If you're a Major League Baseball fan and watch your favorite team through a Comcast cable subscription, there's a good chance you awoke to an unpleasant new reality Wednesday.

"Bally Sports is no longer available."

This isn't just an MLB problem. Unless a new deal is struck, many fans of NBA and NHL teams who watch via Comcast are affected, as well. USA Today reported that Tuesday's Vancouver Canucks-Nashville Predators telecast on Bally Sports South was removed by Comcast at midnight ET, in the middle of the broadcast.

The news of Comcast's and Diamond Sports Group's split is a new development in the accelerating future of live sports on TV. Cord-cutting has removed revenues from a once-flush industry. Now, having a cord - Comcast's cord - doesn't even guarantee access.

Downstream, the cable disruption is affecting pro sports, too. Deals between teams and regional sports networks (RSNs) account for about a quarter of all MLB revenue.

Reports indicate the failure of negotiations between Diamond, which filed for bankruptcy more than a year ago, and Comcast is about Comcast's desire to move all Bally Sports channels to a more expensive and exclusive programming tier. Diamond wants to keep Bally Sports on the basic tier. Their most recent agreement expired Tuesday night.

To date, it's mostly been streaming players like YouTube TV and Hulu that have balked at the RSNs' carriage fees. The streamers have kept their bundles skinnier and cheaper - that's their strategy. But now Comcast, the second-largest traditional cable operator, is shedding the largest RSN player.

"Even the distributors that are seeing success - namely YouTube TV - are doing so without RSNs," said Alex Morris, a media equities analyst with TSOH Investment Research. "There are also ways to access out-of-market packages for most leagues without a linear TV subscription. Fragmentation and competition, in combination with rising costs, have led to an untenable situation."

Traditional cable companies like Comcast have stuck with RSNs in part because local live sports have helped keep the bundle afloat. Even as customer bases have shrunk, live sports ratings remain steady. But as cord-cutters depart, they've passed along the cost of carrying RSNs and other specialty channels to fewer subscribers. Meanwhile, content costs haven't decreased. Those increasing cable bills place more and more pressure on existing customers, even those who love sports.

To stay afloat and try to slow subscriber losses, Comcast is now tossing some of its most precious and heaviest cargo overboard: live, local pro sports.

Meanwhile, YouTube TV is growing and recently surpassed 8 million subscribers. It's on pace to become the largest pay-TV provider by 2026, according to Michael Nathanson of New York media research company MoffattNathanson.

"There is still plenty of live sports without RSNs, and they don't really have any of games that actually matter - playoffs, championships, etc.," Morris said. "So in terms of where to save money on sports, (RSNs) are the clearest target. Also helps that YouTube TV has been the clearest winner of the past few years despite shunning RSN deals."

Comcast's loss of subscribers has proceeded unabated since the end of 2018. With 13.6 million subscribers reported in the first quarter this year, that's a 38% drop in less than six years.

Fans of the Minnesota Twins, where Comcast and a Bally Sports RSN intersect, took to social media Wednesday to express displeasure with the Twins' decision to have their games air on Bally Sports. Fans were unable to watch Wednesday afternoon's game against the Chicago White Sox.

Before the season, the Twins, Cleveland Guardians, and Texas Rangers signed one-year deals with Diamond Sports at reduced rates to keep their games on their Bally-branded RSNs for 2024. Diamond had threatened to cut ties completely as it looked to shed costs in bankruptcy court.

Diamond is due back in court June 18 for approval of a reorganization plan that's intended to provide something like short-term life support.

As Diamond entered bankruptcy court last year, MLB officials were bracing for the 11 remaining teams tied to Diamond RSNs to be scrambling to find new distribution methods. That fear was avoided for at least one more year.

Still, a future without Diamond Sports Groups - or perhaps any cable RSN - seems more and more inevitable for MLB, NHL, and NBA clubs.

No single, sustainable model has emerged to replace the lucrative cable bundle. It was the golden goose and it's just about cooked.

The good news for fans is that this may be the end of local blackouts, as rights revert back to clubs. The bad news for players and club owners is finding ways to match today's revenues in that new TV future.

While it's possible Comcast and Diamond work out a new deal, the math is becoming more difficult for each party. It seems possible more traditional cable providers follow Comcast.

At the end of the day, fewer and fewer sports fans will be able to watch local games.

That's bad for fandom.

That's bad for business.

That's an untenable situation.

Travis Sawchik is theScore's senior baseball writer.

Copyright © 2024 Score Media Ventures Inc. All rights reserved. Certain content reproduced under license.

This reckoning has been on the horizon for a while: 2024 is setting up to be the year the decades-old models of delivering sports broadcasts to people's homes undergoes a stark change.

Sinclair Broadcast Group announced in a Texas court in mid-November its intent to shut down its bankrupt subsidiary, Diamond Sports Group, which operates 17 regional Bally Sports networks across the U.S., at the end of 2024. "Diamond’s business is going to go away," Sinclair lawyer David Seligman told the court.

