Tag: nbcuniversal

The future of WWE NXT 2.0 on the USA Network

During “The Gullo Report” on the latest edition of Wrestlenomics Radio, Brandon Thurston and Chris Gullo discussed WWE NXT 2.0 and what the future holds for the brand. The show is now more of a developmental show with young wrestlers like Bron Breakker leading the way, and many fans have wondered what this change into a more developmental brand means for WWE. Thurston gave his thoughts first by explaining where WWE is with NBC Universal and their deal for NXT.

“I’ve heard some discussion earlier this week about what the future of NXT is,” Thurston said. “NXT has a multi-year deal that was renewed in March that has just begun in fact, has just gone into effect. Term one just came to an end, which was a two-year deal, and whenever I go through all the data, when I’m looking back at when Dynamite started, and I have to be like, oh, yeah, NXT had these two weeks in September 2019 where they had one-hour episodes that were unopposed, yada yada.

“I wonder if the deal starts there and ends two years later in the middle of September, and for some reason, the timing of that is the reason why they did NXT 2.0 when they did, if that coincides with the beginning of the second term or second deal that we’re now under for WWE and NBC Universal for NXT. I don’t think WWE is getting that much revenue for NXT being on the USA Network.

“I think they were originally taken off the WWE Network to go on linear TV for the notion that Triple H had this overperforming developmental brand that was doing really well and maybe we could grow its popularity, and oh yeah, by the way, we don’t want to compete with AEW. That had nothing to do with it, god, no, but I think they wanted to compete with AEW.

“And that reason combined with the opportunity to maybe grow a third brand that would generate major media rights fees like Raw and SmackDown have, I think that was the play, and NXT did not win the Wednesday Night War. They got handily beaten most weeks in total viewership. I think every week except for one in the demo out of the 70 some odd weeks that they were running head to head, and it didn’t work out.”

Thurston continued as he talked about the new change in direction for NXT post Wednesday Night Wars. He then discussed if he sees NXT 2.0 on the WWE Network or remain on USA Network.

“There doesn’t appear to be a huge media rights value opportunity here related to the NXT brand,” Thurston stated. “The play, at least now, is to sort of hand wave Triple H’s vision of doing cool wrestling and to really make it a developmental brand that serves Vince McMahon’s wants for talent. As far as a media property, what is the goal for NXT?

“Let’s say this is a two-year deal. Who knows? But let’s say three years from now, when, if this is a two year deal, then the two year deal will be expired, is NXT still on the USA Network? What’s the viewership like? I don’t know. When you’re the USA Network, you could put what was in the slot before, Law and Order SVU reruns or something, which don’t cost you really anything because you probably own that intellectual property.

“I don’t know if there’s royalties that you have to pay out associated with that or all the costs are, but it’s not an original program they have to produce, and it’s probably quite profitable now. It’s probably got a pretty low demo rating. I don’t know if it’s got a better demo rating than this, which is a 0.14.

“I could see NXT being back on the WWE Network in a couple years, but I don’t have a strong feeling that NXT is going to be cancelled by NBC Universal / USA Network. I think it helps, even if this is sort of a breakeven for the USA Network in terms of what revenue they’re able to get out of NXT. Even if they’re not making money here, it’s still deepening their partnership with WWE, which is important to them, for Raw, which is by far their number-one program on the USA Network.

“It’s important for them with Peacock, which they need to grow for the future, and WWE is a significant part of what’s keeping people using Peacock, probably at least a million people who were used to watching WWE stuff on the WWE Network and now have got to go to Peacock to do that.”

WWE President Nick Khan has revealed in interviews that PPVs like Money in the Bank and SummerSlam have done better viewership on Peacock than on the WWE Network compared to 2019 numbers. Thurston then explained further why he sees NXT staying on USA Network.

“It may be just linear TV’s need for live content as we’ve seen the explosion of the number of wrestling programs that are on television,” Thurston noted. “Maybe the the bar has been lowered for how high you have to jump to get over to get on to linear TV, because linear TV needs live programming.

