Saturday, January 31, 2015

The Economist's Guide to Analysing Companies (Mookie's wrestlenomics journey to understand $WWE)

One thing I've struggled with is trying to figure out what to do with this blog.


PREAMBLE
The sort of things that I typically post here could be random whims (Mookieghana 400) or calculation metrics (WON HOF Ballot) or information that I want to archive (Buyrates 2006-2014).

I enjoy writing about pro-wrestling, pro-wrestling stats and the financials of pro-wrestling.

Recently, when I've discovered that I can get paid for my articles, I often try to do that when I can dedicate the time to write & publish a piece.

My background is in Economics, Mathematics, Microsoft Excel, Apple //e BASIC. I'm not a professional writer. But one thing I learned from improv comedy was that you become a professional when you're doing something that people are interested in, and part of that process is getting paid to do it.

That's one reason that my stuff ends up being scattered across many website - Bleacher Report, SeekingAlpha, Voices of Wrestling, WhatCulture and F4W/WON - different audiences for different subjects. Before I record a Wrestlenomics Radio podcast, I often write up talking points, facts, and conclusions. Sometimes those mini-pieces end up here.


WWE BALANCE SHEET
I've spent a lot of time examining WWE's annual reports. A lot. 

I've studied their press releases. I've dissected their balance sheet. I've studied their quaterly key performance indicators.

Still, there's a lot of questions I have. How can correlate their current (and projected future) performance to their stock price? What exactly is their break-even point for the WWE Network? How successful or unsuccessful have their various segments been? And so forth.

WWE doesn't always make it easy. They've switched from reporting on Cost of Revenues to Profits to Operating Income to OIBDA. They've reorganized segments and they've discarded projects and launched other complex investments. It's a lot of work just to produce a clean seven years of like-to-like revenues.

I've been trying to figure out how to better answer these questions.
Jason on Twitter suggested Damodaran's class at Stern which has been a great starting point.

Today my buddy Adam and I hunted around Magers & Quinn Bookstore for a good reference and came across Bob Vause's "Guide to Analysing Companies" presented by The Economist. As someone who greatly respects the Economist magazine and has often read and subscribed, it seemed like just the right thing.




Wow. What a find!

So, I'm going to see what I can learn from this book. And I think this blog might be a good place to capture what I'm processing.

QUOTES

from the INTRODUCTION
Financial analysis is as much an art as it is a science.

Never judge a company on the basis of one year's figures... Never judge a company in isolation.

Future expectations of a company's performance outweight its historical track record in determining its stock price

Importantly, Vause notes that "If you cannot understanding what the company does.. it is not a failure of your analytic ability but someone practising corporate legerdemain."
leg·er·de·main
ˌlejərdəˈmān,ˈlejərdəˌmān/
noun
skillful use of one's hands when performing conjuring tricks.
synonyms: sleight of hand, conjuring, magic, wizardry
I really like that phrase "corporate legerdemain". That's a terrific way to discuss WWE's balance sheet.

The real challenge is pinpointing what industry is appropriate to compare WWE against -- are they an Entertainment rights company? Are they a live events company? Are they are TV/Media company?

This is something I'm going to need to think a lot more about. How much show their performance be weighted against competitors who also dabble in the same areas?

Here's Google Finance's comparison companies for WWE:
  • Time Warner (media and entertainment company) 
  • 21st Century Fox (global media and entertainment company) 
  • Walt Disney Company (diversified worldwide entertainment company) 
  • Comcast (media and technology company for Cable and NBCU) 
  • Mattel (designs/manufacturers/markets toys) 
  • Manchester United (operations of professional sports team) 
  • Madison Square Garden (integrated sports, entertainment and media business company) 
  • Take-Two Interactive (developer/publisher/marketer of interactive entertainment) 
  • DirecTV (provider of digital television entertainment) 
  • SFX Entertainment (producer of live events and entertainment content focused on electronic music culture) 
It's considered a "Cyclical Consumer Goods & Services" company in the Entertainment industry.
The Cyclical Consumer Goods & Services economic sector consists of companies engaged in the production of automobiles, homebuilding, household goods, textiles and apparel, as well as hotel, casino, leisure, media and retail operations and services.
What a strange hodgepodge! Cars & Casinos! Textiles & Wrestling!

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