WWE Q3 2022: Thoughts ahead of earnings call tomorrow

WWE moved the earnings call date back a day, to Wednesday evening rather than Thursday morning. The company noted that was to accommodate scheduling related to their Saudi Arabia event on Saturday.

Does that mean there will be more involvement on the call from the newly-appointed chief content officer, Paul Levesque, than they previously planned? They may want to have him comment and highlight that he’s done an effective job since taking over creative in late July.

I expect positive stories about TV ratings. Monday Night Raw is holding up well in year-over-year comparisons, despite NFL competition starting in September. Smackdown is also up year-over-year in four of the last five months. I expect an emphasis on “Easter eggs” as they point to how they hinted at the return of Bray Wyatt with clues in their programming and QR codes.

Stronger ratings will help their case for an upgrade in live rights fees. I believe serious negotiations for U.S. rights to Raw and Smackdown will start in Q2 2023 (April to June) and may even be finalized in that quarter. Given NFL on Thursdays has done well on Prime Video, Amazon seems like a more realistic player for one of the WWE shows. Current deals with NBCUniversal and Fox expire in the fall of 2024.

NFL Thursday Night ratings make it seem less likely a core WWE show would be airing in obscurity on a streaming platform. Streaming one of the flagship shows may actually expand WWE’s reach, given the younger demographics of streaming and pay TV’s continued decline and aging audience. Although the trade-off of moving away from the wide reach of broadcast (Fox, in the case of Smackdown) in favor of streaming (hypothetically, Prime Video), may be negative. Amazon can to afford to pay content providers like WWE commensurate to the tech giant’s current lesser ability to reach audiences.

Smackdown I believe is more likely to find a new home since it’s held by Fox. It’s questionable whether Fox is happy with the show’s ratings performance. And Fox can certainly live without WWE content. Contrasting against that, NBCU is deeply invested in WWE, so I see them likely to hold on to Raw and keep it on the USA Network.

Next-day Hulu rights are still in question. Did WWE and Hulu agree to an extension? Don’t expect clarity on that, but I’d work with the assumption that those rights will be dealt with live rights. Where NXT ends up in all of this seems in play, as well. It’s not publicly known when the agreement putting NXT on the USA Network expires, but it’s possible WWE has aligned those rights with Raw and Smackdown’s deals.

If Comcast/NBCU really wants to acquire WWE, it seems like 2023 is the time, ahead of another likely rights fees upgrade. Vince McMahon’s exit reasonably opened up speculation about whether WWE will be acquired. However, I’m neither convinced that Comcast wants to own WWE and fit it into its set of brands, nor that WWE is enthusiastic about selling with family members like Stephanie McMahon and Paul Levesque recently elevated in their executive roles. Acquisition seems somewhat inevitable, though. Endeavor is a well-suited acquirer and their president, Mark Shapiro, sounded interested in his comments on The Town podcast recently. Maybe that happens someday.

WWE’s September 3 “Clash at the Castle” event will be another highlight. Because of how WWE breaks down its revenue lines, we should get an idea of what the live gate was for the event since that was the only international event in Q3.

Domestically, I expect them to report an average paid attendance of around 7,000 per event, based on my reading of WrestleTix data, which would be their highest excluding-Wrestlemania quarterly average since the return-to-touring quarter of Q3 2021.

It will be interesting to see what their merchandise numbers are like, too. I built $28.5 million in revenue for the quarter toward the consumer products division, which consists of three areas: product licensing, venue merchandise, and eCommerce.

Consumer metrics have improved somewhat since Vince left, I believe due to the quality of the content. Some fans say not much has changed, but it seems to me enough has perceptibly changed to strengthen TV ratings and attendance, at least in the short term. It’ll be curious to see how WWE spins these trends without contrasting against the weak performance of their disgraced former CEO and Chairman.

I’ll cover the earnings report Wednesday evening on Twitter, @BrandonThurston. The call is at 5 pm ET, live on corporate.wwe.com.

I’ll be talking about the report with John Pollock of POST Wrestling on Thursday at 1 pm ET. It streams live on POST Wrestling’s YouTube channel and will be in both the Wrestlenomics Radio and POST Wrestling podcast feeds afterward.

