On the latest edition of Wrestlenomics Radio, Brandon Thurston and Chris Gullo dove deep into WWE becoming a “meme stock” last Wednesday, June 9, when WWE’s stock rose to a 52-week high of just over $70 before settling back down.
The company’s share price is still holding at well over $60, as of this writing, up from high-$50s of previous weeks.
A Reddit user posted a thread on the Wall Street Bets subreddit stating their reasons as to why WWE passed their “SMELL Test”.
The WSB subreddit, whose bio reads as “like 4chan found a Bloomberg Terminal”, went viral earlier this year with a campaign to target specific stocks, like GameStop, AMC and Blackberry, that were being shorted by major hedge funds. On the WWE thread, the user described their SMELL test.
Let me introduce to you my patented SMELL system. The acronym is reverse engineered to make sense for this ticker and so it might seem like I was piledrived as a child, but bear with me. It’s important to put memes first. Here it goes:
Thurston and Gullo then broke down the thread starting with the first subheading ‘Fundamentals’, which the redditor summarizes with the preface, “For those even lazier than myself, here are the cliff notes:”
• They are effectively a monopoly on pro wrestling, which is apparently growing in popularity
• They make money from Media, Live Events, and Consumer Products.
• COVID wasn’t too bad for them. It cut Live Events, but Media revenue popped up.
• Live Events are coming back… and they’re taking it international. This will significantly boost their revenues, especially since during COVID it was zero.
• Strong social media following (more YouTube subs than NBA, NFL, and GME combined). More IG followers than NFL.
• PT of $75/sh from some fancy FCF model thing
• Lots of acquisition suitors
Many posts on WSB are not the most sincere and are sometimes there for laughs. However, Thurston broke down the cliff notes of the post to test the merit in the writer’s argument. One claim in the post was that WWE has an effective monopoly on pro wrestling.
“Non-WWE promotions are taking up a greater amount of the mindshare in our kind of wrestling media space, and there’s tremendous interest in AEW now, especially in relation to WWE,” Thurston said. “However, yes, WWE still dominates the general mindshare, I believe, and you see that manifest in Google web search data. You see that manifest in YouTube views data. More than 90% of YouTube views that are happening among all the wrestling brands, you might name off the top of your head, 90% of that is still WWE. Is the popularity of wrestling growing, not WWE. I don’t believe the popularity of WWE is growing. I’ve argued and presented data to argue that the popularity of WWE has declined over the last few years.”
The post also mentioned that Covid wasn’t too bad for WWE.
“WWE was more profitable in the Performance Center era (mid-March to late August 2020) where they were doing TV out of the Performance Center because it cut costs tremendously,” Thurston said. “That’s largely why media went up. When they moved to the Thunderdome, things became more expensive and even more expensive than they would have been if they were still on the road. Live events weren’t very profitable overall. Media revenue popped up though also, in part, because they entered in the new year of 2020, that was the first full year when WWE was on its new set of U.S. TV rights deals, which were more than triple the value of the previous term. So that had a lot to do with just the contractual nature of their rights fees.”
“Revenue’s nice but if revenue’s not producing the margin for you, like is the case with live events, with the exception of Wrestlemania and other major events, then it doesn’t make your company more profitable,” Thurston continued. “You could argue that there’s a marketing value and maybe other hidden values involved with running live events,” Thurston said. “But we have no news, that I would consider real news, about international events. WWE would love to do a Saudi Arabia event this year, which they will get $50 to $55 million for doing just one of them.”
“With live events, it’s not clear that WWE is going to be this massive beneficiary of the pent up demand, as they say, for live events, ticket sales. The first events are gonna do really well. The subsequent events are very much in question,” Thurston said.
Gullo and Thurston then broke down the ‘catalysts’ sub-section of the post. One factor listed was ‘Live Events Resuming’.
WWE will resume touring. Despite this revenue being missing in 2020, they managed to haul in nearly a billion dollars. So the second half this year, and all of next year, is going to be pretty good. Not only will revenues be driven up, but fan engagement and brand appeal will go up as well. WWE’s IP has a ton of value and they’ve leveraged it well during COVID. as live events come back and increase engagement, it should provide some synergy to everything else they sell — PPV, IP rights, merchandise, etc.
