World Wrestling Entertainment (NYSE:WWE) stock highlights the very real importance of not letting your biases impact your judgment. I learned that the hard way. Last year, I wrote a disparaging article about WWE stock.
Later, I followed that up with a muted, but nevertheless bearish, assessment. Both columns turned out to be wrong.
In my defense, I think most (reasonable) people would cut me some slack. We’re talking about scripted events during which grown men – and sometimes women – prance around like idiots, engaging in fake conflicts. Combatants exchange words, and fists start flying. Invariably, out of the blue someone comes running out with a chair.
This is either a scene from Facebook’s (NASDAQ:FB) boardroom discussions or the catalyst for the inexplicable rise of WWE stock price. At least if someone had secretly recorded an executive-level meltdown at the social-media firm, I would understand why watching it would be a guilty pleasure.
WWE? Forgive me, folks, but I just don’t get it.
But I made the same mistake when I initially analyzed WWE stock. Sure, I had hard facts to back me up, such as declining TV viewership. Also, sports-related stocks, such as Manchester United (NYSE:MANU), haven’t historically performed well.
Unfortunately, I didn’t appreciate that the people who care about pro-wrestling tend to be extremely fanatical. Of course, executives at Twenty-First Century Fox (NASDAQ:FOXA) had a much more open mind than I did. They inked a deal to broadcast SmackDown Live on the Fox network , launching the WWE stock price to the moon.
WWE stock price dropped during the market meltdown at the end of last year, but the shares recovered in 2019 with the rest of the market, and WWE stock price is up nearly 24% in 2019.
The WWE Stock Price Will Meet a Flying Chair
As I previously mentioned, World Wrestling Entertainment follows a script. Part of its allure is that audiences don’t know what to expect.
However, if you watch enough episodes of WWE Raw, you’ll soon recognize a pattern. You don’t know who’s going to throw a cheap shot, but someone will. And you don’t know what the weapon of choice will be, but more likely than not, it will be a folding chair.
This is a perfect analogy for what’s in store for WWE stock. I don’t know exactly when the proverbial chair is coming, nor do I know who will launch it. But at some point, the high-flying anomaly that is WWE stock will undergo a correction.
I say this with reasonable confidence because the company is racing against the demographic clock. For any entertainment operation to be relevant, it must attract young people. WWE did exactly that…30 years ago. Currently, it’s reaping the consequences of not effectively courting new viewers.
According to TheSportsDaily.com, the wrestling league is most popular among the 50-plus crowd. Another worrisome factor is that WWE doesn’t genuinely appeal to minorities. As Forbes’ contributor Alfred Konuwa reported, the league has a poor record with black wrestlers. According to one of his embarrassing facts, the last African-American to headline the flagship WrestleMania event was Lawrence Taylor.
I love the original “LT,” but that factoid is simply insane. What Konuwa is saying without saying it is that the WWE is getting whiter, while the nation is becoming browner. Again, this dynamic shows you how out of touch the league is with reality.
Don’t Think About Shorting WWE Stock
After reading about the demographic problems that may soon catch up with WWE stock, you may be tempted to short it. But please take my failures in trying to assess WWE stock to heart: this is a weird stock.
Under any other circumstances, this sports-related stock shouldn’t perform that well. Sports viewership overall has declined, so why should interest in “fake” sports increase? Also, it’s the WWE! I wish I could add some expletives to further express my exasperation.
But there’s one factor you must realize: the league’s core fans have stayed with the program through thick and thin. Yes, they may be grayer, but they’re also far richer. They can afford to plunk down thousands to watch their childhood heroes in person.
So while I’m not crazy about World Wrestling Entertainment, I’ve also learned my lesson. WWE is as terrible as you think it is, and probably worse. But for now, it’s being kept alive by people who love it.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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