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FORMER WWE STAR LOOKS AT HOW THE STOCK MARKET WORKS & WHY IT REACTED THE WAY IT HAS TO WWE IN THE LAST WEEK

In response to a bunch of friends who have asked, this is a pretty basic overview of the market, how it works and a little explanation (my thoughts) of what happened with the WWE stock these past few days. This is in no way intended to give stock advice and shouldn’t be considered as anything more than my personal opinion of what occurred.

To start, sooner or later every company, including WWE, needs to raise money to open up new offices, replenish warehouses, order new inventory, or expand, etc. In each case, a company has two choices: A -Borrow the money, or B - raise it from investors by selling them a stake in the company itself (issuing shares of stock). In this case, WWE decided to go “public” over a decade ago, turning the company from just being privately owned to one that shareholders (people who buy shares of the company) can invest in. When you own a share of stock, you are a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings. Individual stock buyers rarely think like owners, and it's not as if they actually have a say in how things are done. Even though the company is publicly traded (anyone can buy), the McMahons and a primary group of investors are the majority owners of WWE stock.

It’s that ownership structure that gives a stock its value. If stockowners didn't have a claim on earnings, their stock certificates would be worth no more than the paper they're printed on. As a company's earnings improve, investors are willing to pay more for the stock. Companies pay back their investors in the form of “dividends”. WWE has always paid dividends, (usually I think about .12 - .25 cents a share), which has made it at times an attractive stock to own. A dividend is a cash payment from a company's earnings; it is announced by a company's board of directors and distributed among stockholders. In other words, dividends are an investor's share of a company's profits, given to him or her as a part-owner of the company. Aside from option strategies, dividends are the only way for investors to profit from ownership of stock without eliminating their stake in the company.

Now that we have some basic knowledge of the market and what exactly a stock is, let’s take a look at what happened last week. The groundwork for this massive sell off was actually laid a while back when WWE started looking at a new television deal, a network launch and a few other factors that were occurring (declining revenue streams, shaken investor confidence, etc). Traditionally, from what I’ve seen, the stock trades at anywhere between around $8 -26 a share, depending on that trading day.

When the new TV deal was being hashed out (and that’s one of the main income sources bringing in about 25-30% of total yearly revenue), WWE knew that had a solid product with steady ratings that advertisers would jump at to buy ad time on. WWE gambled that NBC would pay them upwards of twice the amount they were currently getting for the TV rights. This was basically set in stone, promised to investors and forecasts were made. People bought into the stock with the expectation that the value would go up and they would make money.

During this time (over the last year or so), possible alternatives to NBC stations were sought out, but in the end, they renewed with NBC for a lot less than what was promised.

Some folks viewed this valuation as an overestimation, as both the NFL and MLB have TV contracts that networks fight over, in the tune of billions of dollars. The WWE, however, isn’t valued as highly as the other major sports entities when it comes to television rights. That’s a fact. When news of the new deal came out, investors balked at the fact that the WWE was going to be renewing for a lot less and some even felt lied to. I just think it was a case of “best case scenario” that WWE was hoping for. They got a pretty good deal on the rights, just not the great deal that people thought they were going to get when they invested in WWE (a company that was going through a period of slowed growth and declining revenue).

Another factor in the decline of the stock occurred when the first numbers came out for the network. Expectations were much higher than what were initially disclosed. Since its launch earlier this year, the WWE Network has drawn more than 660,000 U.S. subscribers (a lot less than the assumed 1 million that there would be at this point). Last year, WWE reported net income fell to $2.8 million on revenue of $508 million, down from a profit of $31 million a year earlier.

Long-term, the company expects to draw two to three million subscribers, which some investors have questioned, but some of the latest profit guidance reports imply the network's fixed costs will be much higher than expected, which could damage the stock even more.

After seeing all of this, especially cumulating late last week, investors sold off and the company took a major hit. Being that Vince McMahon owns tens of millions of shares, he took a huge hit. The stock had been as high as $27 dollars a few weeks earlier. Last Friday it closed at I believe 10 dollars a share. If you take the (amount the stock $27 x all of the shares owned) and then subtract the new amount (the amount of shares owned x new price of $10) you’ll get a difference of a loss in the hundreds of millions of dollars!!

So, what is going to happen next? Personally, I want to see WWE do well and thrive for years to come. I love the company and the McMahons were good to me. I always thought the true valuation of the stock was around the $13-16 dollar range. I think once the investor jitters calm down a bit, and the network hits 1 million subscribers, things will even out. I think they can get to a million subscribers by this time next year, but I don’t think it will happen by the end of 2014. The television deal will continue to bring in revenue and business seems to be doing well overseas and in certain domestic markets. Long term, the stock seems to be a safe bet. I’d make it part of my portfolio for the dividend alone. The next several months will be a very telling time for the future of the company. Good luck to them.

Mike Bucci performed for WWE as “Simon Dean” before rising in the executive ranks as the head of WWE developmental. Since departing WWE, he has gone on to manage several Woodforest National Bank branches in the Louisville, Kentucky area. Mike appears regularly in the Elite section of PWInsider.com with his audio series "Symonology" discussing his life experiences in pro wrestling.

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