Emerging from bankruptcy, what’s next for Diamond Sports Group ?

Lea Hogg November 21, 2024

SiGMA news

Diamond Sports Group, the largest operator of regional sports networks (RSNs) in the United States, has survived financial difficulty since filing for Chapter 11 bankruptcy in March 2023. Its journey through insolvency has been marked by steep debt, declining cable subscriptions, and shifting viewer habits. Now, with a court-approved reorganisation plan and a partnership with FanDuel, Diamond Sports may have rewritten its playbook. But questions remain about the company’s future in the competitive, digital-first sports media sector. Will Diamond be able to thrive following its acquisition by FanDuel?

Is the road ahead a delayed decline?

Diamond Sports Group’s emergence from bankruptcy is undoubtedly a milestone, but its future hinges on execution. The company must navigate the complexities of sports broadcasting, iGaming, and direct-to-consumer models while managing relationships with leagues, teams, and fans. Its partnership with FanDuel and Amazon signals a willingness to innovate, but it remains to be seen whether these efforts can offset the challenges of a declining RSN market.

The emergence of sports betting and streaming may provide a lifeline, but only if Diamond can deliver compelling, seamless experiences that resonate with a tech-savvy audience. For now, the company appears to have survived a nail-biting escape. Whether it can flourish, or at the very least thrive, is another question entirely.

From Bally to FanDuel and strategic rebranding

Diamond’s bankruptcy process has reshaped its business model and portfolio. Previously branded under the Bally Sports name, the company has pivoted to the FanDuel Sports Network. This rebranding follows a strategic partnership with FanDuel, signalling Diamond’s intention to strengthen its foothold in sports betting and streaming. The new branding aligns with FanDuel’s push into integrated media and gambling, offering opportunities to merge traditional sports broadcasts with real-time betting integrations.

While the RSNs were once a goldmine for distributing local sports content, their profitability has dwindled. During bankruptcy, Diamond shed some high-cost agreements, including contracts with Major League Baseball (MLB) teams like the Cincinnati Reds, and renegotiated others, such as deals with the Detroit Tigers and Tampa Bay Rays. These revised contracts often include streaming rights, reflecting the shift toward digital consumption of sports.

Bankruptcy backstory

Diamond Sports Group, a subsidiary of Sinclair Broadcast Group, was formed in 2019 through a $10 billion acquisition of RSNs from Walt Disney Company. This purchase was a condition of Disney’s acquisition of 21st Century Fox assets, as mandated by the Department of Justice. The deal initially looked promising, giving Diamond access to valuable sports broadcast rights. However, cracks in the foundation soon emerged.

The company’s debt ballooned to over $8.6 billion, exacerbated by declining revenues from cable subscriptions—a primary revenue stream for RSNs. The rise of streaming platforms, coupled with shifting consumer preferences, accelerated cord-cutting, leaving Diamond heavily exposed. By March 2023, it sought bankruptcy protection, aiming to restructure its unsustainable debt load while continuing operations.

Sinclair Group was founded in 1971 by Julian Sinclair Smith, and it originally operated as Chesapeake Television Corporation. The company’s growth accelerated when Smith’s sons—David, Frederick, Duncan, and Robert—merged their assets under the Sinclair Broadcast Group banner in 1986. David D. Smith, who became CEO in 1988, spearheaded aggressive expansions, including acquisitions and operational strategies like local marketing agreements.

Shareholders and new ownership

Post-bankruptcy, Diamond’s ownership has shifted dramatically. Creditors, including PGIM, Hein Park Capital, and Discovery Capital Management, have converted debt into equity, reducing Diamond’s liabilities from $9 billion to $200 million. Sinclair retains a minority stake, but its influence has waned.

Diamond’s new financial structure includes $100 million in cash reserves and significantly reduced debt obligations, positioning it as a leaner and more agile company. However, achieving long-term profitability will depend on its ability to navigate the turbulent waters of sports broadcasting and consumer engagement.

iGaming and Sports Betting: Is lean and mean the answer?

The partnership with FanDuel represents a calculated bet on sports betting as a key growth driver. FanDuel’s established presence in iGaming and daily fantasy sports aligns with Diamond’s need to innovate its revenue streams. By integrating live sports broadcasts with betting features, Diamond could tap into the lucrative and growing sports betting market, valued at over $93 billion globally in 2022.

Diamond’s exploration of direct-to-consumer models is another pivotal shift. The introduction of single-game pricing for NBA and NHL games and partnerships with platforms like Amazon’s Prime Video reflect the company’s efforts to cater to a younger, digitally native audience. These moves also position Diamond to capitalise on the convergence of media and sports betting, potentially offering interactive experiences that merge live sports with real-time wagering.

Challenges Ahead

Despite the strategy, Diamond faces significant challenges. Streaming rights are expensive, and attracting viewers in a fragmented media landscape is no small feat. Major leagues like MLB have also shown willingness to bypass RSNs altogether, experimenting with direct-to-consumer platforms and league-run streaming services. For example, MLB took over production and distribution of Cincinnati Reds games after Diamond cut ties.

Competition from other streaming services, combined with the high costs of retaining sports rights, could strain Diamond’s resources. Moreover, as leagues increasingly value global reach, Diamond’s regional model may face limits in scaling its offerings.