“It needs programming that people want to watch live now more than ever. So I remain somewhat optimistic.

“Although, I wouldn’t be shocked if NXT is no longer on the USA Network a couple years from now, but I remain optimistic that that’s going to continue to be the case, even though NXT is not this more ambitious brand in itself in terms of getting itself. Its priorities seemingly have changed to serve the main roster proclivities.”

Excerpts from Wrestlenomics Radio were edited for clarity.

Jason Ounpraseuth has covered pro wrestling since 2019. He co-hosts the Gentlemen’s Wrestling Podcast.

Brandon Thurston has written about wrestling business since 2015. He’s also an independent pro wrestler and trainer. For more, see our About page.

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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:

Audio: Vince McMahon’s “hammerlock” comment, responding to a question from PAA Research analyst Brad Safalow, from WWE’s second-quarter 2013 earnings conference call on August 1, 2013.

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.

WWE’s stock price during the relevant time period

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.

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer. For more, see our About page.

Live coverage: WWE Q4 2020 earnings results and conference call

This post will be updated throughout the day. You can also follow along @BrandonThurston.

Today I’ll be covering WWE’s Q4 earnings report. Much discussion of the new Peacock deal, plus annual records in profit and revenues are expected.

Documents release around 4:30pm ET at corporate.wwe.com. Conference call at 5pm.

Here are some things to inform you for the day ahead:

Last night I wrote a preview on possible topics to be discussed:

WWE Q4 2020 Earnings Report Preview: Suggested questions ahead of report of record profits

In November I wrote an estimate of results:

Q4 2020 Estimate: WWE will double its annual net income from 2019

Earlier this week I completed a 63-page PDF report on the entire industry in 2020:

Documents have dropped!

Earnings press release: https://corporate.wwe.com/~/media/Files/W/WWE/press-releases/2021/4q20-earnings-pr.pdf

Trending schedules: https://corporate.wwe.com/~/media/Files/W/WWE/press-releases/2021/q4-2020-trending-schedules.pdf

KPIs:

Click to access q4-2020-kpi.pdf

WWE reports Q4 net income of $13.6 million and a total of $131.8 million for full year 2020, a new company record.

Q4 revenue is $238.2m and $974m for 2020.

WWE reports EPS of $0.15 for Q4. Average EPS estimate was 0.32, so Q4 was about half as profitable as analysts expected.

Key Performance Indicator slides show Smackdown holding up better in Q4 on broadcast than Raw on cable.

WWE Network average paid subscribers for the period were up for the second consecutive quarter.

Online video consumption continued to grow in Q4.

Click to access q4-2020-kpi.pdf

WWE today records its highest annual net income in history, adjusted for inflation.

WWE records its highest annual revenue ever, adjusted for inflation, just short of $1 billion.

If operating income (before taxes and other adjustments) is your preferred profit metric, we don’t have as deep records on that but WWE appears to have shattered that record as well in 2020.

The annual report (10-K) has already posted:

https://otp.tools.investis.com/clients/us/wwe/SEC/sec-show.aspx?FilingId=14672396&Cik=0001091907&Type=PDF&hasPdf=1

The annual report (10-K) has already posted:

https://otp.tools.investis.com/clients/us/wwe/SEC/sec-show.aspx?FilingId=14672396&Cik=0001091907&Type=PDF&hasPdf=1

WWE had a strong year for online merch in 2020, generating $41 million, the most ever in a year. This somewhat offset the lack of venue merch sales since March. Orders were up from the prior year and the average revenue per order was the highest in at least 13 years, at $56.72.

There isn’t a ton of new information in the earnings release on outlook since WWE gave guidance last week when it announced the Peacock deal. WWE projects adjusted OIBDA (their preferred non-GAAP profit measure) for 2021 that’s within the range of what’s recorded for 2020.

