Judge Pushes Diamond Sports, Leagues to End Disclosure Fight

Over the course of Diamond Sports Group’s 15-month bankruptcy case, presiding Judge Christopher Lopez has been consistent in encouraging all parties involved to try to work out as many of their differences as possible outside the courtroom. During an emergency hearing Tuesday, Judge Lopez put a little extra mustard on his rhetorical fastball, advising attorneys representing the owner of the Bally Sports RSNs and its three league partners that a failure to come to an agreement on a crucial disclosure issue will leave him no choice but to arrive at a decision on his own.

Speaking at the conclusion of today’s hearing at the U.S. Bankruptcy Court for the Southern District of Texas, Judge Lopez asked Diamond’s counsel and lawyers representing the NBA, NHL and Major League Baseball to try to compromise on a hot-button issue related to the media company’s extant distribution deals with the likes of Cox, Charter and DirecTV. In short, the operators are loath to disclose the financial details related to their carriage agreements with Diamond’s RSNs, while the leagues argue that they cannot properly gauge the feasibility of the go-forward plan in the absence of such intel.

“If you leave it up to me, I’ll make the tough call,” Judge Lopez said. “People may not like the call, but I’ll make it.” Lopez went on to add, “I’m not going to hamstring the debtor,” a phrase he uttered three times during the hearing. In other words, the judge intends to see to it that the debtors will be given the opportunity to make their case in a crucial confirmation hearing scheduled for July 29.

“I can assure everyone Friday morning I’ll make all the decisions if you leave it up to me, so I really encourage the parties to think about it,” Lopez said.

Attorneys for the leagues have asked that the operators disclose all financial details of their various agreements with DSG—information that has been kept locked away like so many state secrets since the dawn of the pay-TV era more than 40 years ago. More specifically, the league partners want to know exactly how much distribution revenue the RSNs stand to generate over the course of these carriage deals. But as the operators would have it, the enforced opening of the cable kimono would be disastrous from a competitive standpoint; as Charter’s counsel said, “This information is extremely sensitive information, and allowing it to be disclosed to competitors and the leagues would have a substantial impact and harm” on the distributors.

As Cox attorney Stuart Lombardi noted in a letter to the court dated June 17, such information constitutes “trade secrets” that the cable company “guards closely.” And to that end, those numbers never leak; any projections furnished by third-party data firms are estimates derived from quarterly earnings reports and other SEC documents. (At the risk of indulging in hyperbole, you’re more likely to get a full rundown of the ‘Ndrangheta’s fiscal dealings than get a peek at the inner workings of a non-redacted carriage deal.)

Lombardi went on to cite two legal precedents supporting the notion that “trade secret discovery is only permitted when the production is both material and necessary to the litigation.” At the top of today’s hearing, another Cox attorney said the cable company is particularly frustrated by MLB’s seeming intransigence about the matter, telling the court that negotiations with Diamond’s primary antagonist were “like talking to a brick wall.”

While Diamond has issued financial projections for the next three years, MLB and the other league partners have said their inability to access the contracts effectively makes it impossible for them to take these estimates at face value. In a 462-page filing dated April 17, the company said it expected to generate some $2.17 billion in total revenue in 2024, 81.3% of which will land on the distribution side of the ledger. That figure is derived, in part, from an estimated reach of 29.8 million subscribers.

But as Diamond established in an earlier filing, the RSNs are no stranger to the ravages of cord-cutting. In the period between 2019 and 2023, 35% of the customer base had disappeared, a shift which works out to a loss of 22 million paying customers. Those declines are accelerating; per Diamond’s projections, it will be down to 24.9 million linear-TV subs by the close of 2026, although the addition of an estimated 3.4 million direct-to-consumer customers would somewhat offset the volume of cable quitters.

Overall revenue at the RSNs is expected to fall 24% in the next two years as distribution dollars continue to shrink. Diamond sees carriage revenue dropping 28% to $1.26 billion in 2026, good for a net loss of $498 million from this year’s forecast ($1.76 billion). As that revenue stream declines, advertising will make up a greater percentage of the company’s overall mix—this despite MLB attorney James Bromley’s assertion that “the debtors only get their revenues from their distributors.”

Not so: In 2021, ad dollars accounted for 14.1% of Diamond’s overall revenue, while commercials are expected to make up 18.7% of the company’s haul this year. By 2026, 23.4% of Diamond’s revenue is projected to be contributed by the company’s ad business.

Bromley registered his objection to Judge Lopez’ decision to hold off on making a ruling on the matter until Friday morning. “I respectfully disagree with Your Honor,” Bromley said after the judge suggested MLB may be able to attain the information it desires during depositions scheduled to begin July 10. “In prior depositions, we were simply told, ‘Absolutely not.’ ‘Absolutely not’ is not an acceptable answer.”

For their part, the operators have said they may be amenable toward furnishing aggregate revenue statements to the leagues, rather than break their top-secret data down on a team-by-team and market-by-market basis. Judge Lopez later said that he is agreeable to an anonymized, lump-sum data dump.

As Lombardi’s filing suggested, the operators seem to have more faith in Diamond’s chances at emerging from Chapter 11 than do the league partners. “Cox disagrees [with the assumption] that the debtors will act in a value-destroying manner,” he wrote.

In not ordering the operators to disclose their closely held financial data, Judge Lopez has reinforced his unwillingness to use the instrument of the law to hamper Diamond’s chances at pulling itself out of bankruptcy protection.

“I’m not going to hamstring the debtor,” he said, before voicing his intention to spend the next two days boning up on precedent.

However things shake out on the disclosure front, the wait won’t be long. “I’m going to give them an answer on Friday morning,” the judge said, as he asked the litigants to try and work something out among themselves. “I really want everyone to give it a lot of thought.”