November 20, 2014
The Standard & Poor’s Ratings Service has revised Zuffa, LLC’s financial outlook to negative from stable on weaker operating performance. It has indicated that it anticipates a 40% decline in EBITDA in 2014 and credit measures will weaken due to the decline.
In a press release disseminated by S&P, it stated that the negative rating reflects its “belief that Zuffa’s operating performance will deteriorate significantly in 2014, resulting in very weak leverage in the high-5x area.”
In addition to the change to the negative outlook it is affirming its “BB-“corporate credit rating. The “BB-“ credit rating was assessed last month. The concern for Zuffa is that a negative outlook may mean that S&P may lower Zuffa’s “BB-“ rating.
More from the press release:
“The negative outlook revision reflects our updated forecast for 2014 EBITDA to decline approximately 40% (compared to a decline of 30% previously), primarily due to a change to a marquee fight card in the fourth quarter of 2014 as a result of another fighter injury causing anticipated pay per view (PPV) buys and event ticket prices to decline further, as well as higher remarketing expenses for the event, and additional costs related to the company’s international expansion,” said Standard & Poor’s credit analyst Stephen Pagano.
S&P now expects Zuffa’s cash flow/debt leverage to increase to the “high-5x area at the end of 2014.” In its October 2014 report, it had predicted Zuffa to be in the 3 range. The cash flow/leverage is based on a scale of 1-6 with 1 being minimally leveraged to 6 being highly leveraged. Zuffa is now pegged as 5 whereas S&P had forecasted it being a 3.
Obvious bad news for Zuffa as the change in outlook is based on Cain Velasquez’s injury forcing him to drop out of UFC 180. It ties in directly to the assumption that the PPV buy rate will be low once again – an issue that Dana White recently acknowledged. What the change in outlook to negative means is that it will increase the cost of borrowing by Zuffa. As the company falls deeper into debt, its ability to obtain credit will get harder. The forecast painted by S&P reflects the fact that it no longer believes that the company will be able to turn it around this year or next to address its debt obligations.
With the new lower, negative outlook on its debt, Zuffa will have a lot of pressure to forge new television pacts overseas and push the profitability of Fight Pass. We may also see initiatives like a formal drug testing policy put off if costs are too high. We will also see if Zuffa attempts to address the issue of fighter injuries which causes the instability and uncertainty of events.
MMA Payout will keep you posted.
November 13, 2014
The WWE and New Orleans Mayor Mitch Landrieu announced on Wednesday that Wrestlemania XXX generated an economic impact for the region of $142.2 million for the New Orleans region. The $142.2 million is a record for Wrestlemanias and is the third straight year the destination event has generated more than $100 million for the host city.
Via WWE press release:
Over the past seven years, WrestleMania has generated more than half a billion dollars in cumulative economic impact for the cities that have hosted the event. WrestleMania 30 also generated approximately $24.3 million in federal, state and local taxes.
The WWE commissioned the study by Enigma Research Corporation to determine the economic impact.
More info from the press release:
-$142.2 million in direct, indirect and induced impact derived from spending by visitors to New Orleans for WrestleMania 30.
– 79% of fans that attended WrestleMania were from outside the greater New Orleans region and stayed an average of 3.7 nights.
– $22.5 million was spent on hotels and accommodations within the New Orleans region.
– The economic impact derived from WrestleMania Week was equal to the creation of 1,662 full-time jobs for the area.
– $10.7 million was spent by visitors to New Orleans at area restaurants.
Last year, it was reported that Wrestlemania 29 in New York/NewJersey drew $101.2 million in economic impact and $102.7 million for Wrestlemania 28 in Miami. In 2011, Wrestlemania 27 in Atlanta gave the region a $62 million economic boost.
Payout Take: Even if we are to look at this cynically and conclude that the economic impact is inflated because the study was commissioned by the WWE and the release does not define “indirect and induced impact” the $142 million would peak the interest of future cities to solicit the WWE to hold the event. Wrestlemania has become a destination event where WWE fans from all over the world come to the city that hosts the event. So, to see the city’s tourism industry see a dramatic spike in revenue would not be unheard of. For municipalities that are hurting economically, Wrestlemania would be a economic boost for the region.