As we wait for Vince McMahon, Nick Khan, Kristina Salen, and Stephanie McMahon to begin the conference call.

WWE was low on profitability in Q4 relative to analyst expectations. Not to an alarming degree, but the stock is adjusting down 4% currently in after hours trading.

Conference call on http://corporate.wwe.com finally beings. Sounds like we join in progress and there may’ve been issues with the audio stream. WWE president Nick Khan is talking, putting over the Superstar Spectacle and now Bad Bunny’s appearance at Royal Rumble.

Normally Vince opens the call. Sounds like we might’ve missed that on the corporate site web stream.

Khan talks about WWE targeting LATAM and India regions. In China, WWE launch on Tencent video.

You will see WWE championship belts using team logos.

He hands over to Stephanie.

I will now try to summarize and/or quote WWE execs. These may in some cases be paraphrases. Stephanie narrates WWE Network history and the next steps with licensing to Peacock.

Steph puts over talent appearing outside content, celebrities appearing inside. Matthew McConaughey. Yes Steph does mention Sasha Banks on Mandalorian. Rey Mysterio wearing the Victoria brand on his mask and posted on social media to his followers in Spanish how proud he was.

WWE CFO Kristina Salen begins. She reviews WWE’s record revenue and record profit. “Large-scale international event” is code of Saudi events.

Salen says Thunderdome increase production costs by approximately 25% per episode. Unclear if that’s relative to PC production or pre-Covid production costs.

Salen mentions Wrestlemania but urges WWE doesn’t anticipate the return to ticket live events until at least the second half of 2021.

Salen says sales for championship belts grew more than 100% in 2020. Seems this is likely a big part of what’s driving the increase in revenue per eCommerce order.

Salen notes 2022 and future years will be impact by variety of factors. Contractual escalation of core content rights fees will drive growth. Other factors may temper growth. We expect highest incremental impact of Peacock in 2021.

TV production costs after Covid may be lower than Thunderdome, but higher than 2019 due to Monday to Friday TV production.

Will want to carefully relisten to this guidance later.

This ends prepared remarks. Q&A begins!

Paraphrasing!

Q: More color on costs for Peacock deal? One-time migration expenses?

Salen: Migration costs in Q1, embedded in guidance already. Tech infrastructure savings will be offset “by investing in systems that are long overdue.”

Q: On revenue side of Peacock deal. Any offsets there besides subscriber revenue going away? Stephanie, sponsorship opportunity following deal going to NBCU?

Steph: We can comment on specific deal terms but NBCU is industry leader in sales & spons space.

Salen: Revenue impact is embedded in guidance. And no other offsets besides subscription revenue.

Q: Is there ability to move higher profile content off PPVs and into Raw to bring Raw ratings up?

Khan takes Q, not Vince. Khan seems to tactfully answer no, focusing on Peacock.

Laura Martin of Needham tries to ask Vince a question. Nick takes this one too. It doesn’t seem Vince is in the room.

Khan says international plan just getting started, a lot of room for growth. Stephanie took over sales and sponsorship area. With NBCU partnership you’ll see more ad/spons opportunities. Championship belt deal “with just one of the major sports leagues”, doesn’t say which.

Q: What’s WWE doing to drive viewers back to Raw and Smackdown?

Khan: We don’t believe we’ve lost eyeballs. We believe eyeballs shift from linear to digital. Now that we’re out of presidential race, virus still focused on. With great in-ring product, there’ll be growth.

Q: Is the rest of media industry move to off load rights to bigger platforms? What’s given up by leaving DTC? Data?

Khan says to look for WWE events to big piggyback onto NBC events.

Salen assures there is no upcharge around special content (PPVs) so there won’t be volatility.

Q: How will NBCU evaluate success of WWE content on Peacock? Sub adds, ad sales?

Khan explains the three Rs: ratings, relevancy, and revenue. Ratings based on subs. Relevancy, as excited as they are about it. And revenue it’s an opportunity for them to sell against it.

