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.”
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
April 1, 2016
Variety reports that World Wrestling Entertainment and Snapchat have signed a multiyear deal that will start this Sunday at Wrestlemania.
The image messaging app will produce and distribute Live Stories from Wrestlemania and other events. According to Variety, “WWE fans will be able to contribute video and photos that will be curated and packaged by Snapchat along with WWE-supplied content into a brief video available to the app’s more than 100 million daily active users.” Snapchat will cover other WWE live events throughout the year.
This partnership is a push by the company to reach out to a younger demographic as those that use Snapchat tend to skew on the younger side. It is also a way for the WWE to reach out to fans on other social platforms such as Facebook, Twitter, YouTube and other digital channels. The article also indicates that one of the other big pushes is for this partnership to help bolster the subscription base of the WWE Network.
March 30, 2016
ESPN will be airing “SportsCenter” live from Wrestlemania this Sunday taking place at AT&T Stadium on Sunday. It will also feature live cut-ins throughout the day.
The move is a “specific content play” as the network attempts to appeal to ESPN viewers that also are WWE fans. The network had been featuring WWE in segments which now lead up to Sunday’s WrestleMania. This past Monday, ESPN anchor, and former WWE announcer, Jonathan Coachman made a guest appearance on Monday Night Raw to promote the event.
This past January, ESPN also featured Lucha Underground stars to promote its return to the El Rey Network. Last year it aired from the Barclays Center in Brooklyn where Summerslam took place.
(H/t via Sports Business Daily)
The coverage is good for the WWE and promotes its network. It reflects the fact that ESPN is attempting to broaden its reach. While pro wrestling is considered “sports entertainment” and not purely sports, ESPN will be giving it the coverage like any other sport. It’s clear that it is a ratings-grab which the WWE does not mind at all.
March 25, 2016
Earlier this week, the U.S. District Court of Connecticut dismissed a portion of the claims of several WWE wrestlers which claimed the company knew or should have known about head injuries. Only one claim by two plaintiffs remains.
In a lengthy opinion, the court dismissed the lawsuits of William Albert “Billy Jack” Haynes III, “Big” Russ McCullough, Ryan Sakoda and Matthew R. Weise. However, one claim in the lawsuit of Evan Singleton and Vito LoGrasso remain with respect to “fraudulent omission” stemming from information post-2005. The claim was whether the “WWE became aware of and failed to disclose to its wrestlers information concerning a link between repeated head trauma and permanent degenerative neurological conditions as well as specialized knowledge concerning the possibility that its wrestlers could be exposed to a greater risk for such conditions.”
The former wrestlers had filed lawsuits in different jurisdictions but the WWE filed motions to transfer the venue to Connecticut and were granted the relief each time. Once the lawsuits were transferred to Connecticut, the state of the headquarters of World Wrestling Entertainment, the company filed motions to dismiss the wrestler’s complaints citing that they were time-barred by the applicable Connecticut statutes of limitations and repose.
The court dismissed the wrestlers’ negligence counts under Connecticut law. It also dismissed misrepresentation and fraudulent deceit claims as the plaintiffs failed to identify with specificity any false representation by WWE. In addition, the fraudulent concealment and medical monitoring claims were also dismissed. However, the court did not dismiss the “fraudulent omission” claims by Singleton and LoGrasso.
Notably, the plaintiffs argued that their case was similar to that of NHL players that brought a concussion lawsuit against the league. In that case, the judge allowed a “fraudulent omission” claim under similar circumstances.
The court indicated that the facts concerning the “fraudulent omission” claim would proceed as both wrestlers were active in the WWE on or after 2005. The plaintiffs will still need to establish facts after more discovery occurs in the lawsuit.
The plaintiffs might appeal although the court opinion was quite thorough. The strategy to move the lawsuits to Connecticut and rely on Connecticut law worked in the WWE’s favor. Every wrestler, except for Haynes had a forum selection clause in their contract which made the decision easier to transfer the cases. We saw a similar situation in the UFC Antitrust Lawsuit where the fighters were sent to Las Vegas from San Jose due in part to the forum selection clauses in the contracts.
The WWE is left with a narrow cause of action against it which may mean the possibility of a settlement. Of course, the court seems to leave open the possibility that after further discovery occurs, if the plaintiffs cannot establish facts for its case, a motion for summary judgment may be filed by the WWE. We will keep you posted.
March 22, 2016
On Monday, Florida jury tacked on an additional $25.1 million punitive damages award for Hulk Hogan. This amounts to a total of $140.1 million awarded to the former pro wrestler after the jury found in his favor and awarded him $115 million this past Friday.
Gawker Media was ordered to pay $15 million while Nick Denton was assessed $10 million and Gawker’s former editor in chief, Albert J. (“AJ”) Daulerio $100,000. Punitive damages are awarded in addition to the actual damages at trial. They are meant to reform or deter the defendant and others from engaging in similar conduct. Not every state awards punitive damages.
According this report, the trial court judge told the jury that they could not award punitive damages that would bankrupt the defendants.
The net worth was determined by the court (via www.capitalnewyork.com):
The court determined that Gawker Media, a U.S. subsidiary of Cayman Islands-based Gawker Media Group Inc., had $48.7 million in gross revenues last year and a net worth of just $83 million. It determined Denton’s net worth to be $121 million — $117 million of which is tied up in stock in Gawker Media Group, Inc., which is valued at $276 million. The court determined that Daulerio’s net worth was negative $27,000, since he has no material assets but $27,000 in student loans.
Gawker, et al. indicated that it would appeal the jury findings and the damages awarded in hopes of either overturning the decision and/or reducing the monetary award.
The moral of the story for AJ Daulerio is not to mess around at a deposition as it was his flippant answer to a question that seemed to have annoyed the jurors. Even though the court advised that it was not to bankrupt the parties in awarding punitive damages, it seems like the award would do so for Daulerio. One has to conclude that based on the monetary award, that Gawker will most certainly appeal.