Diamond Sports Enters Bankruptcy as Expected; No Further Impact to Sinclair

As expected, Diamond Sports Group, the owner of 19 regional sport networks, declared bankruptcy on March 15, less than one month after not making a $140 million interest payment on its debt. DSG, an unconsolidated subsidiary of Sinclair SBGI, despite Sinclair owning most of the equity, has agreed to a restructuring plan with its creditors that will transfer ownership of the firm to its creditors, wiping out Sinclair’s equity in exchange for removing $8 billion in debt. While the deal has not been approved by all parties or the court, we view approval as likely given that Sinclair and creditors have been discussing the agreement since November. We expect that DSG will move even further away from Sinclair after emerging from bankruptcy and will no longer use its former parent for any significant services. We are maintaining our $22 fair value estimate as we already assumed no value for Sinclair’s equity and little-to-no revenue from DSG in our forecast.

While DSG looks to continue its operations, its RSNs may not be able to hold onto all of their current sports rights. We expect MLB to be aggressive in regaining the broadcast rights or extracting higher payments for streaming rights, as DSG only holds streaming rights for five out of 14 MLB teams. The Texas Rangers have reportedly sent a termination notice to DSG in the event of insolvency. The league itself has already stated that it remains ready to broadcast games if necessary. We do expect DSG to examine all of its deals and possibly renegotiate or walk away from some of the more onerous ones.

The NBA appears to be more sanguine about a post-bankruptcy DSG, as it recently renewed its streaming deal with the company even with the looming threat of bankruptcy. The regular seasons for both the NBA and NHL are winding down, with less than 16 games left for almost every team. As a result, both leagues can wait until the fall to make a decision about the appropriate platform for broadcasting the games locally for the affected teams.