On the latest edition of Wrestlenomics Radio, Brandon Thurston and Chris Gullo discussed the changes to WWE NXT in NXT 2.0. They played a clip from a video fromMick Foley out out titled “WWE: we’ve got a problem” where Foley pointed out the creative issues with WWE and the lack of cohesion between NXT and main roster WWE.
Thurston then referenced a line from Vince McMahon on the Q2 earnings call, said in response to the cuts WWE have made and CM Punk joining AEW. McMahon said, “I’m not so sure what their investments are as far as their (AEW’s) talent is concerned… but perhaps we can give them some more.” Thurston and Gullo broke down the statement as well as how talent are valued in WWE and AEW.
Thurston: “I feel sort of ridiculous that we’re trying to unpack such a small sentence. This is not some grand statement or speech that he gave. This is just one sentence, and we’re trying to read quite a bit into this, but on the other hand, we get so little in terms of what Vince really thinks he does. He speaks publicly so little, but is there any insight we can get from this?
“Along with some other moves that they’ve made recently, to me, that’s doubling down. All the talent that they’re cutting, cutting even people Braun Strowman. I’m thinking too about what Nick Khan said to Ariel Helwani, about indie wrestlers, if you will. If people move on, that’s fine by them, which is just great corporate speak to make it sound like they’re doing somebody a favor by cutting, but in some cases, they are, as far as their careers go.
“I think what we’re seeing happen is this bifurcating, that’s a Chris Harrington word, of maybe wrestling audiences, definitely two different creative visions of what their product is. WWE not even willing to accept that they’re in the wrestling business. AEW embracing that they’re in the wrestling business. Those visions are very different.
“They have different visions of what they do creatively, and they have different visions of what talent they value. They kind of already did in the first place, but I think we’re seeing a doubling down on that in WWE’s case.
“Maybe part of that is this sort of you can’t quit, you’re fired kind of thing. ‘Oh, these indie people are leaving us? Adam Cole is going to pass us up, and CM Punk was not interested in dealing with us. Apparently, we had some discussions with him, and we couldn’t get Bryan Danielson to stay. Jon Moxley wanted to leave a few years ago, and he left, wouldn’t even look at his deal, wouldn’t even look at what the money was that we were offering him.’
Gullo: “Christian. You got to add Christian not wanting to really pursue a deal with them.”
Thurston: “Maybe it’s sort of ‘I’m starting to feel rejected. So rather than allow people to reject me, I’m going to preemptively reject them,’ and I think we’re seeing maybe the next step is deals are coming up around the end of the year for three other wrestlers, Kevin Owens, Sami Zayn and Johnny Gargano, who, I would guess, are not going to re-sign with this company when when their deals are up.
“And these are three wrestlers who were big time indie wrestlers before they came to WWE, and you combine that with will if not wrestlers, not people who have already been in the wrestling business and have already been on, some level, relatively speaking, successful wrestlers, then what kind of talent are they going to sign? Maybe it’s more of the Gable Steveson types, on the high end. I don’t know how often you can sign a gold medalist, but that seems to be their idea.
“Obviously, we see that in the repackaging of NXT, NXT 2.0. Now, they just put the title on Tommaso Ciampa, who’s a big indie wrestler, but maybe that’s part of a transition into a future of WWE talent development that’s more about people who have athletic backgrounds, perhaps. Especially on the women’s side, maybe they’re fitness models but not necessarily independent wrestlers. I know Triple H, at the Las Vegas tryout said that it’s not a negative if they have indie experience. I’m not so sure. Maybe Triple H feels that way.
“It’s evident, through what NXT has put out, that Paul Levesque has a different creative vision than Vince McMahon about what pro wrestling can be creatively, and to Paul Levesque, I don’t think it’s a negative that you have independent wrestling experience. I think around 2014 he had a change of mind, at least he did relative to what he was willing to say publicly. I think what he’s willing to say publicly, as much as anybody, is not necessarily what he believes genuinely, and I don’t know what he believes genuinely.
