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.
March 6, 2013
On Thursday, the WWE released its earnings report for the end of the year for 2012. While Q4 turned a profit, the bigger news was that it anticipates that the company could double or triple its 2012 earnings by 2015 with the aid of the WWE Network.
One big asterisk with the earnings bonanza. The WWE projects that it must have at least 1 million subscribers to break even with the investment of the WWE Network. As we wrote last week, plans were revealed for the network which includes a premium subscription model with a price point between $12-99 and $14.99.
While the company has not shown significant earnings since 2007, its a solid dividend stock and as a digital content provider, could experience growth with content providers such as Apple, Hulu and Netflix looking for inventory to appeal to a young demographic.
The earnings report showed an increase in overall revenue while some sectors remained flat. Revenue was up 2% for the fourth quarter ($115.1M vs. $112.9M). However, it was relatively flat over the 12 year period from 2011 to 2012 ($483.9 vs. $484.0).
Fourth Quarter Revenue highlights via WWE Investor Relations:
- Hulu and YouTube agreements helped with the digital media growth.
- WWE acknowledged the THQ bankruptcy while announcing that Take Two obtained the license to make the WWE video games.
- Television was up 56.7 percent primarily due to production and licensing of new programs which include the additional hour of Raw, WWE Main Event on ION and WWE Saturday Morning Slam.
- WWE.com was up 3.5 percent due to rights fees associated with licensing of original short-form content to YouTube and next-day access of current TV programs to Hulu Plus.
- Home Entertainment was up 3.1 percent
- Live events declined 3.7 percent driven by 8 fewer live events and a decline in average attendance declined 11% at international events to 5,600 and fell 5% at North American events to 5,700.
- WWE Studios was down 3.7 percent which reflected the timing of releases. It will be interesting to see how the release of “Dead Man Down” will do this quarter as it stars Colin Farrell and Terrence Howard.
- Pay Per View was down 1.6 percent due to one fewer event during the quarter and a 3% decline in buys for events.
- Licensing was down 1.1 percent
Tuesday, the WWE stock closed up $.12 at $8.72.
Some key takeaways from the Q4 earnings:
- Content is King. The WWE has done well with the addition of its content (i.e., RAW going 3 hours, WWE Main Event and Saturday Morning Slam)
- Attendance is down. The number reflect that less people are attending house shows.
- The financial future of the WWE stock hinges on the success of the Network.
More on the Network
The WWE’s Powerpoint Presentation goes into great detail of how the company believes that there is a need for WWE content. It also provided analysis that the value of content is expected to rise overall. This is premised upon network advertising and consumer paid subscription revenue. Obviously, with the announcement of Fox Sports 1 launching late summer, this research can’t be all wrong.
Page 17 of the WWE’s Powerpoint Presentation offers the most interesting view of the company’s outlook on the impact a potential Network would have for the company. It lists 4 scenarios of “economic potential” of a domestic pay channel in a “steady state” after ramping up subscribers. The scenarios estimate revenues for the company assuming a steady subscriber base. The WWE states that “[u]ntil a base of approximately 1 million subscribers is achieved, the network would represent a net investment for WWE.” What this means is that the WWE would be losing money if it does not have a steady base of 1M subscribers.
Is it possible that the WWE could attain this goal or will this network investment turn into the XFL? The network would be offering its PPVs (except Wrestlemania) which would offer some appeal (although it would cannibalize the PPV revenue). The WWE has been successful in licensing its content with Hulu and YouTube so there is some demand but will it be enough to sustain a full network.
March 1, 2013
The WWE announced on Thursday the anticipated price point for its yet-to-be launched WWE Network. The WWE has set the monthly charge between $12.99 and $14.99 although no debut date was announced.
The WWE has decided to pursue a premium subscription model similar to HBO and Showtime in which subscribers will pay a monthly charge for the network.