October 30, 2014
The WWE announced its 3rd Quarter ratings on Thursday as it reported a net loss of $5.9 million ($0.08 a share) compared to net income of $2.4 million ($0.03 a share) from the third quarter in 2013. The big news is that the WWE Network has not picked up subscribers as projected and now a new strategy has been implemented.
First, the WWE Network subscription number which one may conclude has been disappointing so far. This past quarter, it had just picked up a total of 31,000 subscribers total (including international subscribers). Eric Fisher of the Sports Business Journal (via twitter) indicated that it had a gross subscriber add of 286,000 to end up with the 31,000 number. As Fisher points out, lots of “churn” from people subscribing then dropping the network. In its first quarter of offering the Network in Canada, it added just 28,000 subscribers.
Average Paid Subscribers (numbers from WWE Investor Relations)
Q1 – N/A
Q2 – 665,000
Q3 – 723,000
Q1 – N/A
Q2 – 406,000
Q3 – 515,000
Perhaps as a direct result of this poor number, the WWE announced in an email to its subscribers that it will no longer require a 6 month commitment for those paying $9.99 per month as of the December billing period.
In addition, it now will be offering the Network for free to new subscribers for the entire month of November. You will see the new catchphrase/hashtag #FreeFreeFree everywhere.
In other segments of the business, from data from the WWE, the WWE is off of its 2013 earnings in domestic attendance, home entertainment ($718,000 vs. $429,000) and of course, PPV buys ($761,000 vs. $285,000 – which is due to Network). Online merchandise was up and the International attendance average for this quarter has gone up in comparison to last year.
On the brighter side, the WWE stated in a press release that revenue from its “seven new key television agreements is expected to increase from approximately $130 million in 2014 to approximately $235 million in 2018, providing over $100 million of revenue growth subject to counterparty risks.”
Overall, the WWEN is up 68% from the prior year but the financial investment of $5.1 million due to lost PPV revenue and additional costs have impacted the initial gain. The WWE hopes that availability in the UK will continue to grow the network but so far it does not seem to show growth with it overseas.
At the time of this writing, WWE stock is down 6% to $12.48 in early morning trading. This is before its earnings call scheduled for 8amPT/11amET.
The new strategies offered by WWE with its Network (no commitment/free to new subs in November) infer strong concern as it is way off its projections at this point. Earlier this month, it announced that it would be adding “limited advertising” to the network which may reflect a pressing need to find some financial gains in lieu of subscribers.
It’s interesting to see the divergent paths UFC Fight Pass and the WWE Network have taken since both started. While many thought that the WWE had the better platform at the beginning, it appears (from all reports) that the UFC Fight Pass is flourishing while the WWE news is discouraging. Obviously, WWE is the only one that has to publicly report its numbers so we really don’t know the whole story for the UFC. Still, this has been a rough year for the WWE.
October 13, 2014
MMA Fighting reports that the UFC’s television deals are why the UFC has withstood down PPV numbers. As previously reported by the Sports Business Journal and reflected in its latest S&P report, a combination of the television contracts and expansion overseas are seen as positive revenue drivers for the company.
In Dave Meltzer’s piece, he reports that a big PPV show that garners 1 million buys could generate between $22 million to $27 million for the company in one night. Thus, the reason to keep PPV around. Meltzer points out that Fox paid the UFC $2.2 million for UFC on Fox 11 this past April which he compares to a PPV with 85,000 buys.
It’s no surprise that television deals are the reason why there are more events on television. One of the hopes is that these shows will reveal new stars. As the SBJ article had questioned, there is a need for new UFC stars to carry the company on PPV. The overall UFC PPV history which was listed in the SBJ article did not name a current UFC star until Lyoto Machida at number 7 on the list. Similarly, the S&P report cites fighter injuries and juggling of matches as key reasons for the downgrade in the company’s credit rating. It also noted a need for the company to develop fighters that appeal to its core demo.
The inference from the information from the Meltzer article, the SBJ article and the S&P report is that the company could be at a turning point in its business model. But, it has and still is a PPV driven company. One need only look at how much the company can net with a big event as a primary reason why PPV will still be a part of the company’s business. While the S&P report concludes that international expansion and television deals are stable revenue streams for the company, its PPV business is still a mainstay in its business model. In fact, 2013 saw its PPV/live event revenue increase from 2012 per the S&P report.