“But in the case of Vince McMahon, I know Vince is very much just not aware of what’s going on in wrestling beyond his company, but I do wonder when or if he learns that somebody has an independent wrestling background or has any sort of wrestling background outside of the company, whether that becomes a negative to him and not a totally prohibitive negative but a negative. There are other things that can outweigh that.
“This is one thing we can say in WWE’s favor here, I think they do value diversity of people from a variety of backgrounds. That’s something that AEW needs to work on, in terms of having stars who are not just white guys. You’ve got CM Punk, that’s a big deal. You’ve got Bryan Danielson and Adam Cole, and this is a huge deal for the company, but in the future, they really have to look at building people from more diverse backgrounds.”
Excerpts from Wrestlenomics Radio were edited for clarity.
Net income for the quarter was $29.2M, down from $43.8M prior year.
Operating income $46.5M, down from $55.7M.
WWE saved enormously in Q2 2020 when they ran TV in the Performance Center. Q2 2021 profitability is well above Q2 2019.
The press release notes WWE spent $18.8 million toward its stock buyback program, as a way to return value to shareholders in addition to the quarterly dividend.
My note: WWE laid off a number of employees and talent during the quarter as well to cut expenses.
Wrestlemania live event business. Footnote in the KPIs notes WM was attended by approximately 20,200 fans each night.
WWE reports $6.7 million in live event revenue for the quarter in which WM were the only events.
I reported in April paid att of 20,172 and 20,634 & $6.2M gate.
What were merchandise sales like for Wrestlemania?
WWE reports $1.3 million in venue merch, the first time that line has any value in it since Q1 2020. This would indicate merch per paid ticket of around $32.
Trending schedules:
Conference call will begin at the top of the hour. Anyone can login and listen here:
WWE isn't changing its $270M to $305M adjusted OIBDA (the company's non-GAAP favorite profit metric) for 2021, citing caution related to Covid-19.
WWE anticipates resuming the new HQ buildout in the second half of this year.
The call is beginning. SVP Michael Weitz opens the call with a welcome, introduction, and forward-looking statements disclaimer as normal.
I will note statements from WWE executives. In most cases this won't be direct quotes but paraphrasing and summaries.
Vince McMahon says "we have advances for our live events that look excellent". TV ratings are up.
Short comments as usual and he hands off to Nick Khan.
Nick Khan gives a summary of media industry. Says he'll outline recent deals and how it shows there's a premium on live content. Stephanie will talk about sponsorship segment.
Khan says Disney renewed Wimbledon. Red Bird Capital acquired stake in IPL cricket team. We see similar growth in our own international deal, including Foxtel in Australia.
Ratings are up across all shows following return of live fans. Stephanie will talk ratings growth soon.
Khan talks about Peacock. Viewership of PPV events are up 26% (Backlash), 25% (Hell in a Cell), and 46% (MITB) from prior year performance on standalone WWE Network.
Return to touring. One nuisance to note. This was not a return to live events. We held events via video screens. Not one week of production missed. It felt great for fans, superstars.
A taste of how live evnts are performing. Houston sold-out. Highest grossing non PPV event in Houston.
Live merch sales were up 50% versus previous event in Houston. Keep in mind eCommerce sales have grown since then.
Merch sales for Fort Worth (MITB PPV) were almost 100% greater. These events sold out prior to John Cena's reappearance.
Merch sales for Dallas (Raw) were almost 50% greater than last time in Dallas.
In Cleveland (SD) highest grossing non-PPV gate in Cleveland.
Khan talks WWE having 2 matches at Rolling Loud festival. Almost all fans were under the age of 25. "We saw strong merchandise sales there as well."
Pittsburgh house show was the strongest gate for WWE non-televised event in history in Pittsburgh.
Summerslam takes place from NFL stadium in Las Vegas on Saturday Aug 21. A new night for us (Sat). Without a main event or card announced we sold over 40,000 of 45,000 tickets.
Still Khan: New Years Day PPV in Atlanta. College football championship games are NYE. NFL is not playing that day. So we saw an opening on the sports calendar. We believe ticket sales and viewership will be indicative of that. Rest of the PPV calendar is coming shortly.
