The short-term effects of COVID19 to WWE’s, and maybe AEW’s, finances may actually be positive, not negative. The inability to run normal live events actually reduces costs. TV rights payments to the company from broadcast partners, related to flagship programs Raw and Smackdown, appear unimpeded. In other words, the cost of producing programming has been greatly reduced, while the revenue directly generated from programming is unchanged.

Despite being unable to run normal live events in the last 19 days of the quarter due to COVID19, WWE was actually more profitable in Q1 than its own pre-COVID19 guidance predicted. The company also was more profitable and generated more revenue than the consensus estimate of financial analysts who had the benefit of being able to consider COVID19 effects.

If WWE doesn’t run any normal live events for the rest of the year and TV fees remain intact, the company may be more profitable in 2020 than it would’ve been in a pandemic-free 2020. (I’m working on an estimate that looks into how profitable WWE would be in the scenario there are no events for the rest of the year, which I’ll be posting soon.)

However there are long-term risks to audience stability for wrestling companies like WWE and All Elite Wrestling. The low cost programming WWE is producing in its Performance Center training facility and that AEW is producing out of other small buildings, in front of no fans, while highly cost-effective in the short-term, is not exciting for viewers. TV viewership of Raw, Smackdown, NXT and AEW Dynamite is declining. Despite the U.S. population being urged to stay in their homes, closer to their televisions, this is not translating to more people watching those wrestling programs. 

Given the habitual nature of wrestling viewership and the lack of strategy that’s shown to be able to win new fans or win back lapsed ones for more than a week or two, I’m skeptical that audiences will return to pre-COVID19 levels whenever wrestling events can happen in front of live audiences again. Consequently, draining interest in wrestling TV shows and streaming/pay-per-view events without live crowds may have considerable downstream effects that are long-lasting or permanent.

I can’t remember if it was Matthew Ball or Scott Galloway who’s said it: that the COVID-19 pandemic is accelerating trajectories of media trends, maybe even in trends in personal relationships. Developments that may have under normal conditions taken a year to transpire, take only a few months. Netflix greatly exceeded subscriber expectations for Q1. Disney+ acquired 50 million subscribers in just five months. If you were doomed to divorce your spouse two years from now, well, maybe now that you’re forced to spend so many more hours at home together, you’re now doomed to divorce within a year.

Maybe this theory is applicable to the seemingly unalterable decline in at least WWE’s TV viewing audience. If, for example, Raw’s viewership was going to start averaging 1.5 million viewers by June 2021, the intervention of COVID-19 and empty building wrestling might accelerate that destiny up to, say, February 2021.

To contribute to long-term growth and stability, linear wrestling TV shows try to serve not only as a means to collect lucrative TV rights fees but as an economic battery that drives audiences and consumer business. Further, the Network/PPV events that programs like Raw, Smackdown, NXT and AEW Dynamite build to and sell are similarly hindered by having to be performed for no live audience.

Less is known about privately-held AEW, which has been in business for barely a year. But nearly all of WWE’s publicly-known consumer metrics have been gradually declining since 2016. 

WWE Network subscribers, TV viewership (weighed against wider trends), and consumer product sales may continue to suffer over the duration of the COVID19 crisis. That may be driven by economic hardships of consumers but probably also by the less engaging TV product. In a post-COVID19 environment, those metrics may have weak, if any, recovery.

Certainly external factors like an increase in entertainment options are a factor to some extent in the decline of WWE’s popularity. It’s apparent though that the quality of the product has suffered. This is supported somewhat by declines in reception metrics shown above. Most importantly, WWE hasn’t succeeded at developing a star to replace the increasingly absent John Cena. Roman Reigns is arguably the company’s most important full-time star. He’s been gone, too, not appearing on TV since the end of March when he withdrew from participating in Wrestlemania because of health concerns.

In fact, the company’s product style and creative vision continuously undermines the likelihood that such a new star will be developed for WWE. Given the seeming inevitability of the attrition to WWE consumer metrics of the last few years, it’s hard to imagine them showing positive growth or audiences returning in large numbers until such a star emerges, or, quite frankly, until CEO Vince McMahon is no longer leading creative.

It’s likely there will be fleeting resurgences in some consumer metrics soon after a return to normal live events. The patterns of performance related to special episodes of Raw and Smackdown, though, have shown such increases are temporary, and audiences return to baseline trends after one or two weeks.

