WWE invests in FloSports

August 15, 2016

The Wall Street Journal reports that online sports content provider FloSports has raised $21.2 million in Series B financing with World Wrestling Entertainment and Discovery Communications participating in this new round of financing.

FloSports, based out of Austin, Texas, provides online streaming of niche sports which includes amateur wrestling, grappling and regional MMA events.  The $21.2 million adds on to the Series A round which netted the company $8 million.

FloSports is a subscription-based service although there is also free content.  If you follow MMA writing, you know that MMA journalists have gravitated to the site including Jeremy Botter who broke the story that Zuffa was looking to sell the UFC.

Payout Perspective:

The deal shows the influence and value of online viewership, content and niche audiences.  This round of funding shows that companies like the WWE see value in the over the top platform and subscription-based business models.  The new funding will likely help expand the company’s reach in sports, rights fees and technology.

ESPN dedicates coverage to WWE

August 14, 2016

This past week, ESPN established a portion of its online coverage to include WWE.  The decision to include sports entertainment in its sports coverage comes as part of the strategy to amend for losing subscribers.

ESPN has lost over 4 million subscribers in the past year per Sports TV Ratings.  The news suggests that ESPN must think of way to generate more web subscribers.  Thus, more WWE coverage.

This news is not that surprising considering ESPN and WWE entered into a partnership to feature WWE in weekly segments on its broadcasts.

ESPN established a vertical dedicated to WWE and contributors will write and report on the company.  Darren Rovell posted a look at the WWE financials on the first day of ESPN’s dedicated coverage.

Payout Perspective:

ESPN has worked with WWE in the past and the move to provide dedicated coverage comes as a business decision to generate more attractive content for the company.  But, opponents of WWE will argue that ESPN’s coverage is more entertainment than sports since we know that pro wrestling is choreographed.  With John Cena hosting the ESPY’s, it’s clear that the two Connecticut-based companies are looking to help each other out for the long term.  The new relationship probably means exclusive news coming to ESPN on behalf of WWE.

Gawker-Hogan talk settlement of jury award

August 8, 2016

The Wall Street Journal reports that Gawker and Hulk Hogan are in settlement discussions over Hogan’s huge trial victory which caused the personal bankruptcy of Nick Denton.

It was anticipated that A.J. Daulerio was to file for personal bankruptcy as well.

In March, a Florida jury awarded Hogan $140.1 million including $25.1 million in punitive damages.  Despite the fact that the judge presiding over the jury trial advised the jury to not award punitive damages that would bankrupt the defendants.  Nevertheless, the jury awarded the damages to the former pro-wrestler.  The court determined that Gawker had $48.7 million in gross revenues las year and a net worth of $83 million.

Although Gawker is appealing the trial court decision, that would not stop Gawker’s Chapter 11 bankruptcy proceeding.  The company filed for protection when the trial court judge upheld the jury verdict this past May.

Denton listed his stake in Gawker and his apartment in Manhattan as his only two assets.  The combined value he estimates is less than $50 million.

Payout Perspective:

While the settlement discussions have been ongoing, they have led to nowhere.  One would think that Hogan might take less than the jury award to cut off the constant waterfall of legal fees that he will surely have to pay at some point.  For Gawker, settlement would not stop a bankruptcy auction of the company.  But, it could mean that they would have money left over after the sale.

Lesnar not subject to drug testing in WWE

July 28, 2016

Brock Lesnar will not receive a punishment from WWE for his two flagged drug tests from USADA.

TMZ Sports reported that “only full-time WWE performers are subject to the organization’s wellness policy, which prohibits PEDs.”  Since Lesnar is not categorized as full-time, he is not subject to testing.  Lesnar is scheduled to make his return to WWE on August 21st as part of Summerslam, the second-biggest event of the WWE’s year.

Dave Meltzer also confirmed on his podcast today that Lesnar was not subject to testing in the WWE.

