Sinclair Broadcast Group Inc. is accused of wrongly siphoning more than $1.5 billion from a subsidiary operating a network of local sports channels that filed bankruptcy earlier this year, according to a lawsuit made public Wednesday.
(Bloomberg) — Sinclair Broadcast Group Inc. is accused of wrongly siphoning more than $1.5 billion from a subsidiary operating a network of local sports channels that filed bankruptcy earlier this year, according to a lawsuit made public Wednesday.
The subsidiary, Diamond Sports Group, claims in a lawsuit against Sinclair that its parent company extracted substantial sums from the broadcaster after acquiring the business from The Walt Disney Company in 2019 in a deal valued at $10.6 billion. Sinclair continued siphoning assets as Diamond’s business deteriorated while losing customers and major distribution partners including DISH Network LLC, according to the lawsuit.
Diamond, which runs local sports channels under the Bally Sports brand, sued Sinclair last month but the allegations in the complaint had been kept from public view until Wednesday. Diamond filed Chapter 11 in March with a proposal to cut about $8 billion in debt.
Sinclair didn’t immediately return a message seeking comment. A Sinclair spokesman previously said the company was aware of Diamond’s lawsuit, that allegations in the complaint lack merit and that the company intends to vigorously defend against them.
The complaint accuses Sinclair of charging Diamond exorbitant management fees totaling more than $100 million a year and also claims its parent company funneled from its subsidiary roughly $929 million, funds that were ultimately used to redeem preferred equity issued to JP Morgan Chase Financing Inc., which helped finance the 2019 acquisition.
The lawsuit also cites testimony from earlier in Diamond’s bankruptcy by MLB Commissioner Robert D. Manfred who said under oath that Sinclair Executive Chairman David Smith told him in a 2021 meeting he planned to use management fees to “milk” Diamond and recover the parent company’s investment before sending the business to bankruptcy.
“In this regard, at least, Smith was true to his word: that is just what he and Sinclair did,” Diamond’s lawsuit said.
Regional sports networks like the one Diamond operates have been under financial stress as more consumers cancel their cable and satellite TV service. The lawsuit said Diamond was likely insolvent within months of the Sinclair deal closing in August 2019, if not earlier. Diamond said the loss of DISH was a major blow to its bottom line, a problem that was exacerbated when other important distribution partners YouTube TV and Hulu dropped regional sports networks.
The case is Diamond Sports Group LLC, 23-90116, U.S. Bankruptcy Court, Southern District of Texas.
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