Monday, July 17, 2023

BREAKING: New Channels For Dbacks Games, Effective TODAY; But, WHERE'S the Money?

UPDATES, 7/19, 4:30pm: 

1) The Diamondbacks and MLB opened what they called "a new chapter" with last night's (incredible) game. Local Dbacks broadcasts are now "an MLB production" - as witnessed by regular play by play broadcaster Steve Berthiaume, color analyst (and Dbacks' hero and "Senior Advisor to the President and CEO") Luis Gonzalez, and pre- and post-game show host Jody Jackson all holding mics with the MLB logo.

This raises a number of follow-up questions which Arizona's Law has asked of the team and MLB.

2) One day after Diamond Sports/Bally Sports Arizona pulled the plug on Dbacks broadcasts, they opened a new - and, explosive - battle against their former parent, Sinclair Broadcasting, and others. The adversary proceeding (that's what a lawsuit is called in Bankruptcy Court) has been sealed, but the outline of the 19-count action is public.

Diamond Sports is claiming that Sinclair - the notoriously politically-conservative broadcasting outfit - used fraudulent transfers that sucked money out of the many regional sports networks owned by Diamond and saddled it with hundreds of millions in outstanding debt. The complaint apparently also accused Sinclair and Bally's Corporation of a fraudulent transfer of the value of the naming rights to the regional networks - they were renamed Bally Sports Arizona (etc) last year.

UPDATE, 7/18, 10:40am: Judge Lopez has just signed and posted the order allowing Bally Sports to stop showing Diamondbacks games - and, avoid paying them an estimated $30.8M for the rest of the season. The judge did not address DirecTV and MLB's raised concerns about distributors double-paying Bally and MLB.

UPDATE, 7/18, 10am: The Diamondbacks and MLB enter the post-Bally Sports Arizona era TODAY, announcing new channels on Cox, DirecTV, and more.

Questions remain to be answered, though. How much is MLB paying the Diamondbacks to cover the estimated $30M in 2023 revenue from Bally Sports, which the team has now officially lost? (The bankruptcy court judge has not yet signed an Order.) Back in February, MLB Commissioner Rob Manfred said (under oath) that he had offered to backstop 80% of the lost revenue.

The other question is whether Cox/DirecTV/etc are being given these games for free, whether they have agreed to pay MLB, and whether they will be able to be released from some of their obligations to Bally Sports (or get rebated for monies paid in advance).

Yesterday, a flurry of court filings made it clear that this was happening this week. MLB told Judge Christopher Lopez it was permitting Bally Sports to pull the plug, but wanted assurance that it could place the games with distributors (Cox, DirecTV, etc) without those distributors having to double pay for each game.

Bally Sports was not pleased with the prospect of the distributors asking for rebates, and told the judge that issue was not in front of him at this point.

We expect the judge's Order within the next day or two, and will update accordingly.


ORIGINAL ARTICLE, 7/17: "NEW: MLB & Diamondbacks Letting Bally Sports Pull Plug On Games Starting This Week; Will Dbacks Lose $30M With Trade Deadline Approaching"

Major League Baseball - and, thus, the Arizona Diamondbacks - have agreed to allow Bally Sports Arizona* to pull the plug on game broadcasts for the rest of the season. However, the switch to new channels for the fans remains up in the air, and it is unclear whether the Diamondbacks will recoup the estimated $30M Bally Sports would have paid them for the rest of the season.

Many issues to unpack here, so let's take them one-by-one:

A) The bankruptcy court judge has allowed the hearing on the rejection of the Bally Sports/Diamondbacks contract to be pushed back twice. It is now scheduled for Tuesday morning. If the judge allows the plug to be pulled - as is now expected - the timing is key. It could take place immediately.

B) The reason the plug is now likely to be pulled is because MLB told the judge on Friday that it would not object. The Diamondbacks have been deferring to MLB in this matter, likely because MLB is their semi-backup plan. (The team has repeatedly referred Arizona's Law to MLB for answers to posed questions, and MLB has been unresponsive.)

C) The MLB filing - combined with a Thursday filing from DirecTV - gives us a greater understanding of where the dispute has now shifted. It is apparent that MLB will take responsibility for broadcasting the games, and the question is whether fans will still be able to watch them from their usual sources: Cox cable, DirecTV, AT&T, etc. 

The problem is that Bally Sports expects a full season's worth of payments from those distributors (Cox, etc), and those distributors are not going to want to double-pay MLB for the 2nd half of the season. (This is made more complicated by the fact that Bally Sports Arizona still has Coyotes rights and other programming.) MLB and DirecTV have now brought this to the judge's attention. They have not filed any motions to force a promise that Bally Sports will not collect and/or will rebate. 

But, MLB does ask the court to make sure that "any order granting rejection should make clear that, notwithstanding the terms or conditions of any distribution agreement, broadcasts of any distribution agreement, broadcasts of any Diamondbacks’ games or other related content by the relevant distributors will not be prevented and the distributors will not have to make payments to the Debtors post-rejection for Diamondbacks’ games or other related content where that content is actually being delivered following rejection by non-Debtor third parties such as MLB."

Here's a summary of how it works, according to MLB's filing: (1) Bally Sports pays Diamondbacks. (2) Cox (etc) pay Bally Sports. (3) Fans pay Cox (etc). Bally Sports is asking the judge to stop (1) in that train without impacting (2) and (3). Derailment because MLB wants Cox (etc) to pay them.

D) The other hitch that noone is talking about is whether MLB will step in and pay the Dbacks what they would have received from Bally Sports for the 2nd half of the season - especially if they end up being able to collect money from Cox (etc). (MLB/Dbacks have incentive to place the games on Cox (etc) even without payment, because, they want the fans to be able to watch Dbacks/MLB - especially during a too-rare pennant race.)

According to Bally Sports' bankruptcy schedules, they owe $30.8M. That's presumably for the rest of the season. (It was filed in May, but appears to still be accurate.) At the May 31 evidentiary hearing, MLB Commissioner Rob Manfred testified that he had assured the Diamondbacks (and other teams doing business with Bally Sports/Diamond Sports) before the season (when the bankruptcy happened) that MLB would pay some of the lost revenue.

"Clubs had cash flow concerns (after Diamond Sport's bankruptcy filing)....We said to the clubs that no matter what happens, we'll backstop you at 80% of what you expected.... We wanted to have enough cash flow to prevent a disruption of our business."

If that offer is still the one on the table between MLB and the Diamondbacks, it means the team loses a significant $5.3M in the switch from Bally Sports Arizona to MLB. Even in today's professional sports environment, that's not chump change.

E) If past experience is an indicator, fans will soon be able to watch the Dbacks on their preferred system without additional cost. Earlier this season, the San Diego Padres and Bally Sports parted ways. Somehow, MLB has been able to place the games on Cox, DirecTV, AT&T and Spectrum (in addition to the MLB streaming service).

*Bally Sports Arizona is the (sponsored) name for the network owned by Diamond Sports Arizona. The latter is part of the network of Diamond Sports companies in Chapter 11 (reorganization) bankruptcies.

(H/t and thanks to Nick Piecoro (Arizona Republic's Diamondbacks beat reporter) for first reporting the continuation of the hearing from today until tomorrow, and the team's statement on Sunday's broadcast.)

"AZ Law" includes articles, commentaries and updates about opinions from the Arizona Supreme Court, U.S. Supreme Court, as well as trial and appellate courts, etc. AZ Law is founded by Phoenix attorney Paul Weich, and joins Arizona's Politics on the internet. 

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