Media makes catastrophists out of even the most level-headed observers of the space, but the reaction to the news that Diamond Sports is putting some distance between itself and Sinclair Broadcasting suggests that more than a few pundits may want to look into getting their hands on a steady supply of Ativan. While this may read as a contrarian take on the latest upheaval in the RSN universe, make no mistake: As onerous as Diamond’s debt load is, the Bally Sports properties are not at death’s door. Given some of the changes that have been carried out this week, it’s entirely plausible to assert that the RSNs haven’t even crossed over into death’s area code.
In case you missed the story that broke just as the Colts-Cowboys game was kicking off on Sunday Night Football, former NBC Sports and ESPN exec David Preschlack was installed as CEO to oversee the Bally Sports RSNs, thereby relieving Sinclair of day-to-day operations at the unit. According to multiple sources, Preschlack was appointed by the company’s creditors, who believe that the only way forward for the debt-laden RSNs is to bring in a manager who can develop a far less contentious relationship with the company’s league partners than it has currently.
Under Sinclair boss Chris Ripley, the alliance between the RSNs and the leagues they serve had become downright adversarial, so much so that commissioners Rob Manfred (MLB) and Adam Silver (NBA) leveled some very public criticism at the company’s core business model. Manfred has been particularly critical of Sinclair’s pivot toward an over-the-top distribution scheme, saying in October of 2021 that the owner of the RSNs hadn’t secured digital rights from a sufficient number of clubs to launch a “viable” direct-to-consumer product. Silver’s criticism has been more tempered, and he followed his own year-ago assessment of the troubled RSN model with an aside in which he noted, “We’re trying [to help] them work through their issues.”
Among the most pressing concerns for RSNs is the rapid erosion of the traditional cable bundle; in the third quarter, 10% of bundled TV subscribers cut the cord, bringing the sector’s overall head count to 62.2 million homes, or just 50% of all U.S. TV households. In the last five years, 31 million subs have opted out of the cable/satellite/telco-TV bundle, which makes for a loss of one-third of the industry’s overall customer base.
Since that flare-up, Silver has refrained from taking further shots at the NBA’s local TV partners, and while Manfred hasn’t been shy about revisiting the RSN conundrum, his subsequent analyses have been couched in a considerably more restrained rhetoric. In cooling their oratorical jets, both league bosses seem to have silently acknowledged that it’s in no one’s best interest for the RSNs to fail—after all, the local channels account for the vast majority of the leagues’ televised consumption, while the rights fees collected contribute as much as 40% of the operating income at the franchise level.
Some veterans of the cable carriage wars suggest that Ripley likely responded to the criticism with some choice words of his own. Given all the talk about how Manfred may have been hoping to use Sinclair’s misfortune to his own advantage—the pet theory in some media circles posits that MLB was biding its time in a sort of Diamond death watch, hoping to scoop up the RSN assets on the cheap after the subsidiary’s “inevitable” capitulation to bankruptcy—it wouldn’t have been out of line for Ripley to remind the sports czars that any cataclysm that might befall his business would result in a write-down at the 42 affiliated clubs. While that wouldn’t do much to iron out the tensions, it’s probably something that the leagues needed to hear, even if such an exchange might understandably lead the creditors to decide to bring in a new management team.
Speaking of which, Preschlack may have been kitted out with the CEO title, but it would be folly to overlook the presence of Diamond Sports chairman Randy Freer and former NFL COO Maryann Turcke, both of whom joined the board in May. Freer is not only a known property within the DSG family (one insider estimates that 60% of those employed at Diamond worked for Freer during one of his stints at Turner, Fox Sports or Hulu), but he also has a working relationship with everyone who is anyone in the world of sports media. Simply put, Freer gets things done, and it’s expected that he’ll be pulling the strings as DSG works to safeguard its future.
If it’s far too early to say exactly how the new brain trust plans to turn things around for the RSN unit, there are a number of intermediate steps that can be taken in order to stabilize DSG. The first order of business—and this admittedly isn’t a cerebrum-taxing proposal—is to restructure its $9 billion debt, which will only serve to become even more burdensome as the company’s rights obligations balloon. (In the next five years, DSG is on the hook for $6.85 billion in rights fees.)
Freer & Co. may then look to sell off a couple of the sports nets, while shoring up its partnership with the leagues by offering up a minor, but not insignificant, share in the business—say, 5% to 10%. Frankly, that’s about as much of a stake as the leagues can afford, and such an arrangement would allow all parties to remain focused on their core competencies. However such a deal is structured, it is imperative that the major players all come together to help salvage the RSNs, as the survival of all those concerned depends upon a vigorous distribution model. That’s “distribution” as in good ol’ pay-TV; if the fate of DSG and its league partners is contingent on a robust direct-to-consumer platform, they may as well cut their losses now rather than pinning all their shared hopes on a service that never reaches critical mass.
Since soft-launching in the summer, little information about the Bally Sports+ streaming service has been made available to investors. From a content standpoint, there’s not much to share. While the official rollout began on Sept. 26, only five of the 14 MLB teams licensed by BSG are currently streaming live games via the new app, and additional clubs will be allowed to participate only after they re-up their legacy distribution deals. During Sinclair’s November earnings call, Ripley talked up the app’s “strong early adoption,” before saying that demand for the service has been “encouraging.”
All told, Ripley’s commentary on Bally Sports+ was largely devoid of context; for example, he touted a conversion rate that was “approximately 70% consistent with what we saw after our June soft launch,” which didn’t exactly help shed light on the early subscription numbers. At the risk of throwing shade, any attempt to calibrate 70% of an unknown quantity is even more doomed to failure than trying to crack the famously unsolvable Riemann Hypothesis.
As much as most legacy TV outlets have a lot riding on DTC, the recent implosions in the streaming space should make it clear that digital probably isn’t going to save the day. And while the growth of alternative video platforms such as Hulu and YouTube TV have helped the entertainment networks claw back a good chunk of the consumers who have parted ways with the cable bundle, those gains are of little use to the RSNs. (Long story short: Nearly all of those cable substitutes have slashed costs by dropping the pricey regional sports networks.) That said, many pay-TV veterans see a possible game changer in so-called Next-Gen TV platforms, which while still in their infancy, could prove to be a means toward accelerating the proliferation of cheap, but more inclusive, pay-TV surrogates.
For good or ill, the leagues that air their games on the RSNs are effectively married to the distribution model, and as such, it’s in everyone’s best interests to keep DSG up and running. A cooperative effort may not only salvage the RSN model, but it’ll ensure that the bulk of fans who follow the non-NFL leagues will continue to have access to traditional media’s most precious commodity, which is to say, live sports. Let’s dispense with all ambiguity: Should the Bally Sports RSNs fail, the ensuing shock wave will topple the retaining walls that are designed to insulate the leagues from the forces that have made a mess of scripted TV, and it will have devastating ramifications for the less-wealthy franchises.
Freer and the DSG board are the right execs for the job, although they’ll have to convince Wall Street to dial down its hypertrophic quarterly growth expectations as they labor to keep the RSNs up and running. Given the volume of the stinky stuff that’s about to hit the global economy’s oscillating fan, the same forbearance should be adopted by investors across all legacy media.