World Wrestling Entertainment (NYSE: WWE), formerly known as the World Wrestling Federation is on the verge of its best year ever. WWE has a slew of new TV contracts and a revitalized XFL football league waiting in the wings. WWE’s TV deals are extremely valuable, helping propel company revenue in excess of $655 million across the first three quarters of 2018.
All in all, revenue is up more than 10 percent from the year prior. Add in the spike in revenue coming through the pipeline thanks to the latest WWE TV deals and the stock is that much more appealing.
Wrestling fans are clearly willing to watch WWE on TV and in-person. WWE’s latest TV contracts increase the previous $130 million shelled out by Comcast by threefold. Comcast had been airing WWE programming on USA Network. This network will retain the rights to air WWE’s uber-popular Raw program, yet Fox will air WWE SmackDown. All in all, Comcast and Fox paid nearly $470 million across five years to air WWE’s programs. The transition will take place in Autumn of 2019.
It appears as though WWE can coast to record revenue, earn a piece of the American football pie and obtain continued exposure across the globe. However, WWE will run into problems a couple years down the line. It is only a matter of time until the company has to renegotiate TV contracts for the all-important United States market. The TV market is of considerable value. WWE’s two primary events, SmackDown Live and Raw, have proven insanely popular with fans and advertisers alike.
WWE will once again attempt to claim part of the American football market with the resuscitation of its XFL football league. The XFL will compete with the NFL, college football and the newly-formed All American Football League (AAFL). The AAFL will likely become a hotbed for budding NFL talent, bringing in the viewers and advertising dollars. In other words, investors interested in WWE should be highly skeptical of the company’s ability to steal a meaningful portion of the country’s football audience.
WWE’s quarterly media revenue is $142 million. TV broadcasting rights fees represent about $65 million of that total. The rights fees figure is set to increase to nearly $140 million each quarter in three years. In comparison, WWE Network quarterly earnings are about $50 million with advertising accounting for $15 million and $12 million coming from other sources. It appears as though WWE’s bottom line is over-reliant on TV revenue. Consider the fact that merely $22 million in revenue is generated from ticket sales. Merchandising, e-commerce sale and various licensing deals pull in $20 million. WWE has clearly failed to diversify its revenue streams. If the TV market were to dry up, the company would be in major financial trouble. Thankfully, it does not appear as though WWE’s TV audience is significantly shrinking. The product is still popular, especially among those who watch on TV.
WWE does a fantastic job of creating 52 weeks worth of unique live content. This is a remarkable feat as most programs run for half the year as opposed to the entire year. There is concern as to whether WWE can expand its audience. Ratings have dropped off a bit, partially because the company does not have an elite superstar. However, anyone familiar with wrestling knows a marketable personality can be easily scripted into a position of popularity. Furthermore, it is certainly possible Fox and Comcast have overpaid for WWE content. Time will tell if ratings stagnate or continue to slowly dissipate. Once the new 5-year deal is up, WWE very well might end up with a shorter deal for less money. Such an outcome would only prove concerning if WWE’s audience shrinks across the duration of the current deal.
WWE executives anticipate revenues stemming from TV airing rights will skyrocket from about $235 million in 2019 to upwards of $540 million by the time 2021 rolls around. This is sweet music to investors’ ears. If you believe wrestling will continue to grow in popularity, WWE appears to be a solid investment. However, the number of entertainment options continues to expand as improvements in technology are brought to the market. There is no guarantee wrestling will retain its popularity in the years to come. Investors who are confident WWE can win the battle for consumers’ time should consider adding the stock to their portfolio.