It’s clear the UFC has mapped out a business model that currently works despite porous PPV numbers. There are obvious concerns on the horizon as its television deals eventually plateau and/or the need to re-up with new deals.
May 2, 2014
On Thursday, the WWE announced its First Quarter earnings for 2014. Despite a loss of $8 million ($0.11 per share) due to the WWE Network, it beat analyst expectations by 0.05.
This quarter in 2013, the WWE saw net income of $3.0 million or $0.04 per share.
The most notable news was the lack of news on a new domestic rights TV deal which was initially thought to be completed by late-April or early May. Yet, there was no word on the status.
The WWE reported that despite the $4.4 million of network subscription revenue (based on 495,000 subscribers at quarter’s end), it was partially offset by $1.3 million decline in pay-per-view revenue. Notably, Wrestlemania XXX was not factored into these numbers. Here, we see the obvious cannibalization of its product. The announcements by DirecTV and Dish Network that it would not carry this Sunday’s PPV are a looming threat to the PPV revenue. The concerns would be whether purchasers of the WWE PPVs could transfer to the WWE Network to view the PPVs and how much more PPV revenue could it lose if big distributors refuse to air its PPVs.
It reiterated its belief that it would have 1 million subscribers by the end of the year. It also believed its expansion of the network to more platforms (e.g. Xbox One) and international markets will provide long-term growth over time.
WWE stock finished up 4% slightly over $20 for Thursday but is off 7% as of this writing on Friday.
There was nothing earth-shattering about the losses as most knew that the WWE would be reporting this due to the Network expenses. The lack of news of a new domestic rights TV deal is hard to read. It could be good news or bad news. Based on the stock price, it appears that investors are taking this as bad news. The Network remains the big news this quarter. While Wrestlemania viewership on the Network and PPV did over 1 million viewers, we may not see these types of combined numbers again. The news that distributors are beginning to backlash against the WWE for its Network is something to keep an eye on the rest of this year.
August 5, 2013
Welcome to another edition of The Wrestling Post. This time we take a look at the WWE earnings call for its second quarter.
The WWE did not meet Wall Street’s forecasts but delivered a profit. For the quarter ending June 30, 2013, total revenues for the WWE increased $10.7 million up 8% from this time last year. The increased production and licensing of television content along with the ticket revenue from Wrestlemania 29 contributed to this year’s quarter increase. Moreover, the third hour of Monday Night Raw, Main Event and Saturday Morning Slam contributed to the revenues this quarter.
Conversely, operating income declined in the quarter as a result of “talent expenses” (i.e., paying for The Rock and Brock Lesnar). In addition, the WWE’s new strategic initiatives contributed to the cut in the profits as the big ticket item this quarter was the opening of a state of the art training facility in Orlando, Florida. The 26,000 square-foot training center cost the WWE $3.5 million.
PPV business was down which the WWE attributed to one less PPV during Q2. It should be noted that estimates for Wrestlemania 29 have been trending lower than expected. In fact, it was recalibrated to 1,039,000 PPV buys which is lower than the 1.2 million PPV buys from Wrestlemania 28. According to the presentation, the PPV profits were down $9.7 million from last year. So, while the attendance and gate were records, the PPV business did not live up to its expectations.
WWE Studios actually accounted for $1.5 million to its overall revenue. The much maligned division made $2.1 million in revenue as opposed to $0.6 million in 2012.
Also, still no word on when the WWE Network may launch.
This quarter’s earnings showed the company’s strength is its television shows. It also showed that it is willing to spend money to make money. The WWE Network is still out there and the company continues to spend money toward its launch someday. The building of a state of the art training facility reflects a big investment in training a next generation of sports entertainers. The question is whether these investments will see a return and when.
The Wrestlemania PPV buys are disappointing considering the amount of money it spent on talent and production. We should note that this was the first time the WWE raised its PPV price point to $70 for HD.
May 16, 2013
Sports Illustrated released its list of highest paid American athletes for 2012 and Floyd Mayweather topped the list. Just working two nights to make the list, Mayweather made $85 million without any endorsement money.
