WWE will report Q3 earnings on Thursday, October 29 after trading closes. Information will be published that evening on corporate.wwe.com for the period from July 1 to September 30. A conference call with statements from WWE executives and questions from stock analysts will happen at 5pm ET. Anyone can listen in live.

Cost of the Thunderdome

The biggest unknown factor making it hard to anticipate WWE’s Q3 finances is that we don’t have a sense of what the company is paying to produce Raw and Smackdown with the Thunderdome set.

The enormous set of lights and numerous remote live streams of fans watching the matches has been received as an improvement over the atmosphere at the Performance Center, where there were either no spectators or new recruits playing along as if they were fans.

On earnings calls, WWE CEO Vince McMahon repeatedly cited the lack of a live audience as a factor in declining viewership, and the Thunderdome seems to be the response.

Raw and Smackdown were produced at a relatively low cost at the Performance Center for the entirety of Q2. This resulted in a more profitable quarter than most analysts expected. The Thunderdome debuted on August 21 and has been the presentation for every Raw, Smackdown, and pay-per-view taping since.

A similar presentation, branded the “Capital Wrestling Center” was unveiled for NXT at the Performance Center — but on October 4, just after Q3 ended, so won’t be a factor in this report.

The Thunderdome is provided through WWE’s partnerships with The Famous Group. They also work with Quince Imaging and Frozen Mountain to create the set.

Thunderdome era production costs per program must be higher than they were in the Performance Center (March 13 to August 17), but by how much? Relative to pre-Covid costs when WWE was touring, is the cost higher, lower, or about the same? I think each Smackdown and Raw taping cost WWE about $1 million to produce, with pay-per-view events running higher.

In my earlier estimate, I modeled the cost of production during the Thunderdome to be roughly equal to the pre-Covid touring Raw and Smackdown costs.

That would still result in a profitable Q3 for WWE, but this results in an estimate lower than what any stock analyst is estimated. I was relieved to find there is now one analyst who’s modeled an EPS nearly as low. However due to my lack of access to the Bloomberg Terminal, I don’t know who my prognostic neighbor is.

My EPS estimate implies a net income for Q3 of about $13 million on quarterly revenues of $222 million. (The full estimate is here.)

What will Kristina Salen bring to WWE?

Kristina Salen will debut on the call as WWE’s new permanent chief financial officer. She replaces interim CFO Frank Riddick and, before him, former long-time CFO and co-president George Barrios.

What role will the new CFO play in the company? Will investors get an impression of her vision for the company? Will she be the key public figure for investors, as Barrios was, or will that role be more dominated by new president and chief revenue officer Nick Khan?

Will the former Etsy CFO change the company’s reporting methods, resulting in changes in how we get information on WWE’s corporate website and in its SEC filings? The company’s finances are generally broken down into three major divisions: media, live events, and consumer products. Eleven revenue segments are revealed across those three divisions. This has not always been the case and may change under new management.

Further, will the company’s “Key Performance Indicators” slides change? Are there metrics the Barrios regime focused on that Salen will not, and vice versa? Does it make sense to focus on viewership trends for Raw and Smackdown, or are there other metrics that more full tell the story? (I think there are.) Will Salen continue to focus on the Barrios-favored non-GAAP profit measure, adjusted OIBDA? In the past WWE focused on OIBDA (the non-adjusted variety) and something called “profit contribution”.

These questions may not be answered with the Q3 report, but gradually over time.

WWE Network subscribers

End-period paid subs for the WWE Network were up in Q2 after being down year-over-year throughout 2019 and into Q1 2020. Average paid subscribers (the key metric for calculating revenue related to the service) however was down slightly for Q2 from the prior year.

Did paid subscribers grow in Q3? Streaming services across the board seem to be growing in strength. After stalling in 2019, probably related to popularity of the product overall, is broader consumer behavior encouraging a rebound for WWE in this area?

Vince McMahon’s comments on TV ratings

Vince McMahon was grilled by analysts on Raw and Smackdown ratings in the Q&A portion of the Q2 call. It was pointed out to him that NXT and AEW bounced back after a lull following Covid, but Raw and Smackdown had not.

The key internal weakness that chronically affects ratings and broad trends in other metrics is, and will for the foreseeable future will be, creative. In particular, Vince in his role as CEO also functions as the head of creative. He’s held the role for decades, for far too long. WWE’s ability to create stars and storylines audiences care about will always be unduly hindered while Vince controls this role for Raw and Smackdown.

