Today, Feb. 15, is both the opening of Minnesota Twins spring training and the day its television partner, Diamond Sports Group (dba Bally Sports North), missed a $140 million debt payment, setting off a grace period in which it is expected to file for bankruptcy. In this “breaking news” edition of my Media Matters column, I take a look at why it’s happening, what it means for Twins/Wild/Wolves fans, and how the future of local sports telecasts hangs in the balance.

What is Bally Sports and why is it in such trouble?

Bally Sports is a ($3 billion in revenue) network of 19 Regional Sports Networks (RSNs) that control the local broadcasts of 14 Major League Baseball teams and a roughly equivalent number of NBA and NHL franchises. It was previously known as the Fox Sports group. When Fox sold its 20th Century Fox entertainment group to Disney in 2019 (Disney owns ESPN), it spun off the RSNs to avoid antitrust issues with government regulators who might have deemed it too much concentration of sports broadcast market share.

The buyer was Sinclair Broadcast Group, the second largest local TV station owner in the country, mainly known for controversies related to how those stations cover news. Sinclair also owns cable’s Tennis Channel among other properties. Sinclair transacted the $10.6 billion Fox Sports purchase with over $8 billion in debt. So disabuse yourself of the idea this financial crisis is about cord-cutting, a corporate parent that doesn’t “get” sports, or MLB’s archaic broadcast blackout maps. It’s about over-leverage, pure and simple. $8.2 billion of it, to be precise. (In case you were wondering, Sinclair sunk $1.5 billion of its cash into Diamond Sports Group (DSG), so it will not walk away from this whole.)

Wait, so you’re saying Bally’s isn’t in trouble?

No, never said that, but it’s not a basket case.

In 2021 and for the parts of 2022 for which financials are available, Diamond Sports had gross profits in excess of $400 million. Meaning it’s not a distressed business when stripped of all that debt. Additionally, it’s continuing to sign market-rate renewals with sports franchises all over the country. Sports Business Journal reported this week that DSG just signed a rights deal with the NHL’s Tampa Bay Lightning and the NBA’s LA Clippers, New Orleans Pelicans, and Indiana Pacers. Additionally, according to Ben Clemens of the respected baseball website Fangraphs, as recently as 2021 DSG signed the Milwaukee Brewers, Kansas City Royals, and Miami Marlins to multi-year rights deals all worth north of $40 million a year, which are “in-line” with rights fees signed by Fox and other RSNs a half-decade ago. If the sky is falling for the value of these rights, it’s not evident.

That said, the RSN business is “significantly challenged,” said one sports executive I spoke to who didn’t want to be named. RSNs are almost exclusively distributed on cable and satellite TV and cord-cutting is a trend that is only growing.

So what’s going to happen in the short term?

A 30-day grace period will give Diamond a month to negotiate with holders of its debt and others stakeholders on a restructuring that will likely result in the group being purchased by a new entity not connected to Sinclair. A bankruptcy filing is expected by March 15. The question is whether it will be “packaged.” A packaged bankruptcy would involve DSG settling with its bondholders and sports team partners around the future terms of business and possibly even who will own the business, because Sinclair will lose control given its debt to equity ratio. Such a bankruptcy would provide teams a lot of stability, but Sports Business Journal reported that as part of its negotiations with MLB, Diamond was demanding streaming rights which MLB considers a non-negotiable “no.” (Diamond does offer streaming of many of its NBA/NHL teams.)

Lack of consensus with MLB might lead to a disorganized bankruptcy where Diamond basically throws itself on the mercy of the court and its creditors. At that point everything is up in the air, including all the recently signed rights deals, payments to teams, Bally’s ongoing broadcast operations, and the salaries of its employees. MLB Commissioner Rob Manfred told reporters today that if Diamond is unable to make scheduled payments to teams they will be free to terminate rights agreements with Bally, in which case the league-owned MLB Network will produce and distribute games for teams. But remember, this is a business that is cash-flowing, meaning someone will want it, free of all that debt.

What would those bankruptcies mean for the Twins?

Not much, initially. Twins President Dave St. Peter, who negotiates the team’s rights deals, told a Twinsfest audience that he was comfortable that DSG’s plight “is not a risk to short-term production and distribution of Bally’s broadcasts,” meaning the 2023 season. But Diamond’s troubles are happening at an intriguing time for the Twins, because its deal with DSG expires this year. The Twins are the only MLB team currently negotiating with Bally on a renewal and the industry is looking to those negotiations for a sense of what MLB’s intentions are.

Historically, MLB teams negotiated their own local broadcast rights, which represented the bulk of broadcast revenue its teams received. National broadcast contracts represented a small percentage of games and revenue relative to the NBA and NFL. That means teams receive wildly divergent RSN rights fees based on cable penetration rates, market size, and leverage. This is a component of why large-market MLB teams operate at such a revenue disparity to smaller-market teams. Some are suggesting that MLB would like to use the Diamond collapse as a pretext to take greater control of local broadcast rights and mitigate those disparities.

An unpackaged bankruptcy could allow all 14 MLB teams to abrogate deals with Diamond, though the Twins won’t need a court’s help, because their deal is up.

Unmentioned in all this is the fate of Diamond’s NBA/NHL broadcasts, with those seasons ongoing at the likely point of bankruptcy. There exists the possibility that those leagues could team up with MLB on a new broadcast platform or broadcast partner. Whatever happens, deals are now far more likely to be cut nationally because leagues realize they have a lot more leverage when negotiating for dozens of clubs instead of letting a local team negotiate for one. MLB recently hired ex-DSG executive Billy Chambers to a new role, specifically to manage local broadcast, telegraphing its intentions.

What are the Twins options if not Bally’s?

The Twins could simply bolt to one of the other existing RSNs, owned by Comcast or AT&T. But that’s less likely given the broad sense that the RSN model is broken. It’s well-known that younger viewers are less likely to invest in three-hour baseball telecasts, which is part of why baseball is so focused on speeding up its games. Research is also telling MLB that younger fans are less interested in teams than specific players (perhaps due to the rise of fantasy leagues and sports betting), which is causing the league to rethink how it packages its content.

The Twins have been known to have one of the less lucrative RSN deals in MLB because of the historically poor cable penetration in the region and the thinly populated catchment area in which the team’s fanbase resides. If for some reason MLB rights payments are impaired or tied up in court for months or years, the revenue impact on the Twins will be lessened relative to other clubs. Also, its ownership has the financial staying power to ride out a disruption, as it did during the abbreviated 2020 season.

The chaos in the broadcast landscape means all sports franchises which rely on RSNs are preparing for significant revenue disruptions. Fortunately, there are very few pro sport owners of such modest wealth that they rely on annual profitability or team income to keep the lights on. Owners tend to be meteorically wealthy individuals who remain focused on the long-term value of their asset. The assumption is that a decade down the road, when baseball’s distribution model is rewritten, that model will leave its franchises worth more, not less.

Major League Soccer, about to begin its 2023 season, has just left the RSN universe for a national streaming contract with Apple+, which will distribute all its games. What the model looks like for MLB—which produces twice the games of any other sport, just shy of 10,000 in-season telecasts—will probably be a mix of partners and products. But however you cut it, Diamond Sports’ impending bankruptcy will unleash a series of outcomes which will change the face of how we watch it.