An Update on the State of Regional Sports Networks and the Pittsburgh Pirates

A lot has happened in the world of regional sports networks (RSNs) between the start of the season and now.

Back when I first covered the state of the landscape, Diamond Sports Group LLC had just filed for Chapter 11 bankruptcy, leaving the future of their RSNs and the fourteen Major League Baseball teams affiliated with them—the Arizona Diamondbacks, Atlanta Braves, Cincinnati Reds, Cleveland Guardians, Detroit Tigers, Kansas City Royals, Los Angeles Angels, Miami Marlins, Milwaukee Brewers, Minnesota Twins, St. Louis Cardinals, San Diego Padres, Tampa Bay Rays, and Texas Rangers—in doubt.

Only a few weeks after that initial news broke, it was also reported that Warner Bros. Discovery (WBD) was looking at getting out of the RSN business, leaving AT&T Sportsnet and the television contracts of their teams—the Colorado Rockies, Houston Astros, and Pittsburgh Pirates—with a murky future.

After an entire season of essentially the status quo on the part of WBD, it was the recent news of the official end of their involvement with RSNs and the sale of AT&T SportsNet Pittsburgh—leaving the question of what happens to the Pirates open for debate—that finally brought about the opportunity to revisit this story. It’s worth covering what has been happening with Diamond and their teams first, as the discussion is pertinent to what could happen with the Pirates moving forward.

Diamond Withholds Rights Fees, Fights with MLB

Back in March, the New York Post reported that Diamond intended “to use the bankruptcy proceedings to reject the contracts of at least four teams to which it pays more in rights fees than it collects back through cable contracts and ads,” with those teams being the Reds, Guardians, Padres, and Diamondbacks. The company was believed to be focusing on those deals because they were the most team friendly with the longest terms, losing Diamond the most money.

While Diamond ended up paying eight teams at the beginning of April—the Angels, Braves, Brewers, Cardinals, Marlins, Rays, Royals, and Tigers—showing their liquidity despite the bankruptcy and their intent to continue with deals they saw as tenable, the reporting on the teams in trouble ended up being accurate. More eventually joined in the mix, as the company eventually missed rights payments to six teams in all, a strategic move as part of their bankruptcy filing.

Kicking things off, Diamond missed payments to the Guardians and Twins, after which MLB filed an emergency motion on April 5^th, urging Diamond to make the payments by April 13^th or terminate the contracts.

The next day, the Diamondbacks filed their own motion with the same request. The Diamondbacks did not fall in the same class as the other teams, as Diamond failed to make their payment to the team before officially filing for bankruptcy, making the team one of their biggest creditors.

Diamond didn’t blink, filing their own court documents on April 12^th stating their intentions to cut their fee payments to those same three teams.

It was obvious that each side disagreed on what this meant from a legal standpoint:

“What is extraordinary is that the debtor RSNs now, for the first time … allege that they have some ‘right’ to pay less than the contract rate for those games. This is not the law.”

“Only after defaulting on their payment obligations do the debtors even raise the fanciful argument that they can choose to not pay the agreed upon contractual rate. The debtors are coming up with any and all reasons they can to delay such payment, including by asking the court to take the extraordinary measure of rewriting the terms of agreements that were freely negotiated and entered into,” said MLB in their April 5th motion, while Diamond asserted that the grace periods hadn’t yet expired and “dubbed the clubs’ argument for needed cash flow ‘conclusory’”, or a claim not backed up with facts.

Then on the 17th—the day a payment was due—Diamond informed the Reds they would not make their payment on time. Like the Diamondbacks, the Reds fell in a different bucket legally than the other teams, as they hold a partial stake in Bally Sports Ohio, making it a joint venture with Diamond and separate from the bankruptcy proceedings.

Finally, it was reported on April 18^th that the Rangers joined MLB’s motion on behalf of the Guardians and Twins after a missed payment that was due the 15^th.

