Shares of World Wrestling Entertainment (WWE) are getting bladed by nearly 50% today after the company updated its financial outlook and announced the terms of it's new television rights deal with Comcast's (CMCSA) NBC Universal. Last night the company said it expects its new deal to generate some $200 million in annual revenue. That's a $90 million increase over its prior deal, but no where near the five or six fold increase some investors had been hoping for when negotiations began in earnest last winter.
NASCAR, with TV ratings and customer loyalty comparable to that enjoyed by the WWE, was able to secure a TV deal worth $8.2 billion over 10 years. Vince McMahon had been hoping to convince NBC to pony up similar dollars but network execs simply refused to submit.
WWE didn't help its case with the networks when it moved aggressively into a monthly streaming business in the form of its WWE Network. For $9.99 a month customers are able to stream not just all WWE's original programing, but they also get access to the company's enormous library AND all of the company's monthly pay-per-views. That obviously cannibalizes WWE's other core businesses, but the company had been hoping to make up the difference by locking in huge numbers of subscribers. The product is a hit with consumers but not at the scale needed to offset lost pay-per-view revenues.
Based on numbers WWE broke out last night, the WWE network will need between 1.3 and 1.4 million subscribers to offset lost pay-per-view revenues. It ended last quarter with under 700,000 subscribers, but still says its on track to have a million subs by the end of 2014.
Vince McMahon is an unabashed gun-slinger. While he's also a winner his volatility and willingness to make huge bets is sometimes an awkward fit with Wall Street analysts who prefer a little more predictability. This isn't the first time McMahon's style has hit the stock. When his ill-fated effort to compete with the NFL met with skepticism, McMahon famously invited doubters to kiss his backside. Today Wall Street is returning the favor with a kick in the pants for WWE shareholders. It's a brutal turn of events, but history suggests those betting on McMahon and the WWE disappearing completely are going to be disappointed.
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