Analysis: How Would BallyBet Be Affected By Diamond Bankruptcy?

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A potential bankruptcy for the owner of Bally’s-branded regional sports networks could be a huge hit for BallyBet and its customer acquisition pipeline.

According to a Jan. 25 report from Bloomberg, Diamond Sports Group likely will undergo a restructuring of more than $8.6 billion in debt in bankruptcy court. How that process shakes out could leave some of the 19 Bally Sports RSNs without their biggest draws: local professional teams.

This report follows recent news that Bally’s is laying off up to 15% of its interactive workforce.

Bally’s spent nearly $3 billion to build out BallyBet

Bally’s seemingly went all-in to build out BallyBet, but it has seen little return for those efforts so far. BallyBet does not have even 1% share in any of its active markets.

The biggest chunk of the more than $3 billion spent on the interactive division was on the Gamesys acquisition. Bally’s paid $2.08 billion in cash and included more than $500 million in stock to complete the purchase.

There were also six other acquisitions that put substantial hits on the balance sheet:

The nearly 12.1 million in shares distributed for these deals were worth $651.9 million when their respective acquisitions closed. They are currently worth $236.9 million based on Friday’s closing price of $19.61.

How Bally’s-branded channels could lose contracts

Those with knowledge of the process told Bloomberg the most likely outcome is Diamond’s largest creditors becoming owners. They would restructure the company with the intent to sell later this year.

While restructuring, Diamond could end unprofitable contracts with teams, meaning the end of Diamond’s streaming rights to the teams. Insiders broke down the hefty cost of some of those contracts to the New York Post:

Diamond, for example, is currently locked into a money-losing contract to pay the San Diego Padres $60 million a year through 2032, two sources said. Most of Diamond’s MLB contracts are unprofitable, while maybe half its NBA deals are losing money and a handful of its NHL agreements are in the red, according to a source.

RSNs a vital piece of BallyBet pipeline

Bally’s expected these branded RSNs to be a major pipeline to acquire new customers for their online gaming ventures.

It has not worked as expected, though. Diamond’s third-quarter report showed revenue from those channels fell 11% as more customers are cutting the cord on cable. The company launched a direct-to-consumer streaming service for $20 a month and also is considering an option to let customers pay for access to individual games.

Bally’s CEO Lee Fenton said the company is focusing on markets that could legalize iGaming in 2023. The sports-only markets will not be supported by marketing dollars until the company is confident its user experience and technology is where it should be, he said during Bally’s third-quarter conference call.

Fenton also said the RSNs still “form part of our plan, and we think we get tremendous best-of-branding benefit from it.” That is a significant step down from how bullish the company was on RSNs when the deal was announced in November 2020.

At the time, Chairman Soo Kim said the agreement gave Bally’s an opportunity to “revolutionize the US sports betting, gaming and media industries.”