My full WWE financial model and outlook are available to subscribers.

My latest estimates for WWE’s Q3 2022:

Revenue: $293.7 million
Operating income: $37.7 million
Adjusted OIBDA: $55.3 million
Net income: $24.5 million

For full-year 2022:

Revenue: $1.302 billion
Operating income: $291.3 million
Adjusted OIBDA: $369.4 million
Net income: $206.8 million

Brandon Thurston

Will WWE sell? Maybe

I’ve often been dismissive of suggestions that Vince McMahon would ever part with controlling interest of his company. Sure, he cares about making money, I’ve argued, but wrestling’s most infamous micromanager would never part with control.

Plus, succumbing to merger or acquisition would end the lineage of a family-owned business that traces back to his grandfather. Given Vince’s fascination with talent who are the descendants of his former stars, passing the business to the next of kin seems like something that’s broadly part of his philosophy.

But the last signal that the Logan Roy of pro wrestling will hand the business on to the next generation of McMahons seemed to fade when Stephanie McMahon curiously announced her leave of absence on May 19, saying she would return after “taking this time to focus on my family.”

The notion that Vince pushed Stephanie to take a leave of absence, reported by Business Insider, has been has been disputed by Fightful.

Around the time of Stephanie’s announcement, Vince removed Claudine Lilien, Head of Global Sales and Partnerships, we’ve confirmed, who worked under Stephanie, related to frustration with the performance of WWE’s advertising and sponsorship sales. Improving those sales is a growth opportunity analysts have repeatedly cited.

WWE announced yesterday the hiring of Catherine Newman, formerly CMO for Manchester United, as new EVP and Head of Marketing. She’ll take over many of Stephanie McMahon’s duties while she’s absent.

Whatever the full story is behind Stephanie’s absence, with her away at least temporarily, I’m less confident than ever WWE will be led in the future by a McMahon other than Vince.

Vince’s oldest child, Shane McMahon, once the presumptive heir, left his executive role in late 2009. Despite returning as a performer, he hasn’t held a corporate role since.

“It stopped being a collaboration and it stopped being fun,” he said years later in an interview about his exit from the company.

“I wasn’t going to allow a deteriorating business relationship affect our personal lives, and that’s exactly what was happening.”

Stephanie and her husband Paul Levesque seemed to be filling the vacuum left by Shane through the mid-2010s.

Levesque was the leader behind the emerging NXT brand. His role was reduced around the time he had serious health problems last year, but also after it was clear NXT was succeeding neither at becoming a lucrative media rights brand nor at beating AEW in head-to-head Wednesday night TV ratings.

Vince alluded to difficulties working with family members in a rare interview with WWE on-air commentator Pat McAfee in March.

“Hopefully if you’ve built something, hopefully you want it to continue on and prosper and grow, whether that’s with a family member or without a family member, because my view is the business is best for everybody, whether you’re a part of it or not a part of it, and you have to treat it as such,” Vince said.

“You have to be objective and look at family members or whoever it is just like you would other employees. And quite frankly I’ve probably expected more out of my family members, which is probably not the right thing either… But you have to do the right thing for the business, so if this person is not working out, they shouldn’t be a part of the company.”

Meanwhile Vince has re-elevated past aides, Bruce Prichard (who Stephanie fired in 2008) in Creative and John Laurinaitis in Talent Relations. Long-time political rival to Stephanie and Paul, Kevin Dunn, seems as secure as ever. His Television department was merged with the former Advanced Media Group last year, with Dunn winning out over EVP Jayar Donlan, despite Donlan getting recognition like being included in Sports Business Journal’s Forty Under 40.

With a McMahon family successor unclear, not only is it believable WWE could sell, it’s at least as plausible there’s a willing buyer.

