The Padres are entering a brave new world of local TV broadcasts

Apr 10, 2023

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They missed getting a rights fee payment earlier this week, and that could change everything.

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We are reaching the end of the regional sports network era in local baseball (and other sports) television.

How do we know that? Because Bally Sports San Diego failed to make a rights fee payment to the Padres earlier this week, and in so doing the rights to broadcast Padres games on TV reverted to the team:

Diamond Sports said in a statement to The Athletic that it "decided not to provide additional funding to the San Diego RSN that would enable it to make the rights payment to the San Diego Padres during the grace period." The company said it is continuing to broadcast games for teams under its contracts.

Bally Sports San Diego — the San Diego RSN and broadcaster of Padres games — is not part of Diamond's bankruptcy filing since it is a joint venture between the Padres and Diamond Sports. Therefore, Diamond cannot argue against it in bankruptcy court and there are no bankruptcy law protections that can overcome a missed payment.

The missed payment by Diamond Sports means that media rights revert to the Padres, with MLB producing the team's game in Miami on Wednesday. The league was notified at 5 p.m. ET Tuesday that the payment wouldn't be coming, and MLB had people in place to be able to handle the game in the event that happened.

MLB has in fact taken over Padres TV, and after a short period (through Sunday) of broadcasting the games for free, it will cost fans $19.99 a month (or $74.99 for the rest of the year) to watch, either via streaming or via a few cable companies (DirecTV, AT&T U-verse, Cox and Spectrum). There won't be any blackouts for in-market fans for these games.

As you probably know, Diamond Sports, which runs the Bally Sports RSN's that carry games of 14 MLB teams, filed for bankruptcy earlier this year. The Padres channel, which (like Marquee Sports Network) is a joint venture between the team and Diamond, was not included in that bankruptcy, which is why the league and Padres could operate independently. As far as the bankruptcy goes:

That could change soon. There's a hearing [Wednesday] in bankruptcy court and Diamond is expected to argue it should pay the Guardians, Diamondbacks, Twins and Rangers less than the contracted rate because of changing economic conditions.

The result of that hearing was, per Evan Drellich at The Athletic:

A bankruptcy judge ordered Diamond Sports Group to pay the Minnesota Twins, Arizona Diamondbacks, Cleveland Guardians and Texas Rangers the full value of their media contracts, handing a big victory to MLB and the four teams.

It will be interesting to see Diamond's response, as they are in bankruptcy and likely unable to pay the full value. Here's more on that ruling from Sportico, and from that article, this seems important:

MLB and the teams insist the value of rights hasn't dropped, only that there is more competition for those rights in a market that features streaming and DTC. As MLB sees it, Diamond's business model, which relies on RSNs, is antiquated and hasn't adapted quickly enough to offer the highest and best use of the underlying asset: live game broadcasts. Baseball's attorneys also note that Diamond's deals with teams lack backend rights, which are at issue with Diamond's litigation involving the Phoenix Suns’ attempting to move games to free TV.

And speaking of "less than the contracted rate":

One source, who has advised some of the creditors, believes Diamond is sending a message to MLB with the move, as if to taunt them with how much the Padres are losing. This source texted: "The question to ask is, ‘What is MLB doing?’ I mean they just cost the Padres a bunch of money without a clear way to replacement.

"I would expect MLB will try to launch a new RSN but it is impossible to fathom that they will get (anywhere) near the approx $50-60 million per annum they (were) getting from Bally's. It will probably be half that and maybe even on a sports tier."

Ah, ha.

Therein lies the issue for these teams, and possibly others going forward. There's no way that any new RSN, or streaming service, is going to bring to any MLB team what they were getting from rights fees. Per Evan Drellich at The Athletic, the Padres will be getting about 80 percent of what their rights fee called for — though I suppose that could change based on the bankruptcy court's ruling.

What this will eventually lead to, in my view, is the lockout of all lockouts when the current MLB/MLBPA collective-bargaining agreement ends. Why? Because one of the reasons for the 2021-22 lockout was team owners’ desire for a salary cap, which MLB has never had and which players will resist with everything they have.

If teams are going to be taking in less money — and with RSNs failing left and right, this is pretty much guaranteed — you can bet a salary cap is going to be brought up again, and you can bet what the MLBPA's reaction will be.

For now, Marquee Sports Network is doing well enough that this should not affect the Cubs’ financial position. Some of the other RSNs, including the Yankees’ YES Network, the Mets’ SNY, the Dodgers’ SportsNetLA and the Red Sox’ NESN, are also either partly or fully owned by the teams and should be able to weather this storm. Others are likely to go under soon, including the AT&T SportsNet channels that carry Rockies, Astros and Mariners games. Warner/Discovery, which now owns the AT&T SportsNet channels, has stated publicly that they want out of the RSN business at the end of this year. What that means for TV games for those three teams is uncertain.

You might say, "Well, they’ll just go to streaming." Again, that's not going to bring in as much as rights fees, and you have probably seen how much money various streaming services have lost recently. It's not the cash cow some felt it would be. From a Baseball Prospectus article by Ginny Searle, here's how it's summed up for the Padres:

All that said (and the rare, basically unqualified praise for the league out of the way), this moment shouldn't be undersold; it's the beginning of the RSN dam breaking. The Padres were only just halfway through a 20-year, $1.2 billion contract for their television distribution rights, and that guaranteed revenue stream is gone. Even accounting for that $74.99 plan being pro-rated, a $120 or so annual fee per customer along with the continued cash now flowing to MLB via cable won't bring in $60 million, or likely $48 million. MLB will also be handling ads for broadcast and streaming, so the gap should narrow some, but the point remains: The league can't front teams forever, and the appetite (and upside) to do so for a team as exciting as the Padres—concerning performance aside—might be markedly less so than for a club like the Royals. Either the buy-in will get more expensive, or the league and teams will be looking to make up revenue in other ways—or pass along their losses to players (or, quite possibly, both).

That's the rub for baseball — revenue from TV broadcasts is likely to drop, and precipitously. Already with this deal, you can see how changes in baseball finances and the way games are televised are happening at an accelerating rate. What they will look like when the CBA expires in December 2026 is anyone's guess. But I can guarantee you there's going to be a lockout, and it's going to be ugly.

Enjoy the next three seasons after this one, because after that... yikes.

As always, we await developments.