Diamond is the largest operator of regional sports networks (RSNs) in America, holding local broadcast rights for 39 teams in the NBA, MLB, and NHL. That's 42% of all live local sports TV inventory, not counting national rights. It filed for bankruptcy protection in March when it could no longer pay interest on its $9 billion in remaining debt from the purchase of 22 Fox Sports RSNs in 2019.

While Diamond is trying to stay afloat for another year, the math and consumers' cord-cutting habits are working against its survival.

At its peak in 2014, there were 100.5 million cable households in the U.S. At the end of the second quarter of this year, there were an estimated 61 million. This past summer, for the first time in the TV era, fewer than half of U.S. households watched TV via broadcast or paid cable.

In the third quarter, Comcast, the largest cable provider in the U.S., reported it shed 2.1 million of its cable subscribers - 12.5% - in the past year.

Earlier this November, the NBA struck a deal to have Diamond relinquish its outstanding local rights for 15 teams at the end of this season. In return, the NBA and those teams agreed to lower payments from Diamond for this season. The NHL's pursuing a similar deal. Diamond is attempting to keep 10 of its remaining 12 MLB clubs for 2024, and one industry source said relinquishing those rights after next season is on the table.

Diamond's struggles are an inflection point for live sports TV. It seems to be a matter of when and not if the entire RSN model falters. Earlier this year, Warner Bros. Discovery (WBD), the No. 2 RSN player, announced plans to sell its remaining RSNs by the end of this year.

It was an alarming acceleration to many equities analysts like Alex Morris, who owns TSOH Investment Research. Morris researches media companies like Disney and Comcast.

"I do wonder how much this is going to change, or has already been changing, what it means to be a sports fan," Morris told theScore. "How much are people going to seek out games when they can go watch a new TV show or movie on their own schedule, versus chasing down some local RSN, who wants you to pay $19.99 a month.

"The world has just kind of changed, particularly for sports with an excessive amount of (games) and where most regular-season games are of limited importance to the postseason."

By the end of 2024, there will likely be a wave of live TV sports rights hitting the market not seen since the New York Islanders pioneered the cable model in the early 1980s. Additionally, the NBA's national broadcast rights end after the 2024-25 season, and several networks and streamers are lining up to get a piece of that valuable property.

Will tech giants take over? Will direct-to-consumer models be viable? Can something like the cable bundle be recreated so teams in the same market are not competing against each other for subscriptions?

Those questions will play out across three leagues, and they have wide-ranging implications for how we watch, and for the bottom lines of those franchises.

"Follow the technology. Technology doesn't go backwards," said Greg Bouris, director of the undergraduate sports management program at Adelphi University, who previously worked for SportsChannel and for pro teams. "We watched the evolution of this industry grow from newspapers, to radio, to TV, to cable TV. And that was the one that changed everything, that placed the industry on a whole other trajectory: regional sports networks.

"It's going to be a different world."

The NBA gets the first crack at determining what that world looks like, with its national rights up for bids and half its teams' local rights being reclaimed from Diamond following the season.

It'll be the first time an array of rights for one league come to market since streaming overtook cable as the primary way consumers watch video.

"It gives the NBA more flexibility," Bouris said. "Having teams have their local rights expire at the same time their national rights (expire) gives them at least more decision-making power in how they want to dole out those rights."

On the national side, the NBA is reportedly looking for two to three partners and is interested in streaming platforms. The league's current rights holders, ESPN and TNT, have an exclusive negotiating window that opens in March, but tech giants like Apple and Amazon are also reportedly interested.

The tech giants' robust balance sheets give them an edge over traditional TV networks. The NBA could become the first major North American pro sports league to have a majority of its national rights streamed.

Perhaps what's more interesting - and troubling for leagues - is what happens to local rights, which face far more uncertainty over how they'll be distributed and who'll pay for them, Morris said.

Bill Koenig, the NBA’s top media executive, told Sports Business Journal the league will pursue a "hybrid" approach with teams being freed from Diamond.

The plan would entail selling traditional linear cable rights in markets impacted by the RSN implosion and then packaging all the streaming rights to sell to one company.

A similar approach was employed by MLB in 2023. The San Diego Padres and Arizona Diamondbacks were forced to find new cable homes in their respective markets in the middle of the season when Diamond relinquished the rights. Their games were also streamed direct-to-consumer. Fans had the option to buy in-market Padres and D-Backs games for $20 a month on MLB.TV.

MLB guaranteed the clubs 80% of revenues they were set to receive via TV in case there was a shortfall, and commissioner Rob Manfred said recently no such financial support was needed.

However, MLB is no longer offering a backstop guarantee of revenues, and Manfred said the league is prepared and able to take over broadcasts of up to 16 clubs in 2024.

A hybrid approach can work in the short term because it allows ratings to remain stable with the mix of viewers in linear TV and streaming.

The good news for baseball is there were 402 million combined viewers (96,000 per broadcast) tuning into MLB games on cable in 2022, according to viewership data obtained by theScore - more than double the total local viewership of the NBA on cable.

The not-so-great news: fewer people are paying for cable TV packages, which means there are fewer subscribers paying for bundles that may contain channels like an RSN they don't watch. That was the magic of cable bundles for a long time. There was no itemized list in a consumer's bill showing they paid, say, $7 for Bally Sports.

