Sinclair Broadcast Group is being sued by the bankrupt subsidiary it set up four years ago to manage a collection of 19 regional sports networks it paid, ruinously as it turned out, $10.6 billion to acquire.
Early Wednesday evening, cover sheets for two separate but related lawsuits emerged in the document portal set up by the Houston court overseeing Diamond Sports Group's bankruptcy.
One lists Sinclair, company executive chairman David Smith, CEO Christopher Ripley and several other Sinclair executives as defendants, along with Bally’s Corp. All the Diamond-branded holding companies are being sued by Diamond Sports LLC, as well.
The other cover sheet calls out JP Morgan Chase & Co. as the defendant. Diamond lawyers subpoenaed JP Morgan officials two weeks ago.
Next TV wasn’t able to see the actual lawsuits, but an individual with knowledge of the complaints told us that Diamond, equity for which will soon be owned by secondary creditors once restructuring is completed, is trying to claw back Sinclair's preferred equity repayment to JP Morgan.
In February, with Diamond about to enter bankruptcy, Sinclair paid JP Morgan $190.2 million, a transaction that nearly made the investment bank whole on the $1.025 billion in preferred equity units it purchased back in 2019 to help Sinclair buy the Fox-owned RSNs that became Bally Sports.
The plaintiffs contend that even though Sinclair knew the bankruptcy would wipe out all equity in Diamond Sports, including its own, it manipulated the payment schedule so that JPMorgan was nearly made completely whole on its investment.
Put another way: Diamond's lawyers are asking the court why the secondary creditors should be left holding the bag for the bankrupt and bleeding Bally Sports regional sports networks business when JP Morgan got mostly paid in full on its investment?
Entering Chapter 11, the more than $8 billion in debt tied to the original purchase of the Fox RSNs was attached to Diamond and not Sinclair, which has written off its investment and has been largely banished from Diamond management control for some time now.
According to our source, Diamond is also suing over how Sinclair has profited from the $100 million Bally naming rights deal with Bally's Corp.
Diamond also claims that Sinclair charged it too much for management services.
Neither Diamond or Sinclair has yet issued a statement.
Diamond entered bankruptcy in March, aiming to trade equity for debt relief, while using Chapter 11's leverage to compel Major League Baseball to play ball with its direct-to-consumer streaming service, Bally Sports Plus. Diamond also wanted MLB teams with unprofitable local sports linear contracts to lower their fees.
The outcome has been different.
Two MLB teams, the San Diego Padres and Arizona Diamondbacks, refused Diamond's terms and Diamond tore up their contracts. MLB has stepped in and is now showing their games on new channels it has established.
Diamond is now largely paid up with MLB teams for the 2023 season. But with seven still out of the Bally Sports Plus fold, the future remains uncertain.
Updated: An earlier version of this story incorrectly identified plaintiffs. Several other points of legal terminology and nomenclature have also been corrected. We try not to look back, but we do regret errors.