Mayweather won by a big margin over Phil Mickelson ($60,763,488 with $57,000,000 in endorsement money) and Tiger Woods (($56,440,238 with $54,500,000 in endorsements). Kobe Bryant and LeBron James rounded out the top 5.
Mayweather made $40 million against Victor Ortiz in September 2011 and $45 million against Miguel Cotto in May 2012.
Manny Pacquiao was sixth on the list of highest paid international athletes with $39 million (no breakdown of endorsements). Tennis player Roger Federer topped the list for international athletes.
*Boxing purses were tabulated form June 2011 through May 2012 for this survey. Hence, the inclusion of the Ortiz fight.
Is it more impressive that Mayweather made $85 million in two nights or the fact he did this without any endorsement deals? Based on second and third on the American list, the endorsement revenue is huge for most athletes. Yet, its Mayweather’s unique business acumen in controlling virtually every aspect (and revenue stream) of the promotion and execution of his fights that allows him to make $85 million in just two fights. One might expect with his Showtime contract that he remains at the top of this list next year as well.
May 6, 2013
The WWE announced results for its first quarter for 2013 on Thursday via conference call. The WWE’s revenues were flat from last year thanks to the film business.
There is no word on the launch of the WWE Network although it spent $500,000 on it in the first quarter.
The WWE revenues were up modestly from last year: $124M from $123.9M. But, its net income was down sharply from $15M last year this quarter to $3M.
WWE Films’, Dead Man Down, lost $4.7 million while the bankruptcy of its former video game maker, THQ, caused a $2.1 million positive impact. Dead Man Down which starred Collin Farrell was a box office flop domestically. It was advertised during UFC 156. In fact, Bigfoot Silva knocked out Alistair Overeem in front of the Dead Man Down signage during their fight. It was probably the lasting memory of that movie. It anticipated a $3M loss from video game sales due to the bankruptcy of THQ but wrote it off and settled with the bankrupt video game manufacturer in order to sign an agreement with Take Two. Thus, in its balance sheets it showed a positive impact of $2.1M positive impact to revenue and $3.4M positive impact to operating income.
The WWE also spent money on the construction of a training facility in Orlando, Florida to support its up and coming wrestlers.
Although PPV buys and domestic attendance were up, international attendance at events were down. Also, paying The Rock and Brock Lesnar offset the revenue by the WWE although one may expect their appearances may benefit in the long run.
The WWE may be nearing an end to its film division if it continues to lose money. “The Call,” starring Halle Barry has been the studio’s only real domestic hit. It was expected to make between $11-12M at the box office its first weekend in limited theaters but ended up making $17M. Yet, this was offset by “Dead Man Down” this quarter. With the WWE focusing its spending on the anticipated launch of its network, we may see the company take a critical look at this division. The second quarter is likely to be better as we should see the results of this year’s Wrestlemania as it is being reported that PPV buys are over 1 million.
May 1, 2013
ESPN Business Reporter and UFC head Dana White went back and forth on twitter on the state of UFC business. The UFC drew the scrutiny of ESPN business reporter Darren Rovell. If you didn’t know, Rovell covers the business of sports and is as active on twitter as Dana White. Rovell sent a tweet out the following tweet after UFC 159.
UFC is starting to lose a little bit of its edge. Might need to have fewer events. Know guy who paid $50 for a $553 face seat tonight.
— darren rovell (@darrenrovell) April 28, 2013
This drew the ire of UFC fans, media and eventually got back to Dana White. And in usual form, he escalates the criticism to make it personal.
Rovell didn’t seem pleased about the “ESPN” remark and defended his reason for inquiry.
After a query to substantiate the numbers that the UFC was still on the rise, White indicated to Rovell that he’d get him those numbers
On Wednesday, three days after the initial back and forth, Rovell received his request. It appears to either be a cut and paste of a Fuel TV press release, a hastily put together word document and/or both. You can click on the pic to see it close up. As you can read, White tells Rovell that Zuffa is a private company.
The following tweet is a lesson in making sure you read what you tweet. White’s response to Rovell.
Rovell did concede that the UFC had some strong indicators of improvement.