Those subsidizing viewers are departing and those who remain are aging and taking on a greater share of the bill, all while programming costs and rights fees have continued to increase.

Morris has tracked Comcast programming costs for a decade. In that time, the cost of content increased from $30 per subscriber in 2014 to $75 this year.

"If we priced paid TV at $75, Comcast is just covering their programming costs, let alone everything that is involved for running the MVPD (multichannel video programming distributor) business," Morris said. "It just speaks to that continuing trend, and it becomes a cycle of: are you willing to pay $60 to watch your favorite sports team? How about $75 or $80? How about $100? The numbers just keep moving the wrong direction, particularly when compared to what you can get with some combination of DTC (direct-to-consumer) services at a much lower all-in price." (Like ESPN+, Max with BR Sports, Peacock, and Paramount+.)

The hybrid model can sustain such a cycle for only so long.

The implosion of RSN models leads to one very important question regarding local broadcasts.

"You have a question of how many fans are die-hard versus how many are not," Morris said. "If you force people to actively choose to seek this stuff out, spend a lot of money, you're going to really screen for the die-hards."

The Rockets and Astros in Houston teamed up to buy AT&T SportsNet Southwest from WBD and rebranded it Space City Home Network. The clubs now have to figure out how to replace the combined $120 million in rights fees they received from WBD.

Consider the Padres' situation. After MLB took over the club's broadcasts on May 30 when Diamond relinquished rights, 18,000 in-market subscriptions were purchased to stream Padres games via MLB.TV.

While that number would be higher if games weren't also being offered on a specially created local cable/satellite channel, Morris and Bouris both said we're learning how difficult it is to convert cable subscribers into buyers of DTC platforms specifically for sports.

Diamond testified in bankruptcy court in May that it had only 200,000 total streaming subscribers across all its in-market teams.

But if linear cable disappeared tomorrow, it's difficult to believe streaming Padres games would come close to matching the revenue generated from the 20-year, $1.2-billion contract the Padres had with Diamond.

"I don't see anybody, really, coming out and telling me how to replace it," Bouris said of RSN cable revenues.

Manfred conceded to reporters during the postseason that streaming "doesn’t have today the same robust economics that the cable bundle provided as an exclusive source of distribution. But my own view of the world is … the (cable) distribution may be smaller going forward, and we’re gonna put with it that digital option that gives people more flexibility, more reach, and is better for fans overall."

MLB teams are responding to that uncertainty this offseason with some of their roster decisions. Cleveland Guardians president of baseball operations Chris Antonetti said part of the reason the club designated Cal Quantrill for assignment (and then traded him to Colorado) is that it's leery of paying him an estimated $6 million in arbitration because of concerns about TV revenues.

The Minnesota Twins, another Diamond team whose local TV future is up in the air, stated they'll operate with a smaller payroll next year despite reaching the playoffs this year.

There are some players who believe there's too much doom and gloom in the media about TV revenues, and that MLB clubs are using Diamond's implosion as cover to reduce spending. While it's difficult to know if teams are overstating the issue for 2024, the uncertainty about what the future looks like is real.

Baseball is particularly vulnerable in the future of sports TV, because its national rights don't command nearly the same dollars as the NFL or NBA.

The NFL's national rights went for 11 years and $110 billion in 2021. Amazon is paying $1 billion annually to stream Thursday Night Football, suggesting there's plenty of streaming money for the league should it need to shift more games there.

The NBA is seeking $75 billion from its next multi-year national rights deals, a significant jump from the nine-year, $24-billion deals that expire at the end of next season.

MLB's current deals cover seven years and combine for $12.5 billion.

One rival league executive told me MLB faces two issues: its product has become more regional, and it lacks star power that bidders for national rights desire.

MLB is much more driven by volume of TV inventory, and Morris said that's challenging in this new era.

"The leagues with a massive volume of games are losing, in my opinion, to other forms of entertainment, time consumption," Morris said. "So how do you price and package that to drive a lot of viewership and interest?

"It makes me wonder if you are better off selling a higher-priced - say, around $100 per season - service to super fans, or, if you're better off with a model like what ESPN+ has with the NHL for its out-of-market games. All 26 million ESPN+ customers have access to the out-of-market package without paying an incremental fee, which likely helps with viewership.

"Overall, it's a difficult question to answer, particularly when trying to balance the dual objectives of viewership fandom and financial considerations. The competition for eyeballs is becoming more intense over time."

Ideally there will be more concentration on platforms, too. Morris notes there was a five-day stretch last season where five New York Yankees games were broadcast on four different platforms.

Ideally, Bouris said, a third party would step in and cut MLB guaranteed checks for all those local rights and end regional blackouts.

Morris and Bouris both think one plausible long-term home at the moment for much of these live sports rights is Google's YouTubeTV, which, like Hulu, is a streaming version of cable that carries many of the same channels. YouTube also recently ventured into live sports in a big way by purchasing the NFL Sunday Ticket out-of-market package. And unlike Netflix, YouTube generates most of its revenue through advertising instead of subscriptions, perhaps better positioning it for live sports.

It helps that Google's parent company Alphabet holds the most cash ($120 billion) and least debt ($13 billion) of any company in the live sports game.