We announced our first ever ring announcer competition on TikTok. Winners announce a match at Summerslam. Already 9 million views.
Our 2nd NFT drop leads into Summerslam. This time with John Cena. Follows Undertaker NFT launch before Wrestlemania.
Khan talks about United States vs. Vince McMahon limited series announcement.
He turns the call over to Stephanie McMahon.
Stephanie talks fan return. She and HHH visited fans before first event with fans. Energy and excitement. The Summer of Cena. NBCU and Fox support return with different campaigns across programming.
WWE applied key learnings, upgraded audio and visual experience. Talks new set.
Steph: Costs associated per episode are on par with 2019 costs of production. July 16 generated 21% YOY increase and 42% increase in "coveted 18-49 demo".
Raw was up 8% YOY and 15% in 18-49.
Steph: TV viewership remained stable, maintaining trend since Thunderdome. From that time from end of Q2. Raw increased moderately and Smackdown increased 7%.
Digital consumption increased 5% to 394M hours. Views increased to 11.2B. 3x increase in Facebook hours.
Steph talks A&E programming. WWE increased 18-49 for A&E.
Sales and sponsorship revenue increase YOY. WWE goes well beyond generating impressions. Customized content ex across multiple lines of business. Utilizing WWE superstars that resonate.
Stephanie praises the Army of the Dead tie-in at Backlash. "Zombies randomly appeared in backstage scenes and popped up around the ring…"
3 of 14 trending topics were tied to the integration. Played significantly role in becoming one of the top movies in Netflix history.
Purelife (water brand) is activating across WWE. Sponsoring Summerslam after party hosted by Tiffany Haddish.
Stephanie talks how WWE's 2020 community action report shows WWE delivers on mission of putting smiles on people's faces.
She turns over to CFO Kristina Salen.
Salen goes over financial highlights in slides. She mentions employees returned from furlough.
Related severance expense of $8.1 million (from layoffs) was excluded in formulation of adjusted OIBDA.
Production expense for Raw and Smackdown will decline with return to touring, Salen says.
My note: In other words, touring is less expensive than Thunderdome.
There was a modest decrease in eCommerce merchandise sales in YOY comparison versus early pandemic, offset by first venue merch revenues since Covid.
Much of Salen's comments consist of reviewing details in the earnings release noted earlier in this thread. Her comments will likely be followed by Q&A with stock analysts.
Notably there's been no mention of a "large-scale international event" (Saudi Arabia event) yet. ( = $50 million in revenue)
The 56-page quarterly report (10-Q) has been published:
Q&A begins. First question from David Karnovsky from JPMorgan.
Soccer rights are having an uptick w/ streaming bids. How do you view WWE as similar?
Khan says soccer is #1 sport globally. We see positive not equal to soccer but appeal on the scale. La Liga rights deal high for deal outside U.S. … We think there are more of those deals out there.
JPMorgan asks Salen about number of events for 2021. She says guidance does include "large-scale international events".
Salen says at or below second-half of 2019. Schedule announcements are coming shortly.
Curry Baker from Guggenheim asks on sponsorship, what's size of opportunity next 2-3 years. Areas for increase in monetization?
Stephanie says tough to give projections but we believe significant upside. Peacock increases sponsorship. On digital and social opportunities.
Any update on the MENA TV rights deal? Still in conversations?
Khan says Vince, myself others still into it. Optimistic on the situation. Hope to have some news shortly.
Eric Handler from MKM asks about out of ring TV production plans. How many hours? Preselling these so no risk? Profit centers rather than promotional tools?
Khan says "Yes to all of that… meaning profit center, promotional tools". A&E ratings were good. Look for more.
Handler asks about new HQ. How's capex cadence in 2022. When does it start to decline? Previous plan was to sell existing HQ and off site facility. That still a goal?
Salen says on prior Q, expectation is not to take financial risk like a TV studio would re: out of ring content.
Salen says supply chains are backed up so to meet timeline we need to order materials sooner so they arrive on time in 2022. We anticipate moving to new HQ in Q4 2022. Already broken ground in June. Capex will taper through 2022.
