How the WWE Network’s launch affected Raw and Smackdown rights negotiations in 2014

Next week I’ll post a longer blog looking back on the WWE Network’s effect on the company’s finances. Here is a tangent that didn’t fit in that article, about an often overlooked way in which the Network launch impacted WWE’s business.

NBCUniversal (which owns television networks) and its parent company Comcast (which owns cable TV systems) were apparently uneasy about WWE’s entry into the streaming business with the launch of the WWE Network on February 24, 2014.

Also in 2014, WWE and NBCU were negotiating terms of a new deal for Raw and Smackdown. The then-current agreement was set to expire in September 2015. Other sports properties like Major League Soccer were attracting big upgrades in rights fees. WWE had just gotten a strong increase in fees from its United Kingdom partner, Sky. Optimism about what WWE might garner for rights in the U.S. swelled.

CEO Vince McMahon famously told an analyst, in August 2013, “I’ll allow you to put a hammerlock on me if we don’t” at least double U.S. rights fees from WWE’s current deal, which was worth somewhere in the ballpark of $77 million on an average annual basis. Doubling or even tripling that value, as some speculated was possible, would result in a new multi-year deal worth $150 million or even $230 million per year.

Enjoy the audio of the memorable “hammerlock” exchange below:

NBCUniversal’s exclusive negotiating window deadline of February 15, 2014 passed without a new deal for Raw and Smackdown, leaving WWE to negotiate with other potential media partners.

Hopes of a big raise in rights fees caused WWE’s stock price to surge to as much as $30 per share in March 2014, three times higher than the $9 shares were valued at the year prior.

On May 15, 2014, news broke that WWE and NBCUniversal made a deal after all. Analysts estimated the new agreement was worth just 1.7x over the value of the current deal. Some estimated as low as 1.5x. In any case, it was well short of the market’s expectations. Wall Street was already not blown away by early subscriber counts for the Network. The announcement of a disappointing TV deal caused the remaining bubble on WWE shares to burst. The stock price fell back to its value before the run up.

What exactly were NBCU’s (or any alternative U.S. media partner’s) reasons for not rewarding WWE with a bigger contract, we can only guess. But it seems plausible a TV distributor for Raw and Smackdown would be unsure how the WWE Network, which would contain episodes of those programs on a 30-day delay, would effect the linear viewership of WWE’s flagship programs. Plus, the Network served to undercut pay-per-view sales from carriers, including cable systems like those owned by NBCU’s parent, Comcast.

“We were a little disappointed with our NBCU deal, quite frankly,” McMahon said on an emergency public conference call for investors on May 19, 2014.

By the CEO’s own admission, the timing of the WWE Network launch “definitely had a negative impact” on negotiating a deal favorable to WWE.

Daniel Moore (CJS Securities analyst): You’ve maintained, obviously, that the launch of the network would not cannibalize viewership, and would not impact negatively your negotiating position for the TV rights in North America with NBCU. With hindsight, was the launch of the network a sticking point for your current and potential cable partners, and would you have considered delaying it, if you had to do it over again?

Vince McMahon: That’s a very fair question. I’ll answer that one. I think it definitely had a negative impact. How much of it, I don’t know, by coming out with the Network before we finished negotiating all of our rights. The other aspect of that is that if we didn’t come out with the Network when we did, it would take us another year, because the idea there was to come out with the Network at the strongest point, which would be Wrestlemania, so it’s a chicken-and-egg kind of situation. I do think, though, that was part of, I don’t know if it was a significant aspect, but part of a lighter number, in terms of television rights. So I think that’s a fair thing to say.

WWE Business Outlook Conference Call (5/19/2014)

Despite the disappointing deal in 2014 (going into effect in October 2015), with just a 1.7x increase, WWE did manage to get a huge increase in fees four years later in the following round of negotiations. By splitting rights to Raw off to NBCUniversal and selling Smackdown to Fox, the company got a 3.6x raise, worth in total about $470 million per year, going into effect in October 2019 through September 2024.

This makes the issue of the Network’s impact on WWE’s finances even more fuzzy, to me at least. Did the 2018 3.6x increase make up for the disappointing deal in 2014? Or would WWE have been able to get a similar deal regardless. In other words, did WWE miss out on two consecutive 3x increases? Or would the 2018 increase have been lower if the 2014 was larger? I have no idea.

If WWE did indeed miss out on two huge increases in rights fees for Raw and Smackdown, that would leave little doubt that the Network strategy, as implemented, was not financially beneficial — largely due to timing.