Morris said delivering better advertising monetization will be key for the new model. It can be a long-term tailwind for all live TV sports. Not only are more viewers transitioning to streaming over time but ad dollars are following them. Ad dollars spent on so-called connected TV have risen from $6 billion in 2019 to $20 billion this year to a projected $41 billion by 2027.

"That competition to win subscribers has ratcheted up content cost," Trade Desk CEO Jeff Green said in the company's recent third-quarter conference call. His company helps connect ad buyers with ad inventory. "Higher content costs mean raising prices or finding some way to raise revenue per user if media companies were going to continue to feed their content engines with a similar rate as before. Every premium video content company from Disney to Paramount to NBCU and Sky to Netflix have changed pricing and embraced advertising.

"More and more live sports inventory, perhaps the crown jewel for most streaming providers, is opening up for programmatic (ad) buying on our platform."

The ad tailwind could be massive for live sports and streamers in the coming years.

While there figures to be short-term economic pain for some markets and leagues, there is long-term opportunity. After all, pro sports leagues hold monopolies on fan interest and the goodwill and nostalgia built up among supporters.

What that future looks like will play out in the coming months and years, but there's no doubt we're accelerating to a new world of live TV sports.

Travis Sawchik is theScore's senior baseball writer.

Copyright © 2023 Score Media Ventures Inc. All rights reserved. Certain content reproduced under license.

Less than four years ago, Sinclair Broadcasting purchased Fox Sports' regional sports networks (RSNs) from Disney for $9.6 billion. Funded by debt, Sinclair spun off a subsidiary called Diamond Sports Group as the owner.

Late Tuesday afternoon, severely underwater because of that debt burden and rapidly changing patterns in people's TV viewing habits, Diamond filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Southern District of Texas.

The filing was expected and came less than a month after Diamond defaulted on a $140-million interest payment to its creditors.

But what does this mean for Diamond, the teams for which it holds broadcast rights, and fans of those teams? The new baseball season is only two weeks away, while hockey and basketball are in the regular-season stretch drives.

To help understand what this filing means and what happens next, theScore spoke with former Las Vegas bankruptcy judge and Northwestern University bankruptcy law professor Bruce Markell.

"What Chapter 11 allows is for a company to keep operating while it is negotiating how to divide up its value, and it does that through the automatic stay," Markell said.

The automatic stay is perhaps the most powerful tool afforded to the bankrupt company. The protection allows Diamond to maintain its assets, most notably its TV sports rights, to keep its business afloat as it attempts to figure out a way to pay its creditors, reduce its expenses, potentially raise more cash, and fulfill, amend, or shed their TV contracts with clubs.

"Once you file bankruptcy, no one can take any action to collect a debt against you unless you go get court permission," Markell said. "The goal of Chapter 11 is for there to be a plan of reorganization, which is a document detailing who gets what, and who does what."

The automatic stay also means that creating that plan takes a while to play out. "Dealing in bankruptcy, a lot of times, is getting used to watching slow-motion crashes," he said.

Diamond said in a statement on Tuesday that it expects to work out a restructuring agreement that will allow it to become a standalone company. Diamond said its top-tier secured creditors will not lose anything in the deal, while secondary and unsecured creditors will wind up with an equity stake in the new company.

Markell suspects Diamond's case will need at least six months for a reorganization plan to be finalized, which would take us through the entire MLB regular season.

That means lights are not at risk of going out, at least not immediately, on Bally RSN channels in most affected markets this baseball season. The situation in Cleveland, Cincinnati, San Diego, and Arizona is a little more muddled, but more on that later.

Most Bally broadcasts could very well go on as usual throughout the season.

"Lots of companies file Chapter 11 and go on their merry way working on their debt without anyone really noticing," Markell said. "Sears filed Chapter 11. GM filed Chapter 11. Chrysler filed chapter 11. Schwinn Bicycle filed chapter 11. Even Chuck E. Cheese filed Chapter 11.

"The moment you shut down the business, you lose so much value, and it costs so much to start up again with so much uncertainty. The (reason) why you have Chapter 11 is to reduce the loss in value among the stakeholders."

Even if MLB wanted to take back all the rights that Diamond holds, the Chapter 11 protection means the league cannot do that.

"Even though the contract itself might say, 'If you don't pay we terminate' ... you are stayed from doing it," Markell said. "(MLB) would have to get court permission to do that, and a court is not likely (to award that), especially in the early stages of a case.

"When I was a judge (from 2004-13), people would say, 'Well, they didn't pay me!' I'd say, 'Well, look around. This is the land of broken promises.' Everyone in bankruptcy has not been paid in one way or another, so that's not a particularly good argument to make in terms of why you should be able to take back rights, or exercise rights, because bankruptcy is where that all gets worked out."

Making this situation more complex is the collection of different rights that Diamond holds. It has broadcast and streaming rights to all 16 of its NBA clubs and 12 NHL teams, but it only holds streaming rights to five of the 14 MLB clubs that it has cable deals with. The nine other MLB clubs own their own streaming, in-market rights.