Salen anticipates selling existing buildings.
Brandon Ross from LightShed follows up on sponsorship. With touring return does it go up right away or come in time?
Steph says return to events increases opportunity but that hasn't stopped us from growing sales/sponsorship business. We've seen increases across business.
Ross asks Vince AEW seems to be making significant investments in roster and has gained in viewership esp in demo. How do you view them as competitor? Rising Tide?
Vince says it's not a situation where rising tide because Ted Turner was coming after us.
Vince says I don't consider them [AEW] a competition in the way I considered WCW back in the day. I'm not sure what their investments are.
Nick says "it's sort of like a horserace where the horse has blinders on" At the same time everything is competition. Sleep is competition.
Salen is took a complex finance question from Ben Swinburne of Morgan Stanley that I'll have to relisten to later as I'm still recovering from Vince mentioning Ted Turner.
Univision investment in Combate is brought up. Do you see mergers of sports? Crossover events to expand fan engagement? Peacock on Sky in Europe. Are you tagging along?
Nick Khan says not sure we see consolidation in MMA space. UFC guys like their market share.
Nick says Vince's original vision is to have one big global territory. "What was called quote-unquote 'wrestling' at the time." We like any new entrant that's well-financed in the combat space.
Nick says, on Peacock international situation, almost all US media conglomerates are looking to go internationally soon. We're optimistic. Let's see what we have in the next couple of months.
Alan Gould from Loop Capital asks Salen to confirm large scale international event (Saudi event).
Salen says it's included in their financial guidance.
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.
Tomorrow is WWE’s Q2 (April to June 2021) earnings report after the close of the market with conference call at 5pm ET. Executives including CEO and chairman Vince McMahon, president and chief revenue Officer Nick Khan, chief brand officer Stephanie McMahon, and chief financial officer Kristina Salen are expected to make comments.
The average analyst estimates a $0.25 earnings per share ratio, according to the Wall Street Journal, which means about $21 million in net income for the quarter.
WWE shares are up nearly 4% year-to-date, compared to the S&P 500 index at 19%.
Before looking at those estimates, I (not a stock analyst) ran an estimate and came up with $27.5 million in net income for the quarter, higher than any stock analyst’s estimate I’ve seen. My revenue estimate is on the high end compared to analyst estimates, at $261 million.
One of the more uncertain factors in the model is anticipating what revenue WWE will get in the “Network” line in the first full quarter under the Peacock deal after getting bigger upfront payments related to transition from the WWE Network in Q1.
I modeled $49 million (plus about $13 million in international revenue) based on Year 1 of presumed escalating payments from Peacock at a reported $1 billion over five years ($200 million average per year).
Thanks to Wrestlemania, WWE will have significant live event revenue to report for the first time since Q1 2020.
Gate receipts showed $6.2 million in revenue related to the two-day event at Raymond James Stadium. There were no other live events in Q2.
WWE executives might give clarity on whether there’s a “large-scale international event” (they won’t say “Saudi Arabia”) in the works. Andrew Zarian and John Pollock have heard October 21 as a return date, which would be in Q4.
Each event in service of the KSA government is worth at least $50 million to WWE. For context that’s 3x a typical pre-Covid Wrestlemania gate and more than one year of TV payments from Turner to AEW.
Expect much discussion of WWE’s return to touring and how that’s affected not just ticket revenues, but, more importantly, TV ratings. There have now been two Raws and Smackdowns back on the road.
Recent live event attendance and TV ratings trends
Ratings during this two-week period are better than when viewership bottomed out in July 2020, but will those increases sustain?
Wrestling fans can expect any mention of AEW from stock analyst Q&A to be met with a “we’re focused on us” talking point.
Last 365 days: total (P2+) and P18-49 viewership for AEW Dynamite, WWE NXT, WWE Raw, WWE Smackdown, and Impact Wrestling
What else will we learn? Lately Nick Khan, who does most of the talking on the calls lately, has regaled listeners with insights on the media business. Last call he said NBCU and the NHL would part ways before that was public knowledge.
