WWE PPV Rights Value Estimate and Implications

by Brandon Thurston
bhthurston@gmail.com

I estimate the sale value for broadcast rights of 12 annual WWE main roster pay-per-view events to a major streaming player to be between $105 million and $161 million (median: $133 million).

In the scenario where the WWE Network direct-to-consumer streaming service continues to exist but with paid subscribers reduced by about 80% due to loss of live PPVs, and provided no other lines are adversely affected, I estimate such a deal would result in an additional $13 million to $87 million (median: $50 million) in annual OIBDA for WWE. The range is widened by my uncertainty about the expense related to PPV events. Guggenheim implied it believes PPV events cost an average of about $4.5 million per event, which sounds high to me, even though talent costs have likely increased since 2018. This estimated range also may be low for 2020 because WWE Network subscription cancellations would likely occur at a high rate around the timing of the first PPV not available live on the DTC service, then continuing gradually throughout the year of 2020 or beyond, before reaching a steady state

1. How did you formulate this estimate?There are a number of possible scenarios as to what the actual package WWE may offer to a streaming player. Will the package include only WWE’s main roster PPVs (about 12 annually, maybe more)? Will it include NXT Takeovers as well? Or is WWE looking at selling its entire WWE Network service (archival library and all) to be offered to consumers by the partner as a premium add-on (perhaps a fit for a partner like Amazon Prime Video)? There’s also uncertainty around just how the streaming partner would then offer whatever content package is acquired. Will some or all PPVs be sold on an upcharge? Or will they be available as part of a monthly subscription? Or some combination?

For the purposes of this estimate, I assumed about 12 main roster PPVs would be sold and that the WWE Network would still operate and offer the remaining content at current price point. I estimated WWE Network subscribers at a steady state would thereafter drop to 20%, or about 300,000 paid subs, which is somewhat reflective of the results of an informal poll I took this month. Of those who were current subscribers, about one-third said they would keep the Network if it stopped offering the PPVs. Knowing the 492 respondents to this poll probably represent a more dedicated population of fans, and to be aggressive, I arbitrarily estimated a 20% retention on WWE’s current paid subscribers of about 1,500,000, or 300,000 subscribers.

How did you estimate the value of WWE’s PPV broadcast rights?

The value of PPV broadcast rights was estimated partly based on extrapolating from the known value of WWE’s U.S. broadcast rights for Raw, which have a reported average annual value of $265 million. Since Raw is a 3-hour weekly program, producing 156 hours per year, we can say it has an hourly value of $1.7 million. Not including “Kickoff” pre-show programming, the most premium portion of PPV events are about 3 hours each. Major PPVs are even longer, but for simplicity and to be conservative, I decided to count PPVs at 3 hours each. At 12 PPVs per year (I’m not counting Saudi Arabia events since they’re counted under a different revenue line), that means 36 hours annually.

Former WWE co-president George Barrios was fond of analogizing, I think fairly, that WWE’s PPVs were its “playoffs”, and Raw and Smackdown, the “regular season”. It seems clear to me that PPV hours should be more valuable than Raw hours. But at what factor? I could see a factor as low as 1.5x. Former AXS TV executive Adam Swift suggested a higher factor of 2.2x. The uncertainty around this factor accounts for much of the range of my estimate. But on this basis alone, we get to a value of somewhere between $77 million and $135 million.

The service that purchases WWE PPV rights, though, will essentially be advertised all over WWE TV, social media and live events. What’s the value of that?

An estimate of WWE PPV rights value should include the de facto marketing value that would benefit the service that becomes the distributor of WWE PPV events. The cost of ad units for Raw and Smackdown I believe to be about $25,000 each. The number of units that such a relationship would have equivalent value to is hard to guess. If we arbitrarily estimate the streaming service benefits from somewhere around the equivalent of 10 units per week, that comes to an annual marketing value of $13 million ($25,000 * 10 units * 52 weeks). WWE also has strong global reach across major social media platforms. All these media can be used to market the buyer’s service as the new home of WWE PPV events.

Adding $13 million to the above range of $77 million to $135 million, we get a new range of $90 million to $148 million for the estimated value of WWE PPV rights.

How was WWE Network OIBDA estimated?

