Less than four years ago, Sinclair Broadcasting purchased Fox Sports' regional sports networks (RSNs) from Disney for $9.6 billion. Funded by debt, Sinclair spun off a subsidiary called Diamond Sports Group as the owner.
Late Tuesday afternoon, severely underwater because of that debt burden and rapidly changing patterns in people's TV viewing habits, Diamond filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Southern District of Texas.
The filing was expected and came less than a month after Diamond defaulted on a $140-million interest payment to its creditors.
But what does this mean for Diamond, the teams for which it holds broadcast rights, and fans of those teams? The new baseball season is only two weeks away, while hockey and basketball are in the regular-season stretch drives.
To help understand what this filing means and what happens next, theScore spoke with former Las Vegas bankruptcy judge and Northwestern University bankruptcy law professor Bruce Markell.
"What Chapter 11 allows is for a company to keep operating while it is negotiating how to divide up its value, and it does that through the automatic stay," Markell said.
The automatic stay is perhaps the most powerful tool afforded to the bankrupt company. The protection allows Diamond to maintain its assets, most notably its TV sports rights, to keep its business afloat as it attempts to figure out a way to pay its creditors, reduce its expenses, potentially raise more cash, and fulfill, amend, or shed their TV contracts with clubs.
"Once you file bankruptcy, no one can take any action to collect a debt against you unless you go get court permission," Markell said. "The goal of Chapter 11 is for there to be a plan of reorganization, which is a document detailing who gets what, and who does what."