Payout Perspective:

On a day in which the WWE announced its second quarter earnings, no one asked about Lesnar.  Certainly, the news about the WWE’s drug testing policy is interesting and peels back an unknown.  The UFC may have known about this loophole in the Wellness Policy since it stringently tested Lesnar leading up to UFC 200.  Of course, the flagged tests show that it did not work.  Will there be any backlash for the WWE?  Lesnar will still need to deal with USADA and the Nevada State Athletic Commission in the coming weeks and months.

WWE reports Q2 revenues

July 28, 2016

On Thursday, the WWE announced its second quarter earnings for the year.  Despite record revenues, the company’s Q2 profits missed expectations.

According to the WWE earnings call held Thursday morning, revenues grew 32% to a record $199M.  Profits are off due in part to spending which included Wrestlemania.

The WWE Network hit 1.52M average paid subscribers which is up 25% over Q2 last year.  The Network revenues generated $51.8M in revenues.  Per the WWE earnings release, the average monthly churn declined 20% to 9.9% for the first six months of 2016 from 12.3% for the comparable period in 2015.

The release of its earnings comes on the heels of a lawsuit filed earlier this month by over 50 former WWE performers related to head injuries.  S&P Global Ratings warned on Thursday that sports-related brain injuries are among the biggest new area for insurance claims.

Of the other numbers indicated in the earnings release was that live events were up from this time in 2015.  In 2016, live event net revenues were $51.9M versus $26.4M in 2015.  This is due in part to increased ticket prices.

Notably, there were no questions about Brock Lesnar and his failed USADA tests in the UFC.  Of course, this may not have a direct impact with the financials.  Then again, the fact that the information has surfaced that he was not subject to the WWE Wellness Policy which tests its performers for banned substances might raise questions.  In addition, a question about the UFC came about during the call.  Essentially, the WWE noted that the UFC is a private company and the sale reflected “the value people are putting on branded live content.”

 

Gawker files for Chapter 11

June 11, 2016

Gawker announced that it was filing for Chapter 11 Bankruptcy on Friday as a result of the $140 million jury verdict assessed by a Florida jury in the Hulk Hogan invasion of privacy lawsuit.  A Florida judge upheld the verdict by denying a motion for new trial or reducing the monetary judgment by Gawker attorneys late last month.

According to the Wall Street Journal, the company will sell its assets in bankruptcy court and has received an opening bid of $90 million from Ziff Davis.  The offer is though to set a “floor” for the bidding.

The bankruptcy filing halts any attempt for Hogan’s attorneys to realize the $140 million judgment by conceivably taking control of the company.  Under bankruptcy protection, Gawker can continue to operate while raising money for appeals.

Payout Perspective:

Bankruptcy seemed like the only option for Gawker, the owners of Deadspin, Gizmodo and other popular sites.  It appeared that during the trial, the judge indicated that any verdict should not bankrupt the company.  Apparently, this was not the case.  Chapter 11 is a form of bankruptcy taken on mostly by companies in extreme debt that may (or may not) reorganize in order to operate once again.  For a recent example, sporting goods retailer The Sports Authority filed for Chapter 11 in March and is liquidating assets and closing stores in order to pay off debt.  In the Gawker case, it does not look like Gawker in its current form will reemerge from Chapter 11.  Rather, another media company will acquire the assets including Deadspin, et al.  Thus, we haven’t seen the end of the actual web site companies.  Of course, if Gawker prevails on appeal, we may see Nick Denton and A.J. Daulerio once again.

WWE shows increase in revenues in Q1 of 2016

May 16, 2016

Last week the WWE announced its financial results for the first quarter of 2016.  The company increased its revenue by 13% on a pro-forma basis to $171.1 from $151.3 million in the prior year quarter.

The WWE Network averaged 1.29 million paid subscribers over the first quarter 2016 which is a 39% increase from the first quarter in 2015.  Per the WWE press release, it reached 1.47 million total subscribers at the end of the quarter.  It also states that the Network reached a record 1.82 million total subscribers immediately following Wrestlemania.

For the first time since the inception of the network, the WWE allowed consumers to potentially watch Wrestlemania (the company’s biggest event of the year) for free if they utilized the network’s #FreeWrestlemania promotion.  According to PW Torch, there were 112,000 trial subscriptions pre-Wrestlemania and 370,000 post-Wrestlemania.  There were 355,000 total additions over the weekend of Wrestlemania (March 31-April 4).