Under WWE’s previous reporting method, before 2018, the company reported OIBDA on the Network segment. Besides Network subscription sales, the segment includes traditional PPV sales. Isolated PPV sales might have a higher OIBDA margin than Network subs, although traditional PPV sales likely makes up a dwindling minority of the finances in this line as time goes on following the launch of the Network in 2014.

The first year of the Network was not profitable due to start-up costs. 2015, 2016 and 2017 were profitable and resulted in an average 29% OIBDA margin, which I applied to the following years for which OIBDA margin is unknown. The inverse relationship between Network programming expense and OIBDA margin is actually fairly strong (r²=0.789). Network programming for the 2 years with unknown OIBDA margin (2018 and 2019) was lower than any of the first 3 (2014, 2015, 2016), so estimating an OIBDA margin of 29% for unknown years may be conservative. Estimated operating income margin of 27% for unknown years was formulated similarly.

The estimated cost to run an average PPV event was estimated as between $2.2 million and $3.7 million. This estimate would be skewed by the high cost of Wrestlemania but not by the cost of Saudi events which are covered by revenues of about $50 million per event, reported by WWE in its Other media segment, as opposed to the Network segment.

Estimated annual PPV cost was calculated simply by multiplying estimated PPV cost by the known number of PPVs.

In the alternative scenario, the WWE Network could go on with its current plan, continue offering the standard $9.99 tier and launch a premium tier with an estimated average price, to be aggressive, of $18. Assuming WWE converts 20% of its subscriber base to the premium tier, and Network subscribers decline overall at a rate of 7% (consistent with Q1 guidance), I estimate Network revenue for 2020 at $200 million and segment OIBDA of $58 million.

2. What’s the best strategy for a third-party streaming player selling WWE PPVs? I think the most profitable strategy would be to include access to live monthly PPVs as part of a recurring subscription fee with a similar price point to WWE Network’s $9.99 rate, but to sell Wrestlemania on an up-charge of $69-$89.

Based on Google searches, I’ve studied what WWE PPV sales might be like if the WWE Network had never launched and PPV events were still primarily offered via traditional PPV.

Even with WWE’s current level of popularity, I believe wrestling fans would still turn out in high numbers to pay a high fee for the biggest PPV event of the year. Wrestlemania could generate up to $55 million in gross sales if sold worldwide as an individual item with a $79 price point (700,000 buys * $79 = $58 million).

WWE’s other PPVs may be better off as part of a monthly subscription bundle, although there’s peak value in the Royal Rumble in January and Summerslam in August.

3. What are the risks for WWE of moving main roster PPVs to a major streaming service? I think it’s likely such a move will contribute to a gross decline (and since I see no turnaround on popularity in sight otherwise, a net decline) in WWE popularity, thus adversely affecting WWE revenue downstream, unless friction related to the transition of WWE PPV access is minimized as to be nearly seamless.

If the PPV move requires the average WWE Network subscriber to regain access to PPV viewing by creating a new account on a separate streaming service and paying an additional subscription fee, that friction will serve as a convenient break point for lasting disengagement with WWE. Subscriptions the partner gains from acquiring PPVs will fall well short of WWE’s current declining base, even if the offering includes Wrestlemania in the bundle.

Customers, who may already feel disenfranchised by perceived declining quality of WWE programming and its inability to create major stars, may more fully disengage if faced with a complex and more expensive total offering of the same content currently provided by the WWE Network. The sale of WWE PPV rights may result in customers needing to keep their $9.99 Network subscription as well as buy an additional service in order to maintain access to the content they currently buy for $9.99 per month.

This risk might be minimized if there’s a solution that neatly brings WWE Network subscribers into the streaming partner’s interface, possible with free trial access.

AEW & NXT Quarter-Hour Viewership Study

Methodology

What data was collected? P2+ viewership for every quarter hour of NXT and AEW Dynamite television programs, going back to October 30 in the case of AEW and November 6 in the case of NXT. P18-49 viewership was also collected for most but not all of the weeks in this timeline. Therefore we’ll rely most on the P2+ metric. This data was collected by Cory (@voidtoaster1992) from issues of the Wrestling Observer Newsletter.

What do P2+ and P18-49 mean? These metrics represent Nielsen’s estimate of the number of viewers watching the program during a given quarter-hour. P2+ means all people viewing over the age of 2. P18-49 means all viewers between ages of 18 and 49. The latter demographic is often considered more valuable to advertisers.

