One of the weirder sports business world moments in recent years came when Sinclair Broadcast Group, the cable giant best known for its creepy right-wing proselytizing, bought Fox Sports’ regional sports cable channels for $9.6 billion in 2019. (Fox Sports had to sell them because it had just been bought by Disney, owner of ESPN, a direct competitor, which wouldn’t fly under antitrust rules.) Sinclair then sold naming rights to its channels to Bally’s hotels and casinos, meaning tons of baseball games over the past two years featured a giant “Bally” logo as the network name, even though Bally’s had nothing to do with producing the broadcasts.
Anyway, those days are now behind us, as Sinclair’s sports division is on the fast track to bankruptcy, thanks in large part to Sinclair having the company itself take out loans to raise the money used to buy it. (This process, which I still find it hard to believe is legal and which maybe shouldn’t be, previously took down Toys R Us, among many other companies subjected to leveraged buyouts.) The disappearance of Bally Sports would leave 14 out of 30 MLB teams without a cable TV partner for the upcoming season, which is kind of a problem even in a world where “cable TV” is increasingly feeling like an anachronism.
Daniel R. Epstein at Baseball Prospectus has surveyed the landscape, and made several observations and/or predictions:
- “We don’t know who will wind up with those RSNs or if all games will remain available on TV—at least without an upcharge for viewers.” It’s maybe a silver lining that this is happening in January and not April, but still, anticipate some chaos in terms of how to watch your team’s games this spring.
- Overall MLB gross revenue was around $11 billion last year, with maybe 20-30% of that from cable deals. Losing half of that revenue slice won’t be disastrous, but it will hurt — though the pain could be lessened if teams find new TV partners willing to pay as much or more to broadcast games. (My own ed. note here: This seems more likely to be via streaming services than the dwindling number of cable channel owners, though streamers are slashing their spending right now as well.)
- MLB owners are very likely to use this news to cry poor and demand higher ticket prices, more stadium subsidies, and contract concessions from the players’ union. “More than likely,” writes Epstein, the Bally collapse “will taint all of [MLB’s] business dealings for the next few years—regardless of whether it’s fair to do so.”
Let’s take a close look at that last bullet point, both because it’s the one most of interest to this site (did somebody say “stadium subsidies”?) and also because it gets into some fascinating areas of sports and behavioral economics.
Using a shortfall in revenue one place to demand more from fans and taxpayers makes sense on the surface — as Epstein writes, history shows that sports leagues love to “take out their imaginary financial frustrations on everyone in their blast radius.” But that would imply that currently sports leagues and team owners are charging lower ticket prices than they could get away with, and demanding less in tax money than they might otherwise, because they’ve looked at their massive profits and decided, “Nah, don’t really need any more money, thanks.” If there’s one truism more absolute than “sports team owners will do everything possible to screw you over when they’re losing money” it’s “sports team owners will do everything possible to screw you over when they’re making money hand over fist.” So while, sure, Tampa Bay Rays owner Stuart Sternberg may use the collapse of his cable deal as an excuse to say he can’t commit much money to the new stadium he wants, he’s been refusing to commit much money for years now, so this just gives him some additional rhetoric to throw into his press releases.
As for taking it out on the players, here’s where we get into some murky territory. In classical economics terms, cable money shouldn’t have much impact on how much teams spend on players: It’s a fixed revenue stream, where you earn the same amount whether you sign every free agent in sight or sell off every big contract you can. (Okay, not the exact same amount if, say, you’re getting a cut of ad revenue and viewers all stop watching once your team stinks, but mostly this principle holds.) So a rational economic actor would try to score a huge cable deal, spend as little on player salaries as needed to keep fans buying tickets, and then pocket all the TV money for oneself.
But as the facts on the ground now show pretty conclusively, MLB owners aren’t rational actors when it comes to player spending. They’re more like middle schoolers spending their entire allowance on candy as soon as they receive it, which means if they have less change in their pockets, it might well cause them to bid less for players — or, at least, to tell the union that it has to give concessions in order to stop owners from spending themselves into bankruptcy because they just can’t help themselves.
