Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Are WWE and Cable TV Sustainable?

I ask are WWE and cable TV sustainable because the ratings and financial numbers do not add up.

First, World Wrestling Entertainment (NYSE: WWE) is losing money. Stockrow gave WWE an operating loss of -$6.86 million and a net loss of -$8.4 million on 31 March 2019.

Additionally, WWE’s gross profit was $47 million the lowest in eight quarters on the same day. Tellingly, WWE’s gross profit was $20.66 million lower than the $67.66 million gross profit it reported on 31 March 2018.

Moreover, WWE’s revenue growth fell by -2.81% during the last quarter and revenues fell to $182.45 million. In contrast, WWE’s revenues were $187.22 million in March 2018 and $272.51 million in December 2018.

WWE is Burning Cash

Meanwhile, WWE is burning cash at an alarming rate. The promotion reported a negative free cash flow -$10.08 million, a financing cash flow of $-11.57 million, and an investing cash flow of -$9.87.

The only positive cash flow was an operating cash flow of $6.75 million. All this left WWE with $152.76 million in cash and equivalents and $185.44 million in short-term investments on 31 March 2019. Thus, WWE had $338.21 million in cash and assets of $439.6 million at the end of March.

Consequently, I think these numbers show WWE is spending what cash it generates from merchandise sales, the WWE Network, and ticket sales to pay for TV production. In particular, WWE is spending a fortune on questionable talent.

Brock Lesnar, for example, is not appearing in goofy skits for free every week. Nor did the Undertaker and Goldberg travel to Saudi Arabia on a pilgrimage.

Is anybody Watching WWE TV?

Second ratings for WWE’s two cable shows; Monday Night Raw and Smackdown, could no longer justify the money spent on them.

Specifically, WWE Smackdown attracted just 0.6% of the coveted 18 to 49 age demographic on 4 June 2019, TV by the Numbers calculates. Yet, Smackdown was the third-highest rated original cable show that night with 2.016 million viewers.

To clarify, two Fox News Channel programs Hannity and Tucker Carlson Tonight outdrew Smackdown. In detail, Hannity received 2.947 million viewers and a 0.2% share of the 18 to 49 demographic. Plus, Tucker Carlson Tonight attracted 2.86 million viewers and a 0.2% share of the 18 to 49 demographic.

Moreover, I imagine Tucker Carlson Tonight and Hannity’s production costs are far lower than WWE’s. To explain, all Fox needs is a studio for the show, and the only big salary is the host. All of Tucker and Hannity’s guests will come on for free to promote books or political campaigns. Yet both interview shows attract high ratings and a respectable share of the 18 to 49 age demographic.

In contrast, Vince McMahon has to pay all of his wrestlers, rent an arena, and set up a new set (stage) for every show. WWE also needs more cameras and an army of technicians to film Raw or Smackdown. 

WWE and Cable TV’s Real Problem

The ratings reveal WWE and cable TV’s real problem, which is not the raw numbers. The problem is that the viewers the advertisers want most are not watching cable TV.

Advertisers and broadcasters want the 18-to-49 age group because that demographic includes those most likely to consume. Young people starting families and buying houses and cars for example.

Unfortunately, the ratings reveal those people are not watching cable TV. Census Reporter estimates around 39% of the US population is between 19 and 49 years old. Meanwhile Worldometers estimates the United States has a population of 329.093 million in 2019.

Who is Watching WWE TV?

Thus I estimate America’s population of 19 to 49-year-olds at 128.35 million. However, I estimate around 770,001 members of that demographic saw Smackdown on 4 June 2019. To elaborate, TV by the Numbers estimates Smackdown’s 19-to 49 rating at 0.6%, and I calculate 0.6% of 128.35 million is 770,001.

Consequently, most of Smackdown’s viewership could consist of groups advertisers; don’t want; those over 50 and people under 19. I reach this conclusion, because TV By the Numbers estimates Smackdown had 2.016 million viewers on 4 June 2019.

Yet, my calculations show only 770,001 of them could have been 19 to 49-year-olds. Note: I calculate 2.016 million minus 770,001 equals 1.2499 million.

Why do Advertisers Bother with Cable TV?

Under these circumstances, I have to wonder why advertisers even bother with cable TV? Comparatively, YouTube popular podcasts like The Joe Rogan Experience can draw similar numbers of viewers.

Anthony Mountjoy estimates Rogan’s peak viewership at roughly 1.97 million views. To clarify, Rogan received those views for a chat with geek icon Neil deGrasse Tyson.

Consequently, WWE’s biggest competition is indie wrestlers and upstart promotions like Cody Rhodes who release matches and videos to YouTube. Notably, Cody leveraged clever videos and social media hype into lucrative deals with the new All Elite Wrestling (AEW).

Moreover, Cody can attract as much social media attention as WWE with one gimmick video like his recent throne breaker stunt. Thus, Rhodes; and not AEW’s planned TNT show, is WWE’s biggest competition.

