WWE Shares Down -30% in October, Market Sell-Off, Q3 Earnings and Crown Jewel to Blame

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The WWE share price has declined -30% during the month of October, from $94.22 on October 1st to a closing price of $66.16 on October 29th; the recent market sell-off (S&P 500 -9.5% MTD), uneven 3rd quarter earnings results (revenue +1% YoY, operating income -47% YoY, EPS +32% YoY) and the company’s decision to hold “Crown Jewel” in Saudi Arabia on November 2nd (in the wake of the Khashoggi murder), have all negatively impacted WWE’s market cap. Co-President George Barrios said that despite the short-term headwinds, the company remains on “a path to achieve record revenue, record adjusted OIBDA ($160-$170 million) and record subscribers (to WWE Network) for the full year 2018.” Even after October’s steep regression, shares remain +110% YTD.

Howie Long-Short: Coming off a 2nd quarter where the company grew revenue +31% YoY, Q3 ‘18 disappointed from a revenue standpoint ($188.4 million); declining ticket sales (-16% YoY) for live events (in terms of price and volume sold) and a drop in consumer merchandise sales (-18% YoY) have been identified as reasons for the shortfall. While WWE did post marginal revenue growth in the 3rd quarter, operating income fell -47% YoY (to $18.1 million); accrued management bonuses/incentives tied to 2018 successes explain the YoY drop. A tax benefit gave Q3 earnings a lift.

A couple weeks back, we wrote that despite reports to the contrary, Crown Jewel remained on the WWE’s event calendar and was expected to go off as planned. WWE Chief Brand Officer Stephanie McMahon has since confirmed that will be the case saying the company will “uphold its contractual obligations to the General Sports Authority and stage the event.” While easy to pile on WWE for forging ahead with Crown Jewel, it’s important to remember that they’re a publicly traded company with shareholders to answer to. The PPV quality show is the company’s 2nd in a 10-year, $450 million pact with the Kingdom and a decision to cancel the event would have caused “material adverse impact on ’18 adjusted OIBDA guidance” (and possibly beyond). Fans have been critical of the “business decision” though and WWE shares are down -12.5% since the announcement was made.

On August 28th, the WSJ made the case that WWE shares (priced at $83.75 at time) still had room to run; shares were trading at “around 27 times projected 2020 earnings of $3.08 a share, 25% cheaper than they have been historically on projected earnings two years in the future.” If shares were intrinsically undervalued then, they really are now; WWE is down -21% since.

Fan Marino: While we’re discussing WWE, last Monday night on RAW, Universal Champion Roman Reigns (Joe Anoa’i) announced that he’s relinquishing his title and taking a leave of absence from the company to “focus on his health” as he battles Leukemia. Reigns (33) stepped out of character to address the crowd, sadly informing them the cancer had returned after 11 years of being in remission. Amongst the WWE’s biggest stars, the “Big Dog” made it a point to say that he was not retiring (he plans to wrestle again), but “taking his battle with leukemia public in an effort to raise awareness and funds for research in order to advance cures for the disease.” Here’s to hoping he gets well, fast.

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Saudi Show “Crown Jewel” Remains on WWE’s Event Calendar

Crown Jewel

Despite reports to the contrary, “Crown Jewel” remains on WWE’s calendar of events indicating the November 2nd show in Riyadh, will go off as planned. Political and diplomatic tensions between the U.S. and Saudi Arabia, have driven several high-profile companies to cut business ties with the Kingdom and have brought on calls for WWE to cancel the high-profile show. Sports Illustrated reported that several of the company’s stars are uncomfortable with the idea of performing in Saudi Arabia, citing the country’s “poor record with human rights” as the reason for their apprehension; WWE female stars are still banned from performing in the Kingdom. WWE has not made a formal announcement on the status of the show, but is said to be monitoring the situation. 

Howie Long-Short: If WWE does pull the plug on show, it’ll be a big upset; Dave Meltzer (Wrestling Observer Newsletter) had insisted it would take “State Department” intervention or “Trump himself” for WWE to walk away from this event. Why? “Crown Jewel” isn’t your average house show, it’s the 2nd PPV quality show in a 10-year pact with the Kingdom, worth $450 million, and the decision to cancel the event could torpedo the lucrative deal.

Should the WWE end their relationship with the Saudi’s, they’ll join Endeavor and Virgin as companies that ended profitable deals in the name of morality. Richard Branson has put a halt to the Saudi’s $1 billion investment in Virgin’s space tourism venture, while Endeavor is reportedly terminating a $400 million investment agreement that would have given the Saudi’s a 5-10% stake in the company. Of course, both of those entities are privately held; WWE has shareholders to answer to.

