This year might be the most important in the history of World Wrestling Entertainment (NYSE: WWE), and the first five months have not gone exactly as planned.
In the last few weeks, WWE has seen its share price drop dramatically. It reached a high of $31.98 a share on March 13, but dip to $10.85 on Friday morning. The company took such a hit that WWE Chairman and Chief Executive Vince McMahon saw his personal fortune decrease exponentially, reportedly losing over $350 million in one day.
The company recently said it would lose between $45 and $52 million in 2014, much higher than the $17 million loss analysts were expecting. WWE's recent financial troubles have resulted from struggles to meet lofty expectations. The launch of the WWE Network has not gone as planned, and WWE’s new television deal is less lucrative than was projected.
The WWE Network debuted on Feb.24, giving fans thousands of hours of WWE content on demand. In addition to a 24/7 live streaming network, archival footage and new original content, the network also allows subscribers to watch every monthly pay-per-view for no additional charge. An average PPV costs around $55 in high-definition video. Subscribers to the network only have to pay $9.99 per month.
WWE announced its first official subscriber count on April 7, just hours after WrestleMania 30, which is the company’s biggest event of 2014. Six weeks after the launch, 667,287 people had subscribed to the network. WWE has stated that it’s looking to reach one million subscribers by the end of the calendar year, claiming it’s “well on its way” of reaching that goal. Between 1.3 million and 1.4 million subsribers are reportedly needed to account for the loss of PPV revenue.
While the company attained two-thirds of its goal in less than two months, the number of subscribers might not see much of an increase, after the initial wave of purchases.
The latest TV deal may have had an even bigger impact on the company. The PPV events are broadcast on the WWE network, but “Monday Night Raw” and “SmackDown” still air weekly on cable. WWE’s new contract with NBCUniversal is reportedly worth around $200 million a year.
The contract is much more lucrative than the previous agreement between the two sides, up from $108 million annually, according to the L.A. Times. Still, it did not come close to what WWE had predicted. In August, McMahon essentially guaranteed that the new deal would pay WWE at least twice as much. With the announcement of the new agreement, the chairman was forced to admit that it was not what the company had hoped for. WWE saw it's price of shares drop from $19.34 a share to $10.55 in 24 hours.
“We've always pride ourselves on being transparent, and hopefully today, we can give a little more light along those lines,” McMahon said on a conference call on Monday. “As far as our television deals are concerned, we are while there is somewhat favorable outcome I should say we were little a disappointed in our NBCU deal quite frankly. But when you add up all of our larger television deals, we nearly doubled our prior deals.”
Analyst Daniel Moor at CJS Securities said in a research note, "Given management's more optimistic tone and the fact that other major sports franchises have garnered much higher increases, this outcome is likely to be viewed as disappointing."
In addition to falling sharing prices, WWE has other issues to deal with. According to the Wrestling Observer, the edition of “Monday Night Raw” on May 19 registered its lowest rating of the year. The news came shortly after WWE World Heavyweight Champion Daniel Bryan was forced to undergo neck surgery, which has ruled out for an unknown period of time. His injury, along with CM Punk’s sudden departure in January, could leave the company without two of its biggest stars for the foreseeable future.
Despite the recent issues, WWE isn’t in any serious trouble, at least not yet. The network has only been up and running for three months and could see an influx of subscribers as SummerSlam approaches in August, which is usually WWE's third-most popular PPV event each year.
WWE is a victim of what appears to be unrealistic expectations. On Sept. 30, 2013, before the impending launch of the network was announced, the stock price opened at $9.96 per share. While the new TV deal fell short of McMahon’s projection, it’s still worth significantly more than the previous contract.
The second half of 2014 could be critical for WWE. According to Justin LaBar of WrestleZone, the WWE Network could be launched in the UK by SummerSlam, which is scheduled for August 17. The expansion of the network might come sooner than many originally thought, as it wasn’t expected to be available overseas until the end of the year.
“The core business is absolutely rock solid in terms of television ratings and in terms of live event attendance. -- new trial there is always a degree of uncertainty, we are blazing new trails no doubt about that,” McMahon said on Monday. “Again we feel very strong, very bullish on our business model and how it's going to pay off in the future.”