Khan: “We think it has no impact on us, the departure of NBC Sports Network… There’ll be no affect on Raw or NXT.”

Very direct answer that seems to say Raw and more interestingly NXT won’t be affected by NBC Sports Network content potentially moving to USA Network.

Q: Can you help us understand profitability of Saudi events?

Salen says looking at Q4 2020 should give you an idea of the absence of a KSA event has.

Q: Do both KSA events in a given year have same profitability?

Salen: Talking about live events is hyper theoretical right now.

The call has ended.

Clarifying: Vince McMahon was in fact on the call at least at the beginning. Full audio replay is up at https://streaming.webcasts.com/starthere.jsp?ei=1278679&tp_key=5afce1de54

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer. For more, see our About page.

WWE Q4 2020 Earnings Report Preview: Suggested questions ahead of report of record profits

WWE is expected to report 2020 was the company’s most profitable year ever tomorrow (Thursday). Fourth quarter and therefore full-year 2020 results will be reported just after the market closes.

Below we’ll look at some questions that might be (and some that almost certainly some won’t be) discussed during the call. The Q&A session in which stock analysts get to ask questions to WWE executives is of particular interest here.

I’ll be covering the report and earnings call as it happens, on Twitter (@BrandonThurston) and here on wrestlenomics.com.

WWE officers scheduled to be on the call are the same as the Q3 call in October: WWE chairman and CEO Vince McMahon, president and chief revenue officer Nick Khan, chief financial officer Kristina Salen, and chief brand officer Stephanie McMahon. As always, anyone can listen to the conference call live on corporate.wwe.com at 5:00pm ET.

If you’re reading this, you probably know who Vince and Stephanie are. Khan and Salen are relatively new to WWE. They were hired by the company in 2020. Both started around August of last year. When he was with CAA (Creative Artists Agency) Khan negotiated WWE’s current U.S. television deals with NBCUniversal and Fox. Salen is a former CFO at Etsy and Moda Operandi.

The new deal with Peacock, granting the NBCU streaming service U.S. rights to all WWE Network content is Khan’s first major deal as WWE president. Expect information about the Peacock deal to be a frequent topic of conversation on the conference call.

1. Future of the WWE Network on Peacock

How does the Peacock deal affect WWE’s expenses? Does the Peacock deal entail employee reductions? Are there commitments to data that WWE (including employee positions) no longer needs to invest in? Are there other expenses NBCU will absorb? Will Endeavor continue to provide CDN for WWE Network?

What are some key lessons the company learned from the seven-year WWE Network project? It may have been a challenge for a company that has a long history of producing content to tackle a tech-heavy project like this. How much of a factor does WWE feel that was in the Network not driving more revenue on a purely direct-to-consumer model in the U.S.?

How seriously was selling select events like Wrestlemania as a standalone pay-per-view event (like ESPN+ does with UFC) considered? Wrestlemania is clearly included in Peacock Premium this year. Is that something that’s off the table now?

Other than the reported $1 billion in fees over five years, how does the deal affect WWE’s revenues? What does the deal mean for WWE’s media advertising and sponsorship revenues? Does NBCU now get a portion of revenues from WWE’s major advertisers like Snickers’ official sponsorship of Wrestlemania?

There’s a vast library of content currently available on the WWE Network. Should subscribers expect that 100% of the content they had access to on the WWE Network will be available on Peacock Premium?

Are there incentives in place encouraging WWE to produce monthly pay-per-view events that drive people to subscribe to Peacock? The new deal with Peacock has a five-year term, so there is the incentive that WWE wants its content to perform well so that there’s a better deal waiting at the end of this one. That’s a kind of incentive. But is any part of WWE’s compensation based on performance? Are there an incentives based on subscriber activity or viewership on Peacock?

