In baseball, we talk about large dollar values all the time without stopping to think about their scope or scale. A ticket costs $100, a player earns $1 million, a team’s payroll is $100 million, and total MLB annual revenue is $11 billion. The numbers wash over us because we’re so accustomed to hearing them, but the basic rules of money that you learned in kindergarten should remain the same. If you have one dollar and a cookie costs two dollars, can you buy it? No.
This is a rule that the Sinclair Broadcast Group has forgotten. The broadcasting giant purchased Diamond Sports Group, which owns Bally Sports Regional Sports Networks (RSNs), from Disney in 2019. Now, as per Bloomberg, Diamond is heading to bankruptcy court and a messy $8.6 billion debt restructuring. Bally owns and operates 19 RSNs across the United States, 14 of which own broadcasting rights for MLB teams.* They also have a partial stake in Marquee and the YES Network—the RSNs for the Cubs and Yankees. That makes 16 clubs whose broadcasting rights are up in the air.
This will have real consequences for baseball fans, directly or indirectly. 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. We also don’t know the ramifications of missed or delayed payments from the RSNs to MLB franchises. Those teams surely won’t just eat the losses themselves. What we do know is that Sinclair saw this coming, and rather than taking steps to avoid it, they ensured a soft landing for their top executives.
The Killer B’s: Buybacks and Bankruptcy
Just like the death of Toys “R” Us was blamed on Amazon and the Internet marketplace, RSNs going bankrupt will be tied to cord-cutting and the decline in cable subscriptions. In fact, that yarn is already being spun. However, the number of American households paying for TV services has been dropping since 2014. It’s not a new or sudden phenomenon. Sinclair knew what it was up against when it purchased Diamond (and Bally) in 2019. The Bloomberg article states, “The company has about $585 million in cash on hand, as of September 30, but owes about $2 billion in fees to teams this year. Rights payments in the first quarter are usually the highest of the year.”
One would think the company would have been setting money aside to meet its financial obligations, just like we were taught in kindergarten. Instead, Sinclair spent $120 million on stock buybacks in 2022, and they’re authorized for another $704 million in future buybacks. This was immediately after completing a $1 billion buyback program from 2018-2021. The amount of money they invested in their own stock through the two buyback initiatives is a little more than the amount their subsidiary, Diamond, owes to teams for broadcasting rights. Now that subsidiary heads to bankruptcy court.
Why would a company prioritize buybacks over paying its bills? According to former SEC Commissioner Robert Jackson, it’s how C-level corporate execs cash out. Sinclair CEO Chris Ripley is undoubtedly in charge of the buyback initiative. He’ll pay himself a massive bonus of cash and stock options for executing the buyback. This actually comprises the bulk of Ripley’s compensation, believe it or not. His annual salary was “only” 1.3 million in 2021, but his total earnings for the year were $15.5 million. On top of that, the board of directors and shareholders are happy because buybacks give the illusion of success, causing a possibly artificial bump to share prices. Everybody wins!
…Except that the money for buybacks has to come from somewhere. Often, the company takes out hefty loans to fund them, saddling itself with debt which becomes unwieldy. This leads to increased prices or reduced services for customers, layoffs for rank-and-file employees, or even bankruptcy. That’s the real story of why Toys “R” Us went belly-up. Now Sinclair is severing a limb by letting Diamond collapse.
In industries that are too big to fail, the government intervenes with taxpayer-funded bailouts. That’s not going to happen for Diamond, which throws MLB’s RSN agreements—as well as the fans, team employees, and ballplayers who indirectly count on them—into peril.
Back to Baseball
Before we go any further, let’s get one thing crystal clear: MLB will continue to thrive financially even if they take a hit on RSNs. As mentioned above, overall revenue was just under $11 billion last year. Three years ago, FanGraphs’ Craig Edwards estimated that RSNs were worth $2.1 billion in total and that they grew by 8% per year. The pandemic surely threw those numbers off kilter, but it’s fair to presume they currently represent 20-30% of gross MLB revenue. Besides, MLB recovered from the pandemic to post record revenue in 2022. RSN loss is a much lower financial hurdle.
