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.