Q2 ’18 was another landmark quarter for the WWE. The company posted record quarterly revenue (+31% to $281.6 million) and reported it had nearly doubled operating income (to $21.2 million) from the prior year quarter; the +31% revenue increase represents the company’s greatest YoY sales increase in 2 years.

In addition to strong financials, WWE reported significant growth in digital engagement; video views rose +58% YoY (to 14.4 billion) and the number of hours consumed watching WWE content across digital/social grew a staggering +71% YoY (to 509 million hours). The company also just crossed the 30 million subscriber threshold on YouTube, a figure that represents a larger following on the platform than that of the NBA, NFL, MLS, MLB, NHL, PGA TOUR and NASCAR combined. While YouTube subscribers don’t directly correlate into dollars, WWE Network subscriptions do; and the company reported paid subs rose +10% (to 1.8 million) during the quarter ending June 30th. The company will report Q3 financials on 10.25.

WWE shares are up +168% YTD, they’ll open at $84.29 on Wednesday 10.17.18.

Fan Marino: The controversy surrounding whether “Crown Jewel” should take place seems to be greater than the demand for the actual event within Saudi Arabia. Originally scheduled to be held in a 70,000-seat venue, tempered local interest has driven the event’s relocation to 25,000-seat King Saud University Stadium.

While certainly no cause for panic (they just signed lucrative long-term broadcast deals for RAW and SmackDown Live), it should be noted that the Monday Night Raw posted its 2nd lowest rating ever against Monday Night Football on 10.1; when just 2.08 million viewers tuned in for the show’s final hour (despite an appearance from Shawn Michaels). The Chiefs/Broncos game posted the highest MNF rating in over a year that evening.

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McGregor Banned from Selling Sportswear with Last Name in Europe

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Conor McGregor has been ordered to halt sales of sportswear bearing his surname following a legal battle that determined the UFC fighter has been in violation of EU-wide trademark law. The Scottish fashion label McGregor, founded in 1921, issued an injunction against Adidas (and subsidiary Reebok) out of concern that consumers would believe sportswear made for the Notorious One was produced by the near hundred-year-old fashion house; the company also does not want potential customers to think it sponsors Conor. Adidas/Reebok, which hold the exclusive rights to McGregor’s line, will be required to withdraw garments sold in Europe or compensate the fashion label. It’s worth noting that the parent of McGregor’s fashion brand, Doniger Fashion Group, filed for bankruptcy for a 2nd time in September ’17; McGregor does not currently operate a working website.

Howie Long-Short: Moody’s credit service indicated that ’17 was the most lucrative year in UFC history, reporting the company generated “well over $700 million”. Even if you take Moody’s mathematics at face value (questionable, considering the UFC had 5 PPVs with 1 million buys in ’16 and 0 in ‘17) and account for the UFC’s newly signed $1.5 billion U.S. broadcast TV deal, Dana White’s claims of a $7 billion valuation seem far-fetched. WWE pulled in more money ($800.96 million) in ‘17, has larger TV deals ($2.3 billion for RAW and SmackDown Live), carries far less long-term debt and yet maintains a market cap of just $6.3 billion.

Fan Marino: In addition to having 0 PPV events with 1 million buys thus far in ’18 (that will change with McGregor fighting on Oct. 6), the UFC has failed to draw on cable television. UFC on Fox 30 (July 28, 2018) was the lowest rated (1.0) and least-watched (1.68 million) MMA telecast ever broadcast in primetime, surpassing previous lows set in January (UFC of Fox 27). The ratings for the main event (Dustin Poirier vs. Eddie Alvarez) declined 20% from the promotion’s July ’17 card and they tied a series low within the 18-49 demo (0.6 rating).

Speaking of the McGregor/Khabib fight, TicketIQ is reporting that UFC 229 is the 2nd most expensive UFC ticket since at least ’10. The get-in price is $729. Only UFC 205 (McGregor vs. Eddie Alvarez) cost more ($768) to walk in the door.

