mild recession). Meanwhile, Sinclair CEO Chris Ripley confirmed reports it had hired two financial advisors, LionTree and Moelis & Co., to advise on restructuring.

“There is no sale process,” Ripley said, appearing to rebut speculation Diamond is to be sold. “But, you know, we’re talking to parties about deleveraging, strategic partnerships, and things of that nature.” Deleveraging means reducing debt.

Some of those parties are the leagues themselves, which have been reported to want to buy Diamond. Ripely’s comment suggests otherwise, but there is no doubt the NBA, NHL, and MLB have a keen interest in keeping Diamond afloat, and people close to the situation confirmed they are active in the discussions.

Whether that includes a league taking equity and/or some sort of rights fee haircut is unclear. But what is clear is the hardline approach voiced by MLB commissioner Rob Manfred last year at this time when he said the leagues could go it alone without Diamond is no more.

“The leagues have no way out, they have nowhere to go,” said Patrick Crakes, a sports media consultant. “I mean, if they lose the (regional sports network) system, right now, they’re completely f—ed.

“The big story continues to be that the leagues don’t like Sinclair, but they now have sobered up. They’re not talking about pivots to DTC all over the place.”

DTC is direct to consumer, and in sports media parlance, refers to streaming. Media outlets like Diamond are trying to balance the traditional TV world and streaming. Diamond launched a streaming service earlier this year but pointedly declined to put a figure on how well, or poorly, the product’s faring.

Asked by a Wall Street analyst on the earnings call to put a figure on the service, Ripley responded, “it’s too early for us to extrapolate. I mean, we’ve literally just gotten through sort of a month, month and a half of being up and, you know, we’re very pleased with the results in terms of engagement, app ratings, the quality of experience, engagement of the subscribers. And, you know, I think it bodes well for the future. But at this point, just extrapolating.”

Hogwash said Lee Berke, a sports media consultant. He said if Diamond had positive results, it would announce them. The problem is the RSN model is broken because of cord-cutting, but streaming is not generally profitable because it’s not priced appropriately at the moment.

“The model is going to have to be rebuilt,” Berke said. “I think there still is a very strong marketplace for regional sports network content. It remains to be seen just who is going to be offering that up.”

That is a point observers keep coming back to, that there is strong demand for local sports, the problem is finding a way to deliver it profitably on different screens. In fact, Crakes said the real problem with Diamond is the amount of debt on the company, for without it Bally Sports, the brand name of the regional sports network, could go on comfortably for another decade.

But Bally does have the debt, over $9 billion, leading to all sorts of speculation the company could file for bankruptcy or be acquired by its bondholders. The company is treading water for now and could end up selling equity to leagues to pay down the debt.

“We’re going through this transition of going from a single source of revenue, linear pay TV to a hybrid approach,” Ripley said. “And we’ve just made that first step of doing that. And so it just takes some time for the model to play out. But that transition, we believe, will ultimately make these rights even more valuable in the future. And you know, we just have to bridge through that moment in time.”

If Diamond doesn’t get through that moment in time, however, that could prove ominous for teams relying on contractual payments from Bally.

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