Rovell then addressed the data White provided to a follower that believed White had shown the reporter up.
Rovell did make a back-handed complement about the back and forth with White.
He then makes the most sense in the following tweets in requesting information that most would ask about a company’s financials.
Prior to receiving the data from White, Rovell ran a poll for his twitter followers. Its something he does periodically to create engagement. The poll asks whether UFC has mainstream potential. As you can read, a little over half don’t think so.
— darren rovell (@darrenrovell) April 29, 2013
POLL RESULTS: 55% of respondents say they don’t think the UFC has the potential to go mainstream sprts.bz/17rLdRl
— darren rovell (@darrenrovell) April 29, 2013
You can also head over to Storify to see the original version of this.
Its an interesting back and forth between a mainstream business reporter and White. Certainly, there are errors on both sides of the conversation. Rovell frames the questions differently. He first states that the UFC has lost its “edge” based on the anecdotal evidence that a friend bought a ticket for substantially less than face value. He then asks about the UFC slowing down financially and would like to see its net profits. White responds over the top. Rovell baits him to provide him data that the UFC is doing better and then White gives him something that can’t be substantiated. Being a reporter, Rovell is upset and White relies on the “private company” safe harbor to protect the UFC from having to release its numbers.
At times, Rovell uses financial information to dampen the mood for fans. For example, when a player drops in the NFL Draft, he’s the first to tweet how much money that player is losing. Still, Rovell is being a journalist here and it would have looked better if White could have just said granted him an interview to talk about it or provided him information that did not look like it was a press release.
April 8, 2013
RYU formally announced that it is no longer a sponsor of the UFC. In its recent Form 10K (page 5) filed this April, it stated that it no longer will cater to the MMA Marketplace.
Despite an initial positive outlook for the company, it failed to find an adequate financial return on its investment in the sport of MMA.
RYUentered the MMA landscape at the beginning of 2012 as an official sponsor and was a part of UFC broadcasts and PPV. It also opened a store and training facility in Las Vegas. It boasted several former Nike executives which brought an instant credibility to the brand. The brand received good PR including glowing articles about the prospects of the brand.
RYU sponsored fighters with former UFC vet Jon Fitch as its main fighter. RYU aspired to be a lifestyle clothing brand for MMA fans however it did not pan out. As noted in a July 2012 Sports Business Journal article (via MMA Payout), the success depended on the consumers:
While RYU is getting some good buzz, SBJ notes that its success will depend on how well the products sell. A selling point for the brand is that the clothing uses natural materials as it prides itself on being “95% sustainable” and stresses the newest performance technology. Compared with the likes of Nike and TapouT, RYU clothing is much more expensive than it competitors. The question is whether consumers would be willing to spend more on this new brand.
It turns out, consumers did not.
A director resigned although the release did not state that it was related to the financial results of the company. It has moved its headquarters from Las Vegas back to Portland, Oregon where it originally had offices.
On page 9 of its Form 10K, RYU noted a gross loss of $1,115,157 which it attributed to its product development and a write off. It also showed a bigger net loss related to selling and marketing expenses, production creations costs and administrative costs which amounted to $9,868,603.
The company notes that the company will “need to raise substantial additional equity” in 2013 in order to continue RYU as planned.
It goes on to state that 2012 sales fell short of expectations and management cites its UFC partnership in which it tried to position the brand as a “premium performance apparel brand.” The company suffered losses as a result of lower than expected sales from its sponsorship of the UFC.
RYU is undergoing a rebranding strategy which will appeal to a broader base of consumers according to its filing.
RYU’s demise in MMA might be attributed to an assortment of factors. It did go into the endeavor with both feet as it became an official sponsor, opened up a training facility in Las Vegas and sponsored fighters. However, it failed to sell its product as it had envisioned. This could be attributed to the higher price point on its apparel. As we indicated early on, the question was going to be whether consumers would buy a hoodie that was priced $10-$20 higher than a competing brand. Further, the Jon Fitch sponsorship did not work out as Fitch lost his first bout as a RYU sponsored fighter in seconds to Johny Hendricks.
We will see if the RYU brand will continue on without MMA. But, RYU’s story in MMA reflects the fact that despite the best plans, it all depends on the consumers.