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In relation to rumours of WWE cost cutting, i.e not using pyro and re-hashing 3:16 shirts to sell at live events, my question is how? They have over 1million people paying 9.99 a month for their network, they don’t pay PPV royalties to talents any longer and there isn’t a full time HHH, Undertaker, Rock contract to pay. Surely they should be in a really good financial position?
They are in a good financial situation, for sure. But, that doesn’t mean they are in a “really good” situation. A lot of people don’t read and/or understand the financial reports, but for those that do, it’s easy to see where the money is coming from. One common way to do that is look at OIBDA (Operating income before depreciation and amortization). When you look at where the cash is coming from, Television Revenue is far and away the number one source. Live Events is second, while WWE Network comes in third. If you add the Network and Live Events revenue together, they are well off what TV does by itself. That’s why we are at a point where PPVs often are done to set up Raw and/or Smackdown. TV Revenue is the main source of OIBDA for WWE.
What that tells you is that while 1.63M paid subscribers (their average number of subscribers for quarter two) grosses about $16.3M a month, the costs to produce the Network eat a lot of that gross up, leaving far less net. The fact of the matter is that WWE is using that monthly money to pay for a full time Network and all of the programming that airs on it. There is a significant cost to that. For the second quarter of this year, The Network grossed $54.9M. TV Revenue did $66.2M. For that quarter the Adjusted OIBDA for the Network was just $3M. For the first six months of the year, it’s $17.3M.
Contrast that with the old days of PPV. If I remember correctly, the last WrestleMania I bought was $70. WWE got 40% of that, or $28 a buy. Those shows always did over a million buys, but let’s just go with the one million buy number (since some were overseas buys at lower rates). That means WWE would generate $28M dollars off of one event in the old days. From that show alone the OBIDA would have been over the number that WWE is at for six months this year.
Why? Because they would have none of the other expenses that go with carrying the Network. If they did 13 other PPVs and they averaged 250,000 buys at $55 per show, WWE’s cut was 22 dollars. That would be $5.5M a show to them. Over 13 events, that is $71.5M. Add that to the $28M from WrestleMania and you are right around $100M in PPV revenue (and they were always actually over that number before the Network).
So, you look at $195M from the Network vs. $100M from PPV and the gut instinct is that things are better now. But that would be shortsighted. When you consider that PPV money was generated solely off of 14 one time events, they costs associated with PPV are so much lower they actually got more OIBDA from PPV because of the costs involved with programming and maintaining the WWE Network. As we see above, most of that $54.9M was eaten up in costs in the second quarter.
With that said, they made the right call in taking things in house in my opinion. They now have an established product that they control completely. The PPV model is getting more and more antiquated as time goes by (and let’s be honest, stealing PPV programming is also a big issue). They can raise the price of the Network if they feel they need to, and it’s still a great value. Plus, if they improved the booking and character development there is no reason to believe that they wouldn’t create more Network interests and revenue.
And now, they have an option to move their TV programming in house if a good TV deal doesn’t come along (though I don’t think that would be a great idea, given how much revenue they generate and keep from TV).
Also, Cena and Brock Lesnar get top guy money. Randy Orton does very well, as do others. The roster is also very large, not to mention 205 Live and NXT, as well as the various tournaments. That all costs money. A lot of it.
Another factor any business considers is “bang for the buck” spent, and yes I get that I made a pun there. Do they get back what they spend for pyro? If they don’t think so, when they are in belt tightening mode, it will not make the cut.
There is something else to consider. In some financial circles there is a feeling that after UFC just sold its company for a reported four billion dollars, WWE could also be in the exploratory stages of doing the same thing. If they are, cutting the fat would make perfect sense as companies looking to make that kind of move often do so to make the company as attractive as possible to investors. Is WWE doing that? Time will tell.
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