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WWE Q3 2021 Analysis: How The Return Of Live Events Impacts WWE's Financial Outlook

Wrestling
Carlos Toro Nov 4, 2021 7:16PM

From March 2020 to July 2021, WWE changed a majority of its business practices, production, and television presentation due to the coronavirus pandemic. With that came many changes from WrestleMania 36 and 37 taking place across two nights, to most televised programs airing without any paying fans in attendance, to the unfortunate layoffs of dozens of wrestlers (and hundreds of employees across all levels) during that period.

Yet, when it came to their bottom line and their finances, the company insisted that it is hard to provide any outlook for the entire year of 2020 and 2021, but did project their Adjusted OIBDA to be anywhere between $270 million to $305 million. But whenever WWE released its quarterly financial reports and earnings press releases during the aforementioned time period, more often than not, the finances paint a very positive future for the company in what has been an unpredictable time for it and many other major businesses.

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Due to a successful first nine months (successful from a financial standpoint), the company has now raised its Adjusted OIBDA guidance for the full year to within a range of $305 million to $315 million for the year.

With the return of fans to televised programs such as Raw and SmackDown and live events (both domestic and international), WWE is close to returning to its pre-COVID-19 manner of conducting business. There are some notable differences that will forever keep it from ever returning to that era.

As covered before, the U.S. version of the WWE Network no longer exists, with its expansive library of content and live pay-per-view events moving to the Peacock streaming service. Such a change provided a solid financial boon to WWE and that has been part of the reason WWE has outperformed what now seemed to be modest expectations entering 2021.

Live Events Responsible For WWE’s Revenue Increase And Adjusted OIBDA Projection:

For the third quarter of 2021, WWE finished with $255.8 million in total revenue, which is up about 15 percent year-over-year ($221.6 million in 2020 Q3). A main reason for that is the return to ticketed live events.

Of that $255.8 million, “Media” (which includes revenue generated from pay-per-view and network streaming, core content rights fees, and sponsorships) made up $202.7 million which is a slight increase year-over-year, “Consumer Products” made up $25.1 million, and “Live Events” made up the remaining $28 million.

The important number to look at is that $28 million under “Live Events.” This is the first time the third quarter included ticketed live events since 2019 and the initial burst of excitement of live touring resulted in ticket sales performing better than even 2019’s Q3 ticket sales. SummerSlam, which took place in August, drew in an attendance of more than 50,000, helping ticket sales soar for the quarter to even better than pre-pandemic levels in recent years. Live event touring also performed better than expected, something the company was glad to tout.

“During the third quarter, we returned to live event touring with record average attendance, driving our better-than-expected performance,” said Vince McMahon, WWE Chairman & CEO. “Even with only one large-scale international event due to COVID-related circumstances, we will exceed our previous financial guidance given the overall strength in each of our business lines. We think our performance highlights the strength of our brand globally and supports our belief that we are well-positioned to maximize the value of our content and drive long-term shareholder value.”

The Adjusted OIBDA for the quarter finished at $77.9 million, down year-over-year at $84.3 million, but significantly higher than 2019 Q3’s Adjusted OIBDA at $25.4 million. The decrease in the Adjusted OIBDA was partially due to the increase in event and television production, an expense that WWE didn’t have to worry as much during the early days of the pandemic given that the television set-up for WWE programming was minimal by comparison to one that has to take into account arenas packed with thousands of fans.

Through the first nine months of this year, WWE’s Adjusted OIBDA is $229.9 million, down from this point last year at $235.1 million. Given the current projection of $305 million to $315 million for the full year, the company expects 2021 Q4 to end closer to 2019 Q4’s numbers at $107.6 million than that of last year’s Q4 Adjusted OIBDA at $51.2 million.

Kristina Salen, WWE Chief Financial Officer, added, “In the quarter, our better-than-expected revenue of $255.8 million and Adjusted OIBDA of $77.9 million reflected robust demand for our live events as we returned to touring and attracted average attendance above 2019 levels. Even with only one large-scale international event this year, we are raising our full-year 2021 Adjusted OIBDA guidance to a range of $305 million to $315 million.”

WWE's Change In Touring Model And Potential Impact:

If there is anything to gleam from the way WWE has conducted its biggest events in the past few years, it’s the size of the venues those events are held in.