Thinking about the assumption that wrestling audiences will bounce back after COVID19, I’m reminded of a possibly relevant moment in wrestling history. In 2001, WCW programs Nitro and Thunder ran their final episodes in March of that year, following the sale of WCW to WWE (then-WWF). Some expected that WWF programs, Raw and Smackdown, which ran head-to-head with Nitro and Thunder, and were no longer opposed by competing wrestling shows, would absorb some significant portion of the newly homeless WCW audience. They didn’t. WWF viewership following the folding of WCW declined slightly for the rest of the year. Whatever captive audience WCW held apparently stopped watching wrestling altogether. There’s no sign they ever came back.

Maybe wrestling fans are creatures of habit. Compared to 2001, there’s greater demand for consumers’ attention today. Viewers gradually tuning out of Raw, Smackdown, NXT and Dynamite may be finding new habits, and may be hard-pressed to return to those programs, unless new, economically-significant stars emerge.

I’m not sure there’s any better alternative to maintain wrestling audiences than the current approach of taping matches in empty buildings. Electing to air library content of old matches may or may not satisfy TV contracts, but any such strategy would succeed at holding the attention of even fewer viewers.

In the short-term, expenses are down and profitability is actually up, almost certainly for WWE and probably for AEW too. Wrestling companies may be wise to think now about how they can reinvest the unexpected cash flow to fortify their business and recapture audiences when normal live events can be held again.

In the meantime, Raw and Smackdown continue to be highly ranked among other TV shows on the same night; AEW’s ranking on Wednesday has fallen somewhat, but continues to stay in the top 50; NXT is falling out of the top 50 most weeks recently. Networks are still happy enough to have some form of sports-like, somewhat DVR-proof content to give WWE and AEW their expected payments. Whether wrestling can continue to attract audiences that networks will pay large TV rights fees for, three or four years from now when new deals are negotiated, is too far over the horizon yet to see.

There’s understandable suspicion that there’s a connection between Linda McMahon’s pro-Trump super PAC, America First Action, allocating $18.5 million to Florida on the same day (April 9) that Florida governor Ron DeSantis amended his stay-home order which allows WWE to run tapings at the Performance Center in Orlando, Florida.

As dubious as it seems, and without diminishing how destructive as money in politics is to democracy, I doubt the super PAC spending and the amendment are truly connected — not that politicians, especially Republican politicians in the Trump era have ever earned the benefit of the doubt. The timing is conspicuous, but the allocation of the money for Florida doesn’t seem unusual in timing or amount. And the benefit to DeSantis is more incidental than direct.

Florida Governor Ron DeSantis today was asked about exemptions, including for WWE. “There’s no crowd or anything. It’s a very small number of people.” He’d like to see sports like NASCAR or golf with no crowds so people have something to watch while staying home. pic.twitter.com/FIPwr6lqnL

— Wrestlenomics (@wrestlenomics) April 14, 2020

The announcement to invest $18.6 million in advertising in Florida, dedicated to the re-election of Donald Trump, was made simultaneously with the announcement of $8 million in spending for North Carolina. The week prior, the super PAC announced it would spend millions in other swing states, Pennsylvania ($5.5 million), Wisconsin ($2.7 million) and Michigan ($2 million). True, among these states the spending for Florida is the highest, but Florida has the most electoral votes among these states. The state has been won by every presidential election victor since 1996, and with the exception of 1992, every election since 1964.

This spending on advertising will benefit Trump’s reelection bid, so it will also likely benefit other Republicans down-ballot in November. DeSantis himself, though, was elected in 2018 and is not up for reelection until 2022.

It’s notable, too, that the amendment to the Florida stay-home does not specifically name WWE or wrestling. While it’s quite possible that WWE lobbied for the amendment, its language seems directed more generally at sports and entertainment activities that are produced without a live audience.

The low information reading of this situation is that Linda McMahon gave Ron DeSantis millions of dollars, and DeSantis subsequently granted WWE specific permission to continue tapings. That’s not what happened.

In case it’s not clear, this is not a defense of insidious and plutocratic organizations like America First Action, nor of WWE’s choice to unnecessarily risk the health of its workers and the public by continuing with tapings. Instead, upon a more informed look at the situation, it’s apparent that the investment in pro-Trump advertising in Florida and the allowance of WWE’s Orlando tapings are likely not as related as they may seem on a more superficial assessment.

But if people of wealth and power are doing bad things, why make any subtle distinctions? Our reflexive willingness to allow low information to affirm a view that all political actions are corrupt only blunts our ability to distinguish just politics from the unjust. Indeed, did you not just read “just politics” as an oxymoron? That reflex prevents us from undoing genuine corruption. The ease at which we jump to undue conclusions deepens our distrust and polarizations, and reinforces our helpless complex that laughs at the notion that any political action is worthwhile. The brilliance of corrupt power in our time is that it benefits from the cool self-defeat of the cynical people it exploits.