For half the league, their RSNs are still intact. For the other half, the bankruptcy proceedings will determine what settlement they receive. Some franchises might even benefit from this by getting out of long-term, below-market RSN agreements that they could now be able to renegotiate. Others might not land on such a soft surface and may take a haircut. At any rate, if there’s one thing Rob Manfred does well (loath as I am to compliment him), it’s negotiate lucrative media contracts. In the two days before the lockout ended, MLB announced streaming deals with Apple and NBC worth $115 million annually. There are 2,430 regular-season games per year—to say nothing of the playoffs—so there’s always more content to monetize. (Of course, no one knows if all 2,430 will be televised without Diamond’s RSNs or how much more money we’ll have to pay to watch them.)
Unfortunately, that doesn’t preclude MLB from crying poor. If history is any indicator, RSN uncertainty will give them an excuse to take out their imaginary financial frustrations on everyone in their blast radius. Let’s start with the fans. Very recently, Red Sox owner John Henry told fans that ticket price increases fund a higher player payroll, which, as Marc Normandin describes, is a flat-out lie. After all, ticket prices don’t go down when payroll decreases! But it’s a lie that MLB owners will continue to peddle, and now they’ll use loss of RSN funds to do so.
Next, we’ll move on to taxpayers. Franchises in MLB as well as other sports frequently demand and receive taxpayer-funded stadiums and arenas in which they run their for-profit enterprise. As shown by SB Nation’s James Dator, it’s a scam that never benefits or repays the taxpayers, but again, that won’t stop teams from using RSN money loss as an excuse to negotiate a better stadium deal from their city, county, or state. One of the MLB clubs whose RSN is part of Diamond is the Tampa Bay Rays, who are angling for a new ballpark. Expect the downfall of Bally Sports Sun to come up in stadium talks with elected officials.
Of course, this will affect team payrolls as well. The shifting RSN landscape could change the balance of financial power between some franchises. More front offices could set lower payrolls going into the 2023-2024 offseason to offset lower RSN revenue. In the nearer term, MLB and the MLBPA are negotiating a first-ever collective bargaining agreement for minor leaguers. It’s also worth noting that the MLB Umpires Association’s deal expires after the 2024 season. MLB will absolutely bring their RSN woes to the bargaining table, even if they won’t prove it because they don’t open their books in full.
Finally, there are the non-union, off-the-field staffs of each MLB team. To recuperate lower-than-anticipated revenue from RSNs, teams may reduce paid positions in any department, from scouting to sales to security. Other employees could be forced to work more hours and/or for lower wages. CBS Sports’ R.J. Anderson detailed what happened when the pandemic derailed much of the 2020 season:
The former senior member of an analytics department said that his team held several meetings in the weeks after the shutdown. Those calls featured higher-ups bemoaning the organization’s financial state, and explaining that the loss of in-market revenue — its most profitable arm — necessitated pay cuts and furloughs.
How much of this will come to pass? That will be determined in part by the bankruptcy courts, but mostly, it’s about how reasonably MLB responds to the changing RSN revenue world. It’s always possible they shrug it off and keep it separate from their dealings with fans, taxpayers, ballplayers, and employees, but more than likely, it will taint all of their business dealings for the next few years—regardless of whether it’s fair to do so.
Even as the ramifications of Diamond’s bankruptcy bleed into every facet of MLB’s business, keep in mind that Sinclair could have prevented this in the first place, but that option simply wasn’t profitable enough for them. They prioritized stock buybacks over baseball and, as usual, everyone below C-level suffers the consequences. But hey, here’s some good news! Did you know that Sinclair’s stock price jumped 42% from December 28 to January 26?
*Arizona, Atlanta, Cincinnati, Cleveland, Detroit, Kansas City, Los Angeles Angels, Miami, Milwaukee, Minnesota, St. Louis, San Diego, Tampa Bay, and Texas
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