Sunday, May 18, 2014

Key questions for WWE Monday Conference Call

On Thursday, WWE announced a “multi-year strategic partnership” with NBCUniversal Cable Entertainment. While full of the requisite WWE flowery language (USA’s Monday Night Raw & SyFy’s Friday Night Smackdown are “ratings juggernauts” and “longest-running weekly episodic entertainment programs on cable TV”), the press release was noticeably light on deal specifics.
Shortly after the New York Stock Exchange (NYSE) closed, the company also released a “Business Outlook” for 2014-2015. This document offered near-term financial projections including the first real insights about the size of the new domestic Television Deal. However, the information on the “key content agreements” wasn’t broken out into U.S. and international (UK/Thailand/India) TV Rights. Instead, everything was agglomerated into a curious chart promising that new “multi-year distribution agreements that became or will become effective in key countries in 2014 or early 2015” would be approximately $200M. Analysts and investors crunched the numbers, and arrived at an estimate that the new NBCU domestic television agreement (for Raw & Smackdown) was worth approximately $150M/year. That represented about a 50% increase. The Wall Street Journal succinctly summarized the situation: “generous but well short of what Wall Street had come to expect.”
The overnight market reaction was brutal. WWE stock plummeted in after-hours trading and opened Friday morning down at 45%. The stock dropped from nearly $20/share before the deal was announced on Thursday to $11/share when the NYSE opened on Friday morning. For an announcement that WWE had hyped up for months and with the specter of a huge “live sports” money contract, WWE failed to deliver on their implied promises they’d achieve “double or triple” their current domestic rights fees. Forbes, Fortune, WSJ, LA Times, MarketWatch, Sporting News, Reuters, Businessweek, Time – all wrote articles on WWE’s stock woes (often with the incorrigible wrestling puns – “Stock Slammed!”, “Smackdown!”, “Shares Get Body Slammed” and “WWE is Taking a Beating – And Not the Fake for TV Kind of Beating”). WWE needed damage control. Finally, on Friday afternoon, WWE announced that they would host a “Business Outlook Conference Call” on Monday, May 19 with CEO Vince McMahon and CFO George Barrios.
People have a lot of questions. Hopefully this call will shed some light on the murky financial guidance that has been shared thus far.
Here are the important questions that I hope the WWE will address:
  1. Will WWE clearly enumerate the size and contract lengths for each of their respective TV rights deals (both domestically and internationally)? When will the India TV rights deal negotiations be completed? What is the status of rebroadcast rights?
  2. Given the financial and business consequences of launching the WWE Network, will the company be providing more timely subscriber number updates than just once a quarter? Since they are obviously a key to WWE’s long-term financial health, why aren’t they reported as part of the monthly “Key Performance Indicators”?
  3. Will WWE provide clear accounting for the cost structure of the WWE Network including start-up costs and marketing (including “free trial” and “refer-a-friend” enticement programs)? Will they provide additional details regarding revenue splits along including the relationship with MLBAM?
  4. Is the Global launch of the WWE Network confirmed for all listed countries (United Kingdom, Canada, Australia, New Zealand, Singapore, Hong Kong, Nordics) by “end of 2014” as implied in the latest Business Outlook press release?
  5. Will WWE respond to allegations that their “WWE Fan Households” consumer research resulted in an absurd worldwide inflated estimate of “77 million homes” with “affinity for WWE content”? How do they reconcile their numbers with the much lower number of weekly television viewers or other independent estimates by ESPN or Scarborough Research?
  6. What are the latest estimates for domestic Pay-Per-View retention based on the “Extreme Rules” event? How many traditional buys did the event receive? Does WWE have an estimate of how many DirecTV and Dish Network fans are “stranded” without the ability to purchase WWE PPVs but lacking broadband access to order the WWE Network? Can WWE provide specific PPV numbers for Wrestlemania beyond the general “nearly 400,000 US homes”? Does WWE have an estimate of the overlap between existing WWE Network subscribers and fans that still chose to purchase Wrestlemania via traditional means?
  7. Will WWE respond to the demands by Lemelson Capital for “urgent executive management change” and accusations of “material misrepresentations” concerning the “performance and operating profit model” of the WWE Network? Or the allegations by Shareholders Foundation over “potential securities laws violations”? Or the investigation by Kahn Swick & Foti, LLC into “whether WWE and/or its officers and directors violated state or federal securities laws”?
  8. In light of the recent NBCU deal, does WWE feel they received fair value for their retention of Chris Bevilacqua and the media advisory firm Bevilacqua Helfant Ventures? Will WWE elaborate on the number of domestic TV rights bidders and who was the highest losing bidder?
  9. Can WWE elaborate on the thinking behind keeping Smackdown on SyFy on Friday nights? Wouldn’t the property attract higher viewers either as a live show on Tuesday Night or a taped show on Wednesday or Thursday?
  10. Are there any executive management changes anticipated in light of the stock drop and the results of television negotiations? Will WWE comment on the turnover in the Media Division including the departure of Perkins Miller and Brian Maddox? Will WWE explain the termination of EVP of Programming Matthew Singerman? To replace WWE Network positions, will WWE be changing their focus from recruiting from Television Industry to recruiting from talent from over-the-top services (Amazon, Hulu, Netflix)?
The expectations for WWE’s television rights negotiations were exceptionally high. WWE played the key role in shaping those expectations. While a 50% improvement in domestic TV rights is significant, WWE overplayed their hand in the lead-up and wasn’t able to deliver the mammoth increase they implied was coming. It was dangerous wager and WWE is now in a predicament. It’ll be interesting to hear what they say on Monday to try and fix this messy situation.
Chris Harrington is a pro-wrestling analyst and writer. He publishes exclusive content at and can be reached at for further discussion.
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