WWE’s next record-breaking year: media rights outlook, stagnant fan growth

This article was originally posted for subscribers last week Wednesday and included my full financial estimate model for WWE, not included here. Get access on Patreon.

Escalating media rights values should spur WWE to break its profit records for the third consecutive year in 2022. The tailwind from guaranteed live rights fees and incremental growth from other licensing opportunities more than offsets weakened fan interest that will keep consumer sales stagnant.

Even though popularity in the core product is down from recent years and possibly continues to wane, current viewership of Raw and Smackdown is strong enough to justify an increase in U.S. payments for new deals that would begin in October 2024.

WWE’s recent earnings call reported on the first full quarter since live event touring returned, indicating what normal trends might look like for the near future. I’m now expecting a record $206 million in annual net income for 2022 (up my earlier estimate of $190 million), adjusted OIBDA of $365 million (I haven’t previously estimated adjusted OIBDA), based on annual revenue of $1.25 billion (down slightly from $1.26 billion). Aforementioned differences are largely driven by what I believe is a lower, more accurate estimate of WWE Network revenue and lower expenses than I previously understood related to the operating and marketing of the company’s media and live events divisions.

Media rights value outlook for Raw and Smackdown remains strong

I believe the most important factor determining the value of Raw and Smackdown’s live rights is those programs’ performance with viewers 18 to 49 relative to other programs throughout television generally.

The average episode of Smackdown on Fox in 2021 had a P18-49 audience in the top 4% of all the year’s telecasts among cable originals and national broadcast airings, according to my analysis of Nielsen data from Showbuzz Daily [Chart 2].

By the same measure, the average episode of Raw was in the top 5%. 

NXT, which I believe there’s far less value in, was in the top 24%.

For comparison, competitor AEW Dynamite was in the top 9%. AEW Rampage was in the top 12%, despite its 10 pm time slot.

It’s notable that WWE reality program Miz & Mrs. was in the top 13%, though it had just six new episodes in 2021; the other programs air new episodes year-round.

Despite declining viewership over the years, the trend in the percent rank for Raw and Smackdown hasn’t significantly weakened. Smackdown’s percent rank has only improved, coinciding with its move from USA Network to higher-reach Fox. Raw’s rank has weakened marginally but unpredictably from 2017, while remaining within the top 5%.

Will the reach of linear TV be enough for WWE through the late 2020s?

I expect WWE’s live rights in the next round to include some kind of live streaming component. To ensure WWE can broadly reach consumers including younger audiences, live distribution on linear TV may not be enough by the late 2020s. 

Traditional TV viewership of the daily top 50 cable original telecasts for people aged 18 to 49 declined 49% from 2016 to 2021 and fell 62% for ages 18 to 34 [Chart 3].

That said, even while linear TV viewing is in decline and skewing older in age, traditional TV still makes up the majority of TV use time in the U.S., while streaming accounts for a little over 25% of that share.

Reach is even more important to WWE than to other major U.S. sports leagues, where local markets support individual teams and most games are telecast as regional broadcasts. WWE needs high-reach availability nationwide and weekly to support live event touring and consumer products businesses.

Tentatively, I think the likely outcome is the same company holding streaming and linear rights for the given show: for example, NBCUniversal’s entities USA Network and Peacock holding rights to Raw. Opposing companies may be unwilling to compete with one another, i.e., one company holding streaming rights (e.g., Prime Video) and a different company holding linear (e.g., USA Network), in case one of the platforms ends up empty-handed as behavior shifts (or doesn’t).

If this assumption is accurate, it puts Fox holding onto Smackdown more in question. Fox lacks a suitable streaming platform. Fox-owned Tubi (a low-revenue FAST) and Fox Nation (the streaming extension of Fox News) aren’t sensible options. 

Content owners like WWE hope major tech companies like Amazon, Apple, and Netflix become new bidders for their rights. However, none of the tech players currently own a linear network, and therefore lack both kinds of media platforms WWE might need to navigate the late 2020s. A major acquisition that actually passes antitrust scrutiny (like, say, Amazon buying NBCU away from Comcast) or, perhaps more likely, a partnership between a tech player and a traditional network, could change these dynamics.

