Sports
Diamond Sports, Operators Ordered to Divulge Financial Docs
The judge overseeing the Diamond Sports Group bankruptcy case has split the baby on a delicate financial disclosure, ruling that the owner of the Bally Sports RSNs must provide its league partners with documentation of its carriage agreements with Cox, Charter and DirecTV—but with restrictions in place to prevent any leakage of sensitive information.
In a hearing convened Friday morning in U.S. Bankruptcy Court for the Southern District of Texas, Judge Christopher Lopez said attorneys for MLB, the NBA and NHL must be given access to Diamond’s contracts with the three operators, albeit under the strictest confidentiality. The most guarded information in these financial documents, including the particulars of Diamond’s “most-favored nation” clauses (MFNs), is to be released on an anonymized basis, to be reviewed solely by the leagues’ non-staff counsel.
Per Judge Lopez’s decision, all language in the MFN clauses that could serve to identify a given distributor will be redacted. Terms of an MFN clause might include details about volume and penetration discounts, channel placement premiums, rebates, direct-to-consumer rights and other information that Diamond and its distributors would just as soon keep under wraps.
Hypothetically, such information would be of tremendous value if one of the leagues were to launch an in-house streaming platform sometime down the road.
While such contractual details are treated like state secrets—the cable industry operates on something akin to the Southern Italy’s omertà, a code of silence that distributors have observed for generations—Judge Lopez said the financial details were necessary for Diamond to present its most cogent and comprehensive case during the confirmation hearing scheduled to begin on July 29.
“I think [the leagues] need to see it,” Judge Lopez said, adding that Diamond’s partners would face considerable difficulties in gauging the veracity of the company’s projections without seeing the contracts. The judge went on to say that if those details remained concealed, Diamond effectively would walk into next month’s hearing with “one arm behind its back, trying to get a plan confirmed—and that’s just something that cannot happen.”
In keeping with the judge’s ruling, the leagues will be granted access to historical, actual and projected revenues. Judge Lopez went on to deny a request to prohibit attorneys with access to the information from negotiating agreements with Diamond or the operators for a period of four years, saying that such safeguards were not relevant to this particular case.
The legal eagles who are allowed to pore over the aggregated documents will do so under a stringent need-to-know basis. “I think we have an order that works for everyone, and we can put aside the debate as to whether it’s really a trade secret or not,” the judge said. “We can just assume that [the documents] contain highly confidential, sensitive information, and there’s … a robust protective order for that. … The recipients should know that I will strictly enforce those terms, [to ensure] the utmost confidentiality.”
Judge Lopez handed down his ruling three days after he’d advised the attorneys to try and work out a compromise among themselves. While the operators and the leagues had been in contact since Tuesday’s hearing concluded, they were not able to come to an agreement on the disclosure issue. As Cox attorney Stuart Lombardi observed in a letter filed to the court on Thursday evening, “It took MLB less than 30 minutes to reject” a proposal by the distributors. (In an email to Lombardi, MLB counsel James Bromley wrote: “Our proposal is our proposal. We now have yours. We will convey this to our client but expect we will proceed tomorrow.”)
The Cox and MLB attorneys have been at odds of late; on Tuesday, Lombardi told the court that communicating with baseball is “like talking to a brick wall.” While all three leagues are on the same page, MLB has assumed the role of Diamond’s most vocal antagonist since the legal proceedings began last March.
After encouraging all parties to adhere to the letter of his decision, Judge Lopez closed out the hearing with a final reminder about what’s at stake. “I have full confidence that everyone will understand that sensitivity that’s there,” he said.
Shortly after Judge Lopez concluded today’s hearing, an attorney could be heard assessing a colleague on the events of the morning. “He split the baby,” the unidentified lawyer said. “He gave us some of what we hoped for, but not …” The line was disconnected before the speaker could finish his thought.