MLB cannot stream in-market games where Diamond holds cable-only rights because of the exclusivity of its broadcasting rights, a league source confirmed.

"The idea is to get the rights back and have an option available for linear and also for streaming (in-market)," the source said Tuesday. "And to do that kind of across the board as a model of the future. It's going to take a little while to get there."

MLB is concerned about the current erosion of its overall reach, the league source said. It's not just because the U.S. cable subscriber base declined from a peak of 100 million in 2014 to 70 million at the end of last year but because Diamond has failed to reach agreements with a number of cable and satellite providers to carry its RSNs.

The league source said the concept of eventually having more centralized control over local, in-market options and to combine those with out-of-market games on the existing MLB.TV streaming platform or a third-party distributor has been discussed at owners' meetings.

"Exactly what that is going to look like, and the options available, I think is TBD at this point, but that is the general idea ... using our MLBTV service to eventually have that in-market option," the source said. "As a longer-term matter, we also see it as a solution to the blackouts, which for years has been a thorn in our side."

But first, MLB must wait on Chapter 11 to play out with Diamond. It will take time to cobble together rights for a robust in-market, direct-to-consumer product. And Diamond and its creditors might not want to surrender all rights.

Chapter 11 provides another big help beyond the protection of assets: Diamond can cherry-pick the assets it wants to keep, or "assume" in legal language, and the assets it wants to shed, or "reject."

That usually means hanging on to the most valuable or profitable assets and cutting ties with the least profitable.

Josh Kosman of the New York Post reported Diamond intends to reject the cable rights for the Cleveland Guardians, Cincinnati Reds, Arizona Diamondbacks, and San Diego Padres.

Fully relinquishing those rights via Chapter 11 still requires court approval, since creditors are also represented. But Markell believes that ought to be "fairly easy" to accomplish with both sides likely agreeable to that plan. Still, even if the paperwork was filed immediately, he estimates a court hearing would not be arranged for about 45 days.

Assuming those rights are relinquished sometime early this season, those four clubs' games could be streamed in-market on MLB.TV, and teams could also deal directly with other broadcasters to find an in-market television home. MLB commissioner Rob Manfred has said such a scenario will result in a revenue hit for clubs.

MLB released a statement Tuesday night, assuring fans it intends to broadcast games in any market where cable broadcasts are disrupted, saying it is "ready to produce and distribute games," and has hired additional "media professionals" to help fill in potential voids with broadcasts personnel.

The expected contract rejections are potentially similar to the situation with the AT&T Sportsnet and Root Sports RSNs, which hold the cable rights to four other MLB clubs - the Pittsburgh Pirates, Colorado Rockies, Seattle Mariners and Houston Astros, as well as NHL and NBA teams.

AT&T Sportsnet's parent company, Warner Bros. Discovery, is exiting the business of live sports and is spinning off its RSNs on April 8. It's negotiating to return those rights to the clubs, but if it cannot, another bankruptcy filing is likely.

What that means is eight MLB clubs could take back their cable rights and be without a guaranteed linear cable home at some point this season - but the games would at least be available to stream on MLB.TV.

As for Diamond, even if it can emerge from Chapter 11 holding its more profitable RSNs, it won't exactly be in great shape.

According to their last public financial filing through Sept. 30, Diamond had $9.1 billion in outstanding liabilities on the balance sheet against $4.4 billion in total assets. It said in its statement Tuesday it has about $425 million in cash.

The cord-cutting trend is also picking up pace. Comcast, the largest cable provider in the U.S., reported subscriber losses of 11% in 2022. Borrowing money is also more expensive in this environment of higher interest rates.

"They've yet to be able to present a plan that makes us feel confident there is a way out for them," the league source said.

How it ultimately ends, Markell said, includes a wide "variance of recoveries" of dollars lent and owed.

"The rule in bankruptcy is owners (in this case Diamond and Sinclair) do not take anything until creditors are paid in full, that means the full $9 billion," Markell said. "Some Chapter 11s will pay 100 cents on the dollar (of debt and contractual obligations). But there are few of those.

"What's going on now, I imagine, is lots of negotiations where Sinclair and Diamond are talking to primarily the bondholders and the sports teams and saying, 'Listen, our business model doesn't make sense anymore. We cannot pay you what we used to,'" Markell said. "For you and I as consumers, that's usually deadly.

"For businesses (saying), 'We can't pay you,' the next question is, 'What can you pay us?' And that's what they are working out now ... and that's usually a back-and-forth negotiation. 'Pay us less now or pay it up on the back end,' or, 'Give us some equity in the business.' All sorts of negotiations are on the table.

"(In Chapter 11) you are reorganizing expectations as much as you are reorganizing debts and liabilities."

Ultimately, club owners and Diamond creditors will likely take hits in the short term while MLB and the other leagues figure out how to pivot to a new model to deliver games to fans.

"All cases are unique, but there's always a pattern: There is a business, but the pricing is off," Markell said. "Someone is going to make money by bringing visual games to people who want to sit on their chairs in their house and watch. The question is, how do you do it?"

Travis Sawchik is theScore's senior baseball writer.

Copyright © 2023 Score Media Ventures Inc. All rights reserved. Certain content reproduced under license.