Will there be hints about next-day rights for Raw and Smackdown currently held by Hulu? That deal expires in 2022 and there’s said to be increased interest since the last time that deal was made in 2018.
Will Nick Khan give an update on his thoughts on whether Amazon, Apple or other new players might have interest in WWE content rights?
Is current Smackdown rights holder Fox comfortable with its partner promoting Peacock and delivering viewership hovering around 2 million?
As usual, I’ll live tweet information from WWE’s newly published documents and from the conference call.
Disclaimer: I do not and have not in the past held any stock positions or ownership in World Wrestling Entertainment, Inc. (NYSE: WWE) or any wrestling companies. I have no plans to initiate any such positions.
Wrestlenomics content 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.
Fans, at least one former WWE writer, and reportedly some current WWE wrestlers believe a sale might be in the works.
While Gullo was open to either side of WWE selling or not, Thurston expressed his pessimism of Vince McMahon selling his company. He first cited a 2019 Variety article that profiled Vince McMahon as that issue’s cover story. “He doesn’t look like a man who’s ready to retire,” Variety wrote.
“We’re open for business,” McMahon told Variety at the time about the possibility of whether he’d be open to selling the company.
The article mentions that while Fox Corp. may look to buy WWE after entering into a TV rights deal involving Smackdown, McMahon wasn’t looking to sell.
On an earnings call in 2016, McMahon was also asked about the subject and used the same “open for business” line.
“We’re open to anything. I think controlling your own destiny is so important,” McMahon said in 2016. “I don’t know how much you lose control of that by being sold.”
Thurston cited WWE President Nick Khan’s interview with Colin Cowherd in April of this year where the topic of McMahon selling WWE came up. Khan also said he didn’t expect McMahon to see the company. He noted how deeply involved and invested McMahon is in WWE, citing how McMahon does not “summer” to exotic locations like many other executives.
Thurston believes Khan is being honest about McMahon’s lack of intent to sell WWE, and that the CEO has few interests outside of his working life.
“Vince owns 38% of the shares, but because he, Stephanie and Linda own class B shares, their class B shares give them 10 times voting power per share versus everybody else. Yes, including Triple H,” Thurston noted. “Shane used to be a stockholder; he’s not a stockholder at all anymore. The other major shareholders are financial firms. The biggest by far is Lindsell Train.
“So when it comes to voting power, when it comes to who actually controls the company, because of his class B shares, which again give him 10 times the voting power per share of non-McMahon family members, he controls just over 80% of the voting power in WWE. Depending on how the math works out, he could sell his stock down to a small minority but still own 51% of the voting power.”
Thurston also pointed out that WWE’s stock price hasn’t responded much to recent talent releases and employee downsizing. Nor have any of the usual stock analysts who cover the company given these issues much notice. As of this writing, no stock analyst has updated their report on WWE since April 23 and trading volume patterns have so far been normal.
On Thursday, the day after this discussion, Thurston tweeted that he raised the notion of a company sale with five people in the WWE investment community. None believed WWE’s recent cost-cutting moves indicate a sale is likely coming soon.
Thurston gave his thoughts on Vince McMahon potentially selling WWE.
“I just can’t imagine Vince McMahon in his lifetime selling the company. I can’t imagine him doing anything else,” Thurston admitted. “This is a man who has no known hobbies, except for working out of course. I think above any amount of money, he values the control he has of the company, especially over creative, and I don’t ever see him relinquishing that as long as he has more time to do that job.
“All these layoffs, which are substantial to the finances of the company, but the layoffs, and the releases and the restructuring, I think they have more to do with the new WWE president and chief revenue officer Nick Khan and the new WWE chief financial officer Kristina Salen. I think it’s more about them critiquing what they’ve been handed, what they’ve inherited from the former executives, the co-presidents George Barrios and Michelle Wilson, who left in January 2020.
“Nick Khan and Kristina Salen were brought on in August 2020. This is about the new executive team reviewing what was left to them by the old executive team and saying, ‘Well, why are we doing this this way, and why do we have these employees who are doing the same job across two or three different departments? Why do we have all these wrestlers when we’re not using them all the time?’”