A third large-scale international event?

WWE president Nick Khan hinted at a third “large-scale international” event on the last earnings call. “Large-scale international event” is the company’s euphemism for its controversial events in service of the government of Saudi Arabia, but it was hinted to me that Khan wasn’t referring to a third event for the kingdom, which would be a significant financial revelation since each Saudi event is worth $50 million in payments to WWE.

Instead, I expect WWE will announce a stadium event in Europe, most likely in the United Kingdom, for the monthly premium live event in September. The schedule the company released in October 2021 shows an event during Labor Day weekend with the location listed as “TBD”. The U.K. hasn’t had a true pay-per-view/premium live event since Summerslam 1992. A peak monthly event in the U.K. would carry historic weight with fans in the region and would be a hot ticket. Putting such an event in a stadium-sized venue is probably optimal for the kind of demand it would attract. Therefore, I modeled into Q3 $5.9 million in incremental live event revenue. Such an event would positively impact venue merchandise in the quarter also.

A major event on Labor Day weekend would also compete for fan attention with one of All Elite Wrestling’s quarterly pay-per-views. AEW’s All Out event has been held during that weekend each year since 2019. AEW has more to lose in such a situation as it more heavily relies on direct-to-consumer activity by way of pay-per-view sales at a $50 retail price in the U.S. Conversely, WWE’s premium live (née pay-per-view) events are primarily streamed to viewers at a fraction of the cost to the consumer, on Peacock domestically and the WWE Network internationally. Ticket sales for the Labor Day weekend events wouldn’t strongly compete with each other since they would be on different continents. I expect All Out 2022 to be in Chicago, as it was last year and in 2019.

Stagnant consumer interest

WWE had a great Q3 2021 for live events, one of the best quarters for the division in company history, benefiting from pent-up demand as touring returned in mid-July. Since then, ticket sales for WWE’s most frequent events, non-televised house shows as well as tapings for Raw and Smackdown, continue to decline [Chart 4].

Another indicator of consumer interest is eCommerce sales. Those surged during the interruption of touring, somewhat offsetting the loss of venue merchandise sales. In the first full quarter comparison since touring resumed, eCommerce sales in Q4 2021 were even in revenue from Q4 2019 (the most recent pre-Covid Q4), but 30% lower in order volume. Fortunately, the company managed to increase revenue per order by 37% from two years ago, counteracting the decrease in transactions [Chart 5].

Google web search, which I view as an indicator of name recognition and mindshare, continues to be in secular decline for WWE, worldwide and in the U.S., for most year-over-year monthly comparisons since 2017 [Chart 6, 7, 8, 9].

I believe WWE’s fan base has deteriorated because of the poor quality of the core content, primarily due to creative leadership of CEO Vince McMahon. New major stars haven’t been more fully developed and storylines are weakened due to a lack of long-term creative planning, inauthentic presentation, misevaluation of talent, repetitive matchups, among other issues.

Management doesn’t acknowledge any problem with creative. McMahon is reportedly dismissive of criticisms of the content, citing the company’s financial success. Khan’s prepared statements in earnings calls only allude to a “strong in-ring product”.

Challenges with consumer interest are obscured by WWE’s increasing and largely guaranteed revenues from business relationships, a dichotomy that continues to become more defined as contractual escalators increase payments while the fan base diminishes under McMahon’s creative direction.

Disclaimer/disclosure: This article expresses my personal opinions only. I do not currently, nor have I ever, held stock positions in World Wrestling Entertainment, Inc. (NYSE: WWE). I have no plans to initiate any such positions within the next 72 hours. I am not being compensated for this article or any of my other Wrestlenomics-related work except through audience-driven revenue, including Patreon subscriptions and programmatic advertising.

This article is not investment advice, nor should it be construed as investment research.

Chart 1: My recent history estimating EPS

↓ Chart 2: Compound Annual Growth with Linear Trendlines
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↓ Chart 3: P18-49 Viewership Percent Rank: Calculated Annually
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↓ Chart 4: Estimated Tickets Distributed, by Event Type
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↓ Chart 5: WWE eCommerce Orders and WWE Average eCommerce Revenue Per Order
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Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer.

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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.

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