WrestleMania has almost always been held in major sports stadiums, but now more events have been approaching a similar model. SummerSlam this year was held at Allegiant Stadium in Las Vegas, while the Royal Rumble took place at Tropicana Field (though that was held behind closed doors). Next year’s Money In The Bank pay-per-view will take place at Allegiant Stadium while next year’s SummerSlam is scheduled to take place at Nissan Stadium in Nashville, Tennessee.

This is important to note because the sudden increase in using stadiums instead of arenas for pay-per-view events that aren’t WrestleMania represents a shift in mentality regarding the company’s touring for such shows.

During the earnings call following the release of the quarterly financial report, Stephanie McMahon revealed as such, including a note that the live gate for this year’s SummerSlam was four times greater than that of the 2019 edition of SummerSlam.

Having stadiums host major events does present the opportunity to generate more revenue in terms of ticket sales. WWE is looking to maximize those events’ profitability, which is a reason why WWE is once again experimenting with a two-day WrestleMania, taking place at AT&T Stadium in 2022.

But it’s not just higher ticket sales that WWE is going after with a more stadium-centered touring model for their biggest shows. Such events also lead to higher merchandising sales and this past quarter was proof of that. This quarter finished with $5.3 million in venue merchandise sales, higher than 2019 Q3, which only did $3.5 million.

“We are changing from an arena-based touring model to a stadium-based touring model, allowing us to better align all lines of business around our key events. For example, SummerSlam was held in Allegiant Stadium, the first time SummerSlam has ever been held in an NFL stadium, attracting a record 51,000 fans and drawing a record gate. As Nick [Khan] mentioned, more than four times greater than the last time SummerSlam was held with fans in 2019. Merchandise was up 155 percent year-over-year and more people watched SummerSlam across Peacock and WWE Network than any other SummerSlam in WWE history with a viewership increase of 55 percent from 2020,” Stephanie McMahon said.

Stephanie’s statement shouldn’t be looked at in a literal sense that WWE is four times bigger than it was two years ago. Instead, it’s meant to be looked at as a reason for why they are doing more stadium shows. The bigger the venue, the more opportunity to increase revenue through ticket and merchandise sales there is.

Sticking to merchandise sales, WWE is hoping that the initial burst of demand coming out of the pandemic sticks in 2022 and beyond for live events. One unintended consequence of the pandemic and its impact on WWE’s consumer product sales is the substantial increase in online sales to make up for the lack of live events. With more ticketed events occurring, WWE is slowly starting to see a decrease in online merchandise sales.

This quarter, WWE sold $8.2 million in merchandise on WWE Shop, which is the third straight quarter that number went down from the prior quarter. However, that $8.2 million is still stronger than most non-Q4 quarters in WWE Shop sales and given the traditional bump in online sales for Q4, there is plenty of reason to believe that this upcoming quarter will still generate a greater than expected end of the year in consumer products.

Across 38 live events in North America, WWE reports an average of 8,300 fans per event, significantly higher than 2019’s Q3 at just 4,400 fans per event across 67 events. A similar thing can be seen in the four international events held this past quarter. Across those four events, there have been an average of 7,400 people per event, much higher than the 4,500 fans per event in the seven international events WWE held in 2019.

Updates On Current Media Rights Deals:

Hulu re-airs episodes of Raw in a condensed format and WWE notes that there is a substantial audience watching the show on that platform. That deal began in 2018, but the media landscape back then is far different than what it is today. The current deal for the Raw re-air media rights between WWE and Hulu is expected to end in the back half of 2022 and Khan believes that a new deal (with whatever platform that may be) should be reached by the time the current Hulu media rights deal end.

Khan did not mention any platforms WWE is in discussions with but did recount the current ownership stake in Hulu compared to how it was years ago. Back then, NBCUniversal was an active owner of Hulu and Peacock didn't exist at the time. Now, Disney has been taking over Hulu (it is expected that Disney will buy out NBCUniversal's ownership stake in 2024) and based on how Khan spoke on the end of that Hulu deal, there's a good chance that those Raw re-air rights will go to a platform that isn't Hulu. Funny enough, WWE said in the earnings call that the battle for those rights "will be intense and fun."