Even a year ago, when theScore published an extensive series exploring the future of televised live sports, predicting how - and how quickly - it would change was challenging. Signs pointed to a drastic upheaval as cord-cutting altered the old landscape. Those forces placed tremendous pressure on the cable ecosystem.

In the last year, a major tentpole, the Bally Sports group of Regional Sports Networks (RSNs), has faced strong headwinds that could topple it. That could have far-reaching implications for the entire cable TV ecosystem and the business of sports itself, including franchise values, player salaries, and competitive balance.

On Wednesday, Bloomberg's Gerry Smith, Erin Hudson, and Rachel Butt reported that Bally Sports' RSN group is headed toward bankruptcy court, where it would seek to restructure $8.6 billion in debt.

The Sinclair Broadcast Group subsidy controls the greatest share of MLB, NHL, and NBA local television sports rights in the U.S.

Bloomberg reported if the Bally Sports properties file for bankruptcy, it could "potentially put at risk crucial broadcasting-rights revenue for the likes of MLB" and other major North American pro sports.

"You're looking at a potential rewrite of the entire regional sports business on the other side of this restructuring," Davis Hebert, a senior telecom analyst at CreditSights, told Bloomberg.

Sinclair's Diamond Sports Group subsidiary, which holds the Bally Sports RSNs, took on billions of dollars of debt to purchase the slate of Fox Sports RSNs from Disney in 2019 after Disney acquired 21st Century Fox properties.

But cord-cutting accelerated after the deal. It was the epitome of poor timing - or lack of foresight.

On Thursday morning, Comcast, the largest U.S. cable provider, reported that it lost about two million cable customers in 2022, about 11% of its total year-over-year customers.

At its peak, U.S. cable providers had 100.5 million subscribers in 2013. It's estimated to have fallen to around 70 million at the end of 2022 once all the fourth-quarter numbers come in. Total cable subscribers are expected to decline to around 65 million by 2025, a conservative estimate.

The local cable model helped fuel growth in MLB, NBA, and NHL since it emerged in the 1980s with the trailblazing New York Islanders' deal with Cablevision. It served the cable companies, the networks, and the teams well because cable companies charged everyone the RSNs' carriage fees, even if they never watched the product.

As consumers make different choices in the streaming era, the cable model is in free fall.

Ad dollars are also migrating to streaming, where there's a greater return on investment because digital ads can be more targeted to individual viewers.

"It's been a golden goose. You remove cable TV from the scenario, and franchises are worth a fraction of what they are today, players make a fraction of their salaries," Greg Bouris, a sports management professor at Adelphi University and a longtime observer of the sports cable space, told theScore last year. "This boom has been going on for almost 30 years. But the vast majority of people that pay never watch. That's been the model."

What comes next? MLB appears to be at the forefront of the exploration. The league recently hired Billy Chambers, a longtime RSN executive, to fill a new role as executive vice president of local media, Sports Business Journal's John Ourand reported earlier this month. The last part - "local media" - is key.

SBJ said Chambers' role will be "to figure out what to do with its regional media rights, as the market for RSNs continues to crumble."

For decades, MLB, NBA, and NHL teams have sold their individual rights to RSNs that distributed games on linear cable. Now, MLB is signaling an intent to get more involved with controlling and distributing its teams' local rights.

MLB could potentially roll those local in-market games into its existing direct-to-consumer MLB.TV product, which already shows all the games but only for out-of-market fans. If Bally Sports were to fail to pay any of its rights fees, those rights could revert to the clubs.

SBJ reported that MLB executives believe they can gain control of the rights from the Bally-branded networks, as well as from Comcast and Warner.

Chambers will start his new role on Feb. 1.

But launching a direct-to-consumer operation can be expensive.

For instance, Disney predicts its direct-to-consumer offering of Disney+ won't be profitable until next year despite its large inventory of pre-existing intellectual property and more than 100 million subscribers.

Comcast reported it lost $2.5 billion on its Peacock streaming service in 2022 and projects to lose another $3 billion this year.

Perhaps the greatest challenge of going to a direct-to-consumer model is you have to compel consumers to actually subscribe - and keep them once they do. But this great unbundling of teams from local RSNs could be good for the consumer since it figures to force teams to put a better product on the field, court, and ice.

"This is the great thing about media: competition is good. It usually works in the favor of the consumer," Ashutosh Gangwar, general manager for TV partnerships at The Trade Desk, a digital advertising platform, told theScore last year. "If your product is shitty, and you are relying just on the distribution to cut you a check every month, you need to look at your product. I won't go into one specific league, but it will provide the incentive for these guys to have better consumer experiences, a better connection to the consumer, and understand what they want versus what they have produced."

If RSNs tied to cable are unable to survive or pivot to streaming quickly enough, it's not just the leagues that could pick up the pieces. Selling rights to third-party streaming distributors is an option, too.

MLB has signed such deals with Apple TV+ (Friday nights) and Peacock (Sunday afternoons). There's major interest from tech giants to pick up live sports content to build out their streaming offerings.

As the king of the sports landscape, the NFL hasn't had to lean on a direct-to-consumer product for major revenue but is selling more and more of its content to streaming outfits.

