WWE 4th Quarter and Overall 2013 Earnings and Analysis

wweWorld Wrestling Entertainment Inc.’s 4th Quarter Earnings report was released earlier this afternoon, telling an interesting albeit somewhat predictable story of revenue increase with overall profitability down.  WWE is staring record spending in the face, both with the launch of the WWE Network coming down the barrel, and with overall talent and production costs going up considerably.

For me, the biggest stories are in the hard numbers, though, taking away from the mitigating factors of the economy being soft, and traditional television viewership decreasing year-over-year.  WWE’s bread and butter, for years, has been their pay-per-view offerings.  So, let’s have a look at those hard numbers (using the reported “worldwide” buys from all available cable, satellite, and over-the-top providers):

  • Royal Rumble 2012 (483,000) vs. Royal Rumble 2013 (579,000)
  • Elimination Chamber 2012 (194,000) vs. Elimination Chamber 2013 (241,000)
  • WrestleMania 28 (1.22mil) vs. WrestleMania 29 (1.10mil)
  • Extreme Rules 2012 (271,000) vs. Extreme Rules 2013 (245,000)
  • Over The Limit 2012 (172,000) vs. Payback 2013 (198,000)
  • Money in the Bank 2012 (206,000) vs. Money in the Bank 2013 (199,000)
  • SummerSlam 2012 (392,000) vs. SummerSlam 2013 (296,000)
  • Night of Champions 2012 (207,000) vs. Night of Champions 2013 (175,000)
  • Hell in a Cell 2012 (207,000) vs. Hell in a Cell (212,000)
  • Battleground 2013 [unopposed in 2012] (122,000)
  • Survivor Series 2012 (209,000) vs. Survivor Series 2013 (179,000)
  • Tables, Ladders and Chairs 2012 (177,000) vs. Tables, Ladders and Chairs 2013 (208,000)
  • TOTAL (2012): 3.738,000 buys.          TOTAL (2013): 3,754,000 buys.
    DIFFERENCE: +16,000 buys 2013

So, with the added production costs of an additional pay-per-view this year (drawing one of the lowest buyrates in company history), WWE only managed to produced 16,000 more buys than their prior year.  They also absorbed the big-money contracts of The Rock (who wrestled twice in 2013, and appeared on more episodes of RAW than in any prior year since his return), and Brock Lesnar (who, again, appeared on more RAW episodes, and pay-per-views than the prior year).  This should be the cause for, at the very least, some re-evaluation from the corporate office as to how well their pay-per-view offerings are being executed.

Buyer confidence is down.  The final 6 pay-per-view offerings of the year ended with unsatisfactory conclusions, leading to a number of customers requesting (and receiving) refunds, which to the best of my knowledge is the first time that’s ever happened in company history.  The start/stop push of Daniel Bryan has left a number of loyal fans questioning the company’s ability to produce a fresh product that maintains their interest.  Speculation is that frustration with the overall direction of the company is what has lead to CM Punk “taking a sabbatical” (to coin a phrase used by Vince McMahon during the conference call).vkm

While pay-per-view business is down, other business indicators are up.  WWE’s total revenue for the year was $508.0M, up 5% from the past two years.  This was strongly supported by TV/Live Event revenue being up 8% from 2012, totaling $382.3 million, as well as an increase in revenue from WWE.com/WWE Shop/Digital Media (YouTube, etc).

WWE’s profitability within their total revenue was down, attributed to the overall increase in production costs, support of the launching of the WWE Network, increase in wage costs, and benefit costs.  Overall expenses totaled $125.1 million, verses $117 million the prior year.

WWE has some interesting challenges to overcome heading into fiscal Q1-2014.  The launch of the WWE Network will make for a very interesting Q1 investors call in April.   According to WWE financial executive George Barrios, WWE will release the number of subscribers it has acquired for its WWE Network on April 7, 2014, the day after WrestleMania 30, when it feels interest will be highest.  They’re also estimating a net loss of $12-$15 in operating income to cover the launch of the Network, its advertising, technical and customer service expenses.  There is also the possibility  of that number increasing as more traditional cable/satellite providers decide whether or not to continue carrying WWE pay-per-views (Dish Network has decided against carrying them, and beyond WrestleMania 30, all cable/satellite providers currently offering WWE pay-per-view events will be offering them on a month-by-month basis, potentially creating a “now you see me, now you don’t” scenario).  These will be key details to watch throughout this calendar year.

Furthermore, NBCU’s exclusive contract negotiation rights with WWE have expired, leaving WWE the ability to negotiate their television rights with all interested parties.  WWE believes it can double, or triple, its current rights fees with the content it provides, a lofty goal to say the very least.  Leveraging the power of the WWE Network will be key in these negotiations.  Theoretically, if WWE is able to secure a subscription base of 5 million plus within its first year, it could move RAW/Smackdown to its network, keeping all sponsorship/advertising dollars in its pocket, and allowing it the freedom to produce the show(s) as it sees fit, without pressure from the network, or its advertisers.  The thought of not having to answer to a “higher power” is too tempting for Vince McMahon to ignore.

As of this writing, WWE’s stock was trading at $23.99 per share on the NYSE, nearly $16 higher than it’s 52-week low, and less than $1 lower than its 52-week high (and the highest it has traded all week).  Investors are curious of the power the WWE Network has to offer, and aren’t detoured enough by the decrease in profitability to sell.

You can read WWE’s full fourth quarter earnings press release here.