Sinclair even joined the party—much later though, in August—threatening to evict Diamond from their offices after “accusing its former affiliate of not paying management fees in full and now owing more than $140 million” and comparing their plight to that of MLB, with Diamond occupying leased office space without actually paying for it.

In all of these cases, those impacted took umbrage with Diamond, as they continued to broadcast games, benefiting from the revenue but refusing to make payments.

“The Debtor RSNs made this decision even though they continue to use the Clubs’ valuable intellectual property every day. By continuing to broadcast Guardians and Twins games, they generate postpetition revenue, yet boldly refuse to pay the Clubs,” wrote MLB lawyers in the motion on those teams’ behalf, while the Rangers made the same point in their filing:

“That ‘there ain’t no such thing as a free lunch’ is a well-recognized, simple, but axiomatic economic principle. Everyone understands it — everyone, apparently, except the Debtors (Diamond). Here, they are getting lunch — using the right to create content based on the Rangers’ baseball games, and in turn selling that content to distributors — but without paying for it.”

It wasn’t that Diamond didn’t have the funds to pay the fees—they never claimed otherwise—their main argument was that the cable landscape had changed significantly from when the deals were entered into and were no longer viable for them to pay, at least under the same terms.

Diamond’s goal all along was to secure the streaming rights to the teams that were under their umbrella that they didn’t own at that point—which was only five of their fourteen MLB clubs—in order to beef up their direct-to-consumer service Bally Sports+. They also sought various other rights, such as ticketing, merchandise, and gambling to become an all-encompassing service—one that would have essentially been in direct competition with the league. In order to secure these rights, they went as far as offering to pay teams the entirety of the fees under their previously agreed upon contracts—they were fighting for what they saw as “fair market value”, or around 75%—as long as they were granted the streaming rights in return. This meant they would have essentially received those valuable rights for free, as they weren’t offering to pay more than they already owed—even though they were offering to pay more than they were willing at the time. The league didn’t take kindly to this.

“Blackmail,” is how James Bromley, an outside counsel for MLB, referred to the tactics being undertaken by Diamond, while the Rangers “accused the company of using the threat of nonpayment as a bargaining tool to secure streaming rights” in a court filing against Diamond.

The two sides eventually ended up in bankruptcy court at the end of May, arguing over whether the Rangers, Twins, Guardians, and Diamondbacks needed to be paid the full value of their contracts.

MLB Prevails in Bankruptcy Court Against Diamond

Before the trial, the judge had ordered Diamond to pay the teams half of what they were owed—they had been holding the funds in escrow—until the case could be heard. The hearing, which spanned two days and lasted twenty hours, was contentious, but Judge Christopher Lopez ended up ruling in MLB’s favor, forcing Diamond to pay the teams the full value of their contracts.

“Just because times have changed doesn’t mean the contract price is clearly unreasonable,” Lopez said, who also used MLB’s offer to buy the rights from Diamond as an indicator of the deals’ value.

“I think the MLB makes a good point: you can’t overlook that there’s a willing counterparty willing to transact and they’re willing to put money on the table. At least, they’re saying that on paper.”

Despite acknowledging a different cable landscape, Lopez ultimately determined that his court was not the place to set a market value for the deals.

“Profitability is certainly decreasing for each team. But again, this doesn't mean that the contract rate and those fees under those contracts is not reasonable.”

“The contract rate is the right answer here.”

After the ruling, Diamond ended up making three of the four teams in question—the Rangers, Twins, and Guardians—full, while also settling with the Reds. Diamond also came out and stated that it “anticipates making all rights payments for the remainder of the MLB teams in our portfolio through the end of this season,” meaning that their remaining suite of teams needn’t worry, at least for the remainder of 2023.

The same couldn’t be said for two other teams, however.

Diamond Drops Padres, Diamondbacks

After multiple attempts at a deal in separate legal negotiations, Diamond ultimately rejected its agreement with the Diamondbacks, claiming “it los[t] significant amounts of money under the agreement with the Diamondbacks and that the deal ‘no longer fits’ within its long-term plans.”

