On Thursday, WWE announced that they had agreed to a new television deal with NBC Universal. While the actual terms haven’t been disclosed yet, the early indicators are that WWE fell well short of their lofty expectations when the rights initially came up for bidding. And that has led the company’s stock to sink almost 50% on Friday morning alone.  At the moment it’s made a small comeback and is down 43%.

First, a quick refresher. Back in December, we opined about possible landing spots for WWE rights and the financial windfall they were about to receive. WWE compared their viewership numbers to that of NASCAR, which will make over $800 million per year from NBC and Fox in their next TV contract. WWE made just shy of $140 million domestically for the rights, so even getting half of what NASCAR got would require their rights fees to triple. WWE would at the very least have hoped for their rights fees to double, which would put them at roughly $280 million.

The new NBC Universal deal is reportedly pushing WWE’s global rights fees to $200 million, a much smaller increase than what they would have hoped for under the previous rights deal. Domestically, their average rights fee jumped from $90 million to $150 million, less than twice the hike they were looking for. WWE is spinning this as an increase of $92 million per year under the average yearly value of their previous deals, but let’s look at this objectively – the new contract falls well short of the way the television industry is moving.  The sell-off of WWE stock today proves that.

$200 million for something like 110 broadcasts a year is small potatoes. The aforementioned NASCAR deal pays them $820 million for 36 Sprint Cup races, 33 Nationwide races, the full Truck Series, and all of qualifying and practice that comes along with it. For WWE to receive four times less in rights fees than NASCAR, which is a comparison they continually accentuated, is a major disappointment.

With their new television contract, WWE is missing out on the live content boom happening around them everywhere. NASCAR just saw a major increase as we mentioned even though their ratings have plateaued in recent years. The NBA is seeking to more than double their current revenue in their upcoming negotiations. Even MLS, who has seen their flagging ratings be a constant source of trouble for the league, tripled their rights fee this week. Live sports (or entertainment as WWE bills itself these days) is the most valuable content on television and rights fees are increasing exponentially. And yet, WWE’s increase is not in line with those other properties and is very modest in comparison.

I also think WWE is putting too much faith in the WWE Network going forward. While the Network has been a success so far, we’ll see if it can hold on to the bulk of its subscriber base once their first six-month term expires. How many fans signed up for the Network simply to get WrestleMania at a cheaper, spread out price? How many old school fans signed up for a taste of old times, and have watched everything they want to watch already? There are rumors that WWE will be increasing the price of the Network to line up with Netflix’s one dollar new subscriber increase, but would the extra one or two dollars they’d collect really manage to offset the the money they’d be losing from customers leaving?

If WWE raised the price of their network by $2, they’d need to have a net loss of no more than 100,000, or 15%, of their current customer base (reported at over 650,000 last month) to keep revenues the same – and that figure still has them working at a loss with the Network. That’s a lot to ask, especially considering that the one marquee event remaining on the calendar this year (SummerSlam) could still fall within the six month initial term, depending on when users signed up.

Opening up the Network globally will help, but WWE will need to have between 1.3 and 1.4 million subscribers to hit the break-even point they desire.

$200 million is still nothing to sneeze at, but let’s be honest here – it’s not what WWE wanted. It’s not what investors wanted. They wanted money on par with the major sports leagues, and while they fell well short of what the NFL, MLB, NASCAR, and NBA are receiving, they’re matching the NHL, which draws much lower ratings on NBCSN than WWE draws on USA. Considering the incredible amount of highly rated content that WWE generates year-round, their new rights deal seems drastically undervalued. And now the company is paying for it in a major way.

[Business Wire]

About Joe Lucia

I hate your favorite team. I also sort of hate most of my favorite teams.

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