So what did you do with the data? I tried to use math to make a fair assessment about which quarter-hours exceeded expected performance and which personalities’ appearances coincided with viewership expectations being exceeded, or the opposite.

How did you do that? There are factors that may skew a quarter-hour’s viewership. For example, the opening quarter of both programs is often one of the most viewed, as is the segment at the start of the second hour. Likewise, the 7th segment is often among the least viewed of either program.

How did you adjust for those inherent advantages and disadvantages? For every data point (every quarter-hour), I determined an “Expected Viewership” based on what the average viewership of the program would have been without the given quarter-hour and what the average viewership of the given segment number would have been over the entire timeline. Overall, I used a 3-step process to determined “Expected Viewership” for all data points:

1. Find the degree to which each data point deviates from the mean: For all data points, find the % to which a given data point was greater or less than the average of all quarter-hours for the given week’s program. I also found the +/-% for the average for the entire week’s program compared to the average of all programs in the timeline.

2. For each data point, find what the program’s average +/-% versus the overall +/-% average would be if that data point was factored out.

3. For each data point, use the corresponding +/-% result found in the previous operation and multiply it by the segment average, then add it to the segment average.

After you determined “Expected Viewership”, then what? Then I subtracted the Expected Viewership from the Actual Viewership, for each quarter-hour. I calculated this both in terms of number of viewers and as a percentage. The result is an attempt to answer whether a given quarter-hour over-performed or under-performed versus expectations.

Why didn’t you just measure viewership lost or gained from one segment to the next? Such a study would be skewed by the quarter-hour bias discussed above, and would not provide the fairest assessment of whether a quarter-hour’s viewership met, exceeded or fell below expectations. Determining an expectation that tries to factor in quarter-hour bias seems like the best alternative with the data available.

There are other factors I would have liked to consider, like commercial breaks, but doing so would require minute-by-minute viewership data that is not available.

What other weaknesses does this study have? We used descriptions from the Wrestling Observer Newsletter to label what happened during each quarter-hour. These descriptions are not exhaustive. Although they name the key people involved, they do not name every person who appeared onscreen during the quarter-hour, nor do they give credit for how long they appeared within the 15-minute period. Again, a minute-by-minute analysis of each program would allow for a more comprehensive analysis.

You can look over all the math for yourself here: https://docs.google.com/spreadsheets/d/1FAowangTzZ5AHs72tsH530An169of2pw_GuqDdw5B6w/edit?usp=sharing

Findings

Since the P2+ data is more complete, we will focus on that metric and less on P18-49 for which we have incomplete data.

The tables below show the top and bottom 16 quarter-hours that over- and under-performed expectations, respectively, for each NXT and AEW Dynamite.

See the spreadsheet in tabs “AEW quarters ranked” and “NXT quarters ranked” for full view.

Of the names in our labels, which are associated with the most positive differences (in Actual Viewership vs. Expected Viewership) on average?

The results are below. Again, this is based on quarter-hour analysis only and doesn’t account for how long each person was onscreen for during a given 15-minute segment, nor does it account for who they appeared along with. There are also problems with collective names. For example, when the Inner Circle or Undisputed Era appears in a label, the individual members names often do not; the stable is credited, the individuals often are not.

The below is a screenshot from the spreadsheet used for this study. Short names or last names were used to search because sometimes in labels a person is referenced only using that shorter version of their name.

Instances are filtered to a minimum of 5 label appearances. This rules out some who have high percentages but who only appeared a few times, as those associated with positive effects consistently over the timeline.

It’s remarkable that women dominate the top-ranks for NXT by this analysis. Likewise, the individual male main eventers for NXT are absent from the top end of the list, although Adam Cole’s Undisputed Era makes the list.

AEW is topped by Chris Jericho’s Inner Circle stable, followed by MJF and Cody who are involved in a feud.

"XFL Lawsuit" Update

Public filings with the Delaware court show WWE responded on February 4 to a complaint and demand for records by a plaintiff, Oklahoma Firefighters Pension and Retirement System, with a motion to dismiss.

The plaintiff, a WWE shareholder, alleged conflicts of interest against WWE and Vince McMahon, previously outlined in the tweet thread linked below. In brief, they’re suspicious the XFL intellectual property was sold and WWE employee services are being sold to XFL at a rate below fair value.

