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

Expect WWE to shatter its annual profit records when the company reports Q4 and full year 2020 results sometime around early February or late January.

Despite a global pandemic that interrupted live events and despite diminished interest in the company’s flagship brands, contractually escalating fees for Raw and Smackdown continue to drive WWE’s finances to heights that outperform its more popular eras.

The external positive impact of TV networks’ need for highly viewed live programming obscures any external negative effects from Covid. Wider media economics too obscure any internal issues, like WWE’s descending CEO-led creative execution of the very core content that’s largely driving revenue growth while turning fans away.

Net income for 2020 I’m estimating at $162 million, breaking the record set in 2018 ($99.6 million) and more than doubling 2019’s result ($77.1 million).

Revenue I expect to be about $997 million, breaking last year’s record of $960 million.

Media revenue and expenses

Expect a sizeable increase in payments for Raw and Smackdown. WWE’s U.S. deals entered Year 2 in October. I’m assuming those deals are due for 10% increase in accordance with contracts that guarantee annual raises in payments. NXT is also entered Year 2 on the USA Network, which may result in a 10% for those fees also.

Media operating expenses will be higher due to the lack of production incentives relative to Q3 and expenses related to a full quarter with Thunderdome and Capital Center production costs.

WWE guided that there would be increased expenses in Q4, largely due to a full quarter of Thunderdome and Capital Center production expenses, and the lack of production incentives present in Q3.

“[M]anagement anticipates $40 million to $45 million in incremental fourth quarter expenses (4Q20 vs. 3Q20) due to $18 million in production incentives (recognized in the third quarter) and due to $22 – $27 million in ongoing incremental production expenses associated with the creation of the WWE Thunderdome and incremental personnel expenses associated with employees returning from furlough, both of which are expected to continue in the coming year.”

WWE earnings press release, 10/29/2020

Therefore I modeled an additional $42.5 million in total expenses for Q4 from Q3 to account for these incremental costs, and bringing Q4 media operating expenses to $118.8 million.

I’m modeling WWE Network paid subscribers for the quarter up (+6%) from Q4 2019 (1,419,000), at 1,506,000. After declines throughout 2019, subs have rebounded in late Q2 and throughout Q3. Consumer interest in streaming video subscriptions seem strengthened generally, coinciding with Covid. And viewership of Raw and Smackdown have stabilized since the summer, possibly reflecting enduring interest in WWE overall.

WWE Q4 and full year 2020 estimate table

All values in millions USD, except EPS, diluted shares, and values marked as percentages.

Longer-term outlook: 2021 and 2022 estimates

Guaranteed escalating rights fees for Raw and Smackdown should keep the company increasingly profitable for at least the next few years.

I believe fees from NBCU and Fox make-up as much as 80% of the Core Content Rights Fees line.

A full estimated breakdown of rights fees for each major market (and within each program for U.S. fees) with estimates on escalators is here, for patrons only.

View this breakdown on Patreon
View this breakdown on Patreon

PPV rights: How do you sell a product with a warped price point?

The biggest unsettled question for company outlook is whether WWE can sell rights for its pay-per-view events, which are currently primarily consumed on the WWE Network.

The WWE Network did not live up to its ambitious subscriber projections of 3 to 4 million subscribers, which would have made the opportunity cost associated with cannibalizing the traditional pay-per-view model, among other revenue sources, well worth it.

The termination of WWE’s co-presidents George Barrios and Michelle Wilson in January seemed to be the result of a conclusion reached by CEO Vince McMahon, that the Network, which launched in February 2014, had its chance and didn’t work out as hoped. Vince seems to think the best to continue to grow revenue associated with the Network content is to sell some portion of that content, principally the monthly pay-per-view events, for guaranteed rights fees to a major streaming player or other distributor.

Vince hinted in February this year that such a deal would be done by as early as March 31, but then Covid hit. It seems possible WWE was close to reaching a deal with a service like ESPN+ until the pandemic threw the business companies like Disney into uncertainty. There have been no further hints of a deal. Leading streaming players to take the PPVs seem to ESPN+, NBCU’s Peacock, and possibly Amazon Prime.

Maybe a major streaming service isn’t the best potential home for WWE PPVs

One of the major obstacles of such a deal is it’s not obvious to me how a streaming player should offer the PPV events to consumers. PPV events have been provided to fans for well below value for almost seven years. On traditional PPV, WWE events were (and still are) sold for $59.99 (or more for Wrestlemania). WWE Network subscribers have been watching PPV events on the service for a $9.99 monthly fee — all while getting access to a lot of other new content and much of the company’s huge video library.

A streaming player who acquires rights to these monthly peak events (where WWE storylines are meant to culminate), acquires a product that had its price point suddenly cut by one-sixth in 2014.

Should PPV events be offered via a monthly subscription fee, as they are currently with WWE Network? If so, at what price point? Keep in mind WWE is signaling they’ll continue to operate the WWE Network if or when PPV rights are sold. Many WWE Network subscribers might cancel if PPVs are taken away from the service but it’s not like WWE fans will necessarily have free WWE-allocated cash to spend.

Or should PPV events be sold a la carte, like ESPN+ currently sells UFC PPV events, for as much as $60 again? That may be the best way to monetize Wrestlemania. I could see fans being willing, however reluctantly, to go through a lot of friction and to part with more cash in exchange for the one annual super event.

For the whole calendar of events, I’m not sure. Consuming WWE PPVs on a different streaming service for an additional charge to the WWE fan while WWE continues to market the Network to its base is a scenario rife with friction, expense, and confusion for the consumer.

The best move for all involved may be to go for a strategy that takes PPVs off of streaming platforms entirely. We’re in the era where the premium on live sports lives primarily on linear TV. Maybe the way to go is to broadcast most of the monthly PPVs on a high-reach broadcast or cable network, then sell Wrestlemania a la carte — and maybe the second-most popular event Royal Rumble, maybe the third, Summerslam — at an individual higher price point exclusively via a streaming platform owned by the rights holder.

An example of such a scenario would be NBCU buying rights, airing monthly PPV events live on NBC or USA Network (or any of its universe of channels), and selling the biggest one to three events via streaming PPV, either through Peacock or not. You can imagine similar fits for ESPN and Fox.

Such an outcome would put most PPV airings on an outlet many fans already have access to, taking some of the stress off of the end-consumer. PPVs happen almost completely on Sunday nights. They would probably be a welcome addition, providing a large and young audience, to one of the weaker nights on a network’s lineup.

Estimates for 2021 and beyond do not have model into them any additional revenue related to a sale of PPV/Network content right. Given the uncertainties discussed, a deal does not seem imminent, nor is the value of such a sale clear right now.

Will WWE run live events in 2021?

Live events generally are not very profitable for WWE. Major events, though, most prominently, Wrestlemania are very lucrative for the company. With stadium capacity, venue merchandise sales, and other in-town arena events on surrounding days, a Wrestlemania weekend likely drives more than $20 million in revenue for WWE. The company missed out on that completely this year due to Covid.

Even in light of hopes of a vaccine, I would not expect WWE to return to normal live events before late 2021, at the earliest.

WWE may be hoping to hold some of its major events like Royal Rumble and Wrestlemania in 2021 with some kind of limited capacity. It seems possible WWE may generate some ticket and venue merchandise revenue as a result.

All Elite Wrestling drew 850 paying fans, paying $60,000 to its latest pay-per-view event this month, according to the Wrestling Observer Newsletter. AEW draws smaller paying audiences for its regular tapings. If AEW can manage that, one would think WWE should be able to, especially if they can secure an outdoor venue.

Knowing the situation with regard to events and Covid is fluid, I modeled just one Saudi Arabia event for the 2021 estimate. Normally there are two of those events per year, generating payments of about $50 million for each visit.

Disclaimer/disclosure: I have no positions in World Wrestling Entertainment, Inc. (NYSE:WWE), and no plans to initiate any positions. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from supporters via Patreon). This article does not constitute investment advice and should not be construed as investment research.

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.

Implications of Wrestlemania, WWE’s Cinematic Style

Related to Wrestlemania, there’s some Google web search data available, but because the public data is standardized and longer-term trends are cut up into weeks, I think it’s best to wait a week or two to try to make year-over-year comparisons on the data that includes anything from Sunday.

I’ve been looking at some Google web search data from previous years, though, comparing search data for WWE in the week before Wrestlemania, which we can use to make a prediction about what the search data for the week of Wrestlemania will be like.

Index of Google web searches, the week before and the week of Wrestlemania

Why is this meaningful? I’ve found that Google web search data related to WWE from 2006 to 2013 could, with some adjustments, be used to create a model that predicts pay-per-view buys, so there seems to be an economic relevance.

This year may be trickier since Wrestlemania took place over two days, which might skew search volume higher.

I’m curious to see if WWE discloses, in its next earnings report, a “day after Mania” number for Network subscribers, which they have in the past, or whether they report only quarterly information. WWE may report this as early as next month when it publishes its Q1 2020 earnings.

WWE Key Performance Indicators

Even if there had been no COVID19 crisis, I’d have expected the Wrestlemania subscribers to fall at a single-digit percent year-over-year again.

I still expect the number to be down somewhat from the year before. I don’t have a great sense about the degree to which COVID19 will affect Network subscribers for WrestleMania and Q2. I think there are a number of factors:

  • Positive: A lack of competition from other sports can only make way for interest in WWE.
  • Positive: WWE tried to compensate for lack of live audience by making Wrestlemania a two-day event.
  • Positive: Buzz from night 1 and the unusual presentation of the Undertaker-AJ Styles match may have encouraged interest, although for what it’s worth Google searching was down on the second night.
  • Negative: No live audience makes the show less appealing
  • Negative: Raw and Smackdown episodes building up Wrestlemania declined in viewership as the event neared, possibly as TV audiences grew tired of the empty building matches.
  • Negative: Increased interest in news programming.
  • Negative: Economic stress on consumers due to COVID19 may lead some subscribers to cancel.
Google Trends: Searches related to WWE and WrestleMania were higher for night 1 (Saturday) than night 2 (Sunday).

They advertised their next pay-per-view event, “Money in the Bank” for May 10, so WWE seem intent on continuing on with PPVs. I think it will be difficult to maintain normal interest in PPVs with no live audiences. 

I think there’s questions around government pressure about how long they’ll be able to continue with match tapings, assuming the number of COVID cases rises, as Dr. Anthony Fauci and the Surgeon General suggest. They taped Wrestlemania and tonight’s Raw in Orlando, FL, but finished just before Gov. Ron DeSantis’s stay-home order went into effect. Reportedly, WWE is working on doing future tapings in a secret location.

Streaming, PPV rights, library value

WWE worked with Fox and FITE to offer Wrestlemania on streaming platforms as a standalone PPV, at a $60 price point. Not sure what the strategy is there. Wrestlemania could still be viewed as normal with a $9.99/month Network subscription, and there was no stopping any customer from signing up and canceling right after the event. The event was also available for $60 on PPV via cable and satellite providers, which is normal for all PPVs since the launch of the Network in 2014. According to Dave Meltzer, Vince McMahon felt that it was best to make Wrestlemania available on as many platforms as possible.

WWE also made agreements recently with ESPN and Fox Sports to air library content on each of their linear cable channels. Sunday night airings of past years’ WrestleManias on ESPN in recent weeks drew 720,000, then 839,000 viewers, with P18-49 ratings of 0.25 and 0.31, respectively.

In this environment with no live sports, I think WWE library content has increased valued. Replays of old wrestling events have greater value than replays of old sports games; people will re-watch wrestling events somewhat like they will re-watch an old movie.

From the latest Wrestlenomics Radio: Wrestling is a hybrid of live sports and scripted entertainment in ways that are economically relevant

WWE may be able to extend these agreements the longer that sports cannot run games. I expect the fees related to these agreements are small relative to Raw and Smackdown fees, probably similar to payments a cable channel makes for re-airing a several-years-old movie.

A deal with ESPN+ or Peacock to sell PPV rights away from the Network seems unlikely in 2020. I would expect this to be explored again in 2021, possible before that year’s Wrestlemania. The interaction with Fox makes me think they may be a suitor in future discussions also; even though Fox doesn’t have an SVOD sports service like ESPN+ yet, they’ve shown they’re willing to sell WWE’s PPV over their streaming platforms.

Overall financial outlook

Last week I modeled out WWE’s revenue and operating income for 2020 in scenarios with and without the COVID19 crisis.

I believe WWE TV rights for Raw and Smackdown are not at risk. They will continue delivering some form of content in their time-slots and they will continue receiving the expected payments. WWE has thousands of hours of library content that has never aired in those slots, and they have studio facilities that would allow them to create wrap-arounds for old matches, interview segments or documentary-style productions. They seem intent on continuing on with producing new in-ring content as long as possible anyway.

Because TV rights fees are so big and because it will be cheaper to produce television since they won’t need to broadcast live from sports venues, and because non-televised events are a money loser, I don’t expect WWE operating income for 2020 to be hurt much compared to a non-COVID 2020, even if WWE cannot run traditional live events for the remainder of the year.

A big question will be whether WWE is able to run a second Saudi Arabia event later in the year; each KSA event provides ~$50 million revenue, probably with a high profit margin.

Wrestlemania reception

While all other matches were played in front of no live audience, WWE produced two matches, one on each night, that were basically 20-minute mini-movies. They ambitiously challenged the audience’s common conception of what wrestling is. While divisive for some, the AJ Styles-Undertaker and John Cena-Bray Wyatt presentations were largely well-received.

I expect Vince McMahon will celebrate the productions as a success on the next earnings call. WWE should be applauded for being inventive while being challenged to run Wrestlemania without live fans.

This “cinema” interpretation of wrestling was done earlier outside of WWE by productions like Lucha Underground and by Matt Hardy’s “Final Deletion” within Impact Wrestling. (Arguably there are less acclaimed debts going back further.)

WWE made subsequent attempts at cinematic skits, but Wrestlemania provided the highest-profile examples yet. I expect we’ll see further attempts in this style in and outside of WWE for years to come, probably with varying success. I expect the company will try to replicate its success here, often with diminishing returns. In a sense, the “cinematic” presentation is the next step of Vince McMahon’s ambition to transcend pro-wrestling and “make movies”, as he once said in a 1999 documentary.

An economic point here, though: The further use of this style may allow WWE to prolong the careers of aging talent like the Undertaker (age 55), who has struggled to perform in live in-ring matches for several years.

On the risk side, I fear such productions will enable WWE’s already present over-reliance on older “legend” talent, at the expense of developing the star power of younger wrestlers who must carry business at events and programming year-round.

To be fair, Drew McIntyre and Braun Strowman — both under age 40 — were put over strongly as new champions, with wins over Brock Lesnar and Goldberg. The benefit of their victories however was naturally muted by the fact they took place without the energy of a roaring crowd.

I believe the ongoing decline in many of WWE’s key metrics is largely due to the company’s inability to develop new stars, coinciding with the withdrawal of John Cena as a full-time wrestler. The history of the company’s business (and that of the wrestling industry overall) demonstrates that WWE’s full financial potential can be realized only through the development of new stars.