Amazon’s Move Brings Yankees to the Edge of Victory

Diamond Sports has put forth a restructuring plan that introduces the possibility of Amazon and the New York Yankees attaining near-parity ownership of the YES Network, a New York-area Regional Sports Network (RSN) that broadcasts major sports teams such as the Yankees, Brooklyn Nets, and WNBA’s Liberty. This strategic move is outlined in Diamond Sports’ recently proposed restructuring agreement, which seeks to raise nearly $1 billion through various channels.

The proposed deal involves Amazon contributing $115 million for a two-year convertible note in Diamond Sports. While the financial injection seems modest, Amazon’s demands are significant. The convertible note structure means that Amazon would receive interest payments, approximately $7.2 million per year, and recoup its entire investment within 24 months at the latest. Additionally, Amazon could opt to convert its note into a 15% equity stake in Diamond. This potential equity ownership comes with a bonus option, allowing Amazon to purchase an additional 10% equity in Diamond for an extra $50 million.

In the corporate world, companies undergoing Chapter 11 bankruptcy proceedings often seek restructuring agreements to enhance their chances of survival. However, these deals carry risks for investors, as demonstrated by a Harvard Business School working paper indicating that a notable percentage of businesses with restructuring agreements re-entered bankruptcy or were acquired within two years of emerging from Chapter 11.

To safeguard its investment, Amazon receives collateral in the form of the 20% equity that Diamond Sports owns in the YES Network. This equity, which represents a portion of the network’s ownership, is pledged as collateral to secure Amazon’s investment. If Diamond Sports defaults on payments or fails to repay the $115 million within two years, Amazon could claim this YES equity. Given that the YES Network was valued at $3.47 billion enterprise value in 2019, Amazon could potentially gain access to equity worth nearly $700 million based on the 2019 valuation.

While there is a risk that Diamond Sports might not achieve long-term financial stability, Amazon’s investment in the YES Network serves as a valuable asset to offset potential losses. The agreement stipulates that the YES equity is dedicated solely to guarantee Amazon’s investment. This means that, in the event of a default, Amazon would have priority claim to the YES equity.

The Yankees currently own 26% of the YES Network, while Diamond Sports and Amazon own 20% and 15%, respectively. Other stakeholders include Blackstone, Mubadala, and RedBird, each holding 13%. By exercising its option to convert the note into equity and potentially acquiring additional equity, Amazon could become a 25% owner of the YES Network within approximately two years.