Vince McMahon

Discussion of Vince McMahon on the call was minimal. McMahon still owns 11.8% of all TKO shares, although he resigned from his roles with TKO and WWE last month.
“[Vince McMahon will] do whatever he’s going to do and we’re on the sideline,” TKO COO Mark Shapiro said in response to an analyst question on whether McMahon intends to sell any of his shares.
“We’ll have a look, we’ll see. We have no idea on timing. We’re not having any discussion with him. He’s given us no point of view on his motive or if he plans to sell or not sell, or if he does, how much. So we’re going to wait around and find out just like you.”
Because of his resignation, McMahon was forced to forfeit 86,918 shares of unvested stock compensation, which have a market value of about $7.4 million. Those forfeited units are nominal compared to the 20,352,105 TKO shares he still holds.
TKO’s annual report makes clear, as previous TKO and WWE filings have previously, that McMahon is still paying “certain counterparties” installments. This refers to various nondisclosure agreements McMahon made to prevent women who formerly worked for the company from possibly coming forward with sexual misconduct claims. Despite McMahon’s recent separation from the company, these costs are still being counted toward TKO’s expenses and liabilities.

In connection with the acquisition of WWE, the Company assumed $3.5 million of liabilities related to future payments owed by Mr. McMahon to certain counterparties, of which $2.0 million was paid directly by Mr. McMahon during the period of September 12, 2023 through December 31, 2023.

MLW got a $20 million settlement

TKO’s annual report revealed WWE settled with MLW for $20 million to dismiss MLW’s antitrust lawsuit against WWE in December. From TKO’s annual report:

On December 22, 2023, the parties [WWE and MLW] notified the court that they had entered into a settlement agreement in the amount of $20.0 million and stipulated that the case should be voluntarily dismissed with prejudice. In light of the settlement, the case was dismissed with prejudice on December 26, 2023.

My reading of the statement in the filing is that WWE paid $20 million and didn’t pay anything additional toward MLW’s legal costs. MLW likely shared a healthy portion of the settlement amount with the high-profile Kasowitz firm that was representing MLW. Read literally, WWE’s $20 million settlement cost wouldn’t include any of WWE’s own legal costs toward litigating this case.

Ari Emanuel is TKO’s new Chairman

TKO CEO Ari Emanuel was established as TKO Board Chairman, as of Feb. 22, replacing Vince McMahon in that role. Emanuel was already a TKO Board member previously. Steve Koonin, who works full-time as CEO of the Atlanta Hawks and State Farm Arena, has been established as lead independent director.

Financial stuff

For the full year of 2023, WWE generated $1.326 billion in revenue. UFC generated $1.292 billion.
TKO’s net income (the final measure of profitability) for the year was $175.7 million. In future years the company should be more profitable as this year was impacted by merger, restructuring, and severance costs. In 2022, WWE and UFC. combined, recorded $389 million in net income.
Both companies were profitable in 2023, but UFC is more profitable, despite generating slightly less revenue. TKO breaks down separate profitability metrics for WWE and UFC only into its preferred non-GAAP measure, adjusted EBITDA (which excludes interest costs, taxes, depreciation, amortization, legal costs, merger costs, and other expenses at TKO’s whim). By that measure, UFC recorded $755.7 million and WWE recorded $533.1 million for 2023.

Dwayne Johnson’s IP deal

The contract giving Dwayne Johnson all rights to intellectual property related to his Rock character was disclosed in the annual report. As part of his agreement to join the TKO Board last month, the company had already disclosed that Johnson was given these IP rights as well as $30 million in TKO stock. The stock will be given to him in installments through the end of 2025.
To contrast how valuable Johnson’s Board deal is, Brad Keywell, founder of an AI software company, was added to the Board at the same time and was given a stock award of $182,000 and an annual retainer of $107,000.
The IP contract, which wasn’t previously published, details the IP Johnson now has rights to, which includes the name “The Rock”, “Rocky Maivia” and many of his well-known wrestling move names and catchphrases. From the agreement:

“Rock IP” means any and all Intellectual Property Rights throughout the world at any time owned by the TKO Group Parties, or any of their respective Affiliates, whether registered or unregistered, relating to (a) the following ring names and taglines: “The Rock”, “Rocky Maivia”, “Team Corporate”, “Rock Nation”, “The Nation”, “Roody Poo”, “Candy Ass”, “Jabroni”, “If you smell what The Rock is cooking”, “The Samoan Sensation”, “The Blue Chipper”, “The Brahma Bull”, “The People’s Champion”, “The Great One”, “Know Your Role and Shut Your Mouth”, “Team Bring It”, “The Rock Just Bring It”, “The People’s Elbow”, “Rock Bottom”, “Finally, The Rock has come back to …”, “It doesn’t matter what…”, “Blue Hell”, “The millions… (and millions)”, “Rockpocalypse”, “Project Rock” and “The most electrifying man in sports and entertainment”, (b) the logos and all other Intellectual Property Rights set forth on Schedule A, (c) all other service marks and trademarks relating to the items in clause (a) and (b) and (c) all other nicknames, caricatures, voice, signature, gestures, routines, costumes or parts of costumes, accessories, crowns, relating to the items in clause (a) , (b) or (c).

Where will Raw air in the U.S. from October to December?

TKO CFO Andrew Schleimer said the company is working on distribution for U.S. broadcast rights for Raw for the fourth quarter of this year. There’s currently no TV home set for Raw for October through December of this year. Raw’s deal with NBCUniversal to broadcast on the USA Network expires at the end of September 2024, and the Netflix deal doesn’t start until January 2025.

“We are in the process of securing distribution for Raw during the interim period in Q4,” Schleimer said on the call. “We will provide further details once we have an update.”

Due to uncertainty about what revenue U.S. Raw rights will provide in the fourth quarter, TKO assumed no profitability toward U.S. rights for Raw in that period included in the company’s guidance of $1.15 billion to $1.17 billion in adjusted EBITDA for the full year of 2024.

WWE business percentage differences: attendance, PLE viewership

The earnings release stated WWE’s live event average attendance increased by 34% in 2023, but no actual average attendance number was given.

We have 2022 full-year numbers, though, for WWE pre-merger. If we assume TKO is referring to worldwide attendance, then, this disclosure would imply average annual attendance for WWE in 2023 was about 8,300.

That’s based on WWE’s 2022 reporting that it ran 231 events, drawing a total of 1,429,800 attendees for an average attendance of about 6,200.

I believe these numbers reflect paid attendees. Checking these numbers against WrestleTix’s estimates of tickets distributed, WWE distributed an average of 6,962 tickets in 2022 and 8,980 in 2023, an increase of 29%, a delta close to the 34% reported increase.

In case the release actually refers only to U.S. and Canadian attendance, WrestleTix numbers confirm a closer percentage difference: 6,753 in 2022, up 32% to 8,945 in 2023. In that case, WWE reported North American average attendance in 2022 of 6,070. A 34% increase over 6,070 would imply North American average attendance in 2023 of about 8,100.

TKO’s release also said the two PLEs in 2023 saw domestic viewership increases on Peacock of 25% (presumably Fastlane) and 22% (presumably Survivor Series).

PLE viewership on Peacock continues to benefit from increases in Peacock subscribers, which were at 31 million in Q4, up 55% from 20 million subscribers in Q4 2022, according to Comcast’s reporting.

TKO stock response

As of 11:00 am ET on Wednesday, TKO shares were trading at $85.27, down about 1%, just under the major indexes, on the first day of trading since the company reported earnings on Tuesday evening.

MoffettNathanson lowered its stock price target to $90, down from $95 previously, according to Mike Ozanian of Forbes.