WWE Q1 2020 Analysis: Revenue Way Up, WWE Declines To Give Projections Due To COVID-19

WWE, much like the rest of the world, is in the midst of an unprecedented period with the emergence of the coronavirus pandemic.

While the full scope of the economic impact the coronavirus had on WWE’s financials can’t be fully seen in the first quarter, there were still some notable events that took place in the first three months of 2020.

Shortly after the market closed on January 30, news broke that WWE Co-Presidents George Barrios and Michelle Wilson had departed the company, effective immediately. This left the company’s stock to drop by more than 27 percent in the ensuing days and the drop in stock equated to approximately $1 billion in market value.

At the time, the timing of this was very bizarre given that the next week was the release of the company’s earnings report. Even though Barrios and Wilson’s departure left many wondering about WWE’s 2020 outlook and beyond, concerns were raised even more after the cancelation of live events, television tapings across the United States and WrestleMania 36 moving from Tampa’s Raymond James Stadium to the Performance Center.

But that paled in comparison to the news and decisions being made in response to COVID-19. Loss of live events, ticket sales and major cost-cutting measures, which included dozens of employees being released or furloughed, being implemented in recent weeks has affected WWE’s financial outlook for the year.

It became apparently clear that any past projections on the outlook for 2020 became irrelevant when the company said the following on March 12:

WWE has substantial financial resources, both available cash and debt capacity, which currently total more than $0.5 billion, to manage the challenges ahead. The fundamentals of the Company’s business remain strong reflecting the passion of WWE’s fans and the quality of its content. Management continues to believe the Company is well positioned to take full advantage of the changing media landscape and increasing value of live sports rights over the longer term.

The health and safety of WWE’s fans, performers and employees are the Company’s top priorities and management is monitoring the situation closely domestically and internationally.

The potential impact of COVID-19, and corresponding changes in the way WWE operates, may adversely impact the Company’s business including, but not limited to, its live event ticket sales and the sale of merchandise at those events. It should be noted that the Company may be directed to cancel, postpone or relocate certain upcoming events and the number of these changes is unknown at this time. The Company is currently unable to quantify the potential financial impact of COVID-19, but the financial impact to the Company may be material. Accordingly, the Company is withdrawing its previously announced first quarter and full year 2020 guidance due to the increased uncertainty of the financial impact of COVID-19 to the Company.

Despite the financial numbers for this first quarter looking very good for WWE, the company has repeatedly refused to give any hints as to what the rest of the year could look like financially all things being equal. 

Much like 2019’s fourth quarter, one of the motifs from WWE’s side this quarter is the massive revenue increase thanks to the deals the company signed with FOX (to air SmackDown on FOX) and NBC Universal (to continue airing Raw on the USA Network). 

WWE’s Revenue Way Up Compared To Last Year:

Although WWE previously rescinded its projected outlook, the first quarter was still very good to the company, finishing with an Adjusted OIBDA of $77.3 million, far exceeding the company’s original outlook of $60 million to $65 million. 

Revenue-wise, WWE generated $291 million, which is $60 percent higher than revenue generated in the first quarter of 2019, which was $182.4 million. Operating income, WWE was operating at a loss of $6.8 million in the first quarter of 2019 while this year, the company had an operating income of $53.3 million. 

This is all largely due to the lucrative television deals with FOX and NBC Universal that WWE has at its disposal this quarter, something it did not have this time last year. Breaking down the Adjusted OIBDA, this quarter saw WWE get $102.6 million from media deals, which is significantly up from last year’s $28.5 million. 

COVID-19 didn’t affect WWE’s 2020 first quarter too much since WWE started making major changes in mid-March. A bigger impact on this will be reflected in the second quarter with the loss of WrestleMania 36 at Raymond James Stadium as well as WrestleMania Week festivities. 

“Our first quarter financial performance was strong and largely unimpacted by the COVID-19 outbreak. Now we are in the midst of unprecedented times, which require us to be especially nimble, creative and efficient in order to ensure the long-term value of WWE. We are taking precautions to protect the health and safety of our performers and staff as we produce content in new ways, engage fans with a much-needed diversion and operate effectively in this evolving environment,” McMahon said.

WWE’s TV Deals With FOX & NBC Universal Pays Off:

For a brief period weeks ago, Vince McMahon had ordered that its flagship television shows in the United States (Raw, SmackDown, NXT) would be live instead of being taped throughout the day, which raised the collective eyebrows of many due to the massive health risk WWE is putting its workers. 

No matter how many precautions a wrestling company takes, there will always be an inherent risk of someone contracting the virus. It turns out that a WWE employee did test positive for COVID-19 but that employee was not a wrestler and no one on the roster per se has tested positive. 

