Regional sports broadcaster Diamond Sports is suing parent company Sinclair Broadcast Group over an alleged fraudulent scheme to bilk the subsidiary out of $1.5 billion in funds.
The lawsuit, filed under seal last month and made public this week, accuses Sinclair of raiding Diamond’s bank accounts almost immediately after the company acquired the regional sports network group from the Walt Disney Company in 2019.
The complaint says Sinclair knew Diamond was headed for an “inevitable bankruptcy,” but concealed certain facts from creditors and investors.
“hroughout this entire period of precipitous decline, Sinclair unrelentingly continued to carry out its plan to ‘milk’ Diamond for Sinclair’s own benefit and to extract whatever value it could salvage before Diamond’s inevitable bankruptcy,” the lawsuit states.
Diamond filed for Chapter 11 bankruptcy protection earlier this year. In court filings reviewed by The Desk, Diamond says it owes various creditors — including U.S. Bank, the Arizona Diamondbacks, DirecTV and Intelsat — around $8 billion.
Before the bankruptcy filing, Diamond says Sinclair misappropriated funds to pay down unrelated debts connected to other parts of its businesses. The complaint also accuses Sinclair of being the main benefactor of a licensing deal that saw the Diamond-owned channels rebranded from Fox Sports to Bally Sports.
In a filing with the U.S. Securities and Exchange Commission, officials at Sinclair said they felt the allegations were “without merit,” and that the company intends “to vigorously defend against plaintiffs’ claims,” using boilerplate language that most attorneys rely on when crafting statements on behalf of civil defendants accused of wrongdoing.
The lawsuit adds a new layer of complexity in Diamond’s bankruptcy case, which has seen some professional sports teams and leagues reclaim broadcast rights to certain games for themselves.
Around the time of the lawsuit against Sinclair, Diamond elected to void a long-term telecast agreement with the Arizona Diamondbacks, a move that resulted in the team working with Major League Baseball to produce games on their own and distribute them through other cable channels and via streaming.
The bankruptcy case has also weighed on Sinclair, with the company reporting a financial loss of $89 million in the first full quarter since Diamond’s Chapter 11 case began.