“Given the inability to reach an agreement with the Diamondbacks and MLB, we have rejected that rights contract, which had financial terms that were not aligned with Diamond’s long-term plans,” said the company in a statement regarding their July decision.

This was basically a month and half after Diamond did the same with the Padres, choosing not to pay a late May rights fee after initially paying the team at the end of March and allowing the team’s rights to revert to MLB. In a statement, Diamond alluded to its desire for the team’s streaming rights and the deal’s tenuous financial implications without them:

“While DSG has significant liquidity and have been making rights payments to teams, the economics of the Padres’ contract were not aligned with market realities. MLB has forced our hand by its continued refusal to negotiate direct-to-consumer (DTC) streaming rights for all teams in our portfolio despite our proposal to pay every team in full in exchange for those rights. We are continuing to broadcast games for teams under our contracts.”

Throughout the entire process, MLB indicated time and again that they were willing and able to take over the broadcast for any team that got dumped by Diamond, as MLB Commissioner Rob Manfred stated back in February, around the start of all of this upheaval:

“We know that we can produce games in the event that Ballys is not broadcasting. We know that we can put those games up in conjunction with MLB.TV digitally. And we are in the process of trying to work out arrangements that will put us in a position to make those games available within the cable bundle, as well. From a fan’s perspective, while it may not be whatever channel is your traditional RSN, if you think about it from a reach perspective, the games being available digitally in-market is something fans have been screaming for years.”

That’s exactly what ended up happening, with both situations playing out very similarly.

In both scenarios, each teams’ games were shown for free for about a week through MLB.TV, after which fans could stream games on a monthly basis—for $19.99 per month—or for the remainder of the season. The Padres, who were dropped earlier in the season, cost fans $74.99 for 103 games, or $1.37 a game. On a monthly basis, it would have cost $79.96—or a slight discount for choosing the package for the entire year.

The Diamondbacks, on the other hand, only had 62 games remaining on their schedule, and the league offered that up at $54.99, or $.89 per game. Going month-by-month would have cost $59.97, another five-dollar discount offered by the league.

While this dropped both teams from the historical cash cow that was the guaranteed cable deal, it did do away with the blackmark the league has been wanting to address for a while—blackouts—by separating the consumer from the in-market stranglehold of a cable rights holder, potentially opening the games up to many more fans:

“The Padres are excited to be the first team to partner with Major League Baseball to offer a direct-to-consumer streaming option through MLB.TV without blackouts while preserving our in-market distribution through traditional cable and satellite television providers. Our fans will now have unprecedented access to Padres games through both digital and traditional platforms throughout San Diego and beyond,” stated Padres CEO Erik Greupner at the time, while Diamondbacks CEO Derrick Hall echoed similar sentiments upon his team’s venture into the brave new world:

“This decision provides us with an opportunity to partner with Major League Baseball to produce high-quality broadcasts of D-backs games on current platforms, expand access to include streaming options, and remove blackouts that have been a fan frustration point for years. We have enjoyed our partnership with Bally Sports Arizona and thank them for the longtime partnership. But we look forward to providing unprecedented access to our exciting team moving forward, including a greatly expanded reach of new households."

In total, MLB claimed that each team’s total in-market reach would increase significantly—from 1.13 million homes to 3.2 million for the Padres, and 930,000 to 5.6 million homes for the Diamondbacks. This illustrates the dwindling number of viewers with cable, the power of lifting blackouts, and the opportunity for more fans to see the games that want to, how they want to.

MLB was able to bridge the old with the new, as the games are still on traditional cable as well, with the league agreeing with distributors such as Fubo, DirecTV, Cox, Spectrum/Charter, and Xfinity/Comcast, to a name a few.

Aside from having to find them on a different channel—or app—little changed for the fans as far as the broadcast. The same broadcasters were used to call the games, as they are all team employees. While a few hiccups were seemingly ironed out here and there, nothing else should have affected the viewing experience for fans, who were still able to watch their teams, despite behind-the-scenes upheaval.