Sorry Vince the Wrestlers are now Running your Show

The greatest problem for the McMahon family, WWE’s owners, is that YouTube puts the wrestlers in control of the process.

To explain, Rhodes, the Young Bucks, and the Hardy Boyz demonstrate that any wrestler can attract huge numbers of fans and sell vast amounts of tickets and merchandise with a clever video. Importantly, any wrestler can make his or her own videos without WWE’s help and put them on YouTube.

Thus, a new promotion like AEW has no choice but to hire Cody; and pay whatever he demands – if it wants fans. This reverses the situation in the wrestling business from the traditional status quo.

Are WWE and AEW Irrelevant?

Historically, a wrestler had to go along with whatever the promoter wanted if he or she wanted an audience. Big talents like Steve Austin and Hulk Hogan had to follow Vince McMahon’s; or WCW’s script, if they wanted to go on TV and make big money.

Today, however, a big talent can cut his or her own videos and post them on YouTube, sell his or her own merchandise online, and control his or her own storyline. Hence, Cody and his brother Dustin Rhodes are reinventing themselves from goofy enhancement talent to edgy hardcore heels.

This puts AEW in a bind because it ends up begging the top YouTube wrestlers to come to its shows to maintain an audience. Thus YouTube stars allow any upstart wrestling promotion to generate buzz and audience with a readymade fan base and storylines; and talent, fans care about.

Under these circumstances, both WWE and AEW could be irrelevant in today’s wrestling universe. Instead, we could see a new status quo similar to that in music. Superstars, like Beyonce and Taylor Swift dominate the modern music scene, because they bring their own huge audiences with them wherever they go.

Sorry Vince the War is Over and Cody Rhodes has won

Similarly, we could see a new breed of wrestling superstar who hops from promotion taking her or his fans along for the ride. Historically, only megastars like Hulk Hogan could do that, but YouTube lets lesser talents like Cody do the same thing.

Last year, Cody and the Young Bucks sold over 10,200 tickets to their All In wrestling show in less than 30 minutes with a little social media hype. Rhodes broke WWE’s stranglehold on the American wrestling business in 30 minutes. All In went onto attract around 55,000 pay-per views buys, Wrestling Inc. estimates.

That opened the door for AEW to enter the business; and attract 98,000 buys and over 220,000 internet searches for its Double or Nothing Pay per view, Forbes’ Alfred Konuwa estimates. Additionally, Konuwa estimates Double or Nothing outdrew WWE’s Money in the Bank by 35%.

Thus one Cody Rhodes disrupted the wrestling business. What happens when there are a dozen or more Codys out there? Could any promotion afford to operate if it has to pay a dozen stars Brock Lesnar level paychecks? Even with Saudi Arabia paying the bills?

Can WWE Survive?

My guess is WWE (NYSE: WWE) will survive for the foreseeable future because of its TV deals. Specifically, Paste’s Garrett Martin estimates Comcast’s USA and Fox will pay WWE $2 billion for Raw and Smackdown for the next five years.

Unfortunately, most of that money is likely to fly straight into wrestlers’ bank accounts; under the present status quo leaving the McMahons with an ever-shrinking income. Additionally, WWE could have to stage increasingly crazy, over-the-top, and expensive stunts to attract internet attention for its products.

Sadly, WWE’s response to the new status quo an attempt to revive its’ golden age; or Attitude Era, of the late 1990s. I think this will fail because the Attitude Era was a different gimmick for a different age. The Attitude Era’s raunchy slapstick worked because the internet was in its infancy, and WWE’s main competition was reruns of Murder She Wrote.

Why the New Attitude Era Will Fail

Moreover, WWE’s 1990s critics comprised a few publicity-hungry social conservatives. Today, I predict the New Attitude Era will quickly attract the wrath of the social-media powered Me Too Movement.

Me Too has already brought down icons like Bill Cosby and made the President of the United States into a pariah. So I have to wonder how the WWE will be able to fight it.

Today’s new Attitude Era is likely to be corny, controversial, and short-lived. I predict Vince McMahon’s idea of “Edgy Content” will bore modern wrestling fans while scaring advertisers away. Is anybody going to interrupt his or her Fortnite play to watch skits about dead bodies and anal surgery? If you don’t believe me check out Wrestlecrap to see the Attitude Era’s lowlights.  

WWE Stock is Junk

Consequently, I view WWE stock as junk that everybody should stay away from. Nothing justifies the $75.55 stock price Mr. Market gave it on 13 June 2019.

Plus, I cannot see WWE can sustain the 12₵ dividend scheduled for 25 June 2019 in today’s wrestling landscape. Nor are WWE shareholders likely to receive the 0.64% payout ratio, 48₵ annualized payout, and 55.2% payout ratio, gave WWE on 13 June 2019.

In the final analysis, WWE stock is junk that investors need to stay far away from.