Litigators of the (Past) Week: S&C and MLB Get Bankruptcy Ruling Forcing Diamond Sports to Pay Full Broadcast Fees
In the age of cord-cutting, it should come as little shock that Diamond Sports Group went into bankruptcy. After all, the company, which owns a string of regional sports networks, entered bankruptcy loaded with debt to fund the costly telecast rights agreements it has with Major League Baseball clubs and other sports teams to broadcast live games.
What perhaps is a bit more shocking is that U.S. Bankruptcy Judge Christopher Lopez in Houston, who is overseeing Diamond Sports’ Chapter 11 case, earlier this month ordered the company to keep paying the full fees due under those agreements to MLB’s Arizona Diamondbacks, Cleveland Guardians, Minnesota Twins and Texas Rangers—a huge early win for sports leagues and teams as other regional sports networks contemplate similar restructuring moves.
Key to the judge’s ruling was evidence of an offer that MLB made in January to buy back the telecast rights from Diamond Sports for the 14 MLB clubs it had deals with—an offer that included the fees Diamond argued were too high as well as $400 million of additional compensation. Lawyers at Sullivan & Cromwell representing MLB and the Twins, led by Jim Bromley and Benjamin Walker, helped lay the groundwork for the term sheet of that deal—part of settlement negotiations that normally would have been inadmissible—to come into evidence during testimony by MLB Commissioner Rob Manfred.
“The testimony is—and I heard Commissioner Manfred say it and there was evidence about it—they believe that their rights are valuable and they can get as much or more for them, and they are willing to put money on the table for that,” said the judge toward the end of the two-day hearing.
“That's why I think that the contract rate is the right answer here,” he concluded.
Lit Daily: What was at stake for MLB and the teams here?
Jim Bromley: MLB and the teams have been actively monitoring the Diamond situation for over two years, focusing on the risks presented by Diamond’s excessive leverage and unrealistic requests to obtain MLB rights to which Diamond had no entitlement. The fundamental goal of MLB and the teams has always been ensuring the uninterrupted broadcast of MLB games for millions of fans.
How did this case come to you and the firm?
Bromley: S&C has a long relationship with MLB on both transactional and litigation matters that are central to MLB’s business. This case is a natural extension of that strong, deep relationship.
Who was on your team and how did you divide the work?
Ben Walker: Jim and Alexa Kranzley (also a bankruptcy partner) had been advising MLB on the Diamond situation for a while. I’ve worked with MLB on a number of other litigation matters over the last several years, and Jim and Alexa brought me in when this dispute heated up. We put together a cross-disciplinary team of bankruptcy lawyers and litigators, including our partner John Hardiman, special counsel Bill Wagener and Akash Toprani, and a cadre of stellar associates. Everyone took on different aspects of the work based on their strengths and experience.
I hear you had about six weeks to prepare for trial under the court’s expedited schedule. What did the run-up to trial look like?
Walker: It was a real challenge. We had to do document discovery, a dozen or so depositions, expert work, legal briefing, and trial prep all at the same time. A lot of sleepless nights, but we got it done.
Who was representing the other teams and how did you coordinate your effort with them?
Walker: White & Case represented the Rangers, Jones Day represented the Guardians, and Gallagher & Kennedy represented the Diamondbacks. Coordination was really critical. Lots of Zoom calls and endless emails.
Describe for me how MLB’s offer to buy back the telecast rights from Diamond Sports for the 14 MLB clubs with which the company has deals came into evidence.
Walker: The other side initially brought it out during their CEO’s direct testimony. We thought that MLB’s offer, properly portrayed, was a good fact for us, so we didn’t object and instead used cross-examination, contemporaneous documentation of the offer, and powerful testimony from the Commissioner to turn it to our clients’ advantage.
How do you prepare for a trial where you don’t know whether you’re going to be able to get one of the key pillars of your case into evidence as was the case here with the term sheet you used to impeach Diamond’s CEO David Preschlack?
Walker: You have to make contingency plans and be ready to react as things develop. We had some other ideas up our sleeve if things hadn’t played out the way they did.
What’s the significance of where the court came out for leagues and teams dealing with regional sports networks and other broadcast rights holders who might come into financial distress?
Bromley: The broadcast of major league sports is in a period of transition. The court provided clear and unambiguous guidance that will allow leagues, teams, and broadcast rights holders to address any issues going forward with less litigation and more negotiation.
What will you remember most about this matter?
Bromley: It was a thrill to work on something so close to the hearts of everyone involved. It was hard fought, but done with the utmost respect. It was law done well, all around.
Walker: I will remember the dedication and professionalism of all involved. Our team, our clients, our co-counsel, our adversaries, and the judge and his staff. Everyone was tremendous.