This post was based on a portion of audio from the episode of Wrestlenomics Radio, published April 18, 2020.

It’s been suggested to me that every five years or so WWE goes through a cyclical change like this, the last one in 2014 after the WWE Network didn’t gain subscribers as quickly as they had hoped and there was a lot of cost-cutting in a year where the company was not profitable overall. 

WWE announced cost-cutting, layoffs, furloughs, and talent releases on April 15. Some of that may have been inevitable after the termination of George Barrios and Michelle Wilson, former co-presidents of WWE. There are probably a lot of people around them who in the name of regime change, and in the name of Vince McMahon’s apparent belief that too much was invested in customer data, would have been out eventually. Probably not now though, and certainly not in these numbers. And, by the way, WWE still hasn’t replaced its former co-presidents, not that they likely will in the midst of such wide economic uncertainty.

Brandon Ross (Lightshed analyst): Just philosophically, one of the key aspects to the WWE Network has been that it allows you to have a direct-to-consumer relationship and access to real first party the data. Would keeping those be important in any strategic alternatives and do these still matter to you or do you think that was a misplaced priority in the past?

Vince McMahon: I think it’s misplaced. It was one of our goals, still continues to be, but when you’re playing with some of the [major streaming players], it depends on whether or not we can negotiate holding on to things of that nature. Sometimes, you know the big boys want all of that for themselves, so it’s a matter of really negotiation. It’s what we keep. If we could keep it, absolutely.

WWE Q4 2019 earnings call, February 6, 2020

But WWE’s cost-cutting at this time is not something that’s necessary to keep the company profitable. It’s likely a move to keep the company as profitable as it had hoped it would be at the beginning of this year. 

Certainly WWE has a fiduciary responsibility to its investors, but I would suggest, radically, that it has a higher moral responsibility to not lay off workers in the middle of a pandemic if it can afford not to do so. 

The effects of COVID-19 give WWE a cloud cover to cut costs, to furlough or layoff a growing employee population; to cut wrestlers from an overgrown roster, a roster that had been growing not so much do you add to its own company but to keep that talent from adding to other companies. 

Underappreciated is that the cost cutting, and particularly the cutting of talent who fans are familiar with and have an affinity for, is a public message — and a talent message as well — whether the company wants it to be or not. Regardless of the economic argument that you can make for why it’s cost-effective and more profitable to cut costs, the public story, whether you agree with it or not, whether you feel that it’s accurate or not, is that WWE is the bad guy again. 

Especially over the last five years WWE has done a lot to damage its trust with its audience and with its talent, and we’ve seen what has happened to other damaged wrestling brands in recent history, brands that people don’t feel comfortable spending their money or time on. But WWE is the biggest and strongest wrestling brand that’s ever existed. It’s the company that is best positioned to withstand a lot of self-inflicted brand damage. 

How sustainable though is this self-destructive process that doesn’t show any signs of slowing down? This isn’t the 90s and it isn’t the 2000s, or 2010, or even the year 2015. An increasing portion of the wrestling audience is aware of news events like those that occurred the other day. That portion of the audience is increasing, not just because the audience overall is decreasing, but because people are evermore online and never more aware of the inner workings, or at least perceptions about the inner workings of wrestling. In the 90s, such a story would be shrouded in hard-to-find newsletters, and would go untouched by mainstream media that took wrestling even less seriously than it does today.

The notion now that people won’t be smart enough to understand what’s going on is unsustainable. And the notion that people are just wrong or they don’t “get” the story that they think is negative, doesn’t matter. Their perception of the brand and how much they can trust it is what matters. 

It’s the trust of your customers and the trust of your workers, which is a hard thing to measure, which isn’t a metric that’s on any of the KPIs on the corporate website, which probably isn’t even on any of the documents in the internal folders, it’s those things that are among a wrestling company’s most important assets. It’s also often really difficult for a wrestling promoter to admit to themselves that they’ve damaged those assets. 

Maybe someday those trust relationships will reveal themselves to have been even more valuable than the most massive media rights deal, and more valuable than delayed eight-figure payments from authoritarian governments.

If we think back again to the nostalgic 90s and think about what the turning point was in the competition between WCW and WWF: Was the turning point WrestleMania 14? Was it Starrcade ‘98? Was it the Finger Poke of Doom? Was it when WWF started to consistently beat Nitro in the ratings? 

One signal I think was important was when talent like Chris Jericho, Eddie Guerrero, Chris Benoit, and Dean Malenko realized that they couldn’t trust WCW, they wouldn’t be creatively fulfilled there, or have a fair shot at upward mobility. 