Of course, the biggest question was that of money, with Diamond balking at the deals given their cost and doing away with the guarantees to the teams that came with them. At the time of the decision, Daniel Kaplan of The Athletic passed on trepidation via a source on the side of Diamond’s creditors about the Padre’s financial future:

“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.”

There were certainly questions regarding teams financial standing, as Manfred pointed out during the bankruptcy hearing against Diamond:

“Clubs had cash flow concerns. We took a look at the 14 clubs, what their contractual commitments to players were, what their cost structure looked like, the debt they had.…We said, ‘OK, everybody needs to relax here, we need to work our way through this,’ and in order to help the clubs, give them a little peace of mind, we said to ‘em, ‘Look, no matter what happens, we’ll backstop you at 80 percent of what you expect to get under your media deal.'

“We think we will generate some revenue on the digital side in-market, and some revenue from the legacy cable bundle. We’ll add that to whatever payments the Padres already received from Diamond, and to the extent that they’re short 80 percent, we’ll make up the difference from central baseball (MLB) at that point.”

That was big news at the time, as it insinuated that teams dropped by Diamond weren’t going to come close to eighty percent of their guaranteed television money that they were getting before—but it also begs the question of what will happen in the future, not only for the Padres and Diamondbacks, but for other teams that end up out in the cold.

Both Evan Drellich of The Athletic and Alden González of ESPN reported, via sources, that the league was only making these promises for 2023, not beyond. This would make some sense, as the league was operating on the fly, not knowing what would happen with Diamond from one day to the next.

Back in March, according to John Ourand of Sports Business Journal, the league even went as far as offering any games of dropped teams for “little or no cost, at least for this season” to major distributors such as DirecTV, Comcast, Charter, and YouTube—names that ended up showing the Padres and Diamondbacks after they broke up with Diamond. The league’s plan, as Ourand put it, was to “pick up more rights as teams’ rights deal…expire” then “go to the market with the rights from several teams…to work out better distribution deals that could pay it more.”

This is likely what ended up happening, seeing how quickly the league had to turn around on these deals, as Manfred alleged during the bankruptcy hearing:

“Because we had literally, literally, hours of notice in the middle of the season that we were going to take the Padres over. The idea that you’re going to be able to generate meaningful advertising revenue at this point — that’s just not possible. That’s one of the reasons that we reacted negatively to the lack of notice as to what was going to happen.”

It’s unknown whether the league would follow a similar approach for teams that end up in the same boat in 2024 as the Padres and Diamondbacks did in 2023—but what about a team like the Pirates, who seem to be losing their television home at the end of the season?

Warner Bros. Discovery Preparing to Exit After Season

At the beginning of the season, WBD gave teams under their MLB umbrella—the Rockies, Astros, and Pirates—a March 31^st deadline to take back their rights or risk the company filing Chapter 7 bankruptcy.

Well, it turned out Bob Thompson—former Fox Sports Network president—was correct when he told Kaplan and The Athletic that “[t]his whole idea that, ‘Oh, we’re going to pull them, we’re going to turn them off on the 31st (of March),’ I just, there’s a lot of things that will happen before that.”

As Ourand reported in April, the “deals being discussed would have WBD continue to pay its rights fees and produce/distribute games for the entire season,” and that “WBD would walk away, and the rights would revert back to the teams” at the end of the season.

This is exactly what happened.

Ourand reported at the end of August that WBD is “unwinding” its RSNs—as they are “close to a deal” for selling AT&T SportsNet Rocky Mountain to the Astros and Houston Rockets of the NBA and shutting down AT&T SportsNet Rocky Mountain. The Denver Post confirmed this report on September 5^th, stating that the network was shutting down as of October 6^th and that several options were being discussed, such as MLB taking over the broadcasts, as well as Altitude TV, the home for several other Denver sports franchises, doing the same.

