WWE Q2 2020 Analysis: Overall Revenue Affected Due To COVID-19, WWE Network Subscribers Up

WWE, as well as the rest of the world, has had monumental changes in regards to how it operates during the COVID-19 era, resulting in changes to its finances.

While the current coronavirus pandemic started affecting WWE in the first quarter of this year, primarily beginning in March, the company wouldn’t begin feeling the full effect of the pandemic until the second quarter, when they did not run a single event with fans in attendance, including this year’s WrestleMania.

Vince McMahon, as well as WWE’s upper management, have done cost-cutting measures, such as massive lay-offs of WWE talent and employees, in the hopes to remain as profitable as it can be. However, its overall profit margins are largely not going to be affected too much. The loss of live event revenue was largely offset by an increase in online merchandise sales and the nine-figure rights fees WWE receives every quarter virtually guarantees that the company won’t be in any deep trouble for the foreseeable future, barring any massive catastrophe to its business.

Normally, these long-form articles take into account many aspects of WWE’s finances, including live events, but the pandemic has dramatically altered the company’s business operations. With no touring, live events and offline merchandise sales being non-existent, the key aspects of this quarter boiled down to how the increase in media rights offset the lack of ticket sales and merchandise sales.

While this is a good first indication of what to expect in terms of the company's finances in the COVID-19 era, it will take a few more months to see how much the loss of live events will truly affect WWE.

WWE Revenue Down, How COVID-19 Affected Live Event Business And Merchandise Sales:

Revenues decreased 17% to $223.4 million from $268.9 million in the prior year’s second quarter (a 17% drop) primarily driven by decreased sales of tickets and merchandise that resulted from the cancellation, postponement and relocation of live events due to public health concerns related to the COVID-19 outbreak. Net income was at $43.8 million, which was a lot better than some had predicted.

The biggest revenue loss for WWE this quarter comes from the substantial decrease in ticket sales and merchandise due to no fans being allowed into the WWE Performance Center and the touring schedule came to an abrupt halt.

To give an example of how much live event revenue affected the company, WWE’s overall net revenue in that department this year was only $18.5 million, which is way down from this time last year, which was $75 million.

WWE was only able to muster up $1 million in live events this quarter, but that was mainly due to advertising and sponsorship (roughly $300,000) as well as revenue from the sale of travel packages associated with the company’s global live events, and commissions earned through secondary ticketing as well as revenue from events for which WWE receives a fixed fee ($700,000).

Merchandise sales this quarter was very different from how it was last year. 2019’s Q2 managed to generate $7.1 million in sales at events and obviously, the company did not make any money in that manner. The pandemic did result in eCommerce sales nearly doubling this quarter ($12.6 million) from last year’s Q2 ($6.6 millions). The increase in online merchandise sales ended in WWE only having a net loss of roughly $800,000 in Q2 year-to-year.

One thing that has helped WWE offset that loss in live event and merchandise revenue is the increase in media rights primarily due to new television contracts with NBC Universal (allowing Raw to remain on the USA Network) and FOX (where SmackDown now airs) coming into effect last fall. In addition, WWE was able to save up on production costs due to working on a much smaller venue in the Performance Center compared to a 10,000+ seat arena on a weekly basis.

This transitioned into a higher Adjusted OIDBA, which ended at $73.5 million this quarter, up from last year’s $34.6 million in Q2. For the year, WWE has an Adjusted OIDBA of $150.8 million, which is more than three times as much as what WWE had at the end of Q2 in 2019, which was $47 million.

Breaking down the core content rights fees that WWE has generated, Q2 this year generated $132.9 million, nearly double of what last year’s Q2 drew ($69 million). The same can be said for the year overall, with this year generating $266.1 million in rights fees alone, up from last year’s $137.1 million.

WWE Viewership & Ratings Discussion, Did COVID-19 Seriously Hurt TV Numbers?

WWE programming has seen a massive shift in regards to its viewership and ratings numbers and it was a recurring question asked throughout the media call.

Raw’s viewership and ratings routinely set new all-time lows and the second quarter saw the show be the worst-drawing quarter in the history of the show. The second quarter averaged 1.832 million viewers per episode, a far cry from the 2.392 million viewers that Raw’s 2019 Q2 drew.

SmackDown, on the other hand, was able to just barely surpass last year’s Q2 viewership with 2020 Q2 averaging 2.098 million viewers per episode while last year did 2 million. However, SmackDown underwent a number of changes, primarily on the day of broadcast and network. This time last year, SmackDown aired on the USA Network on Tuesdays while SmackDown now airs on FOX on Friday, leading to a much bigger audience reach. However, it is undeniable that the pandemic leading to both Raw and SmackDown emanating from the WWE Performance Center with no fans has negatively impacted both shows’ viewership numbers.

However, WWE’s third televised show, NXT, and AEW Dynamite seemingly were not affected as much as Raw and SmackDown, but it’s hard to truly quantify how much the pandemic has hurt both NXT and Dynamite given that neither show aired on television in last year’s Q2.

So one way to look at the viewership numbers for all four programs is to see how this quarter compared to the first quarter of 2020. Below is the average viewership for each show in both Q1 and Q2 in 2020 as well as a breakdown of each show’s viewership per episode this quarter:

  • Raw Q1 2020: 2,244,000
  • Raw Q2 2020: 1,832,846
  • Percentage Drop: -18.32%
  • SmackDown Q1 2020: 2,507,846
  • SmackDown Q2 2020: 2,098,000
  • Percentage Drop: -16.34%
  • NXT Q1 2020: 701,077
  • NXT Q2 2020: 675,923
  • Percentage Drop: -3.58%
  • AEW Dynamite Q1 2020: 883,000
  • AEW Dynamite Q2 2020: 708,462
  • Percentage Drop: -19.76

McMahon touched upon the drop in viewership for both Raw and SmackDown and says the lack of audience did factor into the decline. McMahon also admitted that WWE could have better storylines and content featuring wrestlers’ personalities outside the ring.

"More than any other sport, our audience is part of our program. Audience interaction is always a plus. It goes back to the origin of this genre in terms of 'yay!' and 'boo!' The audience is integral to our success and ratings. Notwithstanding that, I think we can have more compelling characters, better storylines, new characters coming in, and more content that is not necessary in-ring and is more focused on personalities outside the ring," McMahon said.

On the subject of NXT and AEW (whose viewership has also declined quarter-to-quarter like Raw and SmackDown but their 18-49 ratings still land in the top 10 on a consistent basis) handling things better programming wise, McMahon credited both shows to being relatively new and that Raw and SmackDown needs more youth.

"Both are new. It's up to us to make Raw and SmackDown feel more youthful and that is where we're going. You always have to build characters, constantly," McMahon said.

As previously shown, WWE isn’t too worried about the ratings affecting the profit margins in the short term due to the massive rights fees with NBC Universal and FOX for the next few years.

This will be a similar talking point for months (or however long WWE will remain doing shows with no fans) and with the pandemic altering many business practices, there’s no way to determine at this moment if the drop in viewership and ratings will ultimately affect WWE’s profitability until existing U.S. television rights are close to expiring and negotiations for new deals begin.

WWE Network Ends Q2 With Most Subscribers Since 2018:

The WWE Network subscribers saw a solid jump in paid subscribers, ending at 1.69 million. WWE Network average paid subscribers declined 1.5% to 1.66 million while ending paid subscribers increased 6% to 1.69 million. This is the most subscribers the Network has had at the end of a quarter since 2018 Q2 when the Network sat at 1.742 million total paid subscribers.

As far as average paid subscribers are concerned, Q2 has always been WWE’s strongest period with the WWE Network. Despite a relative strong finish for the quarter this year, it still trails behind 2018 and 2019’s Q2 numbers. Heading into the third quarter, expect subscribers to fall given that’s how it traditionally is. In the last two years, the WWE Network lost an average of 156,500 total paid subscribers from Q2 to Q3. If we’re to use that number, one could expect total paid subscribers for 2020 Q3 to end at roughly 1.504 million. However, with the current pandemic, it would be tough to completely rely on these predictions since we’re living in unprecedented times.

It should be worth noting that this year’s WrestleMania took place over the course of two days, which is a first for the company. From a social media standpoint, WrestleMania 36 was the most social event in the company’s history. WWE set WrestleMania Week viewership records with more than 967 million video views across the company’s digital and social platforms including WWE Network, WWE.com, YouTube, Twitter, Facebook, Instagram, TikTok and Snapchat, an increase of 20 percent year-over-year. Additionally, a record 46 million hours of content was consumed during WrestleMania Week, an increase of 28 percent year-over-year. The event had 13.8 million total social media interactions on Facebook, Instagram and Twitter, up 57 percent compared to last year’s WrestleMania, according to Nielsen Social.

This was to be expected given that there are two night’s worth of social media buzz on the event compared to the past 35 iterations of the event. It would actually be very alarming if the show’s two nights provided the same level of social media activity and engagement as a one-night event.

How WrestleMania’s two night experiment resulted in the current subscriber count was not properly explained during the conference call. One thing that was addressed during the call was the introduction of the free tier of the Network, something that was initially thought to happen in the fourth quarter if we’re to go by the comments made in the earnings call for Q1.

McMahon was asked about it on the call and he said there was no negative impact on the subscriber count in relation to the free tier.

WWE Stock Slowly Climbing Up Since Massive Drop In Q1:

Although not addressed much on the call, it should be noted that WWE’s stock has yet to fully recover from its massive drop during the end of January and middle of March. The two key aspects of this were the departures of WWE Co-Presidents George Barrios and Michelle Wilson and the pandemic shutting down WWE’s touring schedule.

Shortly after the market closed on January 30, news broke that WWE Co-Presidents George Barrios and Michelle Wilson had departed the company, effective immediately. This left the company's stock to drop by more than 27 percent in the ensuing days and the drop in stock equated to approximately $1 billion in market value.

On March 16, WWE’s stock was at $30.44 per share, the lowest since January 2018. Since then, the stock has slowly risen up, but it plateaued at $48.76 per share back on June 8. No doubt that the positive news regarding WWE’s finances will give the stock price a decent jump for now, but it is still much lower than what it was one year ago, when the stock price was at $72.78 per share on July 31.

Other notes:

  • One question many have in regards to the massive lay-offs back in April was how they would affect WWE’s finances. It wasn’t addressed much, but a lot of the talent that were released were getting paid through 90 days of their release.
  • WWE’s social media followers suffered its first drop quarter-to-quarter, finishing at 1.08 billion followers, down from the 1.082 billion total followers that Q1 had. This is mainly attributed to a 7 million follower loss on Twitter and a 4 million follower loss on Facebook, but offset by 9 million more followers in the “Other Platforms” category.
  • WWE Interim CFO Frank Riddick notes WWE chose to geo-block some YouTube content in India to accommodate its TV licensing agreement in that country. They believe their performance would be even higher otherwise. WWE has previously said India is its leading market for YouTube viewing.
  • Dave Meltzer of the Wrestling Observer reports that, as of now, WWE has scrapped plans for the tiered WWE Network, something that had been in the works for quite some time. However, Mike Johnson of PWInsider reports that independent wrestling content is still scheduled to hit the Network at some point.

Tables and graphs provided by WWE, Carlos Toro (@CarlosToro360 on Twitter). Television viewership numbers provided by Showbuzz Daily.

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