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Pro Wrestling Business Experiencing Boom

The pro wrestling business is experiencing a boom, as evidenced by the newly signed U.S. broadcast television deals for WWE “Monday Night RAW” and “SmackDown Live” (worth $468 million/year), the scheduling of the largest indie wrestling event ever on September 1st (“All In”) and the news that Ring of Honor and New Japan Pro Wrestling sold-out (18,500 seats) Madison Square Garden for their “G1 Supercard” in April ‘19; the first wrestling show at MSG without a McMahon promoting, since 1960. The next marquee event on the wrestling calendar is WWE SummerSlam, Sunday Night in Brooklyn. Brock Lesnar and Roman Reigns are the main event; Ronda Rousey will take on Alexa Bliss for the WWE RAW Women’s Championship. Fans around the world can live-stream the event on WWE Network, August 19 at 7pm ET; there is a 30-day free trial period for all subscribers.

Howie Long-Short: Q2 ’18 was another landmark quarter for the WWE. The company posted record quarterly revenue (+31% to $281.6 million) and reported it had nearly doubled operating income (to $21.2 million) from the prior year quarter, news that sent share prices to a new all-time high ($85.93) on Thursday July 26th. The +31% revenue increase represents the company’s greatest YoY sales increase in 2 years.

In addition to strong financials, WWE reported significant growth in digital engagement; video views rose +58% YoY (to 14.4 billion) and the number of hours consumed watching WWE content across digital/social grew a staggering +71% YoY (to 509 million). The company also just crossed the 30 million subscriber threshold on YouTube, a figure that represents a larger following on the platform than that of the NBA, NFL, MLS, MLB, NHL, PGA TOUR and NASCAR combined. While YouTube subscribers don’t directly correlate into dollars, WWE Network subscriptions do; and the company reported paid subs rose +10% (to 1.8 million) during the quarter ending June 30th. Co-President George Barrios said the company plans on growing its international subscriber base by adding more localized content and languages.

WWE shares are up +/- 275% over the last 12 months, closing at $79.01 on Thursday. Concerned the WWE trades at too high a multiple (60x ’19 earnings estimates)? Consider the company trades at less than 25x ’20 earnings projections.

New Japan Pro Wrestling is owned by the Japanese card game company Bushiroad (privately-held). You can play the promotion via the Japanese television network, TV Asahi Holdings (trades under the ADR THDDY) or the Japanese music artist management company, Amuse, Inc (TYO: 4301). Both are minority shareholders. Ring of Honor is a subsidiary of the Sinclair Broadcast Group (SBG).

Fan Marino: The WWE recently announced it will host the company’s first all-women’s PPV event, entitled Evolution, on October 28th. The event, which will be live streamed on the WWE Network, will feature more than 50 female competitors from Monday Night Raw, SmackDown Live, NXT and NXT UK rosters. While current stars like Sasha Banks and Ronda Rousey are sure to be in attendance, so too are WWE Hall of Famers Trish Stratus and Lite; both already confirmed to be participating.

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WWE Posts Record Quarterly Revenue, Renews Australian Broadcast Partnership

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Less than a month after the WWE announced U.S. broadcast deals for Monday Night Raw and SmackDown Live (worth $468 million/year), the wrestling promotion renewed its partnership with Foxtel for a 19th consecutive year. The newly signed pact ensures the WWE’s two highly-rated weekly cable shows (and PPV events) will continue to air live in Australia, but also gives FOX8 the rights to re-air Raw and SmackDown in prime-time on Tuesday and Wednesday evenings; Foxtel will carry one-hour versions of each program, in primetime, each week on Fox Sports and will make the shows available on demand following the initial broadcast. Financial terms of the deal were not disclosed.

Howie Long-Short: When the WWE announced their U.S. deals in early July, we wrote “WWE isn’t done yet either, broadcast deals in 5 of their 6 largest international markets are also coming up for renegotiation. It’s now projected that the company’s 7 largest TV deals in aggregate will grow from $235 million in 2018 to an average of $542 million by 2021.” The 7 markets I was referencing were the US, UK, India, Canada, Latin America, Middle East and South Africa, so, any revenue coming from the Australian market would be on top of that figure.

Q2 ’18 was another landmark quarter for the WWE. The company posted record quarterly revenue (+31% to $281.6 million) and reported it had nearly doubled operating income (to $21.2 million) from the prior year quarter, news that sent share prices to a new all-time high ($85.93) on Thursday July 26th. The +31% revenue increase represents the company’s greatest YoY sales increase in 2 years.

In addition to strong financials, WWE reported significant growth in digital engagement; video views rose +58% YoY (to 14.4 billion) and the number of hours consumed watching WWE content across digital/social grew a staggering +71% YoY (to 509 million). The company also just crossed the 30 million subscriber threshold on YouTube, a figure that represents a larger following on the platform than that of the NBA, NFL, MLS, MLB, NHL, PGA TOUR and NASCAR combined.

