World Wrestling Entertainment is in one of its toughest financial spots going into its biggest event of the weekend – WrestleMania. The company will endure but looking at its position from last year, one has to wonder about the direction of the company.
WrestleMania, which is usually a huge financial boon for the city that hosts it, is tape-delayed this year due to the Coronavirus pandemic. This has negated the hundreds of thousands that flock to the event and the millions that tune in to it on PPV or the WWE Network. Based on the past couple years, WWE will lose about $1 million in revenues each in its live event and merchandise sectors.
For the “go home” show on RAW on the USA Network this past Monday, the ratings hit a low of 1.64M viewers in its last hour. Presumably, it was supposed to be the most anticipated as it was the last hour of the show prior to the event. The past couple weeks the company has aired pre-taped promotional packages or matches without a live crowd which has dampened the atmosphere. The spectacle that most fans know as WrestleMania will be less of a display due to restrictions on the amount of people that can be in one place. Without crowd reaction for performers to feed off of, the entertainment will feel like it is lacking.
The changes to WrestleMania falls in line with a company that has been in the midst of a tailspin which includes a decrease in stock price since the fall.
This time last year, WWE stock was close to trading at $90 per share based on the strength of new media deals and a controversial agreement with Saudi Arabia to hold shows in the country. McMahon converted 3.2 million class B supervoting shares into an equal number of class A share on March 27 and sold them for $261 million, or $81.45 each in a block sale. The sale was done to fund the XFL. McMahon, however, has let others run the football business while taking care of the WWE.
The football league started in 2020 to decent ratings and although television viewership fell off as the season went on, the response to the resurrection of McMahon’s league was much better than its initial debut. However, COVID-19 caused the world to shut down and the XFL shuttered for the season and perhaps it may be done a second time.
Despite starting SmackDown on Fox and Interantional television deals which have bolstered its finances, the company has been slipping. AEW, the new challenger on the block, has secured a young demo that is loyal to the new brand on TNT. It is consistently outshining WWE’s NXT on the USA Network each Wednesday. SmackDown has done well with the A18-49 demo since debuting this fall on Fox, but has not netted the overall ratings most had hoped. Monday Night Raw has seen its ratings stagnate which has led many to call for changes with the creative angles for the company.
Prior to its earnings call in February, McMahon ousted two high-level executives in what appeared to be a housecleaning due to lack of meeting profit goals. George Barrios and Michelle Wilson were fired based on “different views” on how to achieve the company’s strategic goals causing investors to worry about the direction that the company was taking.
In late March, McMahon entered into a prepaid variable forward contract which acts as a cash advance from a bank. The move allows liquidity in exchange for McMahon selling shares by March 2024. Morgan Stanley agreed to pay $38 per share for 2.26 million shares. In comparison, just a year ago, he was able to liquidate at $81.45 per share.
The transaction does not affect his voting power within the company as he still retains 25 million or so class B shares. But the move seems to show a need to re-invest in WWE and/or the second season of the XFL.
The lost revenue from WrestleMania will substantially impact revenue this quarter for its live events and merchandise sector. In addition, the trickle-down effect can impact the talent as its unlikely that they will receive a WM bonus this year. Further down the ecosystem, the tourism industry of Tampa, the site of this year’s event, will be greatly impacted not to mention the ancillary shows and autograph signings independent wrestling promotions have for the event. While not a direct impact on the WWE’s bottom line, it shows how the pro wrestling ecosystems centers around the company.
Even with WWE extending its offering of the two-night event on PPV via Fox platforms and through Fite.tv, I don’t see it making up for the amount of money it had expected. With the alternative to use the WWE Network to watch WrestleMania, it would seem that utilizing other avenues for PPVs nonsensical. Even with WWE Network, the platform is seeing a loss of subscribers.
During the last earnings call, McMahon intimated that the company might be in negotiations to sell off the network. However, this seems to have either fallen through or not as far along as originally thought.
The stock hit $99.25 on April 23, 2019 in the one year high but now is near a one year low almost a year later trading at $34.13. The drop is due in part to diminishing attendance at live events, consumer products and losing WWE Network subscribers. At the end of 2019, North American ticket sales had fallen to $93.8 million versus $105.4 million in 2018. Similarly, international tickets sales fell off from $22.3 in 2018 to $19.0 million in 2019.
The saving grace for the WWE has been its shows in Saudi Arabia and lucrative licensing deals for WWE programming.
At the end of year in 2019, revenues decreased 13% to $125.6 million due to lower ticket sales and fewer events. Yet, the held events posted lower than average attendance. In addition, consumer products were driven lower in 2019 due to lower video game royalties related to WWE 2K20.
What it boils down to is that this weekend’s Wrestlemania would have been a revenue producer for the company due to the amount of revenue expected from the weekend’s events. But without live attendance the company will fall further behind.
Like many other businesses, the impact of the postponement and cancellation of events is pile-driving profits. As a publicly traded company, investors may start to wonder whether McMahon should cede the leadership to his son-in-law, Paul Levesque. However, based on McMahon’s iron grip with everything within the company, its hard to think that he’d let up unless he were forced out. The company has faced adversity in the past and McMahon has found a way out of the problems, but how long will investors stick with the owner. Yet a plummeting economy and a downturn in business may force a change in leadership at the top sooner than later.
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