Shifting things over to the WWE Network, or what's left of it at least, the company says it is looking to maximize its value over international markets. Whether this means that the WWE Network could be sold to other platforms in certain countries in the same way the U.S. version of the WWE Network was essentially sold to the Peacock streaming service remains to be seen.

When it comes to the current U.S. television media rights deal (such as the deals to have Raw air on the USA Network and SmackDown on FOX), Khan says it is as bullish on those rights by the time the next set of negotiations start and conclude within a couple of years, hoping to continue the upwards trend in their rights fees. The current U.S. rights fees saw an increase in average annual value from $130 million per year to $470 million per year. The hope for an even more financially successful set of negotiations stems from how other rights deals involving NFL, NBA, MLB, La Liga, Wimbledon, and more have also increased.

The combination of new and traditional buyers bidding for the rights to air live entertainment and sports have led to those rights fees increasing by a significant amount. It's hard to tell whether or not WWE will get that same $470 million per year AAV for their next rights deals, but if we see a decrease from the current rights deals, it will more than likely be seen as a disappointment.

Later in the earnings call, the always-present question regarding a media rights deal in the MENA region (Middle East & North Africa), Khan said the work is not done yet, but that it is something the company remains optimistic and bullish on.

Other News And Notes:

  • In regards to ratings and viewership, the topic was not discussed much during the earnings call, at least not as much as in the past several quarters. For Raw, viewership saw a slight increase year-over-year with 2021 drawing 1.79 million viewers per episode on the USA Network, up from last year’s 1.765 million viewers per episode. The same can be said for SmackDown, which is up six percent year-over-year. This year’s third quarter saw SmackDown draw 2.148 million viewers per episode on FOX, up from last year’s 2.022 million viewers per episode.
  • Once again, media consumption for WWE content on social media is at an all-time high, skyrocketing this quarter compared to the second quarter of 2021 and year-over-year, in AVOD. AVOD is defined as ad-supported video on demand. Consumption includes videos viewed on third-party (Facebook, Instagram, Snapchat, TikTok, Twitch, Twitter, YouTube) and WWE platforms (WWE.com and WWE App). This quarter saw 12.8 billion AVOD Global Views, up from last quarter’s 11.2 billion views, which was the previous quarterly all-time high. The increase in views means an increase in hours watched, which this quarter also set a company-record for. This quarter saw 411 million AVOD global hours viewed up from last quarter’s 394 million hours viewed.
  • WWE is going all in on their brand integration being a part of WWE programming, much more so than in the past. During WrestleMania Backlash, there was a lumberjack match that served as a platform to promote “Army Of The Dead,” a match that included zombies serving as lumberjacks. Stephanie McMahon touted the brand and content integration during the earnings call, saying, "In terms of content integration, would you ever see a Pure Life truck drive into Arrowhead Stadium in Kansas City and have Patrick Mahomes spray down fans with a Pure Life brand super soaker as part of a touchdown celebration? Or have zombies replace the offensive line for one down? My guess is no, but you can in WWE. Because we have all the exciting action of a live game, but are scripted like a great movie, we can write those integrations in ways that are fun and memorable for the audience and our partners or we can leverage our creative writing and media teams to create customized content across digital and social media that is relevant to that platform like we did with Old Spice when we introduced a new WWE superstar with the same name as their new scent The Night Panther. We produced 16 pieces of original content that delivered over half a billion impressions and 40 million views with 96 percent of our audience saying they would take action towards Old Spice.” That brand integration also includes Atlanta Hawks star Trae Young, who interfered in a match on a September episode of SmackDown on Madison Square Garden.
  • On a related note, it was interesting to see how WWE continued to try and emulate Marvel’s success, saying that just like how every character in the Marvel Cinematic Universe is a franchise of its own, so are WWE superstars.
  • When asked about the general programming strategy and the trade-off between keeping intellectual programming on streaming platforms and linear television like NXT, Khan said it is a fine line and something WWE is in constant dialogue about the subject and figuring out what is best for the WWE Network internationally/on Peacock in the United States and on television.
  • Stephanie McMahon said on the earnings call that there is no reason to think why WWE can't be making hundreds of millions of dollars within the next three to five years in terms of advertisements and sponsorships.

Tables and graphs provided by WWE. You can follow Carlos Toro on Twitter @CarlosToroMedia.

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