The Revival finally got their release recently, following the exit of a dissatisfied Jon Moxley, Brodie Lee, and, coincidentally, Chris Jericho. Does this sound at all familiar? Now pile on the unwilling releases of some 20-30 additional wrestlers.

But those are just economic concerns. Does a company like WWE — or AEW for that matter, which is still going to run a pay-per-view in an empty building on May 23rd — have any moral responsibilities? Will anyone scrutinize them? Media? Politicians? 

On each of two of my favorite non-wrestling podcasts, Pivot and Recode Decode, both hosted by Kara Swisher, the news of pro wrestling being deemed essential was brought up only as a way to drop Linda McMahon’s name and laugh. The subject was not worthy of discussion beyond that.

“But it’s just wrestling! If people in pro wrestling are exposing themselves to coronavirus, well, that’s natural selection for you!”

We’re learning at this time which companies and which people are actually willing to be uncomfortable for the sake of other people’s well-being. We’re being reminded that for some, philanthropy and service are effective vehicles en route to gathering profit and power. Some of us have been fantasizing for some time that those with power, eventually, in a dire enough situation would reach the point where some shred of decency would be revealed, and where their care for other people would finally exceed their care for economics or for their own comfort or for their own power itself.

We’ve been living under the impression that maybe in a big enough crisis there would be some distinction. We’re learning these days that for some there is no distinction. For some there is just one mode of value, there’s just one way to interpret the world, one goal. And it’s not a greater good for the most or all people; but the accumulation and retention of control, the reassurance that one will always have or will have even more of the control that one has now, whether that control is a company, an industry, or a public office.

You can get over it or lose. The kinds of people who care about things like some basic concept of decency are the kinds of people who don’t win the business competitions. They don’t get to dominate industries. The people who put economics above all remain the winners of a kind.

This post is based on audio from the episode of Wrestlenomics Radio, published April 18, 2020.

Related to Wrestlemania, there’s some Google web search data available, but because the public data is standardized and longer-term trends are cut up into weeks, I think it’s best to wait a week or two to try to make year-over-year comparisons on the data that includes anything from Sunday.

I’ve been looking at some Google web search data from previous years, though, comparing search data for WWE in the week before Wrestlemania, which we can use to make a prediction about what the search data for the week of Wrestlemania will be like.

Why is this meaningful? I’ve found that Google web search data related to WWE from 2006 to 2013 could, with some adjustments, be used to create a model that predicts pay-per-view buys, so there seems to be an economic relevance.

This year may be trickier since Wrestlemania took place over two days, which might skew search volume higher.

I’m curious to see if WWE discloses, in its next earnings report, a “day after Mania” number for Network subscribers, which they have in the past, or whether they report only quarterly information. WWE may report this as early as next month when it publishes its Q1 2020 earnings.

Even if there had been no COVID19 crisis, I’d have expected the Wrestlemania subscribers to fall at a single-digit percent year-over-year again.

I still expect the number to be down somewhat from the year before. I don’t have a great sense about the degree to which COVID19 will affect Network subscribers for WrestleMania and Q2. I think there are a number of factors:

• Positive: A lack of competition from other sports can only make way for interest in WWE.
• Positive: WWE tried to compensate for lack of live audience by making Wrestlemania a two-day event.
• Positive: Buzz from night 1 and the unusual presentation of the Undertaker-AJ Styles match may have encouraged interest, although for what it’s worth Google searching was down on the second night.
• Negative: No live audience makes the show less appealing
• Negative: Raw and Smackdown episodes building up Wrestlemania declined in viewership as the event neared, possibly as TV audiences grew tired of the empty building matches.
• Negative: Increased interest in news programming.
• Negative: Economic stress on consumers due to COVID19 may lead some subscribers to cancel.

• 

• 

They advertised their next pay-per-view event, “Money in the Bank” for May 10, so WWE seem intent on continuing on with PPVs. I think it will be difficult to maintain normal interest in PPVs with no live audiences. 

I think there’s questions around government pressure about how long they’ll be able to continue with match tapings, assuming the number of COVID cases rises, as Dr. Anthony Fauci and the Surgeon General suggest. They taped Wrestlemania and tonight’s Raw in Orlando, FL, but finished just before Gov. Ron DeSantis’s stay-home order went into effect. Reportedly, WWE is working on doing future tapings in a secret location.