Thurston continued reiterating his point that he doesn’t see McMahon selling in his lifetime, and he talked about who would buy the company.
“I think Vince will never relinquish control in his lifetime, and I think that tendency to control his environment has increased over the time that he has been the leader of WWE,” Thurston said. “I think when he’s gone, you might see WWE sell to NBCUniversal or another media company. I think, at this moment at least, NBCUniversal is the most obvious suitor. It’s the one that makes the most sense. NBCU is by far their biggest customer, which has been laid out as we’ve noticed in certain SEC filings, and I understand there are wrestlers out there who believe that they’re looking to sell the company. And I think that’s wrestlers looking for a grand reason about why they or their friends were cut, rather than looking at the more boring minutiae of the company.”
Thurston also discussed the amount of talent that WWE has across all their brands compared to how many are actually being used weekly.
“WWE has roughly 254 wrestlers currently under contract after these cuts that were announced. And then I looked at Raw, Main Event, Smackdown, NXT UK, NXT, 205 Live in the past week. Those are all of their weekly programs.
“There’s 77 wrestler spots in that period. That includes things like Riddle being at ringside with Randy Orton, Commander Azeez being at ringside with Apollo Crews. 77 wrestler spots across all of those programs. Again, you’ve got at least 254 wrestlers under contract. So you’re using 30% of your wrestlers on a weekly basis. That ratio doesn’t make a lot of sense to me. I think a lot of that was just motivated by the fact that they wanted to keep talent away from their competitors, especially AEW, and even if you take into account some inactive wrestlers, you’ve got a lot of wrestlers who are just going to be in developmental and who aren’t going to be used on screen just yet.
“I still don’t think that that ratio makes a lot of sense, and I think that’s one strategy along with the strategy to put NXT head-to-head with AEW on cable, that has a cost to it that’s proved to be ineffective. In the case of putting NXT head to head with AEW on cable, it has an opportunity cost, whether that’s keeping NXT on the WWE Network, whether that’s putting it on its own night. In April, they decided to put it on Tuesday. So that was a cost. It’s costly to keep talent under contract when you don’t really need them. It’s costly to try to use NXT as a bulwark against AEW, and ultimately, it proved to be ineffective. AEW won the Wednesday Night War. AEW did better in the ratings. It seems to be finding an audience regardless of what WWE throws at them, and now we’re seeing that strategy get undone.”
The original transcript of the podcast was edited for conciseness and clarity.
Despite effects of Covid, I expect WWE to still record net income on par with its most profitable year ever.
First some background on WWE business as we know it this morning.
WWE’s market capital (the value of all shares combined) is currently just under $3 billion, down after huge waves of optimism in 2018 following the renewal of TV deals for Raw and Smackdown.
On January 30, CEO Vince McMahon fired his top two executives, co-presidents George Barrios and Michelle Wilson. Declines in the stock price and wider market uncertainty related to Covid followed.
As of August, Barrios and Wilson’s positions have been filled by new hires Kristina Salen in the CFO role (formerly of Etsy) and Nick Khan as president and chief revenue officer (formerly of CAA).
Khan was instrumental in helping WWE complete its 3.6x upgrade in US TV rights in 2018. The company likely hopes he can complete deals to sell the rights to PPVs to a major streaming player, rather than exclusively on the Network where they are primarily consumed today.
Last week I wrote a preview on what we might learn today. You can read it now, ad-free and paywall-free:
WWE Network average paid subs as we know them today are shown below. Q3 numbers will be updated this afternoon.
Subs are normally down in Q3 as it follows the Wrestlemania quarter. But there’s been a wider consumer embrace of streaming this year coinciding with the pandemic. Will this help WWE?
Last quarter online merchandise orders had a huge jump as fans were unable to buy merchandise at venues due to no live events. Will that continue into Q3?
The big question around WWE profitability this quarter centers around the Thunderdome. The introduction of the huge multimedia set coincided with the stabilization of plunging viewership for Raw and Smackdown. What production cost WWE though is uncertain.
