The WWE board of directors’ investigation into alleged misconduct by former CEO Vince McMahon, former head of talent relations John Laurinaitis, and into the company culture is “substantially complete”, according to WWE’s earnings report filed Monday. But there’s no sign the company is going to disclose more about its findings or otherwise provide transparency. Analysts on the call Tuesday morning in Q&A weren’t bold enough to ask if WWE has updated its policies to assure there isn’t another scandal like this that endangers employees and talent and that potentially impacts business relationships. Nor have the new co-CEOs taken questions from media since the story broke in June.
New co-CEO Stephanie McMahon alluded to “a bit of a hold” on WWE’s ability to grow its advertising and sponsorships revenue line, because of “the current situation,” apparently alluding to alleged misconduct surrounding her father, indicating the story did in fact affect business. This is a contrast to a new sentence in the many risk factors WWE lists that could possibly adversely impact the business, which reads, “Although we believe that no significant business has been lost to date, it is possible that a change in the perceptions of our business partners could occur as a result of the investigation.”
As a result of reissuing its reporting to account for previously unrecorded company expenses (payments made by Vince McMahon for NDAs), WWE now recognizes 2021 as earning $177.4 million in net income for the year, rather than the $180.4 million reported originally. WWE also disclosed that they suspended the stock buyback program, which is a strategic way to enhance the value of the stock by repurchasing company shares when they believe the share price is undervalued. That WWE put its note about the investigation under the “Legal Proceedings” heading in its 10-Q suggests they expect litigation related to the scandal. Numerous law firms have already issued press releases looking to take up class-action for shareholders.
CFO Frank Riddick said on the call that “Vince McMahon has agreed to pay the $1.7 million of expenses incurred to date” related to the investigation, “and additional but reasonable expenses of the investigation not covered by insurance.” The company expects an additional $10 million to be spent on the investigation through the rest of the year. In addition to the inherent conflict when a company has to investigate alleged misconduct by its controlling shareholder who is also a family member of two top executives, it sounds like McMahon, who is the key person whose alleged wrongdoing is being investigated, is also funding much of the investigation, as to alleviate the company. I asked WWE to confirm if this is the case, but haven’t received a response. Without further information, it’s unclear how investors, business partners, staff, and talent can be assured the investigation is genuinely independent if the key subject of the investigation is funding the process.
Next-day rights to Raw and Smackdown, currently held by Hulu and set to expire at the end of the year, might be rolled up into live rights negotiations. Co-CEO Nick Khan was noncommittal about the notion, which was raised in Q&A. It would make sense, particularly when negotiating with a broadcaster that has a streaming service, that WWE may want to offer replay rights. Amazon for example, which Khan has been hyping as a potential bidder on live content like Raw and Smackdown, might see either property as more valuable if they could buy immediate replay rights to those programs — otherwise, all they could purchase for their streaming service would be the ephemeral live stream. If next-day rights aren’t renewed before the end of the year, it opens up the question of what happens to those rights between January and whenever a new deal goes into effect. Conceivably the Hulu deal could be extended or maybe the next-day rights could go into effect soon after a new deal is made, possibly next spring.
WWE raised its adjusted OIBDA guidance for the year from $360 million to $375 million up to between $370 million and $385 million. I would expect to estimate profitability on the high-end of that range or exceeding it. My last estimate for adjusted OIBDA for 2022 was $394.2 million. I will post a new estimate before the Q3 earnings report, sometime in late October or early November.
Consumer products overperformed my estimates, driven by product licensing and venue merchandise sales. Likely skewed by Wrestlemania in April, average venue merchandise sales per capita in North America was $17, well above my $14 estimate. Product licensing had a record quarter, generating $22.6 million in revenue during the period the WWE 2K22 console game was released. 2K parent Take-Two Interactive also mentioned the game as helping drive sales in their recent earnings release. The partnership between 2K and WWE was in question after a poorly-received release a few years ago. The apparent success of the 2K22 game, and Take-Two’s disclosure that the WWE 2K23 is set for a release by March 31, is reassuring toward the parties having a continued productive partnership. WWE also mentioned sales of trading cards as contributing to sales in the segment.
Stephanie McMahon made clear her return to WWE, after announcing a leave of absence on May 19, was voluntary and that she offered to take the interim CEO and chairwoman role. She said publicly that the reason for her leave of absence was to spend more time with her family. Stephanie was a member of WWE’s board of directors long before and during her absence. The board’s investigation reportedly began in April. It’s possible she had knowledge of the investigation when she announced her leave. It’s curious further why someone went on background to Business Insider soon after her leave, to say that Vince was behind her exit and that she was effectively fired for underperformance related to ad and sponsorship sales. The Business Insider report was contradicted by wrestling media outlets, and I was told by someone with knowledge of the situation that told the Business Insider story conflated Stephanie’s leave with the dismissal of former head of global sales and partnerships, Claudine Lilien.
Stephanie’s comments alluding to a sale of the company were ambiguous, although she could’ve easily moved past the topic, which was raised in Q&A. “Nick, Paul [Levesque], Frank, and I remain focused on delivering the maximum results for our shareholders,” she said. “So we will properly evaluate any opportunity that comes our way with that lens in mind.”
The growth in viewership for WWE’s monthly premium live events on Peacock is slowing, consistent with Comcast’s reports that subscriptions have plateaued. WWE disclosed that Wrestlemania viewership in April on Peacock was up year-over-year by 60%, Backlash in May was up by 49%, Hell in a Cell in June was up by 45%, and Summerslam in July was up by 20%. Each of those four deltas is smaller than the previous. The events are still being watched by more people, which I believe has helped improve WWE’s previously declining consumer metrics, but that viewership appears to be approaching a steady state.
WWE’s own key performance indicators, which publish average attendances for the quarter with and without Wrestlemania, continued to imply the paid attendance for the year’s biggest event. The two-day event drew between 104,004 and 114,75 total, or about 55,000 paid attendees each day in Arlington, Texas. That’s much lower than the roughly 78,000 WWE announced during the telecasts. Particularly for Wrestlemania, WWE is infamous for exaggerating attendances in televised announcements and even in press releases, which nonetheless has never seemed to bother investors. Vince McMahon admitted on an earnings call, sometime after WWE announced they had 101,763 attendees at Wrestlemania in 2016, that the announced number wasn’t a count of paid attendees.
Brandon Thurston