Major League Baseball and Diamond Sports Group spent more than 20 hours over two days last week bickering in a Houston courtroom over the value of four teams’ media rights. The bankrupt DSG had stopped paying the teams, arguing under Chapter 11 that the owner of 18 regional sports channels is entitled to pay fair market rates, while MLB contended the existing contractual rates were the fair market value.
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Judge Chris Lopez ultimately concluded the court was not the forum to set market prices, and the fact that MLB had testified it offered to assume the contracts meant they must be at fair market in any event. He ordered DSG to pay the Minnesota Twins, Cleveland Guardians, Arizona Diamondbacks and Texas Rangers full fees.
But all those hours weren’t a complete waste. Though confidential information like rights fees was not disclosed — monitors that witnesses and lawyers looked at were visible only to them and Judge Lopez — some interesting details leaked out. Here are some:
• It’s been well established that Diamond wants the direct-to-consumer (or DTC) rights for all of the MLB teams it airs on cable. DTC rights refer to the in-market streaming of games directly to fans (as opposed to streams through an authenticated cable connection). Diamond presently owns them for all its NHL and NBA teams and five of its 13 MLB teams. According to testimony from commissioner Rob Manfred, Diamond and its parent, Sinclair, wanted more than just DTC rights, but other rights that often do not get a lot of attention. These include allowing the broadcast to interface with a second gambling-themed show; the right to sell merchandise on screen; or even if MLB decided to sell just the ninth inning of games.
“Oh, by the way, the chance that we allow you to make the decision as to how gambling is going to interface with our broadcast, which is a fundamental business decision … that’s not going to happen,” Manfred said of his talks with Sinclair. “You’re not going to have those rights. So we had an uneasy relationship.”
Sinclair CEO Chris Ripley pitched investors on an earnings call in 2021 about plans for integrating gambling into the RSNs.
My story on today's marathon Diamond Sports/MLB bankruptcy hearing. Bottom line: the two sides really don't like each other. https://t.co/SItbDNvga8
— Daniel Kaplan (@KaplanSportsBiz) June 1, 2023
• Twins president Dave St. Peter during his witness testimony confirmed the club’s contract with DSG expires after this season. The contract pays the Twins roughly $60 million this year, he said, but DSG last year offered $54 million in a renewal, which the team rejected.
“So this was an offer for $54 million in the first year. And then it’s got the one-percent escalator. So if we go out to the fifth year 2028, it’s up to” $56 million, the lawyer for Diamond asked St. Peter, which he then confirmed. DSG had an exclusive negotiating period that ended April 30. The Twins have not begun negotiating with other parties, but St. Peter said he expects that to begin in the near future and that, “We have heard from a number of interested parties who would love to engage with the Twins.”
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• A lawyer for Diamond said during one of his cross-examinations that the Milwaukee Brewers’ deal with Bally Sports pays $33 million annually and does not grow. Media deals almost always have accelerators built in, so this is uncommon. Also, the Brewers are one of five Diamond MLB teams to sell DTC rights.
• Manfred described the fee the Atlanta Braves receive as “massively undervalued,” although he didn’t say what the team is paid. The Braves’ public filings do not reveal the rights fee for the contract, which runs through 2027, but an Atlanta Journal-Constitution report pegged the amount at $100 million this year.
• The Braves’ owner, Liberty Media, was a partner with MLB in bidding in 2019 for the 19 RSNs that Sinclair bought from Fox, Manfred testified. MLB’s bid was at least $900 million less than Sinclair’s winning $10.6 billion bid.
“The reason we became a bidder is we thought that Major League Baseball was best positioned to manage through what we realized was a coming period of change,” Manfred said. “Our bid was really very, very different than the Sinclair bid. They put eight and a half billion dollars of leverage on a 10-and-a-half-billion-dollar bid. I think I’m right about those numbers. You know, we had some leverage, but it was three and a half, OK. We had a major media player, Liberty Media was a partner in it … we thought that put us in a much better position to have alternatives in order to distribute games. We had gone to distributors in advance, while the bidding process was going on, and pre-negotiated distribution agreements.”
• Rangers COO Neil Leibman said that the revenue from the Rangers’ telecast rights makes up “approximately 25 to 30 percent of our gross revenue.” A club-side lawyer said that as long as 2023 meets projections, Bally Sports Southwest, the RSN that carries the Rangers, will have made nine figures off the Rangers from 2020-23. Meanwhile, the other teams produced eight-figure losses in that same stretch. The Rangers are owed about $26.5 million in a rights fee payment in the middle of this month.
• Bally Sports San Diego’s ownership breakdown was 60 percent owned by Diamond and 40 percent by the Padres. Diamond received 80 percent of the profits, while the Padres took 20 percent. Diamond carries four of the five board seats, while the Padres had one.
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• Manfred spoke positively of the sport’s viewership. “Our local ratings are even with the decline that’s taken place in terms of the numbers of subscribers. They’re actually up a little bit if you take into account the decline in the numbers of subscribers.”
An MLB-side lawyer then asked, “So even though subscribers have gone down, viewership remains even or even higher?”
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“Right,” Manfred replied.
• Later, the commissioner’s phrasing was challenged by a Diamond lawyer. The ratings, the lawyer pointed out, are actually down.
“If you actually look at the numbers, the decline in the rating numbers is smaller than the decline in the number of subs,” Manfred said. “Which is fairly characterized as ‘up.'”
The lawyer did not agree.
(Top photo: Chris Coduto / Getty Images)