WWE in damage control after disappointing TV deal

The WWE conducted a special conference call on Monday in order to mitigate some of the damage that occurred with the announcement of its deal with NBC Universal.  Although terms of the deal were not divulged, investors took the news as bad and the stock has tumbled.

The conference call did not reveal anything new except for the fact that WWE CEO Vince McMahon stated he was “a little disappointed” in its new deal with NBC Universal.  He indicated that the deal altogether was “at about $200 million.”  McMahon was frank on the conference call stating that the deal was not what the company wanted or what its researched showed with respect to its domestic television deal.  He also admitted in the Q&A portion that launching the WWE Network had a negative impact on negotiating its TV rights deal.

One of the takeaways here is that the WWE may have underestimated the impact the loss of its PPV revenue may have on its core business.

It still projects that it will have 1 million network subscribers at the end of 2014 and the possibility of 2 to 2.5 million subscribers at the end of 2015.  With the subscriber projection of 1 million at the end of 2014, it would have an estimated 2014 OIBDA (Operating Income Before Depreciation and Amortization) loss of $40 million for the network alone and $35-$45 million for WWE.  If the WWE achieves its 2 to 2.5 million subscribers number by the end of 2015 it will have turned around the loss to an OIBDA of $105 million to $160 million for the network and $125 million to $200 million for WWE.

Despite the promising outlook, investors are not happy right now.   Marketwatch reports that the Former Attorney General of Louisiana has commenced an investigation into the WWE.  The crux of the investigation will seek “whether WWE and/or its officers and directors violated state or federal securities laws.”

Unless the investigation produces material information that the officers and directors knew that it was misleading investors, it’s unlikely that the investigation would produce much.  McMahon alluded to the fact that the company’s research reflected the fact that a TV rights deal could garner double the WWE’s current deal.  Obviously, if the research was flawed and/or not sound in its conclusions, there may be an issue.  But, I would not suspect any criminal or civil penalties as a result of a disappointint TV deal.

Payout Perspective:

Monday’s Business Outlook Conference Call was a way for the WWE to calm its investors.  But the conference call probably did not make any holder of the stock happy considering McMahon expressed his own dismay on the new deal.  Earlier this year, the rights fee deal was thought to be a big boon for the company based on other sports’ rights deals such as NASCAR, but  it did not come to fruition.  Based on the huge hit the WWE took after news of its domestic television deal and the news that PPV revenue will contribute more than expected to the company’s losses, many investors are cutting their losses.  The steep decline in stock price caused an investigation and the possibility that executives will be removed to satiate angry stockholders that saw their portfolio take a huge hit.

Just a few months ago, the WWE stock was trading above $30 and now (at the time of this writing) it’s trading below $11.  The stock has been downgraded by analysts which can’t help foster confidence right now.  Now, analysts will take aim at its network to see if the company can come through with its projections.