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WWE makes huge bet NBC will submit to its financial demands

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WWE makes huge bet NBC will submit to its financial demands

Professional wrestling may be officially considered “sports entertainment” (read: not a real athletic competition) but the dollars being generated by World Wrestling Entertainment (WWE) are as real as it gets. Over the next few months WWE co-founder and CEO Vince McMahaon is attempting a couple high-risk maneuvers that could either send his company into to stratosphere or end in disaster.

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First and foremost there’s the WWE’s deal with Comcast’s (CMCSA) NBCUniversal. A 5-year old deal between the two companies expired over the weekend and the sides are reportedly still way apart on terms for a new deal. Last year WWE valued its workwide TV deals at $140 million per year. According to the LA Times the company is looking for something closer to NASCAR which recently signed a deal paying $8.2 billion over 10-years.

 

The numbers

On the surface such a demand seems crazy. Once you dig into the numbers it starts to sound like a pretty good deal for NBC. It’s all about the ratings. NASCAR drew an average of 5.8 million viewers for its 36 Sprint Cup which were broacasted on ESPN, Fox and TNT. By comparison WWE draws almost 5 million viewers every week for its Monday night Raw show on USA and 3.2 million for its sister Smackdown program on the Syfy network.

Ex-Smackdown the most viewed show in the history of the Syfy Network was a repeat of “Sharknado” with 2.1 million wachers. NBC may not like it but they need the WWE more than the WWE needs them. The WWE is free to go deal shopping but NBC has until September 30th and that’s assuming the wrestling giant doesn’t choose to go it alone.

McMahon’s hedge

Vince McMahon has never been afraid of a fight but even by his standards he’s got a lot on his hands these days. In addition to the contract negotiations with NBC, WWE is in a dispute with DirecTV (DTV) over the WWE’s new online network which launches February 24th. The company has spent more than five years and $40 million developing the service which will offer all new WWE programing as well as every pay-per-view event of the year for $9.99.

Going online may seem absurd given the money at stake with Comcast but the WWE seems unconcerned. “This gives us control of our destiny and a better user interface,” says the company’s chief revenue and marketing officer. “We think it’s the future.”

It better be. If the WWE is able to get NASCAR money annual TV revenues could jump from $140 million to more than $800 million per year. More realistically a triple in annual payments seems well within reason given the WWE’s drawing power and NBC’s need to bring an audience to its more obscure channels. That could mean an additional $280 million to the top line; an astronomical bump for a company analysts expect to have $560 million in revenues next year.

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The market

World Wrestling Entertainment may be public but it’s still Vince McMahon’s baby. That can lead to some tensions as happened shortly after the company’s 2000 IPO when McMahon famously responded to questions about his failed attempt to take on the NFL with a terse “Wall Street can kiss my ass.”

The relationship has warmed considerably. Shares of WWE have tacked on 163% in the last 12 months, largely in anticipation of a successful television negotiation. The Internet may be the future of broadcasting but at only $9.99 a month it’s going to take a massive number of subscribers to make up the difference in lost revenues should NBC or other networks fail to meet McMahon’s price.

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