“Determine what behaviors and beliefs you value as a company, and have everyone live true to them. These behaviors and beliefs should be so essential to your core, that you don’t even think of it as culture.” – Brittany Forsyth

Last month, I wrote an article where I addressed the potential for toxic positivity existing in AEW. I did not quite understand the extent of it until I watched the AEW All Out post show press conference on September 4. I came to the conclusion that it’s worse than I originally thought after listening to the comments of CM Punk, and then hearing that after the press conference there was a violent outbreak. 

On September 7, Tony Khan announced that the world title and the newly-minted trios titles were vacated. It was reported by Sports Illustrated that all parties involved in the alleged melee; including CM Punk, Kenny Omega, and both the Young Bucks; were suspended. Needless to say, AEW has a few problems.

The signs were always present. When AEW became a viable alternative to WWE and an attractive destination for wrestlers, for all praises that were sung for AEW, there were people in the background, like Brian Cage and Joey Janela, who, while they didn’t outwardly bash AEW, seemed to not be creatively fulfilled.

In business psychology, one of the tools taught to organizational leaders when things start to go awry is the Prosci ADKAR Model. It’s an important model to look at when the toxicity of an organization has spilled over into the public and is no longer simply an “in-house” issue. ADKAR uses five building blocks for successful change: awareness, desire, knowledge, ability, and reinforcement. 

ADKAR methodology is usually associated with managers, but it can be used to improve overall culture. In this article, I am going to go over each step in the process to examine AEW.

Awareness – of the need for change. The first major component to the Prosci ADKAR methodology is the understanding that changes in the organization have to happen. One can hardly watch the All Out press conference and assume anything other than AEW has issues. From my vantage point, it’s got more issues than a subscription to The New York Times. Their world champion CM Punk went on an expletive-filled rant about the EVPs of the company, Colt Cabana (referred to in the press conference by his real name, Scott Colton), and Hangman Adam Page. Punk said:

“It’s 2022! I haven’t been friends with this guy [Cabana] since at least 2014/late-2013, and the fact that I have to sit up here because we have irresponsible people who call themselves EVPs, and couldn’t fucking manage a Target, and they spread lies and bullshit and put [it out in the] media that I got somebody fired when I have fuck all to do with him, want nothing to do with him, do not care where he works, where he doesn’t work, where he eats, where he sleeps. And the fact that I have to get up here and do this in 2022 is fucking embarrassing.” 

He said all this while eating breakfast pastries.

The part I find the most amusing about this rant is Punk laments needing to “have to” talk about Cabana, when no one at this particularly press event asked Punk about Cabana. Punk interrupted before the first question of the scrum could be asked and went into his tirade. Anyway, I digress. 

Whether one likes Punk or not, this complaint speaks volumes to a management problem in AEW and there is at least one wrestler who is publicly implying that he has no respect for management. Khan needs to examine this thoroughly. Punk’s rant was unprofessional and wrong, but before we go blaming him and dubbing him the cancer in this situation, Khan needs to sit down with every single person on his roster to see who or what is the problem in this company and why it has gotten so bad that it has spilled over to the public. Prosci maintains that the ADKAR Methodology is based on the understanding that organizational change can only happen when individuals change. 

The question Khan has to ask himself is, “Did CM Punk join AEW and introduce this toxic behavior to the locker room?” or “Did this toxic behavior in the AEW locker room already exist and Punk just shined a light on it?”

From there, he can determine if the goals of people in the locker room are congruent with the organizational goals of AEW as a whole. If the individuals involved in the backstage altercation do not have goals that are aligned with the companies, this means that they are not a good fit for AEW, which brings me too…

Desire – to participate in and support change. This step is important in the ADKAR process because it gets rid of all of the bad apples that do not want to be there. For a lot of people, change is scary. The fear of change is why a lot of people stay in loveless marriages or jobs that they hate. Moreover, humans are wired to fear change. For the Bucks, Page, and Omega, they have been operating one way in AEW that they have been used to and were comfortable with. For Punk, he has made clear that there are certain individuals that he does not like. If all of these individuals are to maintain their influence in AEW they will need to have a desire to change and get over whatever egos that they may have. They will have to want to change.

Knowledge – on how to change. Outside of just AEW, I often wonder who wrestling companies defer to when talent is dealing with mental health issues. From a historical standpoint, while there have been successful wrestlers who have retired and have meaningful lives once their careers are done, there are plenty who have died early, get incarcerated, and seemingly do not know what to do once they are out of the limelight. I believe a lot of these issues come from the fact that wrestling is a bottom line business. Promoters pay close attention to who is drawing, who is selling merchandise, and what wrestlers have the highest ratings when they are on screen. It would behoove all wrestling companies to hire Industrial and Organizational Psychologists or I/O Psychologists. It’s the job of I/O psychologists to understand what is going on with individuals in the companies, through interviews, questionnaires, and observations. 

As soon as the All Out press conference ended, I started seeing memes across the internet of Khan looking confused and disheveled after Punk’s rant. What I found the saddest about all of this is, I seriously doubt that he saw it coming. To fully understand the knowledge milestone in ADKAR, Khan is going to have to hire people to do necessary research and actually get to know his talent, who will maintain the anonymity but will report common complaints.