2. Does the Peacock deal bring WWE closer to being acquired by NBCU/Comcast?

There will be no straight answers here, but NBCU now owns U.S. rights to Raw and the Network content, paying WWE somewhere around $465 million annually ($265 million for Raw and $200 million for Network content). Over the course of both of those agreements, NBCU will have paid WWE more than $2 billion, nearly half the market capital of WWE. Does the latest deal get NBCUniversal closer to acquisition? Is acquisition on the table when Raw rights are renegotiated, likely beginning some time next year? This might be a question for Comcast’s (NBCU’s parent) executives as well.

3. How does WWE see NBCU folding NBC Sports and moving sports content to USA Network (and other NBCU platforms) affecting WWE content? NXT in particular.

It likely is, but can investors have some reassurance Raw is safe Monday nights in primetime? Will there be an preemptions of Raw in the future due to sports programming?

Are there cross-promotional opportunities between WWE and other sports programming? Granted, WWE’s matches are predetermined, but with USA Network taking on more sports content, is there any consideration into categorizing Raw and NXT as sports like how Fox categorizes Smackdown and how TNT categorizes AEW?

NXT is currently on Wednesday nights where it runs head-to-head with AEW Dynamite. It seems possible if NBCU retains NHL rights that hockey could take precedent on Wednesday nights on USA. NXT hasn’t beaten AEW in viewership in months and hasn’t led with viewers 18-49 in more than a year. Is it better for building the NXT brand to move the program to another night? How important does the company view directly competing with AEW? Does higher viewership for AEW pose a risk to WWE’s own future media rights value?

Source: Nielsen

Is there any update the company can give on NXT negotiations? Will the company publicly confirm the NXT deal with NBCU expires in the fall? Under prior management, WWE stated part of the reason for moving NXT off of the WWE Network and on to linear TV was to grow media rights value of a third weekly brand. Two years later, does the company feel that’s been a success? Furthermore, is Peacock a possible future home for NXT?

4. Hiring of Christine Lubrano as SVP of Creative Writing Operations

The former IFC executive joins WWE, where she’ll work with Bruce Prichard. The press release states Lubrano will work under EVP of operations Brad Blum, but it sounds like Lubrano and Prichard are now the key people on the creative team under Vince. What skills does Lubrano bring that will be especially additive to WWE’s programming? WWE’s talent roster of women and obviously the company’s focus on female talent as serious athletes have grown tremendously in recent years. What percentage of the company’s creative team are women?

5. What’s the company’s latest analysis of Raw and Smackdown ratings? Why are AEW and NXT not seeing similar trends?

Source: Nielsen

Raw and Smackdown have stabilized since the addition of the Thunderdome. Both programs are actually seeing an upward trend in recent weeks. Raw is boosted by lack of competition from the NFL since its season recently ended. Both programs still are not back to where they were before the pandemic, while NXT and AEW held up more consistently since full live audiences were restricted.

This is especially noticeable in trends among younger viewers like those in the 18-34 category. In fact, the majority of viewers for WWE’s programs are 50 or older. It seems wrestlers, too, (at least those on flagships Raw and Smackdown) on average are getting older. What’s WWE doing to address this?

Source: Wrestlenomics Pro Wrestling Industry Report 2020

6. Why was it important to announce locations for Wrestlemania this far in advance? Will Wrestlemania be a two-day event going forward?

WWE usually doesn’t announce the Wrestlemania location for the event two years ahead. Was this simply due to the Tampa postponement reordering the schedule? Or were there other factors?

Wrestlemania events for 2022 and 2023 are referred to in the press release as one day only, yet this year’s event and last year’s are two-day events. Is the company considering making this a permanent feature going forward? Might that be the best way to monetize the company’s peak annual event? Seems there would be further opportunity to generate ticket and merchandise revenue, and the company has a growing roster of talent. One-day Wrestlemania events in previous years were several hours long.

7. Is WWE trying to integrate talent and advertisers?

Stephanie McMahon has spoken in interviews about the value of integrating advertising opportunities within the programming itself. Was Rey Mysterio’s Victoria Beer wrestling attire an early example of things to come? How does WWE feel this benefits advertisers and the talent?

