Bursting Bubbles
Happy Saint Patrick’s Day!
March is a wonderful time of year for sports fans. The NBA and NHL gearing up for the playoffs and the World Baseball Classic is underway. March Madness also began yesterday, and hopefully your bracket survives the first weekend, unlike mine. President Biden and I are both idiots that thought Arizona would go all the way. I hate Princeton and I hate the entire state of New Jersey. Jughandle left turns are dumb, but I digress.
You can turn to almost any channel on TV and find a sports game, but that could very well be changing shortly because of financial issues hitting regional sports networks. News broke earlier this week that Diamond Sports Group, a subsidiary of Sinclair Broadcast Group, has filed for Chapter 11 bankruptcy. Diamond Sports Group owns Bally Sports, which provides regional sports broadcast networks for 14 MLB teams, 16 NBA teams, and 12 NHL teams. The news comes on the heels of AT&T SportsNet, a subsidiary of Warner Bros. Discovery, also flirting with the idea of filing for bankruptcy later this month. Both Diamond Sports Group and AT&T SportsNet claim that all payments to the teams involved have been made on time, but they could not pay interest on previous debt and felt that bankruptcy was their only option.
In their respective offseasons, sports leagues that have salary caps determine how much they will allow teams to spend on player payroll. This salary cap number comes from a variety of factors, but chief among them is the revenue that the league and teams make. The more money that the league makes, the higher the salary cap will be. A large portion of the revenue that each team makes comes directly from negotiating broadcast deals for the right to air their games on television. If these broadcast partners are going bankrupt, this will have a very real impact on how much money is available for each team to spend. Unless of course the league itself steps in to mitigate some of these losses.
MLB has already announced its intentions to take over local broadcasts if these regional sports networks are unable to maintain their operations while in bankruptcy. By replacing the regional networks with MLB-owned broadcasts, the league could lose up to $1B in revenue. Some benefits may come out of this situation, such as the league exploring the possibility of getting rid of local market blackouts, but there’s no way to sugarcoat the potential loss of a billion dollars and what that may do to the sport at large.
Beginning during the pandemic, there was a premium placed on acquiring the rights to live sports. People were so starved for sports that there was quite an appetite for anything competitive, and live sports were seen as a way to combat cord-cutting. In the years to follow, sports gambling began to be legalized in numerous states. Sports bettors presented another potential audience that would be interested in watching games broadcast on your network. Therefore, it made sense at the time for Warner Bros. Discovery and Diamond Sports Group to acquire these regional sports networks. However, it seems clear that these business models are not nearly as profitable as expected and the companies are suffering as a result.
Between these regional sports networks going bankrupt and the collapse and rescue of Silicon Valley Bank and First Republic Bank, 2023 has been off to a turbulent financial start. Our economy isn’t set up to constantly bail out billion-dollar corporations, and sooner or later the dominos will start to fall and we may find ourselves in yet another recession or depression. There could be positives that come out of these failures and shortcomings, but it feels like more the start of the downfall rather than a small bump in the road to prosperity.
To keep myself from focusing too much on all of this, I’ll watch sports while I still can.