Ability – to implement desired skills and behaviors. This milestone in the process comes when people in the organization have the ability to implement change once other steps have been completed. The toxicity that AEW is experiencing did not happen overnight. It didn’t even begin when CM Punk joined AEW or when Cody Rhodes quit AEW. The potential for this chaos in AEW existed the minute Khan came up with the idea of starting the company. Since AEW is still in its infancy, these negative behaviors are not yet baked in and can change if the individuals in the company want and desire change. 

Reinforcement – to sustain the change. Finally, the ADKAR methodology understands that it’s easy for an organization to jump back into bad habits. Some of these bad habits in wrestling have been going on for decades. There are plenty of wrestlers historically who have relished and even celebrated bad behavior. I do think that is starting to change, but old habits die hard. AEW needs to make clear to talent that these public call outs and people going into business for themselves in promos will not be tolerated by anyone.

Khan actually set a precedent against this by doing things like publicly tweeting why he got rid of Big Swole. He set the stage for “call out” culture where talent goes public rather than keeping discontent in-house. 

Conclusion

Somewhere along the way, Khan lost control and it resulted in a culture of disrespect among top talent in the company, which will continue to spill over to other talent if it’s not addressed. I believe that blame in this situation can be easily spread. I think Khan hired the EVPs because they could interact with other talent in a relatable way. 

I don’t think anyone in this situation has to be fired, including Punk. However, if this conflict results in litigation, then all bets are off. 

I don’t think the EVPs titles should take away because this is their first true test. I believe if they survive this, they will become better EVPs, as the mettle of management is tested in bad times, not good.

---

Kristoffer Ealy is a political science professor and business psychologist with a Ph.D. in Organizational Leadership. He co-hosts the Nubian Wrestling Advocates podcast on POST Wrestling.

📃 Download PDF financial model.

Financial estimates

$76 is my first published twelve-month price target on WWE shares. The target is based on a 12x multiple of forward-looking adjusted OIBDA.

I estimate the full year of 2022 with an adjusted OIBDA of $372 million, which is near the bottom end of the range of WWE’s most recent guidance of $370 million to $385 million.

I struggled with my model to get to the $70 million to $80 million in adjusted OIBDA that WWE guides for Q3. My estimate is much lower than guidance, $58 million. That’s despite expecting international ticket sales to contribute about $7.2 million in revenue in the quarter from Clash at the Castle, not including subsidies management alluded to in the previous earnings call, and strong venue merchandise sales from the event.

Q3 2022 estimates

Revenue: $296.5 million
Adjusted OIBDA: $57.8 million
Net income: $26.4 million
EPS (diluted): $0.30

Full-year 2022 estimates

Revenue: $1.305 billion
Adjusted OIBDA: $371.9 million
Net income: $208.6 million
EPS (diluted): $2.38

U.S. media rights value

I expect U.S. live rights for Raw and Smackdown to be finalized sometime between Q2 and Q4 2023, with new deals going into effect in Q4 2024. Deeply-invested NBCUniversal seems likely to hold on to Raw rights. I don’t expect WWE to be acquired in the near future but wouldn’t rule out NBCU buying the company outright rather than renewing. The hold up for NBCU, I believe, is around the Comcast subsidiary’s reluctance to own and manage a wrestling company, due to wrestling’s lack of prestige and its uniqueness as an industry.

Fox, which currently holds Smackdown rights, is less certain to renew. Additional strong potential bidders aren’t obvious. Amazon may make a strong financial bid but the reach of Prime Video is unproven. Other sports properties, including Big Ten have passed on superior financial offers in favor of the reach provided by traditional television networks. Moreover, I don’t view Apple as a serious bidder for WWE rights, as the company has hyped. Apple TV+ and WWE don’t seem like a brand fit.

WWE may be delaying the finalization of a new deal for next-day rights held by Hulu so that those may be offered together with live rights. The current deal I believe expires at the end of Q4 2022. NBCU (Peacock), Amazon (Prime Video), and Netflix are plausible buyers.

I estimate a base case of 1.5x over current Raw and Smackdown deals worth a total of $470 million in average annual value. An increase seems likely as other live sports, including Big Ten, Formula 1, Premier League, and the NHL, have been dealt substantial increases in their recently-completed U.S. deals. WWE could overperform the base case if a stronger than expected bidding process occurs or rights are dealt in additional fragments in a continuation of the company’s strategy in 2018 to sell Raw and Smackdown to separate buyers. The company could underperform the base case if bidding is weaker than expected.

TV ratings for Raw and Smackdown remain highly-ranked among programming generally. Smackdown is often the most-watched program with adults aged 18 to 49 on Friday. Raw is often the most-watched on cable. Ratings show a secular increase since the exit of Vince McMahon, who previously led creative. Improved TV ratings, if they are sustained, should only help WWE’s leverage in negotiating upcoming media rights deals.