While YouTube subscribers don’t directly correlate into dollars, WWE Network subscriptions do; and the company reported paid subs rose +10% (to 1.8 million) during the quarter ending June 30th. Co-President George Barrios said the company plans on growing its international subscriber base by adding more localized content and languages.

WWE shares are up +268% over the last 12 months, closing at $77.60 on Wednesday.

Fan Marino: The WWE recently announced it will host the company’s first all-women’s PPV event, entitled Evolution, on October 28th. The event, which will be live streamed on the WWE Network, will feature more than 50 female competitors from Monday Night Raw, SmackDown Live, NXT and NXT UK rosters. While current stars like Sasha Banks and Ronda Rousey are sure to be in attendance, so too are WWE Hall of Famers Trish Stratus and Lite; both already confirmed to be participating.

Speaking of Hall of Fame wrestlers, Hulk Hogan was recently reinstated by the WWE into their Hall of Fame after a 3-year suspension (racism). While that news does little for me (I don’t want to watch 64-year-old Hogan wrestle), whispers of the Rock’s potential return at WM35 are thrilling. It would only be fitting that the biggest mainstream star in the organization’s history would headline the marquee show.

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SmackDown Live Moving to Fox Network Television, WWE Signs $1 Billion Agreement

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Fox Sports has confirmed reports that the Fox broadcast network (FOXA) will be the home of WWE SmackDown Live, effective Friday October 4, 2019. The 5-year deal, worth an estimated +/- $200 million annually, gives Fox exclusive rights to the “2nd-longest running weekly episodic cable television show in U.S. prime time history” (Monday Night RAW is 1st). By signing with Fox, the show will move from cable to network television; though it will air on Friday evenings, the least watched television night. In related news, USA Network has announced that is has renewed its contract with the WWE to retain the exclusive broadcast rights to Monday Night RAW.

Howie Long-Short: This isn’t news as much as it is confirmation for JWS readers, as we first wrote of the deals back on May 22nd. Come 2019, Monday Night RAW and SmackDown Live will generate 3.6x ($468 million/year) what the company currently brings in ($130 million) for its 2-weekly prime-time shows. WWE isn’t done yet either, broadcast deals in 5 of their 6 largest international markets are also coming up for renegotiation. WWE now projects the company’s 7 largest TV deals in aggregate will grow from $235 million in 2018 to an average of $542 million by 2021.

The formal announcement of the Monday Night RAW and SmackDown Live deals sent WWE shares up +9.5% last week ($72.82). WWE is up +67% since the news first broke in mid-May and has grown +260% over the last 12 months. Of course, WWE is having success on both the television and streaming fronts; reporting WWE Network (OTT platform) paid subs grew 5% to 1.56 million in Q1 ‘18.

Fan Marino: Vince McMahon has committed to spending $500 million, not the $100 million originally reported, on the XFL over the first 3 years. Players (40 man rosters, +/- $75,000 salaries), coaches and a “broad-based insurance plan” (cost min. $10 million/year) are expected to be the biggest expenses. The league is scheduled to debut in February 2020. While $500 million will give the league some runway, I simply don’t think the competition level will be good enough to give it staying power; and if a wave of top high school prospects decided to forego college to pursue pro careers in the XFL, the NFL would simply renegotiate their CBA to enable HS prospects to enter the 2021 draft. The current NFL CBA expires following the 2020 season. It’s worth noting that WWE shares are up 117% since Vince sold $100 million worth in January, money he’s using to fund the startup league.

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ESPN to Pay $1.5 Billion for UFC Broadcast Rights

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Just two weeks after ESPN agreed to purchase the rights to broadcast 15 UFC events annually for $750 million, the company acquired exclusive linear broadcast rights to the MMA promotion’s cable television package. The newly signed deal, worth $150 million annually, will give fans 27 additional fight cards each year (consisting of 10 new linear cards, 12 PPV prelims on linear, and five new OTT cards); meaning ESPN will pay a staggering $1.5 billion to carry 210 UFC events over the next five years. Earlier this week, ESPN President Jimmy Pitaro called the UFC an “ascendant property”, while touting its young and diverse fan base. It must be noted that despite the $300 million ESPN will pay UFC annually, UFC will retain the rights to its 12 annual PPV events (i.e. their best content). 

Howie Long-ShortWe told you that once the WWE SmackDown Live deal with FOX was completed, UFC’s linear broadcast offering would be the next set of sports rights to fall. What we didn’t project was ESPN (DIS) acquiring them after spending $150 million per year on digital rights for ESPN+ and hearing that Fox Sports had increased its bid to $175 million/year for the package (up from $165 million). UFC may have left some money on the table to do this deal. Experts projected the linear package to draw $200 million and several networks (i.e. Turner, NBC, Fox Sports) reportedly had interest.