Still, even with all the potential downfalls some thought WWE would go through, the fact of the matter is the television deals with both FOX and NBC Universal gave WWE plenty of money to work with and more than enough to offset the loss of ticket sales and merchandise for the first quarter and likely through the rest of the year.

WWE’s revenue for the first quarter was up 90 percent year-over-year thanks to the aforementioned television rights deals in the U.S. Between the WWE Network, pay-per-view, core content rights fees, advertising more, WWE finished with $256.6 million in net revenue this quarter, up from last year’s $135.4 million. 

As far as viewership is concerned, Raw took a big hit this quarter, averaging 2.244 million viewers per episode, down 16 percent from the first quarter in 2019, which did 2.659 per episode. It should be noted that only three episodes of Raw took place at the Performance Center and while Raw’s viewership drop was not as bad as the rest of programming on the USA Network (down 29 percent year-over-year), top 25 cable networks were only down six percent.

SmackDown, on the other hand, was up 16 percent year-over-year, but this is hardly any surprise given that this is the first time SmackDown aired on FOX during the first quarter of a calendar year. 

For the moment, WWE will be handling a taping schedule that will include live airings of its flagship television shows and pre-taped episodes for the next couple of months. 

WWE’s Cost-Cutting Measures:

Besides WWE moving WrestleMania 36 to the Performance Center, the biggest news surrounding WWE in the past month is the announcement that dozens of wrestlers, on-air personnel and employees were either released or furloughed. Among the notable names that were released were Kurt Angle, Rusev, Sarah Logan, Zack Ryder, referee Mike Chioda and more. 

This reduction in employee compensation, which also includes top executives cutting their salaries, and headcount is expected to result in monthly savings of $4 million. In addition, the company now has a cash flow improvement of $140 million which mainly came from WWE deferring to spend on WWE’s new headquarters.

For 2020, WWE now estimates total capital expenditures of $40 million to $50 million (as compared to previous guidance of $180 million to $220 million). As additional precautionary measures, management has also temporarily suspended the repurchase of stock under its $500 million program and drew $200 million from its revolving credit facility after quarter-end. WWE believes that with these measures, WWE will have sufficient liquidity, which currently totals approximately $500 million, to manage the challenges ahead.

Still, WWE remains unable to quantify the potential impact of COVID-19 on its business, but the financial impact to the Company may be material. As previously mentioned, the company withdrew its full year 2020 guidance and, based on sustained economic uncertainties, is not reinstating guidance at this time. 

To say that the company is being overly cautious is perhaps an understatement, given there is no real debt to manage and their television revenue largely remains the same. 

Latest On WWE Network Subscriptions and WrestleMania 36’s Social Media Reach:

Total subscribers for the WWE Network at the end of the first quarter was at 1.644 million, just barely higher than last year’s first quarter number of 1.643 million and down from 2018’s 1.681 million. Despite the numbers being very similar, paid subscribers were noticeably down, averaging out at 1.461 million subscribers, which is down from 2019 (1.584 million) and 2018 (1.558 million). However, this is actually within the company’s initial projections that were determined in February at the 2019 Q4 earnings call, which was 1.47 million. 

As for the Network subscriber count for the day after WrestleMania 36, there were 2.098 million subscribers (1.622 million paid and 476,000 on a free trial). This is up from last year’s number which was 2 million total subscribers, but slightly down from the 2.124 million total subscribers that 2018 had. 

During WWE’s 2019 fourth-quarter earnings call in February, McMahon and Interim CFO Frank Riddick discussed the possibility of WWE Network selling content to other major companies. McMahon said during the call that a deal could be completed as soon as the first quarter of 2020. No further details were provided, but there were reports that WWE was talking to ESPN about putting content on ESPN+.

The first quarter of 2020 came and went with no deal between WWE and another major company/platform. When asked on the 2020 first-quarter earnings call for an update on what’s happening with the Network, McMahon and Riddick, both noted that COVID-19 caused a lot of setbacks for everyone.

“The main issue has been, they had their own issues to deal with in trying to respond to COVID-19. We haven’t heard that they had a lack of interest in the property, that’s not the case. We’re excited about the performance of the Network in this environment, it only enhances the value of it and gives us more options. We’re still pursuing a strategic transaction. We would consider anything that would optimize the value of it. We have a plan for the network in absence of doing a deal this year or having it delayed. We continue to be, in this environment, pretty excited by the response we’ve gotten. If there are things we can do to add value to that, we will,” said Riddick.

Riddick did not get into specifics as far as who they were talking to with the Network.

