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TAKING AN IN-DEPTH LOOK AT LAST WEEK'S WWE FIRST QUARTER EARNINGS CONFERENCE CALL

WWE had their 2019 Fourth Quarter Conference call on February 6.  Here are my thoughts on what went down. As always, thanks for your support of the Elite site.  We appreciate it more than I can tell you.

First, let’s look at what the market thought/thinks. When I woke up and checked the stock around 10:15 am ET (I am on the west coast so it was 7:15 here), it was down about 5 dollars a share.  I hadn’t read the filing yet so I thought, uh oh, that isn’t good.  I read the filing and saw some reasons why the stock was down.  Whenever you say something like this, “Management believes it has the potential to exceed this range, but is unable to provide additional guidance at this time.”, well that will set off alarms in people’s minds.  It’s like saying, “We are working on something big, trust us!”  The problem is, the company had just divorced itself of its Presidents a week earlier, so if I am an investor I am thinking, “Clearly they didn’t think what you were working on was a good thing, so much so that they let it cost them their jobs because they didn’t want to be a par of it, so I think I will take my money are run.”  Then, I checked again at 10:45 am, as I logged into the conference call.  People had bought on the dip and they were back up to being down less than two dollars a share.  Then the call happened and we saw a huge drop, to down more than $6 a share.  Clearly people did not like what they heard on the call either.  Since then there has been more buying on the dip and they have gone up and down.  But they are still down, and that’s after the huge loss from the last week.  Money is not pouring back into the stock and driving the price back up.  If you ask me my take, I would be with the sellers right now.  There is just too much uncertainty around the company.  Between dismissing the Presidents last week and….

Do you think that WWE stock will rebound back to its current heights?  You can go make your wager at betting new jersey now.

The one huge thing that came out of the call.  Often times these calls are really, really boring.  We had those moments (along with some really bad questions being asked, which I will get to later), but the huge news that was heavily implied was that WWE has content for sale to the highest bidder, for the right price.  Now, we know that can’t be Raw and Smackdown, which are contracted through September of 2024 (and for those that missed it, Vince noted that they are under a rights fees deal which he said can’t be lowered) so it was pretty clear that they were talking about Network content, as NXT wouldn’t bring in the kind of bounty he was referring to.  So, you ask yourself, what is on the Network that, as Vince called them, “the majors” would be interested in buying?  Cooking with the Big Show isn’t going to make Netflix break the bank, if you get my drift.  It would seem pretty clear that the Special Events are what would be on the table.  Obviously, the PPVs/Takeover events are the primary draw of the Network so to sell them to another outlet would require a significant amount of revenue.  Looking at the current landscape, Disney’s ESPN+ OTT service, which already has UFC events as well a significant number of other sporting events, would be the most obvious suitor for the shows.  The big question I have is this: If they move the events off of the Network, does it put a silver bullet in WWE’s own OTT outlet?  The big draw of the Network is the PPV events.  Without them, if all of them were removed, I see a significant amount of subscription loss.  In order to make the deal work, the rights fees that they get from any OTT service would have to far exceed what they are currently making from the Network because they will deliver a severe blow to it by taking away the reason most people pay to watch it.  If that happens, they will have to lower the price of the Network because the value just won’t be there at the $9.99 price point.  But with limited means to raise new revenues, which is what investors want to see as the great new money from the recently enacted TV deals is now already priced into the stock, they have to be open to all options.  Vince McMahon stated that negotiations are in advanced stages and said he expects things to come to a head, one way or another, in the first quarter of this year.  Of course, that would be before WrestleMania, which is in Q2, so it would seem that if a change is to be made, it will be before Mania.  Of course, they could also be talking to an OTT about selling a limited number of big events, say the big four PPVs, with the hope of keeping the other shows, and thus most subscriptions to the Network.  For the right price it would be an option worth considering and in the long run would hurt the network less as there would still be an abundance of first run live events there.

Is selling OTT rights to Network content a better option than creating a new tier? Obviously without knowing what is being offered I can’t say definitely but it’s always been my opinion that adding a tier with content from smaller companies from around the world wouldn’t be a huge subscriber draw.  If they could get an ESPN+ to step up and offer big money, that seems to be the best way to go to me.  Vince also entertained the idea of selling ads on the Network, but I don’t see that being a huge revenue addition.  WWE knows how many people watch each show and would have to share that data with advertisers.  That would limit what they could bring in.

The talk of that kind of change to the Network was a bombshell to many back at the office.  I heard from a number of people that found out when we did that moving Network content was potentially in play.  That isn’t how people like to find out news of that kind, but that’s life in corporate America.  It also casts uncertainty in the workplace, which is never fun to work under.  It’s safe to say that a lot of people in WWE are just as curious about where this situation will go as we are.

NXT was oddly ignored. As mentioned above, the analysts that asked the questions left a lot to be desired.  Some had no understanding of the business WWE is in.  Others clearly didn’t read the press release or listen to the previous questions.  One area where they all dropped the ball was covering NXT.  No one asked about the monetization of their deal with USA, even when the subject of increased production costs came up.  No one asked Vince about plans to monetize that brand in any way, despite new revenue drivers being the underlying theme of the day.  They clearly were ignorant to the potential of the third brand.  With that said, at a time when WWE needs to find new revenue sources NXT is something that should be getting more attention.  As I have said before, it’s time to go to USA and get them to pay up for what WWE is giving them every Wednesday night, as TNT did with AEW, as well as take the weekly TV on the road.  If USA won’t pony up, make it clear that as soon as we are able, we will be shopping the brand.  A product that delivers the audience that NXT does will have suitors.  Maybe they can even include the weekly TV show and/or other NXT content in a possible deal with a “major”.  Whatever the case, NXT is an asset that until now has not been monetized the way that it should be.

The analysts are weak.  I could mentioned a lot of things that they screwed up on but I will go with these:

*They should have asked about George Barrios and Michelle Wilson’s exit. Why would I trust my money with or the report of an analyst who didn’t ask why the company went through such a sudden, major upheaval?  That is the kind of the thing I would expect someone who is selling me their opinion to be informed about.  

*They should have brought up the stock price drop and ask what Vince planned to do it about.  If I was investing in WWE and saw over 20% of my wealth drop in a week, I would have asked the man responsible for that happening what he has planned to get my money back.  Then again, two people didn’t realize that the current India deal was included so what should we expect?

*Someone asked why Vince would want to do deals with linear (old school TV) partners when it’s a dying medium.  Uh Einstein?  MONEY.  If Netflix will pay you $200M a year for Raw and Smackdown or you could get almost $500M a year from linear, which would you take?  DUH.

*But, they did ask about whether the XFL would be part of WWE so many times that Vince finally got snitty in his response at the end, and I don’t blame him.  

When asked about AEW….he said exactly what I expected him to say.  We are WWE and we are truly PG.  He gave the 2020 version of the old “smoke filled arenas” bit he used to use.

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