Wednesday, March 26, 2014

Fact-Checking Forbes' piece on Vince McMahon

There were several claims made in this article that surprised or befuddled me.  Let's begin:
The shares are flying both because WWE is seeking a new television contract, at more than twice its current rate of $160.9 million

I wish articles could get this right - or at least be more specific. WWE is negotiating their domestic TV contract which was $105.9M in CY2013. Their international TV contracts were $55.0M in CY2013. They've already settled on the UK BSkyB deal which was rumored to be at "three times the previous five year agreement" and starts in 2015 and the Germany deal with Tele 5 which starts in April 2014. I believe they are also working on their TV deal in India (currently on Ten Sports) which has historically been coming up in 5-year increments (2005-2009, 2010-2014) so would likely start in 2015.

...persistent speculation that McMahon, who has never articulated a clear succession plan, might sell the company outright (both Comcast and the Madison Square Garden Co. have been rumored as suitors)

I also wrote about "the 5 types of companies that would want to buy WWE" but I don't believe it's going to happen at all.

Another bright spot: Emerging market revenue has been growing at a 7% annual rate for a decade in countries such as India, Mexico, and even South Korea, to $116 million last year.

That is a baffling claim. WWE made $507,970,000 in revenue in 2013. $391,663,000 was in North America. That's leaves $116,307,000 so apparently they're considering UK, the WWE's "largest international market" as part of the "emerging market revenue". I think it's questionable to consider a market that WWE has been in for more than twenty years to be "emerging".

So, in the past five years, Latin American (Mexico) revenue has dropped from $12.4M to $6.6M, UK was essentially been flat, other Europe/Africa/Middle East (which include India) is down 5%. The only area of growth is Asia Pacific and that's going to be pretty diverse: Japan, South Korea, Philippines, China, etc.
It’s a move that directly endangers both WWE’s PPV revenues ($82.5 million)
Domestic PPV revenue in 2013 was $66.9M. International PPV revenue was $15.6M. Again, since you're talking about the launch of the domestic WWE Network, it would make more sense to differentiate between the two.
In his black-and-red office at WWE headquarters in Stamford, Conn. McMahon stares at a stark reminder of what motivates him. To the left of his desk, mounted on square panels of what looks like scarlet fur, is an enormous dinosaur skull. The fearsome open jaw was a gift from his son-in-law, Paul Levesque, better known to wrestling fans by his nom de guerre, Triple H. And the metaphor isn’t lost on McMahon.

(From the Multi-channel News interview in July 2012)

Or it could be the competition–whether it’s mixed martial arts, the NFL or Marvel superhero movies that are vying for his younger viewers, 21% of whom are under 18.
Their website says 19%. Either way, that sounds right.

Over the past two years WWE has spent $75 million preparing for the launch of the WWE Network, which went live on Feb. 24.
That's an interesting number. At the last conference call they said:
Daniel Moore - CJS Securities, Inc.: Okay, and then lastly and then I will jump back in queue, I know it’s tough to break out but what would be a ballpark range total spend in 2013 on the P&L for the build out our anticipation of the network?
George A. Barrios: We probably had about $12 million that you could directly associate with the network on the P&L, but obviously that doesn’t include the marketing cost, customer services cost, transmission cost and so on so forth that, come about when we go live.
He has been promising fans and investors a WWE Network since 2011, and in that time the vision for it has changed dramatically. It was first conceived as WWE’s version of the MLB or NFL Network. In theory a channel devoted to wrestling makes even more sense than a professional sports league, since, unlike baseball or football, WWE doesn’t have an off-season. (It puts on more than 300 live shows, 52 weeks a year.) But McMahon claims that model was only going to generate an anemic 20 cents per month per subscriber, roughly on par with third-tier networks like MSNBC and Bravo, $0.21 and $0.24 a month, respectively (almighty ESPN commands an astronomical $5.54 a month). So he walked away.
That's the first time I've heard specific numbers for what they would have received. The "Vince walked away" story was covered by the LA Times back in January.
For $9.99 per month (and a six-month commitment) subscribers will have access to more than 130,000 hours of WWE programming, matches that date back to the 1950s. There are also original programming and a “second screen” experience on the WWE app that allows viewers to interact with one another and watch live content during commercials.
There is like 1,500 hours of programming on the WWE Network. The 130,000 hour number is the total amount in their library. Big difference!

Naturally some of WWE’s television partners felt sucker punched by the over-the-top strategy. In advance of the launch DISH Network announced that it was dropping all WWE’s pay-per-views–including WrestleMania XXX on Apr. 6.
I assume this article was completed prior to learning that Dish apparently has relented and will carry WM.
In the end it was Ted Turner. In 2001 he sold the name rights of WCW to WWF for $2.5 million, plus the entire video library of matches. (Today you can watch them all on the WWE Network.)
As summarized by Voices of Wrestling:
McMahon bought the WCW trademarks for $2.5 million ($3.3 million with inflation) and later secured the archived tape library for $1.7 million, bringing the total to $4.2 million which translates to roughly $5.5 million with inflation.
While the WWE has yet to release how many subscribers it has to date, two longtime wrestling observers estimated that at least 250,000 signed up for the service on the first day, which would put the company well on its way to the million it needs to break even.
Wait. Is Forbes talking about what I wrote using the survey data that Bix gathered?
One analyst recently predicted the WWE could even exceed its own goals and acquire 6 million to 8 million subscribers.
WHO IS THIS ANALYST?  God help anyone who is letting this person control their money.

EDIT: It was Robert Routh in a CNN article.  That surprises me a little bit because Routh is a smart guy and has been covering WWE Stock for a very long time.  I once had a conversation with him back in January 2006.
Not everyone is sanguine about those prospects, however. Intrepid Capital Management was WWE’s largest outside shareholder until January 2014, when it sold its 10% stake in the public float at a 100% profit. Intrepid portfolio manager Jayme Wiggins believes the WWE Network will be a tougher sell. The network “is a slam dunk for a die-hard fan,” which Wiggins estimates to be a core of 700,000, “but I don’t think it’s going to be easy for them to get another 500,000.”


- Chris Harrington (@mookieghana)

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