Market Mad House

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

Market Insanity

Can WWE make money from Coronavirus?

It has been a chaotic year for World Wrestling Entertainment (WWE). America’s top wrestling promotion makes money even as it generates more controversy.

For instance, WWE’s quarterly operating income fell from $99.82 million on 31 December 2019 to $63.38 million on 30 September 2020. Similarly, WWE’s quarterly gross profit fell from $151.26 million on 31 December 2019 to $113.60 million on 30 September.

Similarly, the WWE’s quarterly revenues fell from $322.80 million on 31 December 2019 to $221.59 million on 30 September 2020. Plus the WWE’s quarterly operating cash flow rose fell from $119.42 million on 31 December 2019 to $116.84 million on 30 September 2020.

WWE adds Value during a Pandemic

However, WWE (WWE) had a quarterly ending cash flow of $94.85 million on 30 September 2020. The quarterly ending cash flow rose from $13.97 million on 31 December 2019. WWE’s quarterly financing cash flow of $186.57 million on 30 June 2020 shows the company borrowed some money.

Interestingly, the WWE (NSYE: WWE) had $638.25 million in cash and short-term investments on 30 September 2020. The cash and short-term investments rose from $250.48 million on 31 December 2019. In the same period, WWE’s total assets rose from $992.23 million on 31 December 2019 to $1.354 billion on 30 September 2020.

Thus, WWE is gaining some value in a pandemic. Notably Stockrow estimates WWE had a 18.89% revenue growth rate in the quarter ending on 30 September 2020. That revenue growth rate rose from -16.89% on 30 June 2020 and fell from 59.5% on 31 March 2020.

WWE and the Digital Future

World Wrestling Entertainment (NYSE: WWE) is a fascinating stock because it is one of the few pure entertainment companies left.

In contrast, to conglomerates such as Disney (NYSE: DIS) which operates theme parks, WWE only offers entertainment. Similarly, Comcast (NASDAQ: CMCSA) owns cable companies and theme parks and AT&T (T) owns phone companies.

However, AT&T, Comcast, and Disney are imitating WWE. WWE launched its streaming service the WWE Network back in February 2014.

Disney launched Disney+ on 12 November 2019, Comcast launched Peacock on 15 July 2020, and AT&T launched HBOMax on 27 May 2020. Hence, WWE was ahead of the curve in streaming video.

Is the WWE Network a Failure?

However, streaming video has not helped WWE much. I think WWE Network is a poor barometer for streaming video’s future because it only offers one kind of entertainment wrestling.

Notably, WWE Network had only 1.69 million subscribers worldwide in second quarter 2020, Wrestling Inc. estimates. I think one reason for WWE Network’s limited appeal was WWE’s failure to leverage it.

To explain, WWE failed to add other kinds of entertainment to its network. For example, WWE could have offered non-wrestling cartoons, old movies, or dramas, or other kinds of sports. Thus, WWE Network only appeals to wrestling marks.

One smart move for WWE Network could be to show a straight drama or comedy. Or perhaps rock concerts or standup comedy. I think failing to diversify will kill the WWE Network.

Yet the WWE Network’s survival proved that streaming video viable and showed you can compete with Netflix (NFLX). The people at Disney, Comcast, AT&T, and elsewhere noticed.

Strangely, WWE is now streaming some of its programming on Peacock. Thus, I think WWE could abandon its network at some point and sell content to other platforms.

WWE and Coronavirus

Oddly, I think coronavirus could be good for WWE. First, coronavirus forced WWE to shut down its giant traveling shows. Those extravaganzas are expensive and they could little value to the company.

Second, coronavirus forces WWE to concentrate on digital content. For example, WWE now holds all of its matches in Orlando and the company spent enormous amounts of money to build the Thunderdome. The Thunderdome is a giant room where fans watch matches through Zoom and other video apps. If you watch WWE TV, you notice that fans’ faces appear on the wall.

Insider notes WWE had received 130,000 requests for Thunderdome admission by September 2020. The Thunderdome went alive in August 2020.

I think Thunderdome could be the future of live sports. To explain, I think sports such as baseball, basketball, hockey, and car racing will create Thunderdome type environments. Similarly, Broadway and music could use the same format to broadcast plays and concerts.

Hence, the coronavirus forced WWE into the future before other entertainment companies. As the great wrestling announcer Jim Ross; or JR, notes the muscle-bound wrestlers figured how to keep making money in a pandemic when other entertainment venues could not.

I think coronavirus puts WWE in an influential position. To elaborate, the WWE has the resources to create enormous amounts of original programming fast when nobody else can. Thus, WWE can offer networks and streaming services hundreds of hours of original programming.

I predict we will see more wrestling shows on TV and in streaming. Not because people enjoy wrestling, but because wrestling is the only original entertainment program available.

WWE’s Superstars Revolt

Oddly, the WWE is facing labor unrest and a revolt by some of its superstars. For instance, many WWE stars dislike the company’s ban on third-party social media.

The principal victim of this policy was Zelina Vega who was making more money on Twitch and social media than in WWE, Wrestling Observer’s Dave Meltzer claims. WWE fired Vega on 13 November 2020.

Vega has received support from ‘The Screen Actors Guild – American Federation of Television and Radio Artists,‘ (SAG-AFTRA) union, Sportskeeda claims. SAG-AFTRA President Gabrielle Carteris reached out to Vega after her release.

Failed Democratic Presidential candidate Andrew Yang has also supported WWE. Yang has become an outspoken critic of the WWE and Vince McMahon. Yang even went on Chris Jericho’s Talk is Jericho podcast to attack the WWE.

Yang told Jericho that he has been in contact with unhappy superstars. Yang claims that a WWE superstar sent him a copy of the WWE contract. Yang, an attorney, considers the WWE contract restrictive, unfair, and possibly illegal.

Will the Superstars’ Revolt Destroy WWE?

I don’t know where the WWE stars’ revolt will lead, but it reminds me of the stars’ revolt in the late 1940s that brought down the notorious Hollywood studio system.

To explain, in the 1930s and 1940s, the studios; MGM, Warner Brothers, RKO-Radio Pictures, Paramount, Universal, and 20th Century Fox, tried to keep complete control over stars through ironclad contracts. Much as the WWE tries to control wrestlers through ironclad contracts.

Notably, one reason the studio system fell was the “de Havilland law” a lawsuit actress Olivia De Havilland filed against Warner Brothers. de Havilland sued because Warner Brothers put her on suspension. Much as Vince puts wrestlers on suspension today.

I suspect WWE management will need to make concessions to end the revolt. For instance, the WWE could allow stars to make money from outside social media. Hence, the WWE will need to create a new relationship with the stars which could redefine the industry as the 1940s stars revolt reshaped Hollywood.

Within a few years of the de Havilland law, movie stars had creative control, many stars were receiving a cut of the gross; movie profits, and others were producing movies. That was an unheard level of independence for actors just a few years early.

Only time will tell if the superstars’ revolt will destroy WWE. However, one thing is clear. The WWE will have to redefine its relationship with its stars to survive.

What Value Does WWE Have?

On the other hand, I think WWE (WWE) is a terrible stock. I believe Mr. Market overpriced WWE at $41.97 on 25 November 2020.

Yet, WWE offers some value. It will pay a 12₵ quarterly dividend on 28 December 2020, for instance. Overall, WWE offered a 48₵ annual dividend and a 1.16% dividend yield on 25 November 2020.

Thus, WWE is a good cheap dividend stock. However, I think WWE is a niche player in an unstable and rapidly changing industry. I think smart investors need to avoid because WWE I cannot tell what future this company has.