MLB Won’t De-Value its Content to Save Diamond RSNs

MLB Won’t De-Value its Content to Save Diamond RSNs

The latest in the Diamond Sports Group saga suggests regional sports networks will ‘be around for a while’. That is good news for clubs across the NBA, NHL, and MLB, none of which could afford local broadcast rights revenues to go to zero, and by proxy the three leagues. A sudden loss of pay TV economics could have catastrophic downstream effects (think: competitive balance, team valuations).

But that doesn’t mean the 30+ clubs that call the formerly Bally’s branded RSNs home should expect to be paid as their contracts specify. Diamond has already renegotiated some of its pacts and it is believed the resurgent cable network operator will use its leverage over team partners to renegotiate the balance of the deals it views to be unfavorable. 

The NBA and NHL, largely quiet to date, appear content to preserve as much local broadcast revenue, for as long as possible. MLB is taking a different stance. League leadership has publicly stated it will not permit clubs to discount existing rights agreements to prolong a Diamond (or any other) RSN’s life.

They do not believe it is prudent to let another business’ financial problems de-value their content. The league would prefer to walk away from Diamond and negotiate cable carriage directly with distributors. Doing so would enable MLB to also ‘get out of the exclusivity box’ and offer an in-market DTC solution to cord-cutters and cord-nevers.

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Bankruptcy judges are widely considered to be amongst the most informed, competent, and powerful adjudicators within the judicial system. So, Diamond emerging from Chapter 11 would send a strong signal that regional sports networks remain viable businesses.

Sinclair’s problems were largely driven by the abundance of leverage on the business.

While the RSN business is still viable today, the cable universe continues to rapidly decline. At some point, the rights fees owed may exceed the revenues the networks take in. 

For now, rights owners remain best-off capturing the economics (and eyeballs) tied to the pay TV ecosystem. There is no better local distribution alternative.

MLB recognizes as much and is happy to ride the Diamond train until its wheels fall off…so long as its clubs are paid as contractually obligated. The league believes offering DSG discounts sends the wrong message to its other existing and prospective rights holders, and that doing so opens the door up to the RSN conglomerate coming back and asking for further cuts in the future.

And it’s not willing to accept that fate.

Instead, the league insists it will pull a given team’s linear television rights back, negotiate their local distribution directly with cable distributors, and open in-market streaming up to fans outside the pay TV universe. For context, it sold 20,000 plus digital subs in San Diego last season.

In essence, MLB would rather get going on what it believes will be the linear-digital hybrid model of the future.

That alternative is available to baseball because it has a digital solution in place. The league is already producing every game for MLB.tv too. So, it has much of the personnel and expertise needed to operate a series of one-team RSNs in-house.

MLB club owners have been publicly supportive of Manfred’s position to date. They saw the league continue to embrace the cable model in both San Diego and Arizona last season, and baseball remains confident that it will be able to successfully negotiate local pay TV distribution for its single team networks again this season (and beyond) too. 

Whether the local sports channels will be tiered in those markets (they were not in ’23), and how much the distributors are willing to pay for the rights remains to be seen. As of print, the league had yet to announce in-market deals for either team for the upcoming season.

It’s hard to imagine the league commanding much more for team rights than Diamond could. Remember, DSG has NBA and NHL teams on its channels too, which gives it some added leverage. 

And it’s not as if the remaining teams on DSG’s collective of regional sports networks are the ones most sought after by national advertisers (think: Angels, Brewers, Braves, Cardinals, Marlins, Rangers, Twins, Guardians, Reds, Tigers, Royals, Rays). 

If MLB is for some reason unsuccessful in keeping the teams’ games on pay TV, the impacted clubs would lose a large percentage of their reach (even if the RSN were moved to a premium tier). There would also be a dramatic drop-off in revenue–tens of millions of dollars. 20,000 digital subs only equates to ~$5 million in annual income.

The league backstopped clubs that left the RSN ecosystem last year. That isn’t going to be the case this time around. 

MLB could probably preserve the bulk of its teams’ contracted local rights revenues, and ensure the widest reach in-market, if it agreed to package digital rights with the linear ones. Distributors want to do more of what Charter’s doing with its own RSNs and the Disney national channels (see: tiering, creating new bundles).

MLB has resisted giving the troubled RSN conglomerate any more rights to date, and certainly not without further compensation. Issues with DSG aside, the league believes it can create a valuable in-market digital distribution system. 

And it might be able to. 

But its chances of doing so would be enhanced if it partnered with Diamond and distributors to marry the old system with the new one.

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