WWE has experienced a tumultuous week in business. The company announced a television deal was coming, only to see said television deal come in lower than what analysts expected, thus leading to a dramatic stock drop, and now a forthcoming investigation. Whew.
This was enough for many commentators to sound the warning bell. With the WWE Network falling below subscription expectations, and now what could be considered a “cheap” television agreement, Vince McMahon and company must be barking up the wrong turnbuckle.
But before signing
professional wrestling’s sports entertainment’s death warrant, let’s look at this from a different perspective. An SEC investigation doesn’t yet mean the company did anything wrong. Yes, it could eventually be revealed that shady business dealings, super-secret behind-closed-doors negotiations, and a certain higher power all allowed WWE to take stock brokers for a ride, but that seems unlikely. WWE has the most sound business acumen right now of its entire existence. I can’t imagine anybody in Titan Towers would risk all that good-will for a few extra bucks from Wall Street.
So let’s look at the facts as they’re currently available. Stock Investors expect financial growth from a company. They put money in by buying stock with the assumption that the company – in this case, WWE – will use that new capital to build a better product. Then, as the company becomes more profitable with that better product, the value of the company goes up (since it’s now bringing in more money), stock prices rise, and the investors recoup their initial money plus whatever new money from the higher company value. So basically, put money in, get more money back out.
The only problem is, investors expect this cycle to happen over, and over, and over. It’s not enough to make money. Shareholders expect companies like WWE to make MORE money each year. Clear 1 million this year? Great, but now they expect 3 million next year. And so on, and so forth.
And this problem isn’t unique to sports. Tech companies like Apple and Microsoft, while insanely profitable, are failing to show consistent growth year-after-year, and stock prices are suffering for it. Even Facebook faced this struggle with its IPO. While it was great that the social networking site had millions, or billions, of daily users, how did those numbers translate to the bottom-line?
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There’s also the issue with ad money. While sports are still big business in America, price for advertising is going down year-over-year – especially on television where the ability to fast-forward is now just a click away. More networks are competing for ad dollars. And companies have less money to pay for those same ads. Plus, new media outlets (like YouTube, Vimeo, etc.) are competing for those same ad dollars, and proving that the traditional television model is outdated for 21st century viewers.
WWE is doing far more than most companies to protect itself against this eventual cord-cutters revolt. It has already invested heavily in a streaming network, with a huge accessible library, and an infrastructure to support it all. The company also seems serious about delivering original content on the network. It’s a killshot for cable television and traditional pay-per-view. In fact, McMahon & Co act more concerned about getting viewership up and increasing visibility than making more money off of the viewers they already have. A larger, more loyal fanbase, will bring in more money down the road than a limited, albeit more profitable short-term, fanbase. It also guarantees longevity for WWE. The pandering to social networks on every Raw, Smackdown, and Special Event is a part of this same process. Yes, it’s annoying. But it puts a foothold in every household. Plus, higher visibility where that key 25-34 demographic is already hanging out.
You can assume part of the discussion with NBC Universal included talk of the WWE Network. NBC probably wanted WWE to lay off the network content (since the company is now essentially competing with itself on cable each week), to which WWE politely refused. Maybe NBC even asked for a cut of the profits. How the negotiations went down is anybody’s guess, but WWE was unlikely to give in, even if it meant a lower offering for RAW and Smackdown. WWE is playing the long game – safeguarding its content library, creating a new “sports entertainment viewing destination,” all while protecting its current spot on traditional pay tv. Its a tricky balance, but it makes sense.
So of course that $200 million is less than investors would’ve liked. It means less profit this year, next year, and moving forward. But it also means WWE is poised to make more money off the network as all media continues to evolve. By keeping one-hundred percent of future subscriber profits in its back pocket, instead of sharing with NBC Universal or whatever other suitor showed interest, WWE knows that more money is out there. It just has to wait a few years before cashing in.
And that’s the story of today’s World-Wide Wrestling Federation. A company that is actually looking to the future, instead of merely reacting to what everybody else is doing. A company that is investing in future stars through NXT, is trying to better protect its superstars health with great concussion initiatives and rigorous drug testing, and is building up a content delivery system (from talent, to production) that puts everybody involved at the top of their game.
Stock prices might tell the story today, but they are volatile and shortsighted. WWE, meanwhile, has its focus on tomorrow.