The system of regional sports network television channels — which televise most Major League Baseball, N.B.A. and N.H.L. games and pay billions of dollars to teams each season — is slowly collapsing, and the way consumers watch sports on TV is changing.
Diamond Sports, which operates 19 channels across the country under the banner of Bally Sports, declared bankruptcy earlier this month. These channels show about a third of all M.L.B., N.B.A. and N.H.L. games in local markets. Diamond Sports has more than $9 billion in debt and hopes an orderly bankruptcy will wipe out most of it and help transition its business toward a digital future.
For now, the channels continue broadcasting games as normal.
Warner Bros. Discovery, which runs three AT&T-branded regional sports networks and is a part owner of a fourth, has told leagues it is exiting the business. It is trying to reach agreements for teams to take their television rights back.
NBC Universal, the other main operator of regional sports networks, has for years considered selling them, and sold its majority stake in one, NBC Sports Washington, last year. The challenge is finding buyers.
It is confusing and technical, but also meaningful to people who watch their favorite teams on TV. Here’s what we know.
What is a regional sports network?
A regional sports network is television channel that shows a team’s games in a local area.
A small number of M.L.B., N.B.A. and N.H.L. games are shown each year on national channels like ESPN and Fox. But typically at least 80 percent of a team’s games are shown only locally, in the media markets where the team and its opponent play.
For instance, a Detroit resident who wants to watch most games involving the Tigers, Pistons or Red Wings would need to purchase a television package that includes Bally Sports Detroit.
What is happening to regional sports networks?
Roughly 80 million households in the United States pay for some sort of television package — whether cable, satellite or what is called “virtual multichannel video” — and most of those packages include sports programming. The problem for the regional sports networks is that many people are cutting the cord — canceling their cable and satellite deals — and streaming sports in other ways or not paying for sports at all.
How do the regional sports networks function?
Generally, while leagues sell their national media rights, teams are in charge of, and profit from, selling rights to their own games.
Teams go to market and see which television channels will pay them for the rights to show these games. The television channel that buys the rights then goes to distributors — like Comcast, DirecTV and streaming alternatives like YouTube TV — and negotiates to receive a monthly fee for allowing the distributors to include the channel in packages it sells to customers. The customer then pays a television distributor for a package of channels.
You can also think of the money flowing in the opposite direction. The customer pays the television distributor to be able to watch TV, the distributor pays the channel to be able to sell it, and the channel pays the sports team to show its games.
This convoluted system worked?
It worked well for more than three decades. It was one of the main engines driving increased salaries for players, profits for sports team owners and rising television costs for viewers. It also allowed every one of a team’s games to be televised, which was not possible before.
SportsNet LA, for instance, paid the Dodgers a reported $196 million last year for the rights to televise their games, well over $1 million for each game. In total, M.L.B., N.B.A. and N.H.L. teams receive somewhere north of $4 billion annually in local media payments.
Regional sports networks must somehow recoup this money. They do so by charging large monthly carriage fees to distributors for the right to sell their channels. All cable channels — whether regional sports networks, ESPN, Fox News or the Food Network — charge monthly carriage fees, ranging from a few cents to almost $10. Regional sports networks consistently command some of the largest fees, typically a few dollars per month.
For years, distributors balked at paying these fees, but relented out of fear that angry sports fans would cancel their television packages and switch to a competitor who would carry the regional sports network. While this is slowly changing, television distributors largely feel they must carry regional sports networks, and pass the high costs on to customers.
So sports fans are paying the high costs to see all those games?
Actually, no. No matter how popular a sports team is, most households watch very little or no sports. Most subscribers probably would rather save $5 or $10 on their bill than get sports programming, but they cannot opt out of specific channels. So they must pay for them as part of a bundle when they really want to watch FX or Lifetime.
In this system, people who are not sports fans subsidize sports fans.
Why doesn’t this model work anymore?
Over the last decade, tens of millions of households have stopped paying for television packages. Distributors have begun playing hardball in negotiations with regional sports networks and in some cases don’t carry them anymore. With fewer people paying for television, regional sports networks receive less in carriage fees, while still having to pay teams the sums they agreed to years ago in long-term deals.
If people are cutting the cord, why don’t they just stream games?
