With the particulars of Diamond Sports Group’s debt restructuring expected to be hashed out in a Delaware bankruptcy court, critics are now scrambling to bury the RSN model before it’s been pronounced dead. But as much as some corners of the media love a good premature interment, the advertisers who pour $400 million into DSG’s local sports coverage aren’t buying into the bereavement narrative.
Advertisers that have bought in-game MLB inventory on Sinclair Broadcast Group’s 19 owned-and-operated regional sports networks are largely sticking with their spring commitments, according to multiple industry sources and marketing execs. While some Bally Sports sponsors have expressed understandable misgivings over the future of Sinclair/DSG’s RSN holdings, the money invested on spring baseball is staying put—at least for the time being.
In the face of such uncertainty, much of this tenaciousness has its roots in a shared belief that the networks will continue to operate in their usual fashion regardless of what goes down in the courtroom. A Midwest retail exec (and baseball booster) said advertisers are more or less agnostic when it comes to ownership of the local sports channels, noting that sponsors don’t particularly care who runs the RSNs, so long as the checks clear.
“We’re heading into baseball season like it’s business as usual,” the retailer said. “We’ve been given every assurance that the channels will operate regardless of the legal activity.”
Beyond brand loyalty and the obvious advantages of associating with the local nine, advertisers that support the hometown team reap the benefits of some of the biggest audiences in primetime. The RSNs regularly blow out the local broadcast affiliates, and the impressions gap only gets more pronounced as the season heats up and the CBS/NBC/ABC/Fox stations begin churning out the summer repeats and low-budget reality fare. Last season, more than a third of all MLB clubs ranked No. 1 in primetime in their home markets.
Early estimates suggest that in-game MLB revenue could be up 10% or more at the RSNs, provided the legal detour doesn’t derail baseball’s local television schedule. And while a change in ownership is probably a safe bet—a consortium of debt holders and high rollers is waiting in the wings, although Sinclair is expected to retain a small minority stake in the business once the Chapter 11 proceedings are concluded—many of Bally Sports’ top advertisers don’t anticipate a disruption in service. As much as this sort of filing usually results in a total loss for equity holders, Chapter 11 is not a liquidation play. Any number of scenarios may play out once the case is in the hands of a bankruptcy judge, but for the time being, the RSN advertisers plan to suit up for the spring season as they do every other year.
Live sports buys can have an outsized impact within a local market; there’s much to be said for running your ads within the framework of daily programming that discourages commercial avoidance. (Approximately 98% of live games are watched in real time.) However, the suspension of an investment can lead to all sorts of aggravation down the road. Pull out of a buy while demand is still strong, and there’s a good chance there will be nothing left to buy when the time feels right to jump back into the market.
Act in haste, repent at leisure. Unless your relationship with the seller extends back into the mists of time, odds are it’ll cost a premium to restart a live-sports buy. In this sense, the local sports market is of a piece with the national-TV biz; an advertiser who elects to sit out the spring upfront may not only get socked with a 25% premium in the fall scatter market, but risks being shut out of the most desirable primetime shows.
Advertisers believe that the bankruptcy proceedings shouldn’t necessarily disrupt the day-to-day business of televising local baseball, provided Sinclair/DSG keep up with their rights payments. Bally Sports’ roster includes 14 MLB franchises, ranging alphabetically from the Arizona Diamondbacks to the Texas Rangers. “If they stop paying the bills, then all bets are off,” said one veteran sports-media executive, under the condition of anonymity. “Violate those distributor agreements, and it all shuts down immediately.”
The executive doesn’t expect that to happen. “You’re a few weeks away from the season starting, you’re taking all the necessary steps to get out from under that … debt,” the exec said. “Why set the house on fire when you’re doing everything you can to save it from the wrecking ball?”
MLB commissioner Rob Manfred seems less assured by this line of logic, but then again baseball stands to take the biggest hit should the RSNs go belly up. According to DSG’s most recent quarterly filing with the Securities and Exchange Commission, the company this year is on the hook to pay $1.92 billion in rights fees, of which more than half is earmarked for the 14 MLB clubs under contract. Manfred last week said he had a contingency plan up his sleeve in the event baseball’s local TV strategy is disrupted.
Following a Feb. 9 owners meeting in Palm Beach, Fla., Manfred said baseball would be in a position to “step in” this spring if DSG’s TV business were to be sidelined, before going on to suggest that any impacted games would be made available via cable (presumably on MLB Network) and digital platforms. The logistics of virtual MLB pirate-radio scheme would require more than a little technical game-planning; while MLB Network multiplexes 30 separate live feeds for its out-of-market “Extra Innings” package, replicating the RSN experience would likely require freeing up additional transponder space inside one or more communication satellites. (If it comes down to it, they should send Bill “Spaceman” Lee to engineer the satellite hack.)
Manfred has said nothing further about the back-up plan.
Pitchers and catchers will start trickling into camp this week, and Opening Day is just 46 days distant. Sometime in between, attorneys will submit a “first day motion filing” to the court, in which they’ll request that DSG (and by extension, the Bally Sports nets) may continue to operate during the restructuring proceedings.
Upon receiving approval from the court, the petitioner may issue payments to so-called “critical vendors,” which is legalese for “suppliers you have to pay if you want to keep the lights on during the restructuring.” In the likely event the court allows DSG to continue honoring its rights fees, the legal wrangling should be all but invisible to fans catching their hometown team on Bally Sports. Until that decision is handed down, everything else is a matter of conjecture.