I DIDN"T ASK FOR THIS
Ouch. Stock was down to $10.11 (up little bit now to $11.36)Talk about getting body-slammed: World Wrestling Entertainment (WWE), which normally broadcasts all the hits, is instead taking the hits early Friday morning after a new TV deal with NBCUniversal has failed to impress investors. The terms of the new contract are so underwhelming that, despite insistence from chairman Vince McMahon that the deal will be good for the company’s earnings, shares of WWE are plunging nearly 50% in early Friday trading.
WWE announced Thursday evening that it has reached a new multi-year deal with NBC that will allow its Monday Night Raw to continue to air in a three-hour block on the USA Network and for Friday Night Smackdown to air on NBC’s Syfy Network. In statements released Thursday night, executives from both companies said they were pleased to be able to continue their partnership and estimated that on a weekly basis, WWE programming reaches more viewers than the NBA, NASCAR, MLB, NHL and UFC.
In a separate statement, WWE chairman and CEO Vince McMahon said that given the anticipated increase in television rights, he expects the company’s OIBDA (operating income before depreciation and amortization) to fall somewhere between $125 million and $190 million by 2015. With the renewal of the company’s television distribution agreements in the U.S., U.K and Thailand, WWE expects to reap $200 million, a $90 million increase over prior television rights agreements.
However, for investors and market analysts alike, the terms of the deal are not nearly impressive enough.
“We estimate management negotiated a +50% increase on the Company’s domestic TV rights Fees with NBCUniversal, meaningfully below the guided multiple of 2X to 3X,” wrote Benchmark analyst Mike Hickey in a note Friday morning. Quoting Hulk Hogan – ”To all my little Hulkamaniacs, say your prayers, take your vitamins and you will never go wrong” — Hickey downgraded WWE’s rating from a buy to a hold and cut its price target from $29.12 to $19.96.
“The company’s valuation could take a heavy beating this morning, as the new domestic TV deal with NBCU likely disappointed investors over limited visibility and believability on the ultimate success of the network,” Hickey said.
Of additional concern: the company’s WWE Network — McMahon’s attempt to bring wrestling “over the top,” industry speak for online streaming — needs to add 1.3 million to 1.4 million global subscribers in order to offset the Network’s cannibalization of WWE’s pay-per-view revenue, but first quarter subscriber numbers indicate that the Network has gained just 670,000, results that put the company on track for an operating income loss.
“The rate of subscriber adoption is a critical determinant of the company’s projected future financial performance,” WWE said Thursday evening, going on to project that if the WWE Network achieves 1 million subscribers by year-end 2014, it would yield a 12-month average of 650,000 subscribers for the year. This, in turn, would translate to an estimated full-year OIBDA loss ranging from $35 to $45 million and a full-year net loss ranging from $45 to $52 million.
These initial results are consistent with predictions from Intrepid Capital’s Jayme Wiggins, who in January unloaded a 10% stake in WWE (at 100% profit) and in March told FORBES, “The network is a slam dunk for a die-hard fan, but I don’t think it’s going to be easy for them to get another 500,000.”
After starting 2014 with a bang — WWE was one of the market’s best-performing stocks after 2014′s first quarter — WWE took a turn in early April, falling nearly 20% after Wrestlemania XXX. Shares of the stock are currently down 46.6%; year-to-date, WWE has gained 24%, a return that beats the overall market but pales in comparison to its 75% first quarter return.
The stock’s losses have also had a body-blow impact to Vince McMahon’s personal wealth: according to the FORBES real time wealth tracker, McMahon has lost $357 million, nearly a third of his fortune, since Thursday’s closing bell.