In wrestling terms, a hot tag is when one wrestler who has been severely beaten for an extended amount of time finally tags in his partner, who reverses fortunes. Vince McMahon is in dire need of one.
First, his XFL filed for bankruptcy and is reportedly looking for a buyer. Then WWE announced to its staff on Wednesday that it would begin to fire or furlough workers in an attempt to boost profitability and perhaps more importantly, stock prices, in the lead-in to next week’s quarterly earnings call.
To date, 41 have been furloughed or fired, including, somewhat callously, talent who were told to travel to Florida on Monday amidst the pandemic, only to be “squashed” in quick on-screen losses (i.e. needless travel). The cuts are estimated to save WWE $4 million a month, along with other cost-cutting measures such as delaying their office move in Stamford, CT. The markets reacted positively to the news, with the stock rising by 8% so far versus the level of $37.19 at the start of Wednesday, currently at $40.16. Capitalism could never be accused of having a heart.
With WWE’s Q1 earnings call scheduled for next Thursday, an artificial boost to stock value prior to the call suggests that news will not be good. McMahon himself is suffering financially, and the mass layoffs show McMahon’s desperation to cover over what will be some negative forecasts for his company. Having sold hundreds of millions of dollars of WWE stock to fund the now bankrupt XFL, he won’t want to see his paper value decline further.
The call is set to be an important one in setting the tone for the rest of the year and assuring investors that the company will be fine during the era of social distancing. Conveniently, after tapings at the WWE Performance Center were reported to be disturbed by Florida law enforcement for non-compliance with the state “stay-at-home” order, WWE has now been declared an essential business by Florida Governor Ron DeSantis. In a coincidence, the amendment allowing WWE to resume business occurred the same day that a Super-PAC controlled by Linda McMahon made an announcement that it would spend $18.5m in the Orlando & Tampa markets, with local media linking the two.
This at least ensures the company can stay on the air, and collect its TV rights from domestic and global broadcast partners. Continued influx of money is important for WWE, especially as they missed out on their traditional cash cow in Wrestlemania. Although the event still went ahead, it was held in an empty WWE Performance Center and not in front of the anticipated 75,000 fans in Tampa. The cancellation of the event also meant the cancellation of the traditional week long festivities and events surrounding Wrestlemania, drawing fans from across the globe.
The hit on revenues will be big, although crucially this mostly will fall under Q2. One thing that is Q1-based is the failure of WWE to come to terms with a big streaming service around the licensing of WWE PPVs to it. Although purported as highly likely by McMahon in the Q1 call, it didn’t materialize. Without it, and with the live events business curtailed for the foreseeable future, McMahon will need to announce a plan to show the company can still generate money, and perhaps more crucially, will be turning the corner to dwindling fan interest.
Financially, WWE was already trending down in a number of key metrics prior to the suspension of its live events business. As can be seen from the chart below, four of the five metrics associated with generating revenue for WWE outside of TV rights were down in Q4 versus 2018. While the company did announce a renewed TV deal for India in Q1, and managed to sell packages of old Wrestlemanias to sports networks ESPN and Fox Sports 1 amidst their desperation for content post-cancellation of live sport, these will not be enough to lift WWE out of the financial hole they are facing.
Interest in the product also appears to be down, particularly so for the flagship “WWE Raw” show on USA. In an overall comparison with the average audience across Q1 since 2017, “Raw’s” audience is down by 17% versus last year, and by 32% when compared to 2017. In contrast, “Smackdown’s” average Q1 audience is up 17% versus 2019, aided by the move to Fox and a greater available audience.
The apparent lack of interest in “Raw” is even more apparent when looking at two further metrics. WWE ended shows in front of a live audience in mid-March, with the 3/13 edition of Fox’s “Smackdown” the first to be broadcast from the WWE Performance Center. With TV viewing in general on the rise in this time period given the lack of alternatives, it is jarring to note that WWE actually lost viewers for each show.
Fox’s smaller rate of decline for “Smackdown,” at only 3%, could be a reflection of the fact that being on broadcast TV (“Raw” is on basic cable) insulates it somewhat from any kind of immediate cord-cutting response to the burgeoning unemployment crisis across America. This could also be a sign that “Smackdown’s” storylines were resonating more with the audience. Fox should be relatively happy, USA not so much.
The extent of the apparent decline in fan interest is heightened when assessing the “Wrestlemania bump” in total audience for the “Raw” episode following WWE’s annual extravaganza. This is typically the highest rated TV episode of the year, with storylines resetting and surprises galore. In previous years, this has seen an increase over the prior week ranging from 285k-563k. This year, the rise was a damp squib of 94,000.
McMahon has been looking at the issue of fan disillusionment for a long time, and has continually dismissed it as due to factors other than WWE content. This time, he cannot simply blame the downturn in fortunes to Covid-19. Yes, the crisis caught the company out, just like it did to all industries.
But the decline in interest even when there are more available eyes show just how fragile their remaining fan base is. Too often overlooked by WWE top brass when reporting their performance, unless McMahon soon announces coherent plans that can be stuck to in order to turn the tide, it is likely that fans will keep leaving, and investors will lose their faith that the wrestling guru can save his company.