Sinclair Broadcast Group Inc. wrongfully drained at least $ 1.5 billion from its regional-sports-network subsidiary in the years leading up to its bankruptcy, a new lawsuit alleges.
In a lawsuit filed last month but made public Wednesday, Diamond Sports Group — which broadcasts nearly half of all Major League Baseball, National Basketball Association and National Hockey League games — accused its parent company of a “nefarious strategy” that sent it “careening toward bankruptcy.”
Bloomberg News first reported details of the lawsuit Wednesday.
According to the lawsuit, which was filed in U.S. Bankruptcy Court for the Southern District of Texas, Sinclair took more than $ 100 million a year in management fees from Diamond after acquiring the sports network for $ 10.6 billion from the Walt Disney Co. DIS, -0.82% in 2019, loaded it with billions in debt and funneled resources from the company while its business was left to languish.
According to the suit, MLB Commissioner Rob Manfred testified that Sinclair Executive Chairman David Smith told him in late 2021 that he intended to “continue to milk” Diamond out of hundreds of millions in management fees along with “whatever else” he could take from the company until Sinclair’s original investment in the regional sports network was recouped.
MLB Chief Revenue Officer Noah Garden corroborated that story, the suit says, testifying that Smith threatened to “continue to milk [Diamond] for its fees that were owed to Sinclair and he was going to put [Diamond] into bankruptcy.”
“In this regard, at least, Smith was true to his word: that is just what he and Sinclair did,” the suit says.
When asked for comment Wednesday evening, a Sinclair spokesperson referred to a statement from when the suit was original filed, which said: “We firmly believe the allegations in this lawsuit are without merit and intend to vigorously defend against them.”
Diamond operates its networks under the Bally Sports name, and filed for bankruptcy in March. As of March, it had 19 regional sports networks and broadcasts games for 14 MLB, 16 NBA, 12 NHL and five WNBA teams, in major markets such as Southern California, Atlanta, Dallas, Detroit, St. Louis, Miami, Phoenix and Minneapolis.
Regional sports networks have been bleeding money in recent years, as viewers have dropped their cable TV subscriptions in favor of streaming. That has led to slumping revenue and shortfalls against the massive, long-term broadcasting deals networks have made with pro sports leagues.
Sinclair shares SBGI, -4.93% are down 12% year to date, and have sunk 46% over the past 12 months, while the S&P 500 SPX has risen 15% this year and is up 3% over the past year.