As for the Pirates, they are faced with the same decision as the Rockies. Ourand reported that WBD has agreed to sell AT&T SportsNet Pittsburgh to Fenway Sports Group, ownership group of the Pittsburgh Penguins, who also appear on the network along with the Pirates. This leaves them with two possibilities: joining the Penguins on NESN—or a rebranded version of AT&T SportsNet Pittsburgh, as the FSG owned sports network also broadcasts the Boston Red Sox—along with the New England Patriots, Boston Bruins, and Celtics—potentially leaving too many teams to show on one network—or join the Padres, Diamondbacks, and potentially the Rockies, partnering with MLB to broadcast their own games.

While Ourand reports that “the team is more likely to send its rights to MLB, but a decision still hasn’t been made”, team owner Bob Nutting echoed a similar sentiment about the possible choice to Jason Mackey of the Pittsburgh Post-Gazette back in July:

“NESN would be a great partner. They’re very competent. I have a lot of respect for Fenway Sports Group. I’ve been friends with [founders] John [Henry] and Tom [Werner] for a long time. That easily could work out.

“Major League Baseball also has a really solid platform, and that could work. What we want to do is pick the right partner to ensure we’re getting high-quality broadcasts and programming out to our fans on as many platforms as possible.”

As it so often is, money could be the main driver of any decision the Pirates make.

As it has for so many years, rolling under FSG allows the team to continue capitalizing on the guaranteed money that comes with a traditional cable deal—not to mention exploiting the Penguins’ fans that would want the opportunity to watch the team, but otherwise may not care about the Pirates at all. This was the backbone of the cable bundle for so many years; however, as the last year has shown, there may not be such a thing as “guaranteed” television money moving forward.

FSG does also present direct-to-consumer opportunities, as they launched a streaming service centered around the Red Sox and Bruins last year, and Ourand states that they will likely do the same for the Penguins, and presumably with the Pirates if they went that direction.

NESN’s steaming service for its two teams—NESN 360—is more expensive than MLB’s thirty—$329.99 per year (12 months) or $29.99 a month versus $149.99 a season (roughly seven and a half months) and $24.99 per month for MLB.TV and $19.99 a month for the trial balloon services for the Padres and Diamondbacks in 2023. MLB also offers single-team packages for $129.99 a season.

One has to wonder what a yearly, in-market subscription would look like under MLB’s new direct-to-consumer model. The league charged more for more games for the Padres—$74.99 for 103 games, or $1.37 per game, than they did the Diamondbacks. At that rate, a 162-game season would cost $221.94—significantly more than both the actual yearly price for both MLB.TV and a single-team package. For a season that spans six months, the $19.99 per month wouldn’t match, as that’s only $119.94, again, less than both versions of MLB.TV, as well as less on a monthly basis.

As the season progresses, MLB.TV lowers its prices, and it happened to do so right as the Padres were being offered on their platform—June 1^st for MLB versus June 5^th for the Padres. Prices went down to $119.99 for the year and $104.99 for a single team, $30 more than they offered the Padres for. While the timeline doesn’t match up as well, MLB.TV was being offered for $69.99 and $59.99 for a single team on August 8^th, while the Diamondbacks package cost $54.99 as of July 24^th—less for even more games.

It could be assumed that the league was caught slightly off-guard and decided to extend an olive branch to fans of these particular teams for the rest of the season. Would MLB price an in-market streaming package along the lines of a single-team, out of market package ($129.99), or may they place a premium on the in-market viewer, who would still have the option of traditional cable? Also, it’s worth noting that at the start of 2023, MLB.TV was essentially the same price on a monthly and yearly basis, while the Padres and Diamondbacks were discounted on a yearly basis.

A few other teams waded into the streaming pool this season, with the Chicago Cubs offering their games through their Marquee Sports Network at $19.99 a month, while the New York Yankee-owned YES Network started their own service—which also includes the NBA’s Brooklyn Nets and WNBA’s New York Liberty—at the beginning of the season for $239.99 a year or $24.99 a month.

