Diamond Sports Group fails to pay Padres, loses broadcast rights

May 30, 2023, 7:49 PM

Diamond Sports Group has decided not to pay the San Diego Padres their latest rights fee, a monumental development that will revert the team's broadcasting rights to Major League Baseball and establish precedent for an uncertain, rapidly evolving landscape.

Diamond, the Sinclair subsidiary that operates under the name Bally Sports, skipped its payment to the Padres a couple of weeks ago and had until the end of its grace period on Tuesday to make the team whole and maintain their long-term agreement. Choosing not to meant Tuesday's game against the Miami Marlins was the last Padres game under the Bally Sports umbrella. Moving forward -- starting Wednesday, continuing through the end of the season and resuming in perpetuity -- MLB will air Padres games through its streaming service and on different cable channels.

MLB will provide Padres games through its MLB.TV app for free through Sunday. After that, in-market fans can continue to stream games for $19.99 a month or $74.99 for the rest of the regular season on MLB.com and Padres.com (postseason games air on national platforms). Through this process, Padres games will no longer be subject to blackouts. Local fans can also watch Padres games through a variety of cable providers -- AT&T U-Verse, DirecTV, Cox and Spectrum -- on a different channel. fuboTV will also continue to air Padres games through its platform.

In a release issued late Tuesday night, MLB stated that the new approach would increase the Padres' reach from 1.13 million to about 3.2 million homes within the team's TV territory.

"While we're disappointed that Diamond Sports Group failed to live up to their contractual agreement with the club, we are taking this opportunity to reimagine the distribution model, remove blackouts on local games, improve the telecasts and expand the reach of Padres games by more than 2 million homes," MLB chief revenue officer Noah Garden said in a statement. 

In-game, on-air broadcasters -- typically play-by-play announcer Don Orsillo, analyst Mark Grant and on-field reporter Bob Scanlan -- are employed by the Padres and won't be affected. Camera operators, producers and other behind-the-scenes employees are typically outsourced on a freelance basis, a model that MLB will follow. The makeup of the team's pre- and postgame show, however, is still being figured out, according to a source. 

"We have been preparing for this groundbreaking moment," Padres CEO Erik Greupner said in a statement. "The Padres are excited to be the first team to partner with Major League Baseball to offer a direct-to-consumer streaming option through MLB.TV without blackouts while preserving our in-market distribution through traditional cable and satellite television providers. Our fans will now have unprecedented access to Padres games through both digital and traditional platforms throughout San Diego and beyond."

Diamond is navigating through bankruptcy proceedings in the wake of significant financial losses that were caused by the debt it incurred from the initial purchase and the accelerated rate of cord cutting throughout the United States. Diamond owns the regional sports networks for 42 teams across the NHL, NBA and MLB, the latter of which comprises 14 teams. Teams who are not paid their rights fees are essentially free to break their contracts, and the Padres, who boast one of the most star-laden teams in the sport, are the first to fall out.

A spokesperson for Diamond Sports Group said in a statement: "While DSG has significant liquidity and has been making rights payments to teams, the economics of the Padres' contract were not aligned with market realities. MLB has forced our hand by its continued refusal to negotiate direct-to-consumer (DTC) streaming rights for all teams in our portfolio despite our proposal to pay every team in full in exchange for those rights. We are continuing to broadcast games for teams under our contracts."

But Diamond has paid only half its rights fees to the Cincinnati Reds, Texas Rangers, Arizona Diamondbacks and Cleveland Guardians. A hearing is scheduled for Wednesday in Houston, during which a bankruptcy judge will preside over Diamond's claims that it should essentially pay lesser rights fees to those teams in order to account for the market forces that have diminished the traditional cable model in recent years. The judge's ruling, which might not be made until late Thursday afternoon, will play a big role in Diamond determining which other contracts it keeps or sheds as part of the bankruptcy process.

Sinclair, under the Diamond Sports Group subsidiary, initially paid $10.6 billion to purchase the broadcasting rights for 21 MLB, NHL and NBA teams from Fox in 2019. But the company incurred about $8 billion of debt in order to do so, making it exceedingly vulnerable as the cable model deteriorated within a digital era. An interest-only payment to creditors was skipped on Feb. 15, 2023, triggering the 30-day grace period that spilled into Chapter 11 bankruptcy reorganization, during which Diamond planned to shed its least profitable assets and hope to build a more sustainable business for the long term.

The Padres entered this season with the third-highest payroll in baseball and feature a roster outfitted with stars such as Manny Machado, Fernando Tatis Jr., Juan Soto and Xander Bogaerts. But Diamond nonetheless claims it was losing tens of millions of dollars by keeping the Padres, due in part to the lack of streaming rights.

Diamond has the streaming rights to only five teams -- the Kansas City Royals, Milwaukee Brewers, Tampa Bay Rays, Detroit Tigers and Marlins -- and has stated it needs to secure additional ones in order to prop up its Bally Sports+ app and become more profitable. Diamond proposed continually paying the rights fees for all teams under its umbrella in exchange for those streaming rights but didn't offer additional compensation. MLB, leery of extending more rights to a company that had to file for bankruptcy, has balked at the offer.

MLB has continually stated its desire for Diamond to abide by its contracts with teams, but in the long term the league wants to fit all broadcasting rights under a national umbrella. League executives have been adamant that doing so is the best way to eventually pivot from the traditional cable model, eliminate blackouts that have significantly hindered the sport's reach and ultimately maximize revenues.

The Padres are simply a first step.

"Through the power of Major League Baseball and the Padres, we are working to elevate the game broadcast experience of all Padres fans," Billy Chambers, MLB's executive vice president of local media, said in a statement. "New technology, better picture quality and increased access are just a few of the items we are working on to better tell the story each and every night."