World Wrestling Entertainment (WWE) is in chaos. Disgraced CEO Vincent K. McMahon Jr has become chair of the board and Co-CEO Stephanie McMahon has resigned.
Stephanie announced her resignation on 10 January 2023, ESPN reports. That makes Nick Khan the sole CEO of the WWE. It also makes Khan the first person outside the McMahon family to head America’s largest professional wrestling promotion. Stephanie is Vince McMahon’s daughter, and the granddaughter of the company’s founder Vincent K. McMahon Senior.
To add to the chaos, there have been rumors Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, had bought WWE. However, WWE denies the rumors. Many observers speculate Vince Junior is selling the company, but there is no evidence of a buyer.
Is WWE for Sale?
Personally, I think Vince will have a hard time finding a buyer for WWE. To explain, I suspect few large companies want the hassle of running a wrestling promotion.
My guess is Vince will have to find a billionaire who loves wrestling. Perhaps All Elite Wrestling owner Tony Khan or his dad, Shahid Khan. Tony and Shahid already own All Elite Wrestling (AEW) and Ring of Honor.
Note: Tony is no relation to Nick Khan. To explain, Tony is of Pakistani heritage, while Nick is of Iranian descent.
A potential buyer for WWE is Bushiroad Inc., the Japanese entertainment company that owns New Japan Pro Wrestling and World Wonder Ring Stardom. Wrestling fans will love this scenario, because it raises the possibility of Kazuchika Okada, AKA “The Rainmaker” vs. Roman Reigns at Wrestlemania.
Vince returned after retiring because of sexual harassment allegations in July 2022. One reason McMahon resigned was hush money he paid to women accusing him of sexual harassment.
Other reasons for Vince’s departure include the failure of the WWE Network streaming service and the XFL American football league. For instance, The New York Times claims the XFL lost $10 to $50 million when it went bankrupt in 2020. Thus, Vince could be broke, which explains why he wants to sell WWE.
It’s All About the TV rights
McMahon’s return has triggered widespread speculation he intends to sell the company he built. The McMahon family drama comes at a bad time for WWE because of media rights negotiations. In particular, contracts for WWE’s popular TV shows Monday Night Raw and Friday Night Smackdown expire next year.
Raw and Smackdown are valuable commodities because of their ratings. For example, Raw attracted 1.693 million viewers on the USA Network on 9 January 2023, Wrestling News estimates. In contrast, Smackdown averaged 2.2 million viewers on the Fox Broadcast Network on 6 January 2023, Wrestling Observer estimates.
These are high ratings in today’s TV market. America’s most watched TV network in 2022, NBC, averaged 5.148 million viewers, Variety estimates. Moreover, the highest rated cable network, the Fox News Channel, averaged 2.369 million viewers in 2022.
WWE’s Most Valuable Asset
WWE’s most valuable asset is its ability to attract one to three million viewers in the age of shrinking TV viewership and cord cutting. For example, NBC’s ratings shrank by 7% in 2022 and CBS’s ratings shrank by 8% in 2022, Variety estimates.
Therefore, I think Raw, or Smackdown, could be a valuable asset for a Free Ad Supported Television (FAST) streaming service, such as Paramount Global’s Pluto or Amazon’s Freevee. Notably, Amazon (AMZN) is showing original programs, including Leverage Redemption, on Freevee.
To explain, a FAST is a streaming service that shows ads. The difference between a FAST and regular cable or broadcast TV is that viewers get to pick the shows they want when they want.
FAST is the Future of TV and Wrestling
FASTS are booming. For example, Pluto’s number of monthly active users grew from 33 million in the second quarter of 2020 to 54 million in the third quarter of 2021 to 72 million in the third quarter of 2023, Statista estimates. Thus, WWE could gain 72 million new viewers worldwide if it moves Smackdown or Raw to Pluto.
Smackdown, or Raw, could give Freevee, Pluto, or a new Warner Brothers Discovery (WB) FAST two or three hours of original programming each week. Importantly, Raw or Smackdown could give a FAST two or three hours of original programming that draw one to two million viewers each week.
I think FAST is the future of television and of wrestling. One reason WWE could move to a FAST is to keep its growing archrival All Elite Wrestling (AEW) from jumping from TNT and TBS to a FAST. Many of AEW’s matches and wrestlers are more popular with wrestling marks than the WWE’s roster and programs.
Additionally, WWE’s popular pay-per-views such as Wrestlemania, Survivor Series, SummerSlam, and Royal Rumble could reach new fans on a FAST. A FAST could be a new way to monetize WWE’s vast library of wrestling videos. Notably, Pluto already shows old Impact Wrestling video.
My prediction is that Smackdown, or Raw will move to a FAST in 2024. I think Vince McMahon hopes to cash in by selling either WWE, or its TV rights, to a FAST. One reason WWE could move to a FAST is to get a piece of the advertising.
Another is that a FAST can reach a worldwide audience. Pluto has 72 million monthly active users worldwide. If Vince wants a global audience, a FAST is the way to go.
How Much Money is WWE Making?
WWE (WWE) needs additional sources of revenue because it makes little money. For example, WWE reported quarterly revenues of $304.64 million in September 2022.
The quarterly revenues grew from $255.85 million on 30 September 2021. Similarly, there was a quarterly gross profit of $138.02 million on 30 September 2022. The quarterly gross profit grew from $116.81 million on 30 September 2021.
In comparison, WWE’s quarterly operating income fell from $63.94 million on 30 September 2021 to $58.86 million on 30 September 2022. Plus, the quarterly operating cash flow flew from $56.94 million on 30 September 2021 to $50.22 million on 30 September 2022.
Conversely, the quarterly ending cash flow grew from -$51.57 million on 30 September 2021 to $71.56 million on 30 September 2022. Thus, WWE’s ability to generate revenue, profit and cash is small.
I think WWE will need to find alternative sources of revenue and cash or seek acquisition by a larger organization such as Paramount Global (PARA).
What Value Does WWE Offer?
WWE has limited resources. It had just $440.99 million in cash and short-term investments and $1.333 billion total assets on 30 September 2022.
Thus, WWE lacks the resources to build its own FAST. It will need somebody else’s help to reach a FAST audience. WWE’s best hope of going FAST is on Comcast’s (CMSCA) Peacock streaming service. WWE programs are available on Peacock.
However, WWE could get a better deal with other streaming services. I think Freevee and Pluto, in particular, will need original programming to move to the next level. WWE can provide several hours of original programming each week.
Is WWE (WWE) stock doomed?
Mr. Market thinks WWE (WWE) has value. He paid $89.34 for WWE stock on 12 January 2023. WWE’s share price rose from $51.54 on 11 January 2021. Thus, WWE is experiencing enormous growth because of speculation that WWE could be for sale.
Interestingly, WWE offers some dividend value. Its management has scheduled eight 12₵ quarterly dividends between 24 March 2023 and 25 October 2025. WWE shares offered a 48₵ forward dividend and a 0.54% forward dividend yield on 12 January 2023.
I recommend everybody but speculators seeking a stock to short need to avoid WWE. I think investors need to avoid WWE (WWE) because this stock’s price is about to take a fall. WWE could have a bright future because of FAST, but its stock could collapse.
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