$1.5 billion for UFC cards between fighters no one has ever heard of (yes, that’s a bit of hyperbole) does not sound like a great investment. The UFC lacks mainstream star power to begin with and naturally the promotion places its biggest stars on PPV cards (which they’ll retain); meaning the cards appearing on ESPN & ESPN+ won’t include Connor McGregor (or any other mega star) anytime soon. Did I mention Fox Sports’ ratings for UFC events declined double digits in 2017?

Need reasons to believe ESPN made a wise investment? UFC has the youngest fan base in sports (median age 40). Males aged 18 to 34 are particularly valuable to advertisers and at $150 million annually the package is still cheaper than what NBCUniversal and FOX will pay for RAW and SmackDown Live.

Fan Marino: I’m certainly not surprised that WWE content is valued more than UFC content, as WWE has a far better business model. WWE stars headline tentpole events (like WrestleMania) and more than 500 other shows each year, so fans get to see their favorite Superstars on a weekly basis. UFC’s biggest names might fight twice a year and are always one fight away from never headlining another event, either because they’ve lost their sense of invincibility (see: Rousey) or because they’ve made so much money that getting punched in the face for a living no longer makes sense (see: McGregor). UFC promotion can also be limited by the outcome of fights, as the best fighters aren’t always marketable (see: Stipe Miocic). You’ll never find WWE in that situation, as career arcs are decided before the Superstars get to the ring.

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WWE Gets $1 Billion for SmackDown Live, Shares Up 33% in Last Week

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21st Century Fox (FOXA) has agreed to a 5-year deal worth more than $1 billion for exclusive broadcast rights to WWE’s SmackDown Live show. Effective October 2019, the 6th highest rated original show on cable television will move from USA Network to FOX’s over-the-air TV network. FOXA plans to move the Tuesday night staple to Friday evenings and will continue to broadcast the 2-hour show live. WWE reportedly chose the FOXA bid despite a larger offer, as “new Fox” committed to promoting the show during tentpole sports broadcasts (think: NFL on Sun, NFL on Thurs, MLB, CFB). NBCUniversal, the show’s current rights holder, declined their right to first refusal to negotiate a new contract after deciding to retain WWE Monday Night RAW with a deal worth $240 million annually; that show will continue to air on USA Network. Combined the new deals are worth +/- $445 million annually, a +/- 145% increase on the $180 million/year that the company currently brings in for the 2 prime-time shows.

Howie Long-Short: We noted in yesterday’s newsletter that Fox was among the favorites to land the WWE franchise and should it do so, was likely to air SmackDown Live on its Big 4 network; so, we weren’t exactly shocked by Monday’s news. The deal’s total value had us doing a double-take though, as earlier reports pegged the show’s value at +/-$110 million/year (up from $30 million/year on deal signed in 2010). WWE shares rose again on Monday, closing +12.5% (at $57.86); the stock is up 33% since last Wednesday’s close (RAW deal broke Thurs.) and a whopping 192% over the last 12 months (from $19.80).

The next shoe to drop is likely to be UFC’s linear cable broadcast package, with 20+ live events. FOXA currently pays $165 million annually for exclusive broadcast rights, but that deal expires in December. While earlier reports indicated that FOXA would let the UFC walk if it successfully acquired WWE rights, it now appears as though the company wants to retain the rights and is willing pay an extra $10 million/year ($175 million) to do so. Of course, it’s no guarantee that will be enough, as industry experts have been expecting the UFC’s deal to fetch $200 million+.

Fan Marino: There is the possibility (if not high probability) that SmackDown Live will outdraw RAW during the deal’s duration. While RAW currently draws 3 million viewers (compared to SmackDown Live’s 2.59 million), SmackDown Live’s pending move to FOX will put the show in 30 million additional homes on a night with far less competition in terms of programming.

For those who don’t follow the WWE, SmackDown Live was historically an inferior product to RAW (even taped at one point). However, a 2016 draft split the company’s talent roster, requiring fans to watch both shows to see all their favorite superstars. Should SmackDown Live begin to outdraw RAW (as we expect), look for some of the promotion’s biggest names (think: Roman Reigns, Ronda Rousey) to join Miz and AJ Styles on the SmackDown Live roster; the WWE will want the opportunity to put forward its best product on its biggest stage (i.e. broadcast television).

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