WWE Dumps Co-Presidents, Share Price Tanks
On Thursday Jan. 30th, World Wrestling Entertainment (WWE) unexpectedly announced that co-presidents Michelle Wilson and George Barrios would be leaving the company and vacating their seats on the company’s board of directors, effective immediately. Frank Riddick III (another long-time board member) has been tabbed interim chief financial officer and will oversee the business' operations until the company finds a new CFO and CRO. The unexpected corporate shakeup sent WWE shares tumbling -21.5% on Friday (1.31), to their lowest point ($48.88) since May 2018.
Howie Long-Short: It’s remains unclear what triggered Vince McMahon to part ways with two of the company’s most senior executives, but respected wrestling industry insider David Meltzer (publisher/editor Wrestling Observer Newsletter) says that it was a spur of the moment decision. “I never heard anything negative about those two or the jobs that they were doing. It’s not like [momentum to replace them] was building internally.”
Barrios and Wilson held c-level titles at the company for nearly a decade before being named co-presidents in 2018 - the highest earning year in WWE history - and the duo was influential in helping negotiate a pair of new TV deals worth more than $2 billion (despite the promotion’s declining ratings), so news of their departures certainly surprised industry observers. In hindsight, perhaps it shouldn’t have. Both executives cashed in a large percentage of their stock options (see: Wilson sold +/- 80% of the shares she held for +/- $11 million last August) over the last year. Meltzer asked “if the [pair thought that] the company was going to continue to grow and grow, why [would they] cash out now?”
The high-profile departures come less than one week (February 6) before WWE is scheduled to hold their Q4 2019 and FY19 earnings call, one not expected to be particularly upbeat; the company recently downgraded its 2019 adjusted OIBDA estimate from $190 million to $180 million. WWE will post disappointing results despite the Q419 ledger including “a [lucrative] Saudi payoff and money from the NXT television deal that wasn’t accounted for in the earlier projections” (because there was no NXT broadcast deal in place at the time). Meltzer attributes the underperformance to several key performance indicators trending downward (think: live event ticket sales, merchandise sales, PPV sales and network subscriptions) and the rising cost of talent. He explained “the [value of] the new talent contracts signed over the last year are way up, in every case, because there is a fear that people [will leave to go] to AEW.”
While there are certainly some red flags within the business, Meltzer says that at less than $50 WWE is “way undervalued” (remember: the stock price cleared $100 last April). “If [we were discussing] the old days [of the 1970s and 1980s] and the company had to rely on selling tickets to customers and selling PPVs, it would be in trouble, but those revenue streams are a minor percentage [of the business' income today] relative to the television money [coming in]. The U.S. broadcast deals now drive the whole company and that’s not changing - those deals are signed for the next five years.” It’s conceivable that investors have longer-term concerns (i.e. declining popularity + cord cutting = smaller TV contracts in the next round of negotiations), but Meltzer doesn't see it that way. “WWE