“This idea is that WWE will go back on the road with fans finally in attendance once again, and this will have all these downstream benefits for WWE, including TV ratings for one thing,” Thurston explained. “Yeah, I think there will be a short term bump to TV ratings. They’ll advertise a big Smackdown. That’s the first one that’s back. So that’ll probably be the biggest one in terms of hype, maybe John Cena is returning to WWE for that Smackdown on July 16.
“Maybe Cena starts off a feud with Roman Reigns heading towards Summerslam [August 21]. That seems plausible, but the quality of the core product is such that this company is capable of little more than short-term bursts in interest. WWE’s inability to plan and execute long term storylines is pretty weak. They misevaluate talent. The product is inauthentic in many ways. While it will be a short-term benefit for WWE to have fans back in attendance, I don’t think there’ll be a long-term benefit.”
The post’s next subheading under ‘Catalysts’ that Thurston breaks down reads, “Video Games are booming”.
WWE Supercard is Take Two Interactive’s (a $52b company) highest grossing mobile game, and it’s growing at around 23% YOY. A lot of that money will flow into WWE. WWE also sells rights to other titles. As video games continue to grow, so too does WWEs revenue.
“Video games are reported within WWE’s ‘licensing’ revenue line,” Thurston noted. “WWE did just under a billion dollars in revenue last year. Their licensing line was $42 million. The video games are worth somewhat less than that, because you’ve got to at least clear action figures out of that, plus a number of other categories.
“The video game business to them is worth around $20 million per year. That’s not a Saudi Arabia event. It’s less than half of one. Video games are an important part of their business. I think it does lead to kids to discover wrestling through video games. There’s so many anecdotes about that. I don’t see that as a massive growth area to get excited about, though.”
Thurston then discussed the last subheading, “Rumors of acquisition”.
About a week ago, WWE cut some talent assets. Some apparently important guy tweeted that it’s likely due to them cutting costs and preparing for an acquisition.
Rumors aside, there is a strong case for WWE being acquired, should McMahon decide to sell. From the SA article:
It is not unrealistic to suggest that WWE could one day be acquired. If McMahon indicated an interest to sell the business, there would be no shortage of potential suitors given the scarcity value of its content. Whilst Disney, Fox and Viacom could be prospective interested parties, arguably top of the list is Comcast, who may decide owning WWE may generate more value to its shareholders than perpetually leasing its content.
“I agree strongly with the idea that NBCUniversal, which is a subsidiary of Comcast, would be the one to acquire WWE. I think it makes the most sense for them,” Thurston stated. “They’re the biggest customer of WWE. They’re giving them probably $300 million this year and more over time because of the nature of their contracts for Raw and for WWE Network content on Peacock.”
“I think WWE would like to have people believe that they might sell the company because that might help the stock price, but I don’t think they’re going to sell it. I don’t think it’s in Vince McMahon’s personality to relinquish control during his lifetime, but it does make for a great story if you want to get engagement on social media. It does make for a great news article to put on your news site if you need people to click on your news site, and it might make for even a good Reddit post if you want your Reddit post to get up-voted, because it gets people very excited, this notion that WWE could sell and Vince McMahon could relinquish control.”
Thurston pondered the reasons why fans get so excited about the idea of a WWE sale, despite, in his view, the unlikelihood of an acquisition of the company happening.
“I think why it appeals to some people is that it’s a way to craft a narrative or to apply some meaning to what’s happening. ‘See, it’s not about the quality of the storylines or the quality of the TV programs and the pay-per-views. It was all business all along and, really, Vince was a genius and now he’s got multiple billions of dollars in cash from Comcast, and now he’s so rich and see? All that whining and arguing people did on social media about the creative for all those years really meant nothing because it all means nothing; it’s all about money at the end of the day.’ I think there’s some great appeal in this sort of cynical, almost nihilistic conception of the world. It allows us to at least put this wrestling world, which is so frustrating and sometimes makes so little sense to its fans, into some sort of narrative.”
The original transcript of the podcast was edited for conciseness and clarity.
Jason Ounpraseuth has covered pro wrestling since 2019. He is a co-host of the Gentlemen’s Wrestling Podcast.