A federal bankruptcy judge has canceled a media deal the Phoenix Suns announced with Gray TV, ruling that it violated the existing regional sports channel’s rights under bankruptcy law. Diamond Sports, parent of Bally Sports Southwest, is in Chapter 11 bankruptcy proceedings. Here’s what you need to know:
- On April 28, the Suns announced an agreement between the franchise and local television company Gray and Streamer Kiswe. That deal was canceled, according to a ruling by bankruptcy judge Christopher Lopez, who read it off the stand.
- While Bally Sports Southwest did not have any games left to broadcast under its contract with the Suns, it did have right of first refusal to match any potential new agreement the Suns committed to.
- The Diamond and the Suns have to negotiate whether the bankrupt regional sports company has the right to match an alternative deal, and Judge Lopez ordered that process happen quickly given that the Suns argued that uncertainty about where their games would be held could dampen their financial prospects the following season.
How did we get here?
Under bankruptcy law, the debtor’s assets — in this case, the Suns’ RSN agreement with Diamond — are frozen in place, or remain, until a reorganization plan. Judge Lopez ruled that despite the Suns’ argument that all they had done was set up an initial media agreement, it violated the automatic stay.
“What I’ve found is that the Suns say one thing outside this court and another thing on it,” Lopez said after a nearly five-hour session, which consumed the first two hours of fruitless settlement talks between the parties.
In court, The Suns and Gray argued that their agreement was contingent on reaching a decision on right of first refusal. But Lopez noted that no such language was included in the first communications the Suns sent to Diamond on April 19, and only after Diamond protested in a series of letters did the basketball team add a line to the April 28 press release announcing the media deal that The arrangement was subject to approval by the existing regional sports channel.
“There is no real response to[Diamond’s]April 25 or April 27 letters, and instead the Suns are launching a mass media campaign about the new agreement praising its benefits,” he said.
Diamond’s attorney, Brian Hermann of Powell, Vice, essentially using the term “insidious,” argued that the Suns tried to get away with one of them with an April 19 notice to the media agreement because the correspondence did not include a privilege that Bally Sports SW had a right of first refusal. She had five days from the date of notification to implement her right to first preemption. This was a line of argument with which Judge Lopez agreed.
“It’s indisputably the Suns sent a letter to Diamond Arizona to let them know what we’ll call an offer from Gray and Kisoe,” Lopez said. “I wish to point out and state on the record that the accompanying document…does not state that the Agreement is subject to any rights of Diamond, Arizona under the present Agreement. That language as we now know it has been intentionally omitted.”
The Suns argued in papers this week that they were not breaching the Diamond contract and, in any case, RSN would have little chance of a match as the new Gray/Kiswe deal would increase the team’s potential viewership from 800,000 under Bally Sports to 2.4 million. But in arguments Tuesday, Hermann said the rights fee the Suns paid Diamond is higher than the amount agreed upon with Gray, and the right of first refusal allows Bally Sports to match a lower bid. The Suns countered that the additional exposure along with being on free television would allow the team to charge more for sponsorship.
What then?
Whatever the case, the parties, the Diamond and the Suns, must enter a dispute resolution process to adjudicate their differences over whether the existing RSN can match the canceled Gray/Kisme deal. If the Suns win that ruling, they could revive the now-closed media deal.
Judge Lopez denied Diamond’s request for damages against the Suns, though he reserved the right to reconsider. It also ruled that Gray and Kisuye did not violate bankruptcy law.
The teams are “excited to continue giving our fans the best possible experience and making our games more accessible,” Suns and Mercury CEO Josh Bartelstein said in a statement later Wednesday. He added that they are “committed to working collaboratively to reach a fair decision that is in the best interest” of their fans, community and players.
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(Photo: Kate Frese/NBAE via Getty Images)