Streaming, PPV rights, library value

WWE worked with Fox and FITE to offer Wrestlemania on streaming platforms as a standalone PPV, at a $60 price point. Not sure what the strategy is there. Wrestlemania could still be viewed as normal with a $9.99/month Network subscription, and there was no stopping any customer from signing up and canceling right after the event. The event was also available for $60 on PPV via cable and satellite providers, which is normal for all PPVs since the launch of the Network in 2014. According to Dave Meltzer, Vince McMahon felt that it was best to make Wrestlemania available on as many platforms as possible.

WWE also made agreements recently with ESPN and Fox Sports to air library content on each of their linear cable channels. Sunday night airings of past years’ WrestleManias on ESPN in recent weeks drew 720,000, then 839,000 viewers, with P18-49 ratings of 0.25 and 0.31, respectively.

In this environment with no live sports, I think WWE library content has increased valued. Replays of old wrestling events have greater value than replays of old sports games; people will re-watch wrestling events somewhat like they will re-watch an old movie.

Pro-wrestling overlaps a space between live sports and scripted entertainment, which is economically evident in many ways…

Listen & subscribe on your favorite podcast app pic.twitter.com/D9fo1jbP3r

— Wrestlenomics (@wrestlenomics) April 5, 2020

WWE may be able to extend these agreements the longer that sports cannot run games. I expect the fees related to these agreements are small relative to Raw and Smackdown fees, probably similar to payments a cable channel makes for re-airing a several-years-old movie.

A deal with ESPN+ or Peacock to sell PPV rights away from the Network seems unlikely in 2020. I would expect this to be explored again in 2021, possible before that year’s Wrestlemania. The interaction with Fox makes me think they may be a suitor in future discussions also; even though Fox doesn’t have an SVOD sports service like ESPN+ yet, they’ve shown they’re willing to sell WWE’s PPV over their streaming platforms.

Overall financial outlook

Last week I modeled out WWE’s revenue and operating income for 2020 in scenarios with and without the COVID19 crisis.

I believe WWE TV rights for Raw and Smackdown are not at risk. They will continue delivering some form of content in their time-slots and they will continue receiving the expected payments. WWE has thousands of hours of library content that has never aired in those slots, and they have studio facilities that would allow them to create wrap-arounds for old matches, interview segments or documentary-style productions. They seem intent on continuing on with producing new in-ring content as long as possible anyway.

Because TV rights fees are so big and because it will be cheaper to produce television since they won’t need to broadcast live from sports venues, and because non-televised events are a money loser, I don’t expect WWE operating income for 2020 to be hurt much compared to a non-COVID 2020, even if WWE cannot run traditional live events for the remainder of the year.

A big question will be whether WWE is able to run a second Saudi Arabia event later in the year; each KSA event provides ~$50 million revenue, probably with a high profit margin.

Wrestlemania reception

While all other matches were played in front of no live audience, WWE produced two matches, one on each night, that were basically 20-minute mini-movies. They ambitiously challenged the audience’s common conception of what wrestling is. While divisive for some, the AJ Styles-Undertaker and John Cena-Bray Wyatt presentations were largely well-received.

I expect Vince McMahon will celebrate the productions as a success on the next earnings call. WWE should be applauded for being inventive while being challenged to run Wrestlemania without live fans.

This “cinema” interpretation of wrestling was done earlier outside of WWE by productions like Lucha Underground and by Matt Hardy’s “Final Deletion” within Impact Wrestling. (Arguably there are less acclaimed debts going back further.)

WWE made subsequent attempts at cinematic skits, but Wrestlemania provided the highest-profile examples yet. I expect we’ll see further attempts in this style in and outside of WWE for years to come, probably with varying success. I expect the company will try to replicate its success here, often with diminishing returns. In a sense, the “cinematic” presentation is the next step of Vince McMahon’s ambition to transcend pro-wrestling and “make movies”, as he once said in a 1999 documentary.

An economic point here, though: The further use of this style may allow WWE to prolong the careers of aging talent like the Undertaker (age 55), who has struggled to perform in live in-ring matches for several years.

On the risk side, I fear such productions will enable WWE’s already present over-reliance on older “legend” talent, at the expense of developing the star power of younger wrestlers who must carry business at events and programming year-round.

To be fair, Drew McIntyre and Braun Strowman — both under age 40 — were put over strongly as new champions, with wins over Brock Lesnar and Goldberg. The benefit of their victories however was naturally muted by the fact they took place without the energy of a roaring crowd.

I believe the ongoing decline in many of WWE’s key metrics is largely due to the company’s inability to develop new stars, coinciding with the withdrawal of John Cena as a full-time wrestler. The history of the company’s business (and that of the wrestling industry overall) demonstrates that WWE’s full financial potential can be realized only through the development of new stars.