UPDATE 1-Sports broadcaster sues parent Sinclair, alleging $1.5 billion fraud

(Adds Sinclair response in paragraph 4)

By Dietrich Knauth

NEW YORK, Aug 16 (Reuters) - Bankrupt Diamond Sports Group has sued its parent company Sinclair Broadcast Group for fraudulently withdrawing as much as $1.5 billion from the regional sports business, according to a lawsuit made public on Wednesday.

Diamond Sports, which broadcasts nearly half of NBA, NHL and MLB local games through its "Bally Sports" branded channels, said that Sinclair began siphoning the company’s assets away almost immediately upon acquiring it in 2019. Sinclair's actions defrauded Diamond and its creditors, because Sinclair knew that Diamond was "careering toward bankruptcy" due to declining revenue from cable and satellite television subscriptions, according to the lawsuit.

"Throughout 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," Diamond wrote in a complaint filed in U.S. bankruptcy court in Houston, Texas.

Sinclair said on Wednesday that Diamond's claims were without merit and that it would vigorously defend itself. Sinclair said last month that it was aware that Diamond had filed a lawsuit under seal.

Sinclair acquired Diamond, which previously broadcast games under the "Fox Sports" brand, in a $10 billion deal that helped clear the way for Disney's acquisition of Twenty-First Century Fox Inc's film and television assets.

Diamond's complaint alleges that Sinclair quickly used Diamond's funds to pay off part of Sinclair’s costs in acquiring the company. Sinclair later collected "extortionate" management fees from Diamond and pocketed most of the money raised in a deal that rebranded Diamond’s channels as "Bally Sports," according to the complaint.

Diamond filed for bankruptcy in March, seeking to finalize a settlement with its lenders and renegotiate its MLB contracts. Diamond has said it needs the right to stream baseball games online to make up for lost revenue from declining customer cable subscriptions. (Reporting by Dietrich Knauth in New York Editing by Matthew Lewis)