New creative leadership

Paul Levesque took over creative in late July after McMahon’s resignation as long-time CEO and chairman. The removal of McMahon from creative and as the main subject of scandal, I view positively. McMahon’s creative leadership I believe had an adverse effect on the company, evident in consecutive years of declining consumer sales from 2017 to 2020. His exit may also relieve hesitance from business partners, including media rights bidders and advertisers, who may have been reluctant to be associated with WWE because of allegations of misconduct against him.

Ticket sales as well as TV ratings have responded favorably since Levesque took over McMahon’s former role as head of creative.  My current estimate assumes moderate increases in ticket sales going forward. I expect impressive comparisons in event attendance in Q3, despite last year’s Q3 benefiting from pent-up demand in the company’s return to touring. I’m cautious but optimistic on merchandise sales, which we’ll get insight into in the company’s next earnings report.

I view Levesque as the best-suited candidate for the head of creative position. His installment will also sure up WWE’s vulnerability from its nearest competitor, AEW, as those companies compete for wrestling fans and talent who were disenfranchised by McMahon’s leadership. I view WWE’s fan popularity potential as significantly higher and AEW’s potential significantly lower with McMahon out of the way and better leadership in his place. Under Levesque, talent recruitment will likely sensibly revert to pursuing wrestlers with experience in addition to (rather than almost solely) non-wrestler athletes.

I believe creative direction and talent development are factors affecting WWE’s business that are overemphasized by much of the wrestling media and underestimated or not understood by much of the financial community.

Future international PLEs

The “Clash at the Castle” premium live event on September 3 in Cardiff, UK, drew an announced attendance of 62,296. I believe that number includes a significant percentage of free tickets but is reflective of the number of spectators in attendance. Paid attendance I estimate at just under 50,000 with an average ticket price similar to recent Wrestlemania events. The event demonstrates the company could do future stadium-scale events in Europe or Australia on an annual basis to the benefit of its live events segment, with incremental downstream value for other areas.

Disclosures/disclaimer: As a policy, I do not currently hold positions and have no plans to initiate any positions in WWE (NYSE:WWE). I currently hold shares in other companies mentioned in this article: Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Apple (NASDAQ:AAPL).

This article does not constitute financial advice and should not be construed as investment research.

Brandon Thurston
brandon@wrestlenomics.com

Less than two months in, it’s already apparent Vince McMahon’s exit is good for WWE’s TV ratings and ticket sales, not to mention any affect his scandals may have been having on business partnerships.

That flies in the face of WWE’s risk factors listed for years in filings, warning investors of adverse results if Vince McMahon ever left the company or became incapacitated. Not to mention sycophantic press the company cultivated that fed and continues to feed, despite sexual misconduct allegations, the cult of personality surrounding him.

The moment without Vince is here. Paul Levesque is now overseeing creative. Attendances for Raw and Smackdown are up. Ratings for Raw are up. Smackdown ratings are stable. NXT ratings are up.

The following compares the 48 days since Vince McMahon left the company versus his last 48 days while he was head of creative.

Why are Raw and even NXT responding well, but Smackdown isn’t? One plausible theory is that Raw is the likelier target for more formerly-disengaged viewers because it airs on Monday rather than a busier Friday night, and Raw has a longer legacy name brand.

Tickets distributed, according to WrestleTix, for Raw TV events are averaging 9,100 so far in Q3, which is higher than last year’s Q3 (7,959) which benefited from the company’s return to touring.

Smackdown is averaging 8,654 in Q3-to-date, slightly under last year’s measure (9,309).

For both Raw and Smackdown, Q3 is averaging decisively better than the trailing three quarters.

Ticket sales for Survivor Series in Boston this November sold-out immediately after tickets were put on sale to the general public.

Why is this happening? Audiences like the product better since Vince left.

Raw and Smackdown programs have been better received over this period. Cagematch.net gives a small sample (averaging 57 voters per event) but the largest one for something like this that I’m aware of. Most episodes of Raw and Smackdown since Vince’s resignation have been rated higher than most episodes in his last months in power.

Furthermore, the Clash at the Castle premium live event is currently rated 8.25 on Cagematch.net, making it the best-received PPV/PLE on the website for WWE since 2015.

Not everyone is convinced WWE has genuinely improved. At least anecdotally, there’s a core of fans whose trust was repeatedly broken by WWE who are still skeptical that much has changed about the programming. That profile is probably a hardcore AEW fan. Maybe these types of fans can be won over somewhat if WWE product continues to prove itself. Meanwhile, star power and morale at AEW, WWE’s strongest competitor, are in disrepair after a legit physical fight among the company’s top stars early Monday.

WWE’s stock price has slightly declined since the middle of August, I would speculate, as the market gradually realizes the company isn’t going to be sold any time soon. I think an appropriate twelve-month price target is about $75 (or about $7 higher than its trading at the time of this writing on Thursday afternoon), based on an updated financial estimate I’ll post soon.

As a policy, I do not currently hold and have no plans to take positions in WWE (NYSE: WWE) shares.

Brandon Thurston
brandon@wrestlenomics.com