WWE Q4 2019 Preview
Vince McMahon to address investors 1 week after exit of co-presidents
by Brandon Thurston
My predictions for WWE Q4 tomorrow are below. I’m estimating reporting lower than the Zacks Consensus Estimate of $334 million in revenue and an EPS of 71 cents.
Revenue by segment predictions:
- Network+PPV: $42mm
- Core content (Raw & Smackdown TV rights): $88mm
- Other media (KSA, reality TV, WWE Studios, possibly NXT): $72mm
- Advertising & sponsorship: $22mm
- Live events: $27mm
- Product licensing: $17mm
- Venue merchandise: $4mm
- eCommerce: $10mm
- Total revenue: $283mm
- Op income: $72mm
- Net income: $54mm
- EPS: $0.61
Other key metrics:
- Domestic average attendance: 4700
- WWE Network average paid subscribers: 1,430,000 (WWE’s projection)
- Live event operating income: -$3mm
Full year 2019 predictions:
- Revenue: $921mm
- Net income: $62mm
- Operating income: $89m
- Total worldwide paid attendance: 1.50mm
WHY ARE WILSON AND BARRIOS OUT?
WWE issued a press release last week, stating co-presidents George Barrios and Michelle Wilson were leaving the company, citing differences in vision. My feeling is there are likely a number of factors that contributed to the decision to remove Barrios and Wilson, and that it was something that developed quickly and probably mainly at Vince McMahon’s volition.
The timing of their exit being near the earnings report tomorrow (perhaps putting additional pressure on the stock) and the XFL season beginning on Saturday (perhaps putting more stress on Vince’s time) suggests it escalated quickly.
I’m predicting a miss versus consensus on revenue and EPS. Given the strong financial outlook WWE had for the full year, falling short of those goals may have been a factor.
Other possible factors…
- Difficulty finalizing top international TV deals at the timeline and value expected: UK, India, MENA. I believe the deal with BT Sport is a slight downgrade from the previous deal with Sky.
- No news yet on deals with Sony in India or KSA-owned MBC in MENA. Was the MBC deal causing tension on the KSA event deal or vice versa?
- Other analysts suggested there were disagreements between the sides about reinvestment and that Vince favors a more aggressive approach which would result in lower reporting in profit metrics.
- AEW competition pressure. AEW and WarnerMedia recently announced a deal to extend their agreement through 2023 with an upgrade in payment to AEW. Does McMahon want to spend more, possibly on the NXT brand that AEW goes head-to-head with, to compete with AEW?
- Creative tension? Did Barrios and Wilson come to believe that McMahon’s involvement in creative is a detriment to WWE economics?
- WWE Network stagnation. When the service was introduced in 2014, WWE projected a goal of 3–4 million subscribers. Paid subscriptions have now plateaued at about 1.5 million, or peaking near 2 million around the time of Wrestlemania.
- Other wrestling companies are still using traditional and digital forms of pay-per-view with higher price points, the model WWE jettisoned in favor of a $9.99 monthly subscription model.
- I’ve often considered that, in hindsight, although it would lower the ceiling for streaming subscriptions, optimal profitability would be achieved if Wrestlemania and possible 2–3 other major peak events were offered exclusively on PPV.
- It’s likely Barrios and Wilson were proponents of the decision to put all PPVs on the Network. In light of disappointing subscriber performance, is Vince have some regret about this decision?
- Live Events profitability. Vince said in April the division would be “reimagined”. WWE’s latest event listing shows they will be running fewer non-televised events (“house shows”).
- Less likely but possible: Tension related to the XFL lawsuit and possible class action. According to a complaint filed in the Delaware court, a small investor (Oklahoma Firefighters Pension and Retirement Fund) is demanding records from WWE. They’re suspicious WWE transferred the XFL IP and ongoing support services of WWE employees to Vince’s Alpha Entertainment LLC (XFL parent) at a rate below fair market value.
SOME QUESTIONS FOR TOMORROW’S WWE CONFERENCE CALL
Audio will stream live at 11am ET at corporate.wwe.com. Financial analysts will ask questions after opening statements, probably from Vince McMahon and maybe interim CFO Frank Riddick.
- Any additional explanation on why Barrios and Wilson have left the company? What were the differences in vision alluded to? Did they quit or were they fired? Why did both exit simultaneously? Who’s replacing them on the board of directors?
- Is there any news on international TV agreements in India or Middle East North Africa?
- Did the new UK TV deal with BT Sport represent an increase or decrease over the previous UK deal with Sky?
- Are there any issues with delayed payments related to the October 31 Kingdom of Saudi Arabia event, as there were for the KSA event previous to that?
- Since the MENA partner MBC is controlled by KSA, is there any tension between the KSA event agreement and the MENA media rights agreement?
- Were there any business lessons learned related to the removal of Barrios and Wilson?
- What kind of background will WWE be seeking in replacements for Barrios and Wilson? Is it important to bring in someone with high-level experience with SVOD?
- Is Vince spending less time on creative since introduction of Raw/ & Smackdown executive director roles? With the XFL restarting on Saturday, is there any update on whether this will affect VKM’s ability to spend time working for WWE?
- Given plateauing of WWE Network subscribers, does the company consider the value of selling PPV events to a larger streaming service? Perhaps that could be rolled into a future media rights deal for Raw and Smackdown.
- With Barrios and Wilson gone, is a new succession plan in place and approved by the board of directors?
- In Q1 2019, the decline of metrics was blamed on talent absences and it was promised talent had returned and metrics would recover. Since, some metrics have not recovered, including Network subs, merchandise sales and event attendance. How does WWE plan to address this?
- Is disappointing performance due in part to star development? Is the loss of John Cena as a full-time participant viewed as a factor? What goes into determining who the next top star(s) are who can drive revenues?
- Does the company research whether a decline in interest in wrestling in general is a factor in recent trends? Or does WWE feel interest in the product depends on cultivation of star power? Or some other factor(s)?
- Wrestlenomics Analyst Brandon Thurston Talks Stock Crash, Q4 Earnings - My discussion with Tony Maglio of The Wrap.
- Wrestlenomics Pro Wrestling Industry Report, Full Year 2019 - My 48-page report on key metrics, analysis and insights for pro-wrestling companies, including World Wrestling Entertainment, All Elite Wrestling, New Japan Pro-Wrestling, Impact Wrestling and Ring of Honor. Considering full year 2019 and prior annual trends.
- Wrestlenomics Radio: George Barrios and Michelle Wilson out as WWE Co-Presidents
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