Diamond Sports Holdings has filed for Chapter 11 bankruptcy, just before a 30-day grace period to make a $140 million debt payment expired on Thursday. The move begins the reorganization of a company that represents 19 regional sports networks (RSNs) doing business as Bally Sports, which carries games for more than 40 teams across the NBA, NHL and MLB.
It could also spawn antitrust problems. Antitrust law is focused on protecting consumers from higher prices, fewer choices and other harmful effects stemming from anticompetitive practices. When one company gains too much control of RSNs, antitrust law can be used as a weapon to loosen that control.
RSNs have been under the microscope of antitrust litigators and government regulators for some time. About a decade ago, a group of consumers sued the NHL, MLB, Comcast, DirecTV, multichannel video programming distributors (MVPDs) and RSNs for alleged Sherman Act violations. Laumann v. NHL and its companion case, Garber v. MLB, centered on sports broadcasting contracts that were depicted as unlawfully eliminating competition in the distribution of MLB and NHL games.
RSNs, the plaintiffs argued, agree to geographical restrictions as part of an anti-competitive exchange in which they gain exclusive territories and function as “regional monopolies … over hockey and baseball programming.” The plaintiffs insisted that “in the absence of these restrictive agreements,” RSNs would compete outside of their territories, leading—potentially—to more choices and cheaper subscription prices for consumers.
Making matters worse, the plaintiffs charged, “Comcast and DirecTV both own and control a number of RSNs,” an arrangement portrayed as an anticompetitive “vertical integration” (the extent to which one company controls the supplying and buying of a product).
After several years in federal court, the litigation was resolved via settlements in 2015 and 2016. Among price reductions and other consumer-friendly consequences, the settlements directed the NHL to offer more out of market telecasts and MLB to provide more streaming options for RSN subscribers. The plaintiffs celebrated how their antitrust litigation spurred more competition and more affordable pricing.
The same spirit was evident in 2018, when the Justice Department sued Walt Disney and Fox in an attempt to block Disney from acquiring Fox’s 22 RSNs. The proposed acquisition was part of a $71.3 billion deal that also involved Hulu, National Geographic cable networks and various other properties. The Justice Department worried the transaction “would combine two of the country’s most valuable cable sports properties—Disney’s ESPN franchise of networks and Fox’s portfolio of RSNs” since it would “likely substantially lessen competition … throughout the United States in which these two firms compete.”
At the time, RSNs competed to be carried in packages that Comcast, Charter and other MVPDs offered to subscribers. Each RSN’s carriage license is normally limited to markets comprising the home territories of teams they broadcast. Disney’s and Fox’s cable TV programming competed in numerous markets where Fox’s RSNs were located, including Charlotte, Dallas, Los Angeles and Phoenix.
“The proposed acquisition,” the Justice Department warned, “would eliminate the substantial head-to-head competition that currently exists between Disney and Fox and would likely result in higher prices for cable sports programming in each of the markets.”
Disney and Fox were accused of violating the Clayton Act, which prohibits mergers that substantially diminish competition.
The lawsuit led to a settlement wherein Disney agreed to divest 22 RSNs, and the Justice Department permitted the acquisition to go forward.
“American consumers have benefited from head-to-head competition between Disney and Fox’s cable sports programming that ultimately has prevented cable television subscription prices from rising even higher,” then-Assistant Attorney General Makan Delrahim said. “Today’s settlement will ensure that sports programming competition is preserved in the local markets where Disney and Fox compete for cable and satellite distribution.”
Diamond’s expected reorganization could take months, or longer, to play out. A bankruptcy judge would focus on how creditors are paid and what else they might gain, including equity in a reorganized company. Bankruptcy law and its overarching priority—making sure creditors are paid—will be the guiding force.
The result, however, would be subject to potential antitrust scrutiny brought by private parties or government regulators, who would seek to protect Diamond’s customer base. If a network, media company or league obtains such a high degree of market power over RSNS that it is viewed as detrimental to consumers, antitrust claims become more likely. In other words, bankruptcy law and antitrust law have different priorities, and how compatibly those priorities would intersect with Diamond’s reorganization remains to be seen.