Amazon bought Thursday Night Football rights for $1 billion a year, and Google, via YouTube TV, bought the NFL Sunday Ticket product at a price tag of $2 billion per year.

The other leagues have different levels of negotiating power.

Consider that when MLB signed a new content deal last year to replace its previous deal with ESPN, the new agreement split roughly the same inventory of games among three partners - ESPN, Apple TV+, and Peacock - for $35 million less than ESPN had previously paid (about $700 million per year). That's still a lot of cash but a rare decline in what has been a golden age for broadcast rights. In the new deal, ESPN only retained about 40% of the games it had previously shown.

It's hard to imagine a day when the games won't be televised, and we'll still watch, but that ecosystem appears to be on the cusp of changing dramatically.

Travis Sawchik is theScore's senior baseball writer

Copyright © 2023 Score Media Ventures Inc. All rights reserved. Certain content reproduced under license.

In the late spring of 1998, Cleveland's Major League Baseball team attempted something never done before in the league: It went public.

With an initial public offering on the NASDAQ exchange, anyone could buy a small slice of the franchise.

The club traded under the ticker symbol "CLEV." Cleveland joined the NBA's Boston Celtics (ticker: BOS) and the NHL's Florida Panthers (PUCK) as the only publicly traded North American pro sports franchises.

Cleveland was coming off a World Series appearance and was selling out Progressive Field for entire seasons. On June 4, 1998, when the stock debuted, the entire allotment of 4 million shares was sold within an hour of the opening bell. The shares debuted at $15 apiece, raising some $54 million after fees for late owner Richard Jacobs, who sold about half his stake in the club but retained voting rights and control.

"I'll find a good use to put it to," Jacobs told the Cleveland Plain Dealer of the cash. "I'm pleased with the acceptance of the offer by institutions and fans."

Jacobs hoped to diversify the club's revenue streams through media and real estate endeavors.

Today, the Guardians, Celtics, and Panthers are all under private ownership. Cleveland's baseball team was publicly traded for a little more than a year until Larry Dolan bought it in November 1999. Shareholders who held CLEV stock were paid $23 per share. The Panthers were purchased by an investment group in 2001. The Celtics were taken private in 2002. That was the end of the direct-listing era of publicly traded North American pro teams.

One can buy indirect stakes in the Atlanta Braves or Toronto Blue Jays through their parent companies, Liberty Media (BATRA) and Rogers Communications (RCI), or in New York Knicks and New York Rangers stock through MSG Sports (MSGS), but there are no longer any North American-based sports franchises listed on their own.

There are a few European soccer clubs, like Manchester United (ticker: MANU) whose shares can be purchased on public markets. The Green Bay Packers are owned by shareholders but shares of the team are not traded on the stock market.

So why don't we see more sports teams go public, at least in a limited fashion? Many fans would love to buy shares in their favorite teams like the San Francisco Giants or Dallas Cowboys.

In this age of record retail trading, with millions of new individual investors opening brokerage accounts and actively trading on apps and elsewhere, there is likely even more demand for pro sports stocks than in the 1990s. Teams could be the new meme stocks.

Team owners often claim they are struggling to turn a profit. They could raise hundreds of millions of dollars by selling off a portion of their clubs at a time of record valuations for many asset classes, including sports franchises. A record number of companies went public in 2021 taking advantage of market conditions.

When MLB commissioner Rob Manfred said last week that MLB owners would be better off to invest in the stock market instead of major-league teams, numerous fans stated on Twitter that they would be happy to transfer funds from their 401(k) to invest in baseball clubs.

Wouldn't fans rather trade in actual shares of the Yankees and Dodgers than NFTs? Fans would likely gobble up shares even if they were owned more as souvenirs than in hopes of ballasting their retirement accounts.

So why isn't this happening?

For starters, MLB introduced a rule in 2017 that prevented a club from going public. The Braves and Blue Jays were grandfathered in.

An industry source familiar with the rule told theScore, "It was decided that having a public company own an MLB team did not mesh with our rules concerning having a controlling owner who has ultimate authority and responsibility for making (team) decisions."

Similar to MLB, the NFL prohibits public ownership, and the NBA and NHL have requirements that make it difficult to go public, according to Stephen Dodson, a portfolio manager for the San Francisco-based Bretton Fund.

Moreover, despite the lofty franchise values that pro sports enjoy, Dodson said Wall Street is not overly enamored with the prospect of investing in sports teams.

"A sports team is almost always worth more to a very rich person than it is to a company who only cares about its cash flows," Dodson said in an email interview with theScore.

"Sports teams are a bit of a vanity asset, like owning a Picasso, and the highest bidder is going to be a very rich person who wants to own the team so they (can) call themselves an owner of a sports team."

Growth opportunities are limited for most sports teams because they are largely still tied to local and regional revenues. Only the most iconic brands could hope to open up revenue streams nationally or globally.

Bill Miller, a financial journalist, said at the time of Cleveland's IPO, "The Indians can only sell ballgames in one spot, and that's Cleveland."