Sports rights fees in the U.S. continue to grow across the space, including for WWE’s Raw and Smackdown programs. I’ve put the base expectation for renewal at 1.5x over the current average annual value of about $470 million for the two programs combined. Current terms expire in September 2024. Add another $200 million annually for the value of the deal that puts WWE’s tentpole events and video library on Peacock, which expires in March 2026, and the total value per year for much of the company’s content comes to $670 million — currently. Assume all those rights are due for a 1.5x raise and the cost to distributors comes to almost exactly $1 billion per year.

Profitable cable businesses of companies like Comcast will likely continue to erode, contrasted by uncertainty over whether streaming can fully replace those profits.

Now is the time for media companies to consider acquiring their sports content providers — while they can still afford it and before those fees multiply further, and with that, the value of the related companies. For now, WWE’s market capitalization is about $5 billion, maybe still small enough to be acquired by a major media company like Comcast.

Comcast subsidiary NBCUniversal already holds domestic rights to a bulk of WWE content: weekly flagship show Raw, monthly peak events formerly sold on pay-per-view, developmental program NXT, and unscripted series Miz & Mrs. Universal Studios could benefit from what WWE won’t hesitate to remind you is their wholly-owned intellectual property, as WWE president Nick Khan pointed out a few months ago. Smackdown, currently broadcast on Fox, could certainly find a well-suited home somewhere in the NBCU family, if not return to the USA Network, where Smackdown was televised until 2019.

Given NBCU’s deep investment in WWE content currently and relative lack of intellectual property, Comcast seems like the likeliest candidate to acquire the wrestling company.

Khan, who would likely lead negotiations of any deal to sell WWE, has been non-committal on the subject publicly, but clearly recognizes how WWE’s assets could be a fit for NBCUniversal.

“As we say, we’re open for business,” Khan said in an interview on The Town podcast in March.

“So if you look at, what does NBCU/Comcast lack that they need? And I think it’s a factual statement: they don’t have the intellectual property that some other companies have. They certainly don’t have the Disney treasure trove of IP, nor should they.”

But Comcast has a Chairman, CEO, and preferred class shareholder of its own, Brian Roberts, who would have to approve of any deal to acquire WWE. Analyst Brandon Ross mentioned in a recent episode of the LightShed podcast his team’s belief that Roberts was initially hesitant to commit to putting WWE content on Peacock.

Since WWE Network content debut on the streaming service in March 2021, though, the deal seems to have worked out well for both sides. WWE is among the most popular content on Peaock and the former pay-per-views have never been more highly-viewed, coinciding with the stabilization of a number of consumer metrics for WWE that previously were in consistent decline.

Maybe Roberts has warmed up to the WWE brand, but it’s unclear how willing Comcast would be to acquire a pro wrestling company and the hazards that come with it. Does a major media company want to oversee an entity with WWE’s track record of scandal and perhaps future issues like worker misclassification? Vince would likely insist on Dana White-like continued autonomy over WWE as part of any sale. What would it be like overseeing the CEO, who hasn’t answered to anyone in decades beyond passive shareholders and fans whose discontents have largely been dismissed?

Would parent company executives who inherit WWE understand this peculiar industry well enough to install effective leadership when Vince is no longer around? Turner Broadcasting and its successor Time Warner struggled to do so for WCW in the 1990s and that wrestling company failed. But those were different companies at a different time with different executives. Would WWE succeed under a parent company in the 2020s? Maybe.

Disclosure/disclaimer: I do not currently nor have I previously held positions in WWE stock (NYSE: WWE). I have no plans to initiate any such positions. I do not hold positions in any other companies mentioned in this article. This article expresses solely my personal opinions. The opinion expressed here is not and should not be construed as financial advice.

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer.

This article is available ad-free for everyone because of support from our subscribers.


WWE gets a run as a meme stock after r/WallStreetBets hype

On the latest edition of Wrestlenomics Radio, Brandon Thurston and Chris Gullo dove deep into WWE becoming a “meme stock” last Wednesday, June 9, when WWE’s stock rose to a 52-week high of just over $70 before settling back down.

The company’s share price is still holding at well over $60, as of this writing, up from high-$50s of previous weeks.

WWE shares are trading at $62 as of 1:00pm ET on June 15, 2021.

