Post a Comment On: Indeed Wrestling

Yesterday, WWE reported 400,000 US homes purchased Wrestlemania XXX via traditional PPV means.  With internal expectactions running at about 250,000, this number was considered a large sucess for the WWE since domestic buys were only at about 66% of last year's level. I was joined by David Bixenspan (@davidbix) to discuss these numbers on a quick 15 minute podcast which was a great follow-up to my one-hour broadcast with Bix last week  discussing the relevance of the 667,287 subscriber numbers (a story that many media reports completely missed).
The challenge was: With the latest data, can we determine what the revenue & profit impact of the WWE Network looks like for 2014?
Here's my take....
KNOWN DATA Here is PPV Revenue 2011-2013 by Quarter (see trending schedules 2011-2013 from corporate.wwe.com)


YEAR: Q1 / Q2 / Q3 /Q4
2011: 13.5 / 34.4 / 15.8 / 14.6
2012: 13.5 / 40.8 / 16.3 / 13.0
2013: 15.1 / 37.1 / 14.6 / 15.7

From the latest annual report:
Pay-per-view net revenues were $82.5 million, $83.6 million and $78.3 million, representing 16%, 17% and 16% of total net revenues in 2013, 2012 and 2011, respectively, of which $66.9 million, $66.4 million, and $61.3 million were generated domestically. 2011-2013 PPV Buys
2011
Royal Rumble 2011 (1/30/2011): 281k North American buys + 195k other buys outside North America {Q1}
Elimination Chamber 2011 (2/20/2011): 145k North American buys + 67k other buys outside North America {Q1}
WrestleMania XXVII (4/3/2011): 679k North American buys + 445k other buys outside North America {Q2}
Extreme Rules 2011 (5/1/2011): 108k North American buys + 108k other buys outside North America {Q2}
Over the Limit 2011 (5/22/2011): 72k North American buys + 73k other buys outside North America {Q2}
Capitol Punishment 2011 (6/19/2011): 85k North American buys + 91k other buys outside North America {Q2}
Money in the Bank 2011 (7/17/2011): 146k North American buys + 59k other buys outside North America {Q3}
SummerSlam 2011 (8/14/2011): 180k North American buys + 131k other buys outside North America {Q3}
Night of Champions 2011 (9/18/2011): 109k North American buys + 60k other buys outside North America {Q3}
Hell in a Cell 2011 (10/2/2011): 98k North American buys + 84k other buys outside North America {Q4}
Vengeance 2011 (10/23/2011): 65k North American buys + 56k other buys outside North America {Q4}
Survivor Series 2011 (11/20/2011): 179k North American buys + 133k other buys outside North America {Q4}
TLC 2011 (12/18/2011): 98k North American buys + 81k other buys outside North America {Q4}

2012
Royal Rumble 2012 (1/29/2012): 299k North American buys + 184k other buys outside North America {Q1}
Elimination Chamber 2012 (2/19/2012): 138k North American buys + 56k other buys outside North America {Q1}
WrestleMania XXXVIII (4/1/2012): 715k North American buys + 504k other buys outside North America {Q2}
Extreme Rules 2012 (4/29/2012): 159k North American buys + 112k other buys outside North America {Q2}
Over the Limit 2012 (5/20/2012): 124k North American buys + 48k other buys outside North America {Q2}
No Way Out 2012 (6/17/2012): 110k North American buys + 90k other buys outside North America {Q2}
Money in the Bank 2012 (7/15/2012): 114k North American buys + 92k other buys outside North America {Q3}
SummerSlam 2012 (8/19/2012): 296k North American buys + 96k other buys outside North America {Q3}
Night of Champions 2012 (9/16/2012): 112k North American buys + 95k other buys outside North America {Q3}
Hell in a Cell 2012 (10/28/2012): 157k North American buys + 50k other buys outside North America {Q4}
Survivor Series 2012 (11/18/2012): 125k North American buys + 91k other buys outside North America {Q4}
TLC 2012 (12/16/2012): 75k North American buys + 106k other buys outside North America {Q4}

2013
Royal Rumble 2013 (1/27/2013): 364k North American buys + 215k other buys outside North America {Q1}
Elimination Chamber 2013 (2/17/2013): 181k North American buys + 60k other buys outside North America {Q1}
WrestleMania 29 (4/7/2013): 662k North American buys + 442k other buys outside North America {Q2}
Extreme Rules 2013 (5/19/2013): 137k North American buys + 108k other buys outside North America {Q2}
Payback 2013 (6/16/2013): 108k North American buys + 90k other buys outside North America {Q2}
Money in the Bank 2013 (7/14/2013): 169k North American buys + 54k other buys outside North America {Q3}
SummerSlam 2013 (8/18/2013): 207k North American buys + 125k other buys outside North America {Q3}
Night of Champions 2013 (9/15/2013): 103k North American buys + 93k other buys outside North America {Q3}
Battleground 2013 (10/6/2013): 81k North American buys + 33k other buys outside North America {Q4}
Hell in a Cell 2013 (10/27/2013): 130k North American buys + 98k other buys outside North America {Q4}
Survivor Series 2013 (11/24/2013): 94k North American buys + 83k other buys outside North America {Q4}
TLC 2013 (12/15/2013): 140k North American buys + 41k other buys outside North America {Q4}

REGRESSION (Buys -> Revenue) We can estimate buys for 2014, but we want to compare revenue. We can run a regression where our inputs are Quarterly North American Buys x PPV Price & Quarterly Outside North American Buys x PPV Price and our output is Actual Quarterly PPV Revenue.