Via Thursday’s WWE Earnings Call (h/t Cageside Seats):
Based on our [WWE] market research, we estimate that a fully distributed domestic pay network could ultimately attract between 2 million and 4 million subscribers at a “steady state.” These subscriber estimates derive from a projected base of approximately 47 million WWE digital TV households in the US (including lapsed fans), and the proportion of which have an affinity for WWE content, although there is no guarantee that this affinity will translate into actual subscribers. These take-rates are based on a value proposition for the network that reflects inclusion of our pay-per-view events, except WrestleMania, as well as compelling original content. Under our preferred subscription model, while our pay-per-view events would still be offered on an á la carte basis as currently available, the research indicates that a WWE network offering would drive significant consumer interest (including households that currently do not purchase pay-per-view events). At a proposed price per month between $12.99 and $14.99, this would represent incremental revenue to WWE of between $125 million and $250 million and incremental EBITDA between $50 million and $150 million.
The key words in the first sentence of the above snippet is “fully distributed domestic pay network.” As we’ve written about in the past, distributors like DirecTV have pulled back on carrying certain networks (i.e., Pac 12 Network, Longhorn Network) due to the retransmission rights. Yet, DTV did survey its subscribers on the possibility of subscribing. If the WWE is unsuccessful in finding distribution, where does it leave it. Are the projections ambitious? With distributors seemingly tacking on additional charges monthly, can fans afford it?
November 1, 2012
The WWE announced its 3rd Quarter earnings on November 1st with mixed news as the company saw a decline in its profits and revenue from last year yet it beat analyst expectations. The big news from the earnings call is that the WWE has decided on a pay subscription model for its WWE Network.
The WWE net income for the third quarter of the year was $3.5 million and 5 cents a share whereas it earned $10.6 million and 14 cents a share in 2011. Thus, the net income was down 67%. The earnings for Q3 in 2012 would have been $5 million and 7 cents a share but for a one-time expense adjustment.
Revenue was down 4% from $108.5 million to $104.2 million this quarter.
Good news for the company was that average attendance in North America was up 6% and PPV buys saw an increase of 13% for 3 events in the quarter. This rise was anchored by Summerslam which was up 21%. This can be attributed in part to Brock Lesnar’s participation in this year’s Summerslam main event.
Notwithstanding the financials, the big news coming out was the WWE Network. The WWE produced research which indicates “a significant WWE U.S. fan base of 57 million households.” A detailed survey of over 9,000 households was conducted and the findings concluded that 50% of U.S. households can be considered a “WWE fan household.”
Last week, industry trade RBR.com reported on the study compiled by SNL Kagan which indicates that 20% of the 57 million are hardcore wrestling fans that follow the wrestlers, the storylines and regularly watch the WWE shows. A bigger subset of casual fans (40%) are not heavily invested in the program and while the research identified another subset of “lapsed fans.” These are individuals that used to watch wrestling and may be able to be attracted back to watching. I would contend that many of us are “lapsed fans” to some extent.
But, based on the research to support its choice, the WWE Network will be a premium subscription channel which will have some form of interactive component. McMahon indicated that the network would be an “add-on” to its complement of shows on cable and its PPVs although there is a possibility that PPVs may be included on the network.
As more news on the network continues to trickle out, it would be interesting to know what investors think of this investment. We can be skeptical of the SNL Kagan study like we may have been with the WWE’s economic impact report on host cities for Wrestlmania but there is a segment of the population that likes wrestling. The big question is how much? I am not sure that consumers would be willing to spend $10-$15 a month on one premium channel for wrestling. Certainly, this is the WWE’s challenge. I surmise that the WWE is hoping to utilize its vast wrestling library to conjure up some of the memories of the past to attract some of those lapsed fans while providing fresh content for its hardcore fans. The price point will be the big influencer on its success. Analyst Brad Safalow of PAA research believes that the premium model could pan out well for the company.
Via the LA Times:
“Subscribing to the network would be a ‘no brainer’ for the company’s hardcore fans,” (Brad) Safalow wrote in a recent report. Safalow said he anticipates a price of $14.95 for the channel and that WWE should be able to get 400,000 subscribers out of the gate and almost double that in two years. In 2014 Safalow projects that a pay channel could add as much as $141.6 million in revenue to WWE.