In the grand scheme of things, losing Bally Sports isn’t going to make baseball evaporate or anything — even slicing off a billion dollars in revenues would just take MLB back to its income figures for 2019 or so — but it does throw some wrenches into all kinds of financial planning issues for the sport. (We haven’t even gotten into how this could affect internal revenue-sharing talks among owners, if those who lose lucrative deals insist that they need more relief from league-wide revenue on things like MLB.tv to make up for their losses.) Beyond that, we’ll just have to wait to see what happens; I’m personally rooting for “Twitch streamers challenge that ‘by the authority of Office of the Commissioner of Baseball’ rights-grab claim that MLB keeps slapping on its broadcasts despite all legal evidence that it’s nonsense,” but not really holding my breath, especially when Twitch’s owner is also an MLB broadcast rights holder. Maybe we could use a few more of those antitrust rules.
Much as I enjoy baseball and the frustrations of being a Mets fan, part of me would be curious to see what would happen if it were all to cave in.
In a way, I’m amused that Sinclair made the purchase as cable subscriptions were on the decline. I mean, surely they had to see this coming?
And then to boost their bottom line ala toys r us seems so self-serving and maybe they deserve what they get.
I live in the marlins broadcast area, and followed the team somewhat passively until I cut the cable cord. Then, I found that I was completely unable to watch the team without cable – even with an mlb subscription.
And so for the last 5 years or so, I had no connection with the team other than an occasional outing to the ballpark. Just for an evening out, not for the game.
I came to realize that the team / broadcast partner didn’t care, and didn’t want to let any fans watch them play. So why should I care?
I read somewhere that one possible “solution” to sinclairs problem is to allow for streaming and charge for it. But their proposed model would have to charge $10/month – which is more than I’d be willing to pay to watch games that I long- since stopped caring about.
So my next question is who would be willing to pick up the broadcast rights and pay the fees the teams want to charge?
I remember reading something about the marlins in 2022 thinking their broadcast deal wasn’t sweet enough and they wanted to negotiate higher broadcasting fees. But that seems like a dream.
I have no idea how this will work out, or whether it will somehow come crashing down. But I am chuckling a bit at them possibly asking for more money for stadiums and such.
It’s all so ridiculous.
If I understand this right, Sinclair isn’t out much money: They bought the Fox Sports Nets with borrowed money, which they they assigned to Bally Sports, which is going bankrupt so the loan will never be paid off, so it’s really Disney that ends up getting hosed.
I don’t really have a good sense of how the whole TV-pricing thing will work out either — for years, cable carriers treated sports as a loss leader to get people to buy their services, and paid out way more to the leagues than they were worth. This would seem like a great opportunity for MLB to grab back all of the streaming rights for those teams so they could stop blacking out local games on MLB.tv, but MLB.tv is way more than $10/month. (Or at least it is if you don’t have eight people sign up to share one account, which MLB doesn’t stop you from doing. Er, not that I would ever do that…)
Yes. Fair point on who ultimately gets hosed.
And No. I would never share an account either. ;)
How is Disney getting hosed? Did Sinclair borrow the money from Disney? If so Disney could reposses the channels and sell them to someone else?
Sorry Neil, I shouldn’t even ask and just leave the details to you! I knew the great cable collapse was coming just not this fast. I also know the owners are going to scream poverty louder than they ever have! Future franchise values should be interesting…..
Yeah, wouldn’t it be the bank who approved the loan who ultimately got screwed?
Oh, duh, yeah, I wasn’t thinking it through. Presumably Bally Sports owes money to a lender, not to Disney, so in that case it’s that bank that gets screwed, you are correct, Markus.
Ballys paid $85m to Sinclair to rebrand the RSNs. No different than a company paying to slap their name on a stadium or arena. Ballys has no ownership stake in the channels.
Correct. Bally Sports is the name of Sinclair’s now-almost-bankrupt RSN arm. (Technically Diamond Sports Group LLC, but nobody calls it that.)
For people who subscribe to T-Mobile (or formerly Sprint like us) we get mlb.tv for free each season. This has been happening the last few seasons and while I’m not a huge baseball fan it is nice to watch a game every once in a while especially when there is no additional cost for me.