McMahon added, “I think the COVID-19 stuff caught everybody with their pants down. We had a number of individuals who were very interested in our Network. Just when you think you’re getting close, the bottom fell out. We were very close with a number of individuals that really want our Network. On the other hand, we continue to invest in it with a free tier. We’re going to do any number of improvements and different marketing for it. It’s a complete go from the standpoint of not doing anything with anyone else, just doing it right here. If something happens with someone else after COVID-19 is over and they look at their balance sheet, that will happen too.”

As far as the official launch of a free tier for the Network, it was also noted that it could come in as soon as the fourth quarter this year, but beyond that, there was no official confirmation.

WrestleMania 36 was a first in more ways than one. The show took place at the Performance Center, no fans were allowed into the facilities and it was a two-night event instead of the traditional one-night extravaganza. 

From a social media standpoint, WrestleMania 36 was the most social event in the company’s history. WWE set WrestleMania Week viewership records with more than 967 million video views across the company’s digital and social platforms including WWE Network, WWE.com, YouTube, Twitter, Facebook, Instagram, TikTok and Snapchat, an increase of 20 percent year-over-year. Additionally, a record 46 million hours of content was consumed during WrestleMania Week, an increase of 28 percent year-over-year. The event had 13.8 million total social media interactions on Facebook, Instagram and Twitter, up 57 percent compared to last year’s WrestleMania, according to Nielsen Social.

This was to be expected given that there are two night’s worth of social media buzz on the event compared to the past 35 iterations of the event. It would actually be very alarming if the show’s two nights provided the same level of social media activity and engagement as a one-night event.

Live Event Revenue Down, Big Losses Potentially Happening In The Second Quarter:

For live events, revenues declined to $17.5 million from $26.2 million in the prior year quarter primarily due to a decrease in ticket revenue from events in North America. This reduction in ticket revenue was driven by the staging of 49 fewer events, resulting from the company’s efforts to optimize its touring schedule and, to a lesser extent, COVID-19 related impacts. 

Average attendance at these events increased 33 percent to approximately 6,320 while the average ticket price of $53.46 was essentially unchanged from the prior year quarter. There were no Raw or SmackDown events held in international markets during the quarter.

The drop in revenue is best reflected in North American ticket sales, which only saw $15.2 million in sales being made for the first quarter of 2020, down from last year’s $24.1 million. 

The loss in overall ticket sales revenue shouldn’t be looked at too much given that there were less events being held this quarter. What should be watched out for is the second quarter, where the loss in live events will reflect on the company’s finances far more harshly. 

To give an example of what kind of losses to expect in the second quarter, 2019’s second quarter generated $48.8 million in total live event revenue while 2018’s second quarter was $52.3 million. Take into account the operating income for live events in 2018 ($13.4 million) and 2019 ($12.4 million) Q2 and the idea that it’s hard to envision WWE running any live events in the second quarter with paying fans this year, WWE could end up missing out on at least $10 million in live events.

 

Other Notes:

– Although this was hardly addressed, WWE’s stock was a big story for the first month-and-a-half of Q1. The company started the year with its stock at more than $64 per share, the dismissal of both Barrios and Wilson caused the stock to plummet. The stock dropped to $30.44 per share on March 16, nearly $20 per share from a month prior. The company’s stock price has slowly climbed back up and closed at $39.07 per share by 4 p.m. ET on April 23. Once the earnings report was released, the stock price went up after hours, climbing to $43.75 per share as of 7:10 p.m. ET.

– As expected, consumer products were down across the board for this quarter. Venue merchandize sales were at $3.2 million this quarter, down from last year’s $4.8 million. Licensing and WWE Shop sales were also down, resulting in a total of $16.9 million in consumer products, down from last year’s $20.8 million.  

– Regarding the ongoing situation with the MENA (Middle East/North Africa) broadcast deal, there really isn’t a new update, which is still somewhat concerning, but it’s easy to understand why television deals of this magnitude might not get done in a timely manner. 

– On a related note, WWEs next show in Saudi Arabia is totally up in the air for obvious reasons. During the earnings call, McMahon noted that he’s not sure if WWE would be given the green light to do an event in November or December. However, if no show in 2020 happens, McMahon said WWE will tack on that missed show to the back end of the contract with the Kingdom of Saudi Arabia.

– Net Income was $26.2 million, or $0.31 per diluted share, as compared to a loss of $8.4 million, or a loss of $0.11 per diluted share, in the first quarter 2019. Net income in the current period reflected the impact of the finance lease that commenced in July 2019 related to WWE’s new headquarters. Current period results also included $11.5 million in impairment charges related to certain equity investments. Excluding the impact of the equity investment impairment charges, adjusted net income increased to $34.9 million, or $0.41 per diluted share, due to improved operating performance.

– Digital video views increased 25 percent to 9.6 billion and hours consumed increased 15 percent to 344 million across digital and social media platforms.

Tables and graphs provided by WWE, television viewership numbers provided by Showbuzz Daily.