Thread: Some notes on the XFL lawsuit… https://t.co/L1rLiGclQq
— Brandon Thurston (@BrandonThurston) January 3, 2020

WWE contradicts the plaintiff’s claims (more on that below). WWE argues the plaintiff’s demand fails to comply with the requirements because the demand is under oath of plaintiff’s counsel instead of the plaintiff, and therefore the demand should be dismissed.

WWE’s response states in a footnote: “Since WWE announced the XFL transactions questioned in May 2018, no other stockholder has complained about or questioned the transactions.”

According to WWE lawyers, “Plaintiff’s counsel squarely and falsely alleged that Charlie and Duncan Ebersol offered McMahon $50 million for the XFL trademarks” based solely on a presentation slide, and no such offer was ever made.

WWE notes it sent to OK Firefighters a November 14 letter including a declaration from Charlie Ebersol, stated under penalty of perjury, that no such offer in any amount was ever made for the XFL IP.

WWE says, contrary to the plaintiff’s allegations, it told OK Firefighters counsel that “WWE was represented by a special committee of independent directors, which retained independent legal counsel and an economic adviser” related to the sale of the XFL IP.

SEC filings show WWE sold the XFL IP to Alpha Entertainment LLC for $1 million and a “no risk” equity interest in Alpha. Alpha is the parent company setup by Vince McMahon to restart the XFL, with finances separate from WWE.

WWE says it formally responded to OK Firefighters’ demand on December 20, but the plaintiff omitted any information from WWE’s response that challenge the allegations.

The plaintiff questioned the authenticity of the Ebersol affidavit, noting it’s not notarized. WWE says it subsequently provided plaintiff with a notarized affidavit.

Further, WWE says it “identified Weil, Gotshal & Manges LLP as the independent legal counsel that advised the special committee of independent directors and further identified Duff & Phelps, LLC as the independent financial adviser to the special committee on the transactions.”

WWE claims it “offered to produce all the records needed to evaluate the fairness of the XFL-related transactions,” if the plaintiff would agree to a confidentiality agreement. Nonetheless the plaintiff filed the demand on December 26.

The exhibits contain copies of several written communications (emails and letters) between WWE and OK Firefighters.

On the plaintiffs claim that WWE may have provided Alpha with support services at a low rate, Jerry McDevitt (long-time WWE legal rep) argues the plaintiff is “naive to the start-up activities of XFL and” that they have “no basis to infer wrongdoing in any event.”

McDevitt calls the interjection of the hiring of Paul Heyman and Eric Bischoff “frivolous”. Plaintiff had argued that the appointment of Heyman and Bischoff as executive directors was a sign that Vince was not devoting his full working time to WWE.

McDevitt ends the September 17 letter: “In closing, we note that your client’s investment in WWE has evidently been a prudent and profitable one, and we value your client as a shareholder.”

It’s notable, OK Firefighters bought WWE stock at around $43 per share. The day McDevitt sent this letter, shares were at 75.91. Friday they closed at 44.93.

OK Firefighters may not be as small a shareholder as previously thought. A holdings statement from November showed ownership of 107 shares. A statement from earlier, in August, shows ownership of 6,726 shares.

So it appears OK Fire sold the vast majority of its shares at a profit, sometime between August 26 and November 29, before the recent stock price fall.

The November 17 letter from McDevitt to OK Fire counsel argues the latter’s allegations have no factual basis, largely centering around the presentation slide suggesting $50 million value of XFL IP.

McDevitt responds to the concern from the plaintiff that McMahon took a week off from WWE to work on XFL. McDevitt notes that belief is based on a report from “a random website called ‘XFL News Hub’ published by somebody identified only as ‘Sanjay’.”

As to reports that McMahon is not present at some WWE TV tapings: “[I]t is entirely unfair to suggest that Mr. McMahon, a man with a legendary work ethic, is somehow derelict in his duties if he in fact does not attend a given televised show of WWE.”

“He routinely attends by far the vast majority of WWE televised events every week, every month, and every year, including on weekends, and has for decades.”

McDevitt’s December 20 letter to OK Firefighters counsel scolds him for suggesting WWE would fabricate an affidavit from Charlie Ebersol. “Do you seriously believe, or have any reason to believe, that we ginned up a declaration and forged Mr. Ebersol’s signature on it?”

The letter attached the notarized affidavit.

Exhibits also show WWE and OK Fire’s inability to come to terms on a confidentiality agreement.