8. What’s the latest with NXT’s “Global Localization” strategy?

WWE recently aired its “Superstar Spectacle” event aimed at India. Are there more localized programs like this in the works? Will an NXT India brand be launched in the near future? Would that mean a Performance Center would be established in the region as well? Are there other regions that are closer to being developed? How has Covid affected this strategy overall?

A docket showing WWE involved in litigation in Connecticut against the U.S. Citizenship and Immigration Services appeared in public legal resources recently. Does the company foresee any issues with obtaining visas for international talent? Are travel restrictions enacted by the new presidential administration seen as obstacle?

9. What are the company’s plans for the Twitch platform? Cameo?

In September WWE talent were ordered to stop using third-party video platforms like Twitch and Cameo. What opportunities does WWE see there?

10. Has WWE made any decisions about the future of live events?

In the most recent pre-Covid quarters, the live events division struggled to report positive operating income. Losses on live events were particularly evident in quarters not containing Wrestlemania. An increasing amount of WWE’s revenue is coming from media sources. What value does the company see in running house shows (non-televised events)? Is it safe to say, post-Covid, WWE will run a reduced touring schedule?

11. Are there any decisions on the stock buyback program?

WWE stated in July it was considering restarting its stock buyback program that was put on hold at the beginning of the pandemic. Shares have been climbing since the last earnings report. Many analysts have raised their stock price targets recently. It seems this is a subject CFO Kristina Salen would be the key person to hear from on.

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer. For more, see our About page.

The mystery of WWE NXT’s rights fees on USA Network

I don’t believe there’s any reliable public report on the average annual value (AAV) for WWE NXT on the USA Network.

There are specific credible reports on the AAV of WWE Raw ($265 million), WWE Smackdown ($205 million), and AEW Dynamite ($43.5 million).

But for NXT, reports and estimates are all over the place:

I believe the MKM and JPMorgan numbers are estimates modeled by stock analysts, and not based on human sourcing. Those firms’ estimates might be based on revenue per viewer hour rates of Raw and Smackdown, and consider estimates of what NXT might deliver, based on the 2017 one-off 7pm airing on USA.

I don’t endorse these results, but you can see here how such estimates might’ve played out, allowing analysts to surmise NXT was getting as much as $50 million or $70 million AAV:

P18-49 viewership numbers are estimates based on actual P18-49 rating (from Showbuzzdaily) multiplied by 1295.

I believe the Observer report is based on human sourcing, but it’s not clear whether the information was from someone with direct knowledge.

However, the Observer’s valuation ($30 million to $50 million) does overlap with the Guggenheim estimate (about $30 million), which is also apparently based on a human source.

Guggenheim analyst Curry Baker wrote in a related stock analysis: “After speaking with [WWE], we believe that the NXT deal struck with USA is for one or two years at ~$30 million a year.”

If WWE was getting a great deal — of say, $50 million annually or more — from USA for NXT, one would think that fact would be celebrated in the following earnings report. But there was no such bragging in the Q3 2019 report.

To make things more opaque, the timing of WWE’s new deals for Raw and Smackdown makes it impossible to make a meaningful estimate based on the company’s revenue reporting. The increase in rights fees for the flagship shows went into effect in the same first full quarter that NXT appeared on USA Network (Q4 2019), so it’s not clear what a “normal” quarter would look like without NXT money for the “core content rights fees” line, within which all domestic and international rights fees for the three programs are reported.

However, it’s not clear the NXT deal is so valuable that it’s actually a profit contributor.

WWE co-president George Barrios (before his termination) was asked on the earnings call on October 31, 2019 if NXT (which debuted on USA the month prior) was now an EBITDA contributor. He declined to answer and deflected to emphasizing the long-term opportunity of monetizing NXT.