Whether it’s with FSG or MLB, there are at least some starting points that can be used to try and determine where that cost would sit and which the Pirates may find more profitable.

The question is, would the Pirates rather dance with the devil they know (established cable network on linear television) or the devil they don’t (MLB)? Long-term, MLB believes they can own most, if not all, of their teams’ rights and capitalize on a more centralized system of revenue that makes money for everyone, versus the instability and imbalance of the current cable landscape, as González pointed out when MLB took over for the Padres:

“MLB has continually stated its desire for Diamond to abide by its contracts with teams, but in the long term the league wants to fit all broadcasting rights under a national umbrella. League executives have been adamant that doing so is the best way to eventually pivot from the traditional cable model, eliminate blackouts that have significantly hindered the sport's reach and ultimately maximize revenues.”

The issue, however, is the short-term hit that everyone acknowledges would come while the league waited to acquire every teams’ rights—not to mention the teams with stakes in their own well established, highly profitable cable networks that would be hesitant to endorse such a plan, such as the Red Sox and Yankees. “It’s hard to see these teams abandoning their RSNs to join a nationalized MLB media initiative,” Kaplan presumes.

As far as the short-term loss goes, Ourand postulates that MLB could “pay the [Pirates] around 80% of its current rights fee,” but that flies directly in the face of reporting on the subject. As already stated, signs point toward MLB not offering that to the Padres and Diamondbacks for 2024, with the assumption that with more runway they can do a better job of monetizing the services, potentially in part by leveraging the Pirates and Rockies in deals with the distributors like DirecTV and Spectrum, making more money for everyone, or possibly raising the price on their introductory in-market services.

Another concern with the new streaming aspect is that this revenue stream is variable—as Joe Sheehan pointed out in his newsletter—with subscriber churn potentially affecting sports teams just as it does streaming services.

The same way a viewer may subscribe and unsubscribe to Netflix or Amazon Prime Video after checking out the latest season of Stranger Things or House of the Dragon, fans could pay on a month-to-month basis, staying with the team as long as they stay competitive. This potentially could do wonders for competition, as teams would be forced to more closely consider their on-field product and how it directly ties to their revenue, as opposed to sitting back and letting the guaranteed cable money steam in, as they have for so many years.

Sure, as MLB alleged, potential for possible viewers exploded after they took over broadcasts for the Padres and Diamondbacks, but that doesn’t mean every new household—or even many of them—want to actually watch those teams.

As sports consultant Marc Ganis explained to Kaplan and The Athletic back in March, the trick is turning those new potential customers into actual customers, as teams can no longer count on the passive revenue that non-viewers in the cable bundle used to guarantee:

“Let’s say you have $4 a month”—the theoretical price that every cable subscriber pays for an RSN, not just those actually watching it. “If only 20 percent buy (a new standalone option), just to get the same amount of subscription, you’ve got to pay a multiple of five for those who want it. That’s just mathematics.”

Remember the nearly tripling in size of the Padres TV territory? According to an MLB press release at the time they took over broadcasting Diamondbacks’ games, MLB stated that viewership had gone up 9.5% to 578,000 viewers on average for Padres’ games since they had started distributing them. A solid bump, no doubt, but it works out to a roughly 50,000 increase in viewers, or 2.4% of the two million bump lauded by MLB.

Does that math work out? Only the Padres and MLB know, at least for now.

So, the Pirates likely aren’t guaranteed eighty percent of their past television revenue—as many seem to be misconstruing—they could make eighty percent, or they could make one hundred and eighty percent. They could make eight percent. It all depends on how well they, along with MLB, are able to leverage the increased viewer base that no more blackouts would afford them—if they even partner with MLB at all. Otherwise, it all depends on how a deal with FSG compares with that of WSD and AT&T SportsNet Pittsburgh, which was reportedly around $60 million per year.

Maybe more important than any decision made by the front office this offseason on a free agent signing or trade, what path the team chooses to take in the new broadcasting frontier could have much bigger implications moving forward.