Producing Raw and Smackdown at the company’s Performance Center throughout all of Q2 resulted in increased profitability. Q1 was even more profitable than WWE previously expected, partly due to lower expenses of running at the PC for the final weeks of Q1.
WWE also cut costs in April. Some of the non-compete compensation took until July to end. I don’t see this having a huge effect on the bottom line. Some may be overestimating the effect since talent releases are so visible to fan coverage.
The cost of the Thunderdome, per episode, is certainly higher at the PC. I could see the cost being as high as that of the pre-Covid traveling arena model.
Looking at the operating income line for WWE’s media division later today and comparing Q2 to Q3 may shed some light.
My predictions for the numbers WWE will report today:
Online merchandise sales in the pandemic era continued performing well above last year’s trends, somewhat making up for the lack of any merchandise sales at venues.
More detail on WWE profitability: Net income now totals $118 million. As long as WWE doesn’t lose money in Q4 (no reason to think they will) this is the most profitable year ever.
Operating income for Q3 $63.4 million. WWE’s preferred profit metric, adjusted OIBDA was $84.3 million.
Profitability is almost completely driven by margins in the media division, where revenues for Raw and Smackdown rights are guaranteed and escalating.
As WWE releases news it beat expectations, the stock price is continuing to climb in after-market trading.
New, darker-hued KPIs in the Salen era offer these comparisons of WWE Raw and Smackdown viewership trends, showing top 25 cable network viewing up 4% and broadcast viewing down 24%. In the below comparison, Smackdown was still on USA Network a year prior.
More from the updated KPIs: AVOD consumption (ad-supported video viewing on platforms like YouTube, Facebook, etc.) was up year-over-year, but not as high as the records set last quarter.
I believe WWE generates around $20 million in revenue annually from YouTube.
Media ad and sponsor revenue (which includes YouTube, on-air sponsorships, and WWE Network commercials) seems to be back to normal, reporting $18 million for Q3, after dipping in Q2, likely related to the wider economic effects of Covid.
Consumer product licensing was up to $10.8 million, higher than the previous two years’ Q3. This segment largely consists of game and toy products. The WWE Battlegrounds console game was released late in the quarter.
The call has begun! SVP Michael Weitz’ introduction mentions that WWE executives Vince McMahon, Nick Khan, Kristina Salen, and Stephanie McMahon are on the call. I was not expecting Stephanie.
I will now quote executives and analysts on the call. These should be taken as paraphrases and not necessarily exact quotes.
Vince says, “I’ve never felt as confident as I currently do about our new management.”
He’s very optimistic about the outlook of the company.
Nick Khan begins after Vince. He runs through his professional background, his work with CAA. He notes was a lawyer before that. As a student he was an usher at Wrestlemania 9 in Las Vegas (his hometown).
Khan announces “in a groundbreaking deal we’ve sold a multi-part documentary to Netflix on the life of none other than Vince McMahon.”
Khan says “conversations have resumed for alternative strategic options” on selling rights to WWE Network content to major streaming players, but they’re unable to say when a deal will be completed.
Khan says WWE is working on a 2021 event that will primarily feature developing Indian superstars. It will be distributed through India media partner Sony as well as domestically in the U.S.
Khan introduces “Forbes #2 most influential market executive, Stephanie McMahon”.
Stephanie gives remarks on WWE’s perseverance through Covid. WWE gave fans “escape from their fear and uncertainty and delivered on our promise of delivering smiles to people’s faces.”
Stephanie puts over the Thunderdome and the Capital Wrestling Center, the latter, “a nod to my grandfather”. She highlights WWE online media performance.
This is the first time Stephanie has played such a major role in the opening remarks in an earnings conference call.
Stephanie went over many highlights I’ll need to catch up on later and turns over the call to new CFO Kristina Salen.
Salen summarizes a number of financial highlights.
I should note Thunderdome expenses do not appear to be enormous or nearly that of sports venues as I modeled.
On Raw and Smackdown viewership, she notes they improved from July to September and did so through unprecedented sports competition.