From WWE’s earnings call, 10/31/2019:
Ben Swinburne — Morgan Stanley — Analyst
Okay. And I don’t know if you’ll answer this but is NXT a material — a contributor to EBITDA? Or a material contributor to EBITDA? A material impact to EBITDA, in the fourth quarter, either good or bad?
George A. Barrios — Co-President and Director
Yeah, we haven’t talked about the economics of NXT. I think if you remember the release when we announced it, we said that we were doing this for the long term.

The relevant statement in the August 20, 2019 press release Barrios referenced is a quote attributed to Chairman and CEO Vince McMahon.

“The move to USA Network provides an opportunity to deepen our relationship with NBCUniversal and further build the NXT brand,” said Vince McMahon, WWE Chairman & CEO. “Over the long term our goal is to develop a following that can be monetized to the same level as our flagship programs, Raw and SmackDown.”

Again, one would think if the NXT deal were on the upper end of some analysts’ estimates, the company would be showing more pride when asked and wouldn’t so emphasize the long-term opportunity.

It’s possible NXT could be getting as much as $30 million a year while not being a profit contributor, depending on the cost of production. I believe the pre-Covid cost to produce one live Raw or Smackdown was about $1 million. It seems reasonable to imagine a pre-Covid live NXT with its smaller set and regular venue at Full Sail University would cost substantially less. If the weekly cost of a live NXT was as much as $600,000, the annual cost comes to just over $30 million. If so, that would explain Barrios’ unwillingness to affirm NXT’s contribution to EBITDA. Still, I lean toward thinking the notion of $600,000 in weekly production costs for NXT is higher than the reality.

To consider the value of the NXT deal, let’s think too about what motivated the decision to move NXT from being a one-hour program (usually taped in advance in four-episode sessions) exclusive to the WWE Network to being a two-hour program airing live each week on USA.

I believe there was an urgent desire from WWE and NBCUniversal to protect the value of Raw by directly competing with AEW head-to-head on Wednesday. Despite public comments from EVP Paul Levesque that he’s not that concerned with the competition, I believe that’s the largest motivating factor behind the move. That compulsion to go head-to-head with the strongest wrestling competition in 20 years is probably a greater motivator than any short-term monetary compensation.

Indeed, competing with AEW is apparently an issue NBCUniversal is interested in as well. When AEW was preempted from its normal timeslot in September, replays of the most recent NXT episode were suddenly scheduled on Syfy (another NBCU channel), ensuring Dynamite was still opposed head-to-head by NXT in some form.

Why would NBCU care so much?

Raw is USA Network’s most-viewed show. It delivers weekly live first-run three-hour episodes 52 weeks a year. Depending on how you define it, Raw is arguably the most-watched weekly show in the key P18-49 demographic that’s airing year-round anywhere on cable. Really only NBA, NFL, and college football do better consistently, and none of those air year-round.

Raw is a strong enough show that it’s probably associated with specific guarantees called “covenants” within the agreements for transmission fees between NBCUniversal and cable/satellite providers. In other words, Raw is specifically justifying a portion of USA Network’s largest source of revenue, transmission fees. If Raw were to suddenly stop airing on USA, cable providers could go back to NBCU to renegotiate terms. If WWE has a strong wrestling competitor in the media ecosystem, it may make it harder for NBCU to sell those covenants to cable providers at a high price. In sum, the success of AEW may threaten a portion of USA Network’s revenue from transmission fees, and if Raw isn’t driving transmission fees as strongly, then that threatens NBCU’s willingness to contribute highly to WWE’s biggest revenue source, its TV rights fees.

Considering these motivating factors and the inconsistency of the various aforementioned reports and estimates, I don’t have confidence in any particular number on NXT’s compensation. Further, it does seem within the realm of possibility the number is well below $30 million.

That said, there is a long-term opportunity for NXT to be monetized at $50 million to $60 million per year, based on the current revenue per viewer hour compensation of Raw and Smackdown, and the increasing demand for live content on pay TV. NXT’s terms could be renegotiated sooner than later, since, if the agreement with USA was for two years, the deal will be expiring around September 2021.

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