I was kind of shocked at all the free streaming I get for a $45 a month single line charge.
Corporate synergy!
$10 a month is ok for me…..
Clarification: the $10 might be okay if…the team hadn’t already lost me as a fan. Since I haven’t watched them play in a long time, I really don’t care.
In general baseball bores me, so it is what it is.
Totally fair!
Would be amazing if some teams went back to over the air broadcasts. There’s a lot of digital sub channels in need of content. One can only watch so much Green Acres. (OK, I could watch it all day, ervice is ur mot)
Over the air doesn’t get subscriber or carriage fees. If the goal is to get all the money it’s either cable or streaming.
Leveraged buyout was part (part) of the whole kerfuffle at Man Utd that led to the birthing of FC United. I was amazed that it was legal when I read about it back then.
I live in Canada and cut the cable over four years ago, so no Blue Jays or MLB, no Raptors, and the odd NBA game when ABC picks it up, The only hockey I get is Hockey Night in Canada on Saturdays, any shown on ABC, and the playoffs on HNIC. Fortunately with my antenna I still get my fill of the NFL and NCAA, but no MNF unless Buffalo is playing. With no TSN, I get no CFL. Here’s the thing, I don’t miss baseball, hockey and basketball.
I think more and more people are finding just that sort of thing Robert. When Gary Bettman won’t let me watch the hockey game I want to watch he thinks I will be forced to watch my “local” team. In fact, he is forcing me to watch a non-NHL product. And I don’t come back, generally.
Ditto MLB.tv. It’s a disaster for most customers. Why would we pay for a service that does not offer us most of the games we bought it to watch?
Ditto NBC’s endless spiral of add on premium tier streaming services. I bought NBC to watch a couple of their sports. If they no longer show me the things I want on that channel, I won’t be upgrading to three successive tiers just to get my two sports back. I will be dumping NBC itself.
More people need to do this. As you have proven, we can all live without professional sports. For a lot less money, I can go watch local minor leagues. I may or may not do that as often, but I will certainly do it.
I don’t need premium streaming services (or asshole airlines). They need me. IF we agree to be treated like a resource to be mined, we have no-one to blame but ourselves for our fates.
In fairness, it isn’t just sports networks or RSN’s who adopt this tactic. The number of resource companies I have worked for who plaster their sites with the name of the operating company contracted to run the facility rather than the (generally Grand Cayman or BVI registered) shell company that actually owns it is staggering.
So, the shell company holds the debt to the bank, the operating company gets paid a fixed fee (and maybe a percentage) to manage the facility, the workers work for said operating company that holds no assets and is judgement proof, and the bank sits on pins and needles hoping the loan payments get made (these almost always involve small monthly payments and large delayed balloon payments).
If times are good, the operating company pays the shell company a $10m-$50m annual management fee and thus does not turn a profit and pays no federal tax. If times are bad, the shell company agrees to ‘modify the payment date” of the management fee… while tersely ordering the operating company to shape up (and still pay the interest on the debt).
And if things go really bad, the shell company pulls the plug, starts a new company and capitalizes it with $40m in extracted profits and offers to buy the dead asset back from the receiver – minus the accrued operating losses of course.
It’s theft. And yet it’s legal. And wildly popular. In my experience, the receiver often doesn’t look past the first offer for debtor in possession financing they get… and this is almost always from the new company owned by the people who ran up the debts in the first place (no-one else will touch the dead fish carcass).
To summarize, then, they have taken out more than their original purchase price in profits/fees, have left the banks and suppliers/contractors (and sometimes workers/pension plans) unpaid, and take no more than 20% (often much less… one company I worked for rinsed $450m in mining debt by offering $25m d-i-p finance to the receiver) of their accrued revenues to buy back the encumbered asset free and clear.
Suffice it to say I won’t be surprised if the same people end up owning Sinclair’s RSNs after the bankruptcy but magically no longer having the debt hanging over them. They will need to spend several thousand dollars to start a new shell company though. Hey, if you wanna dance you gotta pay the band…
Sinclair was always a bit humorous. During the Sunday night broadcast of the local news (KOVR13) they would have a semi rebuttal show called “The Point with Mark Hyman.”