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(x-axis is total PPV revenue from NA before splits, y-axis is total PPV revenue from INTL before splits - assumes same PPV price; size of bubble if actual WWE PPV revenue)

Inputs: x = NA buys, y = Buys from Outside NA, z = Price of PPV
Quarterly PPV Revenue generated during non-WM qtr = sum of QTRly {z*(x*.505 + y*.353)}
Quarterly PPV Revenue generated during WM qtr = sum of QTRly {z*(x*.632 + y*.125)}
With this formula, we can estimate how much revenue will be generated.

So, for Q1 2014:
Royal Rumble 2014 (1/26/2014) - 285k NA buys, 160k outside NA buys
Elimination Chamber 2014 (2/23/2014) - 156k NA buys, 47k outside NA buys I'll assume PPV price of $44.95 (consistent with what was assumed for 2011/2012/2013. (While there is a greater percentage of folks buying PPV in HD, this is a decent proxy since our regression is handling the buys to revenue conversion -- I'm applying the same percentage as last year so it should be in the ballpark.)

Q1 2014 revenue estimate: (441,000*.505+207,000*.353)*44.95 = $13.3M (a drop from 2013 since Rock wasn't wrestling, in line with 2011/2012).

ESTIMATE BUYS FOR REST OF 2014
This is, of course, the great unknown. What do we assume for baseline for WWE PPVs? How much should we adjust?

Here's how I handled it:
a. Take the average of 2011/2012/2013 buys (split into NA and non-NA)
b. Assume 60% retention for NA buys
c. Assume 95% retention for non-NA buys

Q2 2014
WrestleMania XXX (4/6/2014): 400,000 US homes + 66,000 Canadian homes + 440,483 non-NA homes
Extreme Rules 2014 (5/4/2014): 81,000 NA homes + 104,000 non-NA homes
Payback 2014 (6/1/2014): 58,000 NA homes + 80,000 non-NA homes
Money in the Bank 2014 (6/29/2014 ): 73,000 NA homes + 75,000 non-NA homes
Estimated Q2 revenue: $28.4M

Q3 2014
Battleground 2014 (7/20/2014): 86,000 NA homes + 65,000 non-NA homes
SummerSlam 2014 (8/17/2014 ): 137,000 NA homes + 111,000 non-NA homes
Night of Champions 2014 (9/21/2014): 65,000 NA homes + 79,000 non-NA homes
Estimated Q3 revenue: $10.6M

Q4 2014
Hell in a Cell 2014 (10/26/2014): 77,000 NA homes + 73,000 non-NA homes
Survivor Series 2014 (11/23/2014): 80,000 NA homes + 97,000 non-NA homes
TLC 2014 (12/14/2014): 63,000 NA homes + 72,000 non-NA homes
Estimated Q4 revenue: $8.8M

Total estimate 2014 PPV Revenue was: $13.3M+$28.4M+$10.6M+$8.8M = $61.1M (about $45.8M domestic PPV revenue)
ESTIMATE OTT REVENUE FOR 2014
* I assumed that there's about 2% growth for the rest of year. That would end the year around 800,000 subscribers.

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Estimate WWE Network Revenue in 2014
Q1: $4.15M
Q2: $19.99M (ends 700k subscribers)
Q3: $22.06M (ends 750k subscribers)
Q4: $23.41M (ends 800k subscribers)

Combined Revenue Streams and Examine Profitability
PPV = Pay-per-view; OTT = Over-the-top (WWE Network)

2014 PPV + OTT
Q1 = $13.3M (PPV) + $4.1M (OTT) = $17,446,000
Q2 = $28.4M (PPV) + $20.0M (OTT) = $48,408,000
Q3 = $10.6M (PPV) + $22.1M (OTT) = $32,628,000
Q4 = $8.8M (PPV) + $23.4M (OTT) = $32,243,000
TOTAL: $61.11M (PPV) + $69.61M (OTT) = $130,725,000

Estimate Expenses:
PPV
2011 PPV OBIDA = $39.8M from $78.3M revenue (51%)
2012 PPV OBIDA = $44.9M from $83.6M revenue (54%)
2013 PPV OBIDA = $34.1M from $82.5M revenue (41%)
Average: 49%

We'll assume median PPV cost of $38.7M

Estimated 2014 PPV OBIDA = $61.M - $38.7M = $22.4M

OTT 2014 OTT Expenses (prior to cannibalization) was $55M in the original WWE presentation for levels under 1 million subscribers.

Estimate 2014 OTT OBIDA = $69.61M - $55.00M = $14.61M

Combined OBIDA (prior to other cannibalization): $14.6M (OTT) + $22.4M (PPV)  = $37M (28%)

HOME ENTERTAINMENT I haven't included any estimate for what this will do the Home Entertainment Business, which is another source of revenue cannibalization.
Last year, Home Entertainment Revenue was $24.3M and OBIDA on that segment was $8.8M (36%).

Conclusion Ultimately, with these assumptions (I left out international WWE Network launch because that adds both more expenses and drops buys), we end up with OBIDA for PPV+OTT basically between 2011/2013 levels. Revenue is up a lot, but so are costs. And I'm not sure if the $55M costs that WWE listed really will include the full burden for launch/start-up/marketing elements. So, at this point, it appears to be a wash, but I've got a lot of assumptions that B-level PPVs continue at 60% of the baseline, which seems very high to me.  If you want to apply ridiculous growth rates to WWE Network, you can make it look great. If you want to assume b-level PPV dropoff is much more severe than I assumed (60% of previous baseline), then it's going to look weaker.
-Chris Harrington (@mookieghana)

Other important reads:
* Needham Research Estimates 2014-2016 Financials for WWE * My analysis of Needham's report: Grossly Overestimating future Revenues.
As always, feel free to talk to me at chris.harrington@gmail.com