In most cases, they cannot. Typically, regional sports networks buy only the rights to televise games in their local markets on a channel that is part of a television package. So they cannot offer fans a Red Wings-only package à la carte or take the channel out of the pay television bundle and allow fans to cut the cord while still watching their favorite team.
At the same time, these deals usually do not allow teams or leagues to offer their games on streaming services, because that would diminish the exclusivity of what the regional sports networks pay handsomely to show.
This is why scripted television can easily be found on streaming services, while the most popular sports largely remain on traditional television.
In a few areas where it has digital rights, Diamond Sports sells a Bally Sports+ streaming package. But these packages cost $20 a month; if you pay for a couple of other streaming services, you don’t save much money by avoiding a pay television package.
And now I need to learn about a bankruptcy?
In 2019 Disney paid $71.3 billion to acquire most of 21st Century Fox’s assets, which included 22 regional sports networks. To secure federal approval of the deal, Disney agreed to divest itself of those regional sports networks. Sinclair then created a wholly owned subsidiary, Diamond Sports, to buy 21 of those regional sports networks for $10.6 billion. It borrowed about $8.2 billion to pay for them.
Sinclair knew that regional sports networks were declining in value, but it thought they would still generate cash for years to come. And they do — Diamond Sports has more than enough cash on hand to cover immediate operations — but the bottom has fallen out faster than anticipated, and the transition to digital has been rockier than expected.
Diamond Sports missed a payment on its debt in February, and earlier this month it filed for Chapter 11 bankruptcy protection. It is trying to work out an agreement in which most of its creditors would exchange the debt they own for ownership in Diamond Sports. It is also negotiating with M.L.B., the N.B.A. and the N.H.L., and the 42 teams whose games it shows, for enhanced rights to sell those games digitally.
What will be the end result of the bankruptcy proceeding?
To be determined.
Will anything change in how I watch sports?
Not immediately. Diamond Sports has said it will continue producing and televising games, and that fans will continue to be able to watch them throughout the bankruptcy proceedings.
And after that?
Everything is changing. How fast and how much remains to be seen.
The N.B.A. and the N.H.L. seem amenable to working out some sort of agreement with Diamond Sports in which games would continue to be shown on television, but Diamond Sports would have enhanced rights to sell them digitally. They also have more time: The regular seasons are almost over in those leagues, and the channels won’t show their games again for six months.
M.L.B. starts its regular season this week, however, and the league has been much blunter in criticizing Diamond Sports. Diamond Sports has also ceased paying rights fees for some teams, like the Arizona Diamondbacks, that it believes are particularly overvalued. M.L.B. has bolstered its local media department and has said that if Diamond Sports cannot show the games, it will step in make sure they are still available to fans.
If you live in Colorado, Utah, Houston or Pittsburgh, however, conditions could change even sooner. Warner Bros. Discovery, which owns the regional sports networks in those areas, has said it is getting out of the business, and set a March 31 deadline to reach agreements to revert rights back to teams in those areas. Whether it will meet that deadline, and what teams will do with those rights, is unclear.
I live in New York. What about my regional sports networks?
Regional sports networks that serve the New York metropolitan area are largely owned by their teams, not the conglomerates we have been talking about here. YES Network (Yankees, Nets and Liberty) is controlled by the Yankees; MSG Network (Knicks, Rangers, Islanders, Sabres and Devils) is controlled by MSG Entertainment; SNY (Mets) is controlled by the Wilpon Family, who previously owned the Mets.
That does not mean they are insulated from the contagion affecting all regional sports networks. But it is easier for them to continue eking out a profit while transitioning to the future.
Why haven’t you mentioned the N.F.L.?
It is good to be king. N.F.L. games are shown only nationally, so the only agreements the league’s teams have with regional sports networks are to show preseason games and other less valuable content. Football has little to do with this mess.
Will all this have any effect on the players and in-game product?
Probably! In basketball and hockey the amount teams can spend on players is directly proportional to league revenue; in baseball it is more of a suggestion. But the salary caps in the N.B.A. and the N.H.L. generally go up by a few million dollars each year, as revenue increases, and teams construct rosters based upon that revenue.
If local media revenue drops precipitously, salary caps will decline, rosters will be squeezed, players will be paid less and the threat of rancorous collective bargaining agreement negotiations will grow.
The post The Way You Watch Sports on TV Is Changing. Here’s Why. appeared first on New York Times.