400K subscribers and $141.6 million in “add-on” revenue would perk the ears of investors but the questions remain as everyone waits for a launch date and more specifics.
September 8, 2012
MMA Fighting reports the financial impact of the cancellation of 151 caused a $40 million impact on all parties involved. Not only were fighters on the card financially impacted , but the trickle down of parties impacted by the loss including, hotels, taxis, restaurants, clubs and gambling revenue.
The UFC had invested $2 million in marketing costs for 151 at the time it had to cancel. A source with the UFC stated that the estimated loss for the company from 151 was at $20 million.
Via MMA Fighting:
Because major Las Vegas events are largely commuter shows, with people coming from around the country, and extensively from California, the impact on the local economy for a typical pay-per-view event can easily reach $20 million. And that’s direct lost revenue because even though all the fights scheduled have been added to shows between Sept. 22 and early December, none of those events are in Las Vegas.
In addition, the article goes on to discuss the possible sunk costs for the event including a site fee for the event and expectation costs such as lost PPV buys and ticket sales. The gate was estimated as being between $2 to $2.5 million. There is also the estimate of a $7.5 million losses from cable and satellite companies for PPV. As for the buys, the article estimates that 151 would have done 500K buys (assuming $55 PPV) which would amount to $27.5 million in revenue.
Some of the items in the article written by Dave Meltzer is based upon certain assumptions so there is nothing definite except for the investment Zuffa had made in marketing costs in the neighborhood of $2 million for UFC 151 at the time of calling the event. That number was given by Dana White in his UFC Tonight interview. Whether or not you believe the $40 million loss, its safe to say that cancelling a fight equates to an economic loss for all parties from the fighters to the cable companies, to the hotels, to the taxi cab drivers. Assuming that these were the losses involved with pulling the plug on UFC 151, it makes the UFC’s decision to do so very interesting. One might assume that if the UFC went through with a watered down card, it would draw negative press and cause major ridicule. Thus, the UFC had to weigh the economic hit versus the public relations issue in cancelling the event.
September 6, 2012
In June 2011, Stratus Media Group Inc. acquired 95% ownership in the MMA promotion ProElite, Inc. Stratus also owns a business line that operates film screenings, luxury wine and collectible cars shows in cities such as Santa Barbara, Miami and Las Vegas. ProElite, under the new ownership held their third event this past January in Hawaii which was headlined by Kendall Grove vs. Ikuhisa Minowa.
But parent company Stratus has found themselves in a big financial mess. Julian Moore from the Pacific Coast Business Times recently reported:
In June, Paul Feller was ousted as longtime CEO and was replaced by board member Jerry Rubenstein. Stratus lost $15.8 million in 2011 on a mere $570,476 in revenue and has struggled to regain its footing after briefly shutting down in 2009. The firm faces lawsuits from a number of investors who claim they were misled and its former landlord who says the company owes $200,000 in back rent and damages related to its downtown Santa Barbara offices.
Amidst all the chaos, Stratus released their quarterly financials ending June 29, 2012 which showed a Net Income loss of $3.375 million dollars. This is compared to a Net Income loss of $2.479 million from the previous quarter. Former CEO Paul Feller has been given four months to help secure $2 million in new capital or he’ll lose his $20,833 per months paycheck.
The Aug. 17 quarterly report also stated:
As a result of the lack of working capital, Stratus has no events currently scheduled pending receipt of sufficient funds from financings which it is currently pursuing. In the absence of obtaining sufficient funds, Stratus will be unable to schedule or reschedule some or all of its events and implement its business plan.
T. Jay Thompson, who was brought in as ProElite’s Head of Fight Operations recently responded to this tweet when asked about the promotion:
With no working capital there are no ProElite events planned for the foreseeable future. Stratus is actively pursuing financing however it remains to be seen how successful that venture will be. With the company bleeding money and multiple investor lawsuits pending, the future looks pretty grim.