Vince McMahon’s WWE is running out of time.
At first glance, this statement seems nonsensical. WWE’s stock has proved notably robust in the face of sustained declines in key metrics of fan engagement such as merchandise spend, subscriptions to WWE Network and falling TV ratings.
Instead of focusing on the long-term health of the company and building a product that audiences want to watch, both McMahon and investors have put all their eggs in the TV revenue basket, as will be clear in the Q2 earnings call taking place on July 30 at 5 p.m. ET.
McMahon oversaw a record U.S. TV deal that kicked in last year. “RAW,” on cable network USA, and “Smackdown,” now back on network TV on Fox, were judged to be worth a combined $2.35 billion over the course of five years, even as ratings had been trending down for some time.
WWE will point to “Smackdown” ratings on Fox being higher in Q2, when compared with 2019 on USA. But this is not an apples-to-apples comparison. Per USA parent Comcast’s annual report, USA is available in 88 million homes. Fox states in its annual report that its reach is “approximately 99.9% of all U.S. television households, according to Nielsen.” Nielsen itself estimated last year that there were 120.6 million TV households in the U.S.
Seeing ratings increase by 370k in Q1 as a result of being available in around 30 million more homes doesn’t seem that much to crow about, when assessed subjectively. Yet investors continually accept this on face value, as if McMahon has managed to turn the product around and is yielding positive results.
Given the Q2 ratings on Fox are only an average of 100k per week greater than 2019 on USA (and below 2017 and 2018 cable levels), it’s clear that the initial bounce moving from cable to network TV is almost over.
Meanwhile, USA’s “RAW” has kept up the trend from Q1, averaging 1.1 million fewer viewers per episode in Q2 when compared with 2018.
This should come as no surprise.
Vince McMahon has for years sought to pin the blame on underperforming ratings on short-term excuses. VIP conducted an analysis a year ago of one of WWE’s big excuses at the time for dwindling audiences, the absence of key superstars, and found it to be false.
More recently, falling ratings have been blamed on COVID-19 and an influx of new talent (Q1 2020), it taking time to be able to develop the right storylines for the right talent (Q4 2019), needing to focus on the in-ring product (Q3 2019) and needing to have deeper, better storylines (Q2 2019).
It’s possible that for Q2’s declines, McMahon will revisit the trope that new stars need to be made, given the absence of several superstars due to the pandemic, notably Roman Reigns. This should be treated with short shrift.
If the downturn in ratings in Q4 2018 and Q1 2019 were down to superstar absences, this should have been the incentive to create new stars. Should this line be trotted out in the earnings call, it should be exposed as the hollow excuse that it is, and questions should be asked why no new stars have been created since January 2019, when WWE first publicly noted the need in the Q4 2018 earnings call.
Investors should be worried. No improvement has been made in ratings. If audiences continue to trend down, there’s little chance that last year’s huge renewals will be repeated when the current deals are up.
Given how often McMahon referred to the need to improve storylines, it’s a wonder that investors are yet to hold him accountable for the consistent line that things have to improve.
Ratings aside, Q2 this year has been a mixed bag. Fox Sports 1 cancelled “WWE Backstage,” part of their cross-network push when they signed up “Smackdown,” due to poor ratings. After McMahon said in the Q1 earnings call, “As far as [COVID-19] testing is concerned, we do everything imaginable,” WWE was rocked in June with numerous wrestlers, on-air talent and backstage personnel testing positive with the virus, with WWE only then implementing nasal tests.
Creatively, the current content on WWE’s flagship shows could arguably be said to consistently have been the best it has been in several years, with long-term character arcs returning for superstars like Randy Orton and Bray Wyatt and storylines recalling prior events and relationships between wrestlers. The issue is that literally millions of fans who were tuning in regularly in 2017 are now burned out and no longer interested.
The potential for audience desertion has been apparent for years; investors simply rated the short-term financial gains McMahon was negotiating from TV networks in place of sustained long-term growth.
The focus of investors will be apparent in the quarterly earnings call. If there is one soft question on why ratings are down, it can be read that the market is more interested in short-term gains.
Instead, McMahon’s feet should be held to the fire, with Wall Street asking how much longer is needed to create compelling stories and new stars that catch the public’s imagination. Should McMahon be taken to task, then it will be a sign that, finally, investors are realizing that without an audience invested in content, there will be no future revenue bonanzas for WWE.