The total paid subscribers were 1.357 million with 1.027 domestic and 330,000 international.  The company projects approximately 1.5 million paid subscribers in the second quarter of 2016.

Net income rose to $13.9 million from $9.8 million a year ago.

Notably, the revenue for live events decreased 36% to $25.3 million although this number excludes the timing of Wrestlemania which occurred in the second quarter.

Payout Perspective:

From just an outsider viewpoint, it appears that the WWE stock is moving along well and its Network, which is the most interesting thing, is still showing signs of growth.  There might be a concern regarding the pro-forma reporting (excluding items such as restructuring charges or executive-based compensation) as it sometimes distracts investors from GAAP reporting as told by the Wall Street Journal.  While the concern of churn is always on everyone’s mind, the incremental growth should appease investors.

Former WWE wrestler sues over royalties from WWE Network

April 8, 2016

Former WWE wrestler Rene Goguen (wrestling under the name Rene Dupree) sued the WWE Wednesday in a class action lawsuit filed in Connecticut federal court.   The former WWE superstar is claiming he is owed royalties from the WWE Network and Netflix due to a clause in his contract which pre-dated the over the top platforms but stated he was entitled to royalties of “technology not yet created.”

Goguen is claiming breach of contract for failing to pay royalties, breach of fiduciary duty, unjust enrichment and violation of Connecticut Unfair Trade Practices Act.

Goguen believes his Booking Contract, which was attached to his Complaint, entitled him to WWE Network and Netflix licensee sales of WWE Video Products due to a vague clause which left open for him to be entitled to royalties for “technology not yet created.”  He claims he was not paid these royalties.

The WWE told the Hollywood Reporter that Goguen signed a contract in 2011 that negates his ability to bring his claims.

Payout Perspective:

In all likelihood, the WWE will attempt to dismiss this case.  If the WWE is correct, we might assume that Goguen signed an agreement that precluded him from filing this type of lawsuit as the WWE probably contemplated the clause might open itself up to royalties.  The 2011 contract referred to by the WWE likely indicated he would not be entitled to any network royalties or any from WWE content on Netflix.  The bigger issue might be how the WWE splits royalties among its current roster for the network.  When C.M. Punk left, he claimed that many wrestlers did not know how the WWE would address royalties in light of the fact that some wrestlers made points off of PPV buys.  With the almost extinction of PPV, its clear that royalties from the WWE would be big for wrestlers.  We will see how Goguen’s case is handled and whether this raises any issues for WWE contracts moving forward.

WWE Network subscriptions set records for WM 32

April 4, 2016

The WWE announced a couple records related to Wrestlemania 32 Sunday.  On Monday, it announced that the WWE Network reached 1.82 million total network subscribers according to a telephone conference held by the company.

WWE Network reached 1.39 million total domestic subscribers and 434,000 international subscribers.  The gains over last year at this time (the day after Wrestlemania) improved by 39% and a gain of 1.3 million subscribers at the end of the fourth quarter of 2015.

In addition, the WWE announced that Wrestlemania 32 set a new attendance record of 101,763 at AT&T Stadium in Dallas.  The previous Wrestlemania record was at the famous Wrestlemania 3 in 1987 which drew 93,173 for Andre the Giant vs. Hulk Hogan.  Obviously, there is some skepticism about these numbers.

While stock shares were up slightly on Monday, there was a sharp decrease in shares with the stock down 7.3% at one time after the WWE telephone conference announcing the subscription number Monday afternoon.

During the telephone conference, a question was asked about subscriber “churn” with the network.  The response was that more content would help with retention of subscribers.  Although questioned, the WWE did not comment on the conversion rate of its free trial promotions.  The company had released retention rates for its first two trials but have not provided information since.

Payout Take:

It’s important to note that the 1.82 million subscribers announced includes paid and those on a free trial.  The actual total paid is 1.454 million.  The company has embraced the free month models for a variety of reasons although it has its obvious risks.  The paid subscription numbers must have disappointed investors (or people selling off the stock) as WWE shares were down after the telephone conference.  It did rebound in after-hours training.  We will see how the stock does in the next couple days.

WWE touts #FreeWrestlemania to attract new viewers to Network

April 3, 2016

The WWE’s annual biggest event of the year is today as Wrestlemania 32 takes place at AT&T Stadium in Dallas, Texas.  This year, the WWE Network is offering a free month including this today’s event.   The strategy seems to be contrary to WWE’s goal for profit but at least one analyst believes its a positive calculated risk.

Interesting enough, in 2013 pre-WWE Network, the WWE raised its PPV price point to $70.  In 2016, you can access the WWE Network for free and watch the company’s biggest day of the year.

The ability to watch Wrestlemania for free through its Network is not a secret, in fact the WWE has been aggressively marketing it on social media using the #FreeWrestlemania and #WhatAreYouWaitingFor hashtag.

In a post by Brandon Ross, on the BTIG web site, he evaluates the WWE’s risk of giving away the event for free and how it might impact the company’s business.

First off, for those not familiar, the WWE offers its Network for $9.99 per month.  However, it continually runs a promotion in which new subscribers may access the network for free for one month with the hope that the subscribers likes what they see and continue on with the network.  Also, now former subscribers (previously purchased the network and want to re-up) can access a free month if they have never previously taken advantage of the free month promotion.  There has been criticism about this program since it is fairly easy to take advantage of the system by basically using a new email address.  The article indicates that the WWE has tightened its authentication system to prevent this from happening.

Despite the distinct possibility that the WWE would be losing profits from its Network by giving away Wrestlemania, Ross believes that it is a “smart, calculated risk” for three reasons.  First, he likes the idea of free trials as it’s a way for a potential subscriber to “test drive” the product.  Second, most of the U.S. fans have tried the network and those that have previously subscribed to the WWE and are coming back are paying.  Third, in international markets the WWE advertises the network via social media and the company should leverage its presence to promote the network to international fans.

While there are inherent issues with a free trial for a month, the WWE reported strong conversion rates in its first two trials.  It has not reported conversion rates since the first two but the inference here is that if the “free month” was not successful in converting subscribers then it would not continue with the promotion.

The question of “churn” is always a question with the network.  Chris Harrington has done an excellent job in following the quarterly churn.  In its quarterly calls, WWE has announced a total subscriber number but the number has to be analyzed a bit to determine the amount of new subscribers versus those that discontinued their subscription.  Ross indicates that while it is unknown whether the WWE will announce its total subscribers, paid subscribers or both that they will be interested in the total number (free and paid).  The total number, according to Ross, will provide insight into the “longer-term opportunity of the network” as opposed to the paid subscriber number.  Ross estimates that the Network should hit over 1.8 million subscribers when looking at free and paid combined for Wrestlemania.

Payout Take:

The WWE’s strategy to allow the possibility of fans to access the Network to watch Wrestlemania for free is a risk as Ross identifies.  In comparison, the UFC allows a 7 day free trial for its Fight Pass digital platform.  However, returning subscribers that have cancelled Fight Pass and want to renew do not have the opportunity for the free trial again.  The shorter time frame to sample the product plus the tighter restrictions seems like the better strategy to capture the maximum amount of potential revenue for its platform.  Although no numbers are available, it appears that Fight Pass is doing better than the WWE.  This could be attributable to the broad availability (domestic and international) of Fight Pass.  UFC is coming off one of its most successful days for Fight Pass with UFC Fight Night 84 from London.  Again, no numbers since the UFC is private, but you may infer that the company picked up a lot of subscribers for the event.  Also, Fight Pass offers three distinct tiers to subscribe with the less expensive tier being an up-front payment for 12 months.  So, instead of the WWE’s model of paying while you go, the UFC will get the money first even if you tail off from watching.

The WWE actually embraces the opportunity to promote a free Wrestlemania.  One would believe that it is hoping that its vast social media assets will appeal to the international markets that have yet had the opportunity to watch the network.  Also, you would think that its conversion rates are acceptable at this point that it is willing to give away the most-watched event of the year for the company.

We will see how the numbers turn out.

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