Salen says WWE can’t say when ticket live events will return, but “our intention is to return as quickly and as safely as possible.”
She reviews WWE’s large cash reserves, much of which was secured following Covid.
Salen WWE anticipates adjusted OIBDA of Q4 2020 will be below that of Q3 2020. Q4 2020 will have lower revenues than Q4 2019, in part due to the lack of a KSA event as in Q4 2019.
WWE did not buyback any stock in Q3 under its repurchase program but may do so in the future.
Q&A with analysts begins.
Guggenheim: On the ratings. They remain under pressure for Raw and Smackdown. Can you give us any plans to improve ratings, lay out strategy? If they remain at or below current levels does it impact rights negotiations?
Vince: Ratings are one of our many measurements… We have far more fans now than we have ever had. When you look at TV ratings, it is what it is… Our total audience is much bigger. You can’t just hang your hat on, ‘okay ratings are down’… We’re never off the air.
Nick Khan says: linear TV has lost eyeballs. Viewership has not. Consumption of content across many parties is up significantly. Consumption for us is up significantly. We’re confident our rights are going to continue to go up… Our ratings exceeded the NHL Stanley Cup.
Khan: We’re confident with where the product’s going and we’re confident the market understands that.
Q: Any update on the MENA TV deal?
Vince: We’re still in contact with them on that. We’re still negotiating. And I sure as heck don’t want to put a timeline on what it’s going to happen. It will happen one day. I don’t know when that is.
Q: Can you expand on potential sale on Network rights?
Khan: Everything outside of a sale of the Network is what we’re looking at. There are a number of streamers domestic and abroad… We’re in constant dialogue domestically and globally about licensing the Network to them.
Q: Is data something you plan to preserve in a strategic partnership?
Khan: Yes. Very important.
By the way, the 10-Q (long quarterly report) is already out:
Q: A lot of profitability is reliant on the greater TV ecosystem. What do you think is going on with ratings, not just WWE, but sports broadly?
Khan: If you look at the traditional (media) conglomerates… Many of these structures are realizing it’s about content first, where we put it is second…We all see where it seems to be going. Lets see if it gets there. If it’s a streaming first world, we’re prepared for it.
Q: Where do you think the FAANGs (Facebook, Apple, Amazon, Netflix, Google) are interested in the kind of rights you have?
Khan thinks the hires those companies have made indicate they’re interested in live content. “Our anticipation is that the FAANGs, if not all, the majority will be there in terms of live [content].”
Q: Is there any assumption on Saudi events for next year?
Salen: We’re very diligently working on 2021 operating and financial plans. It’s our full intention to speak about outlook when we speak next [Q4 call in February].
Q: When Amway deal ends, would you go back to PC, other venue?
Salen: Our assumption is we’ll be at a venue like the Amway Center for the rest of 2020.
She notes there are many places to go, given the state of the world.
Q: It looks like NXT (viewership) has held up pretty well. Can you update on when USA Network agreement for NXT expires? Any thoughts about monetizing NXT long-term?
Khan: #1 congratulations to Paul [Levesque] and the entire team. Last night’s ratings were particularly strong.
Khan says Network subs have held up well without NXT there. We typically don’t talk about the length of the deal without our partners being onboard to discuss it. We feel we have a long runway.
Q: Any learnings on what’s working with NXT that isn’t working for Raw and Smackdown?
Khan says it seems to be working with a cluttered fall schedule. We want the best writing, the best content.
Q: I remember when Trump mentioned leaning on you for leadership early on in Covid… What are you trying to see before you say ‘we’re going to go for it’ [return of live events]?
Vince says it was a conference call with Roger Goodell and others. “What is the turning point? I don’t know. I really don’t. Obviously when Covid lets up and it’s safe for our fans and performers. That’s just all I can tell you in terms of when.”
SVP Michael Weitz cuts in and says they’re going to end the call. The call ends more abruptly than usual.
Thanks for following along! I’ll be recording a @wrestlenomics Radio podcast soon.
Tweet me your questions. I may answer on the podcast.
Also look for my guest podcast appearances talking about the Q3 results.
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 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.
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.
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