Even the club acknowledged this in its prospectus filing with the U.S. Securities and Exchange Commission. "The Company's management believes that much of the Club's local revenue potential has been realized and that future increases in the Club's revenues, operating income and net income, if any, are likely to be substantially less than those realized over the past five years."

One fund manager told Reuters of the CLEV stock, "This is something you buy and hang (the certificate) on the wall, or give to your grandson."

While pro sports is big business, and franchises are valuable assets to own if you can afford them, it's relatively minor compared to other publicly traded giants.

Consider that Apple, the most valuable North American company, produced $123 billion in fourth-quarter revenue. That's more than all revenue MLB reported for 18 years combined from 2003 to 2020 ($120 billion).

Raphael de Balmann, co-portfolio manager with Dodson at the Bretton Fund, noted in an email interview with theScore, "Pro sports economics are set up to minimize reported income. This is important for a lot of reasons, not least that you have extremely strong unions. Public companies generally want to show high incomes."

Player pay was another foremost concern for the Cleveland baseball club, as it shared in its 1998 prospectus filing.

"The goal of the Company's player personnel management efforts is to maintain a competitive team while limiting the unpredictability in player salaries resulting from salary arbitration and free agency," the filing stated. "Management's confidence in its ability to identify promising young players has permitted the Club to selectively enter into multi-year contracts with players early in their careers."

It was in the early 1990s that Cleveland pioneered the practice of signing young players to pre-arbitration extensions to control costs. Sandy Alomar Jr., Carlos Baerga, and Charles Nagy were among the first Cleveland targeted.

One member of an MLB ownership group who spoke to theScore said tax implications are a major reason why we don't see owners rushing to ring the opening bell at the New York Stock Exchange on the day of an IPO debut. Pro sports teams are akin to a Captain America-like shield for deflecting tax bills. Last year, ProPublica investigated the ways in which owners use their teams to avoid paying millions in taxes.

"There are a few major tax advantages in sports team ownership," De Balmann said. "The most obvious is depreciation in (a stadium). If you own Madison Square Garden, you depreciate the building over 30 years. That's a big tax shield.

"If you also own the Knicks and the Rangers, you have the Knicks and the Rangers pay a massive amount of rent - causing the Knicks and Rangers to be break-even ventures - and then the abnormally large income stream at the building is offset by its depreciation, so neither entity owes any cash taxes. That requires common control of both the arena and the team."

The Braves Group, as shown in Liberty Media's financial reports, wrote down $20 million in depreciation and amortization for their most recent quarter.

The open scrutiny that comes with being a public company would be unthinkable for any group of billionaires.

"You've got quarterly scrutiny with shareholders," Dodson said. "What billionaire wants that?"

Cleveland's IPO prospectus offered a compendium of the team's financials for the years from 1993 to 1998.

"In the current baseball dispute, the MLB teams refuse to open their books to the MLBPA, and in salary-cap sports such as the NBA, there is a very negotiated term, BRI - Basketball Related Income - that the owners insist upon to allow them to hide the rest of their economics," De Balmann said.

All that said, the Celtics and Indians were good investments for Wall Street and fans as publicly traded companies. They weren't just souvenirs; they both beat the market, which runs contrary to Manfred's claim last week that the stock market is a better investment than owning an MLB club.

Joshua Hubman, who wrote a 2011 thesis on the topic for the Finance and Sport Management program at SUNY Brockport, found that during the 14-year run when the Celtics were public, the stock produced an average annual return of 16.4%, including its dividend. That was compared to the S&P 500's 9% annual return during the same period.

(The S&P 500 is a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the United States.)

Cleveland beat the S&P 500 by 34 percentage points during its time being traded.

The Panthers averaged 12% gains per year but trailed the S&P 500's stronger return of 20% during its time on the open market. The NHL was also a much weaker industry at the time. The late Wayne Huizenga was awarded the Panthers as an expansion franchise in 1993 and took it public in 1996 to share the pain with investors after losing millions.

(A special purpose acquisition company (SPAC), a shell company that raises money through an IPO then purchases a company to avoid the IPO process, tried to buy the Panthers in 2009, but the deal fell through and the club remained private.)

With COVID-19 restrictions impacting teams' revenue over the last two years, some franchises have sold pieces of their companies to SPACs that are focused on sports.

Former Oakland Athletics executive Billy Beane is a partner in Redball, a SPAC that sought to acquire 25% of Fenway Sports Group earlier this year, although that deal has reportedly fallen through. Theo Epstein, the former Cubs and Red Sox executive, is a partner in Arctos NorthStar, a sports SPAC that trades on the New York Stock Exchange. Sportico reported that Arctos has $2.9 billion in assets and has already purchased small shares in the Golden State Warriors, Sacramento Kings, Tampa Bay Lightning, and Minnesota Wild.

Increasing franchise valuations is no doubt part of the appeal for SPAC investors. Many pro sports franchise values have greatly outpaced S&P 500 returns.

Fans would love to own small stakes in their favorite teams, but for now, it looks like SPAC shares, or those of Rogers or Liberty Media, are as close as they can get.

Travis Sawchik is theScore's senior baseball writer.

Copyright © 2022 Score Media Ventures Inc. All rights reserved. Certain content reproduced under license.