Recently, WWE’s 2017 Q2 Financial Report was released. While it would seem that this quarter was strong, compared to years before, it’s taken some bigger spots to average out WWE’s books. Some of these trends should be worrying to WWE.
The following is a continued strategic analysis of the World Wrestling Entertainment Corporation (WWE). The following is profile information on the organization.
- Company Name – World Wrestling Entertainment, an integrated media organization recognized as a leader in global entertainment.
- The Company has four principal divisions within the organizational structure. Media 2. Live Entertainment 3. Products 4. Studios
- The company Headquarters is in Samford, Conn.
- Statement of Purpose, the WWE consists of a portfolio of businesses that create and deliver content 52 weeks a year to a global audience. WWE is committed to family friendly entertainment on its television programming, pay per view, digital media, and publications platforms.
- With 115 Wrestlers, 28 Broadcast Personalities, 12 Ambassadors, 16 on the Board, 14 Senior Leaders, the company employees thousands to support these personalities and its programs on a global front. With offices in Ct, Mexico City, Shanghai, Singapore, Dubai, NY, LA, London, Munich, and Tokyo.
- Financials for year end 2015
- 659 Million in Revenue, a 21% growth in Revenue
- 5 Billion Market Cap
- 36 Million Dividend Payout
- 2016 Q2 Financial Reporting shows revenue increased 32% (13% excluding the timing impact of WrestleMania1) to a record $199.0 million as WWE’s Live Event and Network segments achieved their highest quarterly revenue in Company history.
- OIBDA2of $7.5 million was in line with the Company’s guidance
- WWE Network reached a record of 1.52 million average paid subscribers over the second quarter 2016, which represented a 25% increase from the second quarter 2015
- SmackDown transitioned to a live format on USA Network. Since July 25, WWE’s flagship programs, Monday Night Raw and SmackDown, have and will continue to feature unique talent and storylines
- Through the first six months of the year, digital engagement metrics continued to grow with video views up over 100% to nearly 8 billion and social media engagements up 39% to 570 million versus the prior year
- Stock Exchange – NY Shock Exchange tag WWE and as of 12:46 pm 10/3/16 the stock was trading at $20.92.
- The Chairman & CEO of the WWE is Vincent K. McMahon.
McMahon, a visionary promoter and recognized presence as a broadcast leader, joined his father’s company, Capital Wrestling in 1972. Ten Years later he bought the company from his father, established the WWE and took it to the National Market through a newly formed cable network division that started with pay per view and strategically grew to a monthly subscription format.
McMahon’s strategy for the company was to leverage the new technologies of pay per view and closed-circuit television. He used this strategy for the first WrestleMania in 1985. By using these platforms, he has established and built not only a brand that people would watch in syndication but he also built the WWE into a brand that people would pay to watch. This strategy proved to be successful and by the year 2000 more than a million fans purchased WrestleMania X6. For the year 2000, this event was the most watched combat sport event in pay per view history. The strategy and brand loyalty continued and by 2014 the WWE launched its first ever 24/7 direct to consumer network in the United States. As McMahon’s direct to consumer strategy continues to grow the WWE events are continuing to show record-breaking attendance.
This year, WrestleMania 32 set a new attendance record of 101,763 fans. All their formats for Direct to Consumer are showing signs of success for the company. From its live events at its core to its television programming 52 weeks a year, to its newest monthly subscription, the WWE’s syndication strategy is working. The Company has created a brand, like no other in the entertainment industry, and with that brand has created great brand loyalty. They have rewarded that loyalty with continued enhanced ways to view their programming.
In looking at the financials for the WWE their OBIBDA was 35.1 million. They have 80 million in cash on hand and 190 million in available credit. Their current EPS is fluctuating between $20 and $21 / share on the NY stock exchange. Their Debt to Assets on their 2016 Q2 report shows Liabilities at 180.1 million and total Assets at 396.1 million. Important to note in looking at the entertainment industry is the payments related to the Company’s television rights agreements as well as payouts of management incentive compensation which can have a direct impact on cash flow and liquidity. This is not unusual for sports entertainment personalities. In the National Baseball League, they put a cap on salaries so no one team can have a competitive advantage in the sport. With the WWE there is no cap on salaries for the wrestlers with regards to competitors so they must not over extend their cash flow by over paying more popular personalities in their employ to avoid any negative cash flow or liquidity.
NXT has formed an alliance with the WWE and is to them as AAA is to the NBL. They are a feeder for them. The only other competition is the Ring of Honor. This wrestling company was purchased in 2011 by the parent company, Sinclair Broadcasting Group. The SBG is the largest television station operator owning 156 stations in 80 markets as well as 4 radio stations and the Ring of Honor Wrestling. Although the ROH was never a strong competition to the WWE, with this new parent company it has the potential to have a real presence if the SBG parent company chooses to focus on this small new division of its company. It is currently holding live events and pay per view events. SBG had 2 Billion in revenue in 2015 from its media group. They list out their TV channels, FOX, CBS, ABC, and others on their balance sheet but ROH is not listed. They could be lumped into their other assets line which is minimal compared to their TV channels income. Their stock was listed at $28.88 / share. They have 422 million in operating income and list Revenue in excess of 2 billion. The only thing found on ROH in the financial report was a national contract with Destination America to broadcast 26 weeks of wrestling. This parent company is clearly focused on their TV channels.