That said, this should be an easier Q&A session for Vince this time.

The Thunderdome will be touted as a success. It was a positive factor; but so was the return (he’d been out since March) and long-awaited heel turn of Roman Reigns, which supported interest in Smackdown. Smackdown was the most-viewed or tied (Showbuzzdaily reports P18-49 ratings for network with the traditional one decimal place) for most-viewed in the key demo on network primetime on every single Friday night in Q3.

Raw too held up better than one might expect against Monday Night Football. The show is doing better so far during NFL season than it did in July.

I think an additional psychological factor is at work. WWE audiences have settled into the mindset during Q3 that the pandemic era is more permanent than temporary. Temporary breaks audiences may have been taking from WWE programming, waiting for events to get back to normal, have been lifted, as life with Covid has proved to be unending.

Meanwhile, there’s been anxiety throughout the sports world about the decline in sports TV viewership, and its by no means apparent there will be any stop the growing value of sports broadcast rights.

In light of wider sports viewership suffering and a mild upswing in WWE’s ratings, some of the pressure will be off. Competition from AEW is still present, but Raw and Smackdown continue to be among the most highly-viewed weekly programs on cable within the key demo. And that’s not changing any time soon.

Is the WWE NXT agreement with NBCUniversal (USA Network) expiring next year?

When the deal was made to take NXT off the WWE Network and put it on USA, Guggenheim said they believed the deal was for “one or two years”.

A one-year deal would’ve expired a few weeks ago. Is the deal for two years? Is it going to be renegotiated soon? Is it being renegotiated now? Is it attached to the five-year agreement for Raw somehow?

WWE said at the outset of the move that the strategy was to build on TV rights value for NXT so it could be monetized in the way Raw and Smackdown are. Does WWE feel they’ve accomplished this in the last year and are looking for a sizeable upgrade in fees, relative to its delivery of P18-49 viewership?

Are online merchandise sales continuing to make-up for loss of venue merchandise business?

Venue merchandise sales, like live event ticket sales, are rendered to $0 due to the pandemic.

However eCommerce sales were up strongly in Q2, seeming to compensate for fans’ inability to purchase merchandise at venues.

eCommerce compensating at the rate it did in Q2 for merchandise sales overall (92%) would result in sales of $9.3 million in Q3.

What the latest outlook on a second Saudi Arabia event in 2020?

Each Saudi event delivers about $50 million in revenue for WWE. It’s seems doubtful now there will be a second event there this year, given unrelenting Covid deaths in the U.S. and Saudi Arabia.

Vince said in the Q2 call that if there isn’t one this year, any missed events would be tacked on the end of the current ten-year deal with the government, which runs through 2027.

No second Saudi event in 2020 is probably baked into the current stock price. This is probably the last time investors will hear from WWE’s top executives until 2021. Will they affirm there will be no second event?

Is Nick Khan closer to getting WWE a PPV rights deal?

With Nick Khan in place as chief revenue officer, the agent who WWE tapped to complete its 2018 Raw and Smackdown rights deals, is he working on selling rights to pay-per-view events away from the WWE Network and onto a major streaming player?

Vince previously speculated such a deal would be completed in Q1 2020, before Covid struck.

What’s the outlook now on such a deal? Is making this move still within WWE’s strategy to further monetize its content? Is there any clarity yet on what content WWE is trying to sell? The pay-per-views only, or additional Network content? Or the Network altogether?

Should investors give up hope on a MENA TV deal?

I don’t recall any discussion about this on the Q2 call in July. Is WWE still negotiating with Saudi government-owned Middle East Broadcasting Center (MBC) for rights fees for core content in the Middle East North Africa region?

The Saudi government also reportedly supports a pirate broadcaster, beoutQ. According to the complaint in an ongoing class-action shareholder lawsuit against WWE, beoutQ is illegally broadcasting WWE content in the Middle East North Africa region, discouraging MBC’s incentive to complete a deal with WWE.

I believe WWE’s previous deal in the region with OSN was worth $10 million to $15 million annually. OSN dropped WWE in 2019 when it decided to cut all sports programming. Conspicuously, OSN cited piracy as a reason.

---