A Reddit user posted a thread on the Wall Street Bets subreddit stating their reasons as to why WWE passed their “SMELL Test”.

The WSB subreddit, whose bio reads as “like 4chan found a Bloomberg Terminal”, went viral earlier this year with a campaign to target specific stocks, like GameStop, AMC and Blackberry, that were being shorted by major hedge funds. On the WWE thread, the user described their SMELL test.

Let me introduce to you my patented SMELL system. The acronym is reverse engineered to make sense for this ticker and so it might seem like I was piledrived as a child, but bear with me. It’s important to put memes first. Here it goes:

Short Interest is high
Market cap is high
Extremely Memeable
Low IV
Low Float

Thurston and Gullo then broke down the thread starting with the first subheading ‘Fundamentals’, which the redditor summarizes with the preface, “For those even lazier than myself, here are the cliff notes:”

They are effectively a monopoly on pro wrestling, which is apparently growing in popularity
They make money from Media, Live Events, and Consumer Products.
COVID wasn’t too bad for them. It cut Live Events, but Media revenue popped up.
Live Events are coming back… and they’re taking it international. This will significantly boost their revenues, especially since during COVID it was zero.
Strong social media following (more YouTube subs than NBA, NFL, and GME combined). More IG followers than NFL.
PT of $75/sh from some fancy FCF model thing
Lots of acquisition suitors

Many posts on WSB are not the most sincere and are sometimes there for laughs. However, Thurston broke down the cliff notes of the post to test the merit in the writer’s argument. One claim in the post was that WWE has an effective monopoly on pro wrestling.

“Non-WWE promotions are taking up a greater amount of the mindshare in our kind of wrestling media space, and there’s tremendous interest in AEW now, especially in relation to WWE,” Thurston said. “However, yes, WWE still dominates the general mindshare, I believe, and you see that manifest in Google web search data. You see that manifest in YouTube views data. More than 90% of YouTube views that are happening among all the wrestling brands, you might name off the top of your head, 90% of that is still WWE. Is the popularity of wrestling growing, not WWE. I don’t believe the popularity of WWE is growing. I’ve argued and presented data to argue that the popularity of WWE has declined over the last few years.”

The post also mentioned that Covid wasn’t too bad for WWE.

“WWE was more profitable in the Performance Center era (mid-March to late August 2020) where they were doing TV out of the Performance Center because it cut costs tremendously,” Thurston said. “That’s largely why media went up. When they moved to the Thunderdome, things became more expensive and even more expensive than they would have been if they were still on the road. Live events weren’t very profitable overall. Media revenue popped up though also, in part, because they entered in the new year of 2020, that was the first full year when WWE was on its new set of U.S. TV rights deals, which were more than triple the value of the previous term. So that had a lot to do with just the contractual nature of their rights fees.”

“Revenue’s nice but if revenue’s not producing the margin for you, like is the case with live events, with the exception of Wrestlemania and other major events, then it doesn’t make your company more profitable,” Thurston continued. “You could argue that there’s a marketing value and maybe other hidden values involved with running live events,” Thurston said. “But we have no news, that I would consider real news, about international events. WWE would love to do a Saudi Arabia event this year, which they will get $50 to $55 million for doing just one of them.”

“With live events, it’s not clear that WWE is going to be this massive beneficiary of the pent up demand, as they say, for live events, ticket sales. The first events are gonna do really well. The subsequent events are very much in question,” Thurston said.

Gullo and Thurston then broke down the ‘catalysts’ sub-section of the post. One factor listed was ‘Live Events Resuming’.

WWE will resume touring. Despite this revenue being missing in 2020, they managed to haul in nearly a billion dollars. So the second half this year, and all of next year, is going to be pretty good. Not only will revenues be driven up, but fan engagement and brand appeal will go up as well. WWE’s IP has a ton of value and they’ve leveraged it well during COVID. as live events come back and increase engagement, it should provide some synergy to everything else they sell — PPV, IP rights, merchandise, etc.

“This idea is that WWE will go back on the road with fans finally in attendance once again, and this will have all these downstream benefits for WWE, including TV ratings for one thing,” Thurston explained. “Yeah, I think there will be a short term bump to TV ratings. They’ll advertise a big Smackdown. That’s the first one that’s back. So that’ll probably be the biggest one in terms of hype, maybe John Cena is returning to WWE for that Smackdown on July 16.

“Maybe Cena starts off a feud with Roman Reigns heading towards Summerslam [August 21]. That seems plausible, but the quality of the core product is such that this company is capable of little more than short-term bursts in interest. WWE’s inability to plan and execute long term storylines is pretty weak. They misevaluate talent. The product is inauthentic in many ways. While it will be a short-term benefit for WWE to have fans back in attendance, I don’t think there’ll be a long-term benefit.”

The post’s next subheading under ‘Catalysts’ that Thurston breaks down reads, “Video Games are booming”.

WWE Supercard is Take Two Interactive’s (a $52b company) highest grossing mobile game, and it’s growing at around 23% YOY. A lot of that money will flow into WWE. WWE also sells rights to other titles. As video games continue to grow, so too does WWEs revenue.

“Video games are reported within WWE’s ‘licensing’ revenue line,” Thurston noted. “WWE did just under a billion dollars in revenue last year. Their licensing line was $42 million. The video games are worth somewhat less than that, because you’ve got to at least clear action figures out of that, plus a number of other categories.

“The video game business to them is worth around $20 million per year. That’s not a Saudi Arabia event. It’s less than half of one. Video games are an important part of their business. I think it does lead to kids to discover wrestling through video games. There’s so many anecdotes about that. I don’t see that as a massive growth area to get excited about, though.”

Thurston then discussed the last subheading, “Rumors of acquisition”.

About a week ago, WWE cut some talent assets. Some apparently important guy tweeted that it’s likely due to them cutting costs and preparing for an acquisition.

Rumors aside, there is a strong case for WWE being acquired, should McMahon decide to sell. From the SA article:

It is not unrealistic to suggest that WWE could one day be acquired. If McMahon indicated an interest to sell the business, there would be no shortage of potential suitors given the scarcity value of its content. Whilst Disney, Fox and Viacom could be prospective interested parties, arguably top of the list is Comcast, who may decide owning WWE may generate more value to its shareholders than perpetually leasing its content.

“I agree strongly with the idea that NBCUniversal, which is a subsidiary of Comcast, would be the one to acquire WWE. I think it makes the most sense for them,” Thurston stated. “They’re the biggest customer of WWE. They’re giving them probably $300 million this year and more over time because of the nature of their contracts for Raw and for WWE Network content on Peacock.”

“I think WWE would like to have people believe that they might sell the company because that might help the stock price, but I don’t think they’re going to sell it. I don’t think it’s in Vince McMahon’s personality to relinquish control during his lifetime, but it does make for a great story if you want to get engagement on social media. It does make for a great news article to put on your news site if you need people to click on your news site, and it might make for even a good Reddit post if you want your Reddit post to get up-voted, because it gets people very excited, this notion that WWE could sell and Vince McMahon could relinquish control.”

Thurston pondered the reasons why fans get so excited about the idea of a WWE sale, despite, in his view, the unlikelihood of an acquisition of the company happening.

“I think why it appeals to some people is that it’s a way to craft a narrative or to apply some meaning to what’s happening. ‘See, it’s not about the quality of the storylines or the quality of the TV programs and the pay-per-views. It was all business all along and, really, Vince was a genius and now he’s got multiple billions of dollars in cash from Comcast, and now he’s so rich and see? All that whining and arguing people did on social media about the creative for all those years really meant nothing because it all means nothing; it’s all about money at the end of the day.’ I think there’s some great appeal in this sort of cynical, almost nihilistic conception of the world. It allows us to at least put this wrestling world, which is so frustrating and sometimes makes so little sense to its fans, into some sort of narrative.”

The original transcript of the podcast was edited for conciseness and clarity.

Jason Ounpraseuth has covered pro wrestling since 2019. He is a co-host of the Gentlemen’s Wrestling Podcast.

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer.

This article is available ad-free for everyone because of support from our subscribers.