If they should put some focused effort on the ROH division they could make it more of a competitor to the WWE, cutting into their share of the market. They seem to be the only threat to the WWE in the national market place today. Their corporate Head Quarters is in Baltimore, MD. Their parent company is financially strong but is not diverse. They have a TV and Radio stage for the ROH. They know how to create on air personalities but they are not in the sporting entertainment field in any of their portfolios except for ROH. Certainly, a company that the WWE should keep an eye on.
Identification of Company Sources of Competitive Advantage VIRO Criteria.
In the WWE 2016 Q2 financial report it lists 1.2 million as cash used for capital expenditures as its cash flow source. Additionally, it lists purchase of property and equipment source, purchase of corporate air craft, as 8.8 million as a negative drain on cash flow. So they spent more than they had cash on hand by 7.6 million. In terms of VIRO, or the firm’s strategy. The value of the firm’s ability to exploit an opportunity is high due to its positive cash flow as well as a currently available credit line of 199 million. Now being a monopoly with a unique product form could make them blind to a competitor until it is too late. Take Blockbuster as an example. The all American way to rent a movie seen on every corner across America was taken down by a concept of direct to consumers with net flicks. They stole a huge market share and Blockbuster started closing stores as it rental boxes in supermarkets was too little too late for consumers.
The WWE needs to take a lesson from Blockbuster and be sure to be mindful of the competition out there. Rarity is strong as there are few people in control of the resources of the company. Those few have to make smart decisions on capital investments in salaries as well as luxury items like the airplane listed on the cash flow 2016 Q2 report. Imitability is strong as building a brand of solid characters and stories takes a special talent of writers to create the characters and talent to fit the roles. The company appears to be well organized in four key divisions. In conclusion, in terms of VRIO, the WWE corporate structure and strategies, as well as controls, seems to be solid.
The WWE brand is solid in the entertainment industry. They have very little competition in wrestling entertainment and none that currently leverages the syndication and monthly subscriptions that the WWE offers to its customers. The largest competitors in the National Market are ROH ( Ring of Honor) and NXT. The WWE has embraced the NXT and is using them as a feeder for its future personalities/performers. The writers at the WWE are world-class in their ability to create meaningful story lines behind the performers to make them part of the WEE Brand and leverage the personalities/talent coming up through the NXT to create new story lines. The Ring of Honor wrestling group based in Baltimore, MD with David Smith as CEO was not a threat to the WWE until they were bought out by the Sinclair Broadcast Group (SBG). The Sinclair Group is the largest owners of TV stations owning the likes of Fox, CBS, and ABC and others as well as 4 radio stations. The Ring of Honor has financial backing and TV and radio presence and is on the Pay per view front with the WWE.
They have not done any monthly subscriptions but this could be part of their future strategies for growth and if it is then the WWE needs to keep an eye on the ROH as they could become a stronger competitor in the future. Another privately held company to watch is the UFC. The UFC has personalities and are leveraging the pay per view networking for their events and do have live events as well. They are modeling themselves after the WWE. Now their mixed martial arts offering is a different sport from wrestling so although not a direct competitor in the same entertainment offering, the UFC could take some of their market share in the monthly subscription if the UCF offers this form and continues to grow its personalities. The consumers may decide to have one monthly subscription yearly and flip-flop between the two sports.
I would recommend that the WWE continue to connect with their consumers. I would recommend they add two things to their strategy to continue to retain and grow their consumer base. First I would recommend that they leverage mobile devices through the WWE AP and continue to develop this AP as a means to not only watch broadcasts on the go but also to connect with their customers through live blogs and live streaming interactive events. They need to create a FaceBook merged with Twiter type platform for WWE where the customers can share photos and interact with the stars of the WWE. My second recommendation would be to grow their international subscriptions. Current U.S. subscription revenue is 940 million and the international is only at 277 million. Part of their international growth strategy should include the enhancements to the WWE AP as well as advertising to increase their international subscriber base.
They need to keep an eye on ROH as their parent company could decide to invest in their wrestling division to make it a stronger competitor to the WWE. They have been the parent company for several years and perhaps have not focused on the division for growth. In 2015 they signed a contract for 26 TV shows for the ROH. They seem to be using their core business and contacts to leverage the new wrestling arm to SEG but have yet to try more than pay per view & live events with this division. The ROH does not have the brand recognition or following that the WWE has. Customer loyalty can change with the right introduction of a new product from but in the case of the WWE, they seem to still have a loyal and dedicated following for their personalities and their sport that appears to continue to grow year over year. That kind of customer base is hard to penetrate as long as the WWE continues to provide quality programming to its customers.