Sinclair Broadcast Group Inc. is facing a lawsuit alleging that it wrongfully drained at least $1.5 billion from its regional-sports-network subsidiary, leading it towards bankruptcy. The lawsuit was filed by Diamond Sports Group, which is responsible for broadcasting nearly half of all Major League Baseball, National Basketball Association, and National Hockey League games.
Allegations of a "Nefarious Strategy"
In the recently revealed lawsuit, Diamond Sports Group accused its parent company of implementing a "nefarious strategy" that pushed the subsidiary towards financial ruin. As reported by Bloomberg News, the lawsuit claims that Sinclair took over $100 million in management fees annually from Diamond after acquiring the sports network for $10.6 billion from the Walt Disney Co. in 2019. Adding to the burden, Sinclair loaded the subsidiary with immense debt and redirected valuable resources away from the company, ultimately causing it to suffer.
Mismanagement and Exploitation
The suit further alleges that David Smith, the Executive Chairman of Sinclair, informed MLB Commissioner Rob Manfred in late 2021 of his intention to continue profiting from Diamond. Smith allegedly stated that he would extract hundreds of millions in management fees and exploit any other available means until Sinclair recouped its initial investment in the regional sports network.
The lawsuit was filed in the U.S. Bankruptcy Court for the Southern District of Texas.
The Fall of Diamond and the Trouble with Regional Sports Networks
The downfall of Diamond, the parent company of Bally Sports, has been attributed to a series of actions orchestrated by its former CEO, David Smith. Allegations made in a recent lawsuit suggest that Smith threatened to exploit Diamond for its owed fees and push it into bankruptcy. Shockingly, these claims were further corroborated by MLB Chief Revenue Officer Noah Garden.
Upon being questioned about the matter, a Sinclair spokesperson referred to a previous statement, dismissing the allegations as baseless. Despite their denial, the magnitude of the legal proceedings shed light on the chaos surrounding Diamond.
The Legacy of Diamond
Operating under the name Bally Sports, Diamond controlled an extensive network that included 19 regional sports channels. These networks boasted broadcasting rights for 14 MLB, 16 NBA, 12 NHL, and five WNBA teams. With major markets such as Southern California, Atlanta, Dallas, and Detroit under their belt, Diamond appeared to be on an upward trajectory.
The Challenges Faced
In recent years, regional sports networks have been grappling with financial turmoil. The widespread shift from cable TV subscriptions to streaming platforms has dealt a blow to their revenue streams. As a result, networks like Diamond have struggled to uphold their hefty broadcasting deals with professional sports leagues.
The Future of Sinclair
Sinclair, the parent company of Diamond, has suffered the consequences of these setbacks. Shares in Sinclair have plummeted by an alarming 46% over the past year and are down 12% year to date. Meanwhile, the S&P 500 has experienced significant growth during this period.
As regional sports networks continue to face mounting challenges, it remains to be seen how the industry will adapt to the ever-changing landscape of modern media consumption.