Friday, August 02, 2013

WWE 2nd Quarter 2013 Results

Revenue is up but Operating income is down.

Regarding Wrestlemania:
Although WrestleMania XXIX was the highest grossing and second most profitable event in the Company's history, overall profits from WrestleMania (inclusive of the Pay-Per-View, Live Event and other businesses) declined $1.2 million from the prior year as a 15% reduction in pay-per-view buys and increased talent and production costs more than offset the impact of higher live event ticket and pay-per-view pricing

Regarding cost increases in SG&A (Selling, General and Administrative Expenses) increase of almost 6 million...
Compensation and benefit expenses increased approximately $4.8 million with a 10% increase in headcount predominantly to support our various strategic initiatives... The rise in expense was driven by increases in compensation and benefits of $2.4 million, talent development costs of $1.0 million, marketing expenses of $1.0 million, and higher consulting and professional fees. The increases in these expenses were primarily to support our content related initiatives, including the potential launch of a WWE network.

I didn't see anything concrete about WWE Network beyond Vince's general optimistic statements:
We continue to believe that these investments will enhance our ability to create new programs and to distribute all of our content in a way that optimizes its value, through the renewal of key television contracts and the potential launch of a WWE network.”

NOTE: They are in line to have over $500m in revenue this year (only second time to achieve that feat)

That's true. I like to consider their revenue without WWE Studios because that stream is so scattered and doesn't go back so far..

Fiscal Year
FY1995: $87.4M (full year)
FY1996: $85.8M (full year)
FY1997: $81.9M (full year)
FY1998: $126.2M (full year)
FY1999: $251.4M (full year)
FY2000: $379.3M (full year)
FY2001: $438.1M (full year)
FY2002: $409.6M (full year)
FY2003: $374.3M (full year)
FY2004: $374.9M (full year)
FY2005: $366.4 (full year)
FY2006: $400.1 (full year)

Calendar Year
2006: $415.3 (full year - WWE Studios); $214.4M (half year - WWE Studios); 16 PPVs (including ECW's December to Dismember)
2007: $485.7M - $16.0M = $469.7M (full year - WWE Studios); $244.9M (half year - WWE Studios); 15 PPVs
2008: $526.5M - $24.5M = $502.0M (full year - WWE Studios); $278.4M (half year - WWE Studios); 14 PPVs
2009: $475.2M - $7.7M = $467.5M (full year - WWE Studios); $242.1M (half year - WWE Studios); 14 PPVs
2010: $477.7M - $19.6M = $458.1M (full year - WWE Studios); $240.5M (half year - WWE Studios); 13 PPVs
2011: $483.9M - $20.9M = $463.0M (full year - WWE Studios); $249.6M (half year - WWE Studios); 13 PPVs
2012: $484.0M - $7.9M = $476.1M (full year - WWE Studios); $259.3M (half year - WWE Studios); 13 PPVs
2013: $276.3 - $4.0M = $272.3M (6 months); will have 12 PPVs for full year (7 in the back half)

It will be close on whether they'll break $500M not including WWE Studios (formerly WWE Films) revenue. Historically, the first half of the year is about 53% of total revenue, but that's swung from 51% to 55% in the past seven years.

How much does the Rock make for a PPV?

You can try to suss it out by looking at the quarterly PPV costs..
2013 Trending Schedule

Q1 2013 PPV REVENUE: $15.1M / OIBDA: $6.6M / 725,000 BUYS + 20,000 PRIOR PERIOD BUYS = +$8.5M IN PPV COST (OIBDA/REVENUE = 43.7%); 2 PPV events
Q1 2012 PPV REVENUE: $13.5M / OIBDA: $7.9M / 621,000 BUYS + 64,000 PRIOR PERIOD BUYS = +$5.6M IN PPV COST (OIBDA/REVENUE = 58.5%); 2 PPV events

There was a specific mention in the 1st Quarter 10-Q filing about OIBDA* "decreased by 16% primarily due to a $3.3 million increase in talent related expenses."

*) The Company defines OIBDA as operating income (loss) before depreciation and amortization, excluding feature film amortization and film impairments

Rock & Punk were on both RR & EC in 2013. Looks like PPV cost went up about $2.9M year-over-year. Obviously, there is going to be fluctuations with cost due to arena booking, other talent agreements, etc. However, you'll got to assume that The Rock's salary played a significant role, especially since WWE explicitly noted it.

Look at the quarter when Survivor Series 2011 took place and the Rock & Cena teamed up.

Q4 2011 PPV REVENUE: $14.6M / Profit Contribution: $6.4M = $8.2M cost (Profit Contribution / Revenue = 43.9%); 4 PPV events
Q4 2010 PPV REVENUE: $13.8M / Profit Contribution: $8.4M = $5.4M cost (Profit Contribution / Revenue = 60.9%); 4 PPV events

Again, a $2.8M increase in PPV cost. (Rock only wrestled on one PPV in Q42011 as compared to twice in Q12013 so it's not as simple as saying his fee is $2.8M or anything. The quarterly report for Q42011 does note that one reason that profit contribution went down was "increased Pay-Per-View production".)

Brock however is not a percentage deal; he gets $5M for 3 PPVs.

HIGHLIGHT FROM THE CONFERENCE CALL - read the transcript at SeekingAlpha

Brad Safalow - PAA Research
Okay. And then the last question I had was on some of the comments Vince that you made about television rights fees and what you feel would be an appropriate mark-to-market as far as at least doubling. I just want to be clear that you guys are going to be held to that standard I mean that’s based on the contracts in play here we’re talking about $75 million to $100 million of incremental EBITDA if you did in fact double your television rights fees. So I just want to make sure that I understand what you’re saying is that’s what you’re playing for here.

Vince McMahon
I’ll allow you to put a hammerlock on me if we don’t.

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