Diamond Sports Group fails to pay Padres, loses broadcast rights

Diamond Sports Group won’t be making its scheduled rights fee payment to the San Diego Padres by the end of its grace period on Tuesday, making the team’s game against the Miami Marlins that afternoon the final one under Bally Sports.

Moving forward, through the end of the regular season and perhaps in perpetuity, Major League Baseball is expected to assume control of the Padres’ broadcasts.

“We have been preparing for this groundbreaking moment. 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,” Padres CEO Erik Greupner said in a statement. “Our fans will now have unprecedented access to Padres games through both digital and traditional platforms throughout San Diego and beyond.”

Diamond Sports Group, the Sinclair subsidiary that operates its broadcasts under the name Bally Sports, is navigating through bankruptcy proceedings in the wake of significant financial losses that were caused by the debt it incurred in the initial purchase and the accelerated rate of cord cutting throughout the country. 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. The league has previously planned to ensure that local fans don’t miss any of their teams’ games if they fall out from Diamond’s ownership.

According to sources, MLB will broadcast Padres game through its MLB.TV app for free to all fans through Sunday. After that, local fans can pay $19.99 a month or $74.99 per year to watch Padres games through the platform. MLB has also cut deals with several different cable companies such as DirecTV, AT&T UVerse and others to air games on a different cable channels, details of which are expected to be announced by the league late Tuesday night.

Padres on-air talent, who are paid by the team, will continue in their regular roles, and the team will use camera operators, producers and other behind-the-scenes workers on a freelance basis, which is not much different from their current employment status.

As part of a statement, a spokesperson for Diamond Sports Group wrote: “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.”

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 the Cincinnati Reds, Texas Rangers, Arizona Diamondbacks and Cleveland Guardians in order to account for market forces that have greatly diminished the traditional cable model in recent years. The judge’s ruling, which could come either Wednesday afternoon or Thursday morning, 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. An interest-only payment was skipped on Feb. 15, 2023, triggering the 30-day grace period that spilled into Chapter 11 bankruptcy reorganization, during which Diamond would shed its least profitable assets and hope to run a more sustainable business.

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 given the rate of cord cutting, the lack of streaming rights and a contract that was reportedly valued at $1 billion over 20 years, Diamond claims it was losing tens of millions of dollars by keeping the Padres.

Diamond has the streaming rights to only five of its 14 MLB teams and has stated it needs to secure those in order to prop up its Bally Sports+ app and become a more sustainable business. Diamond proposed continually paying the rights fees for all teams under its umbrella in exchange for those streaming rights, but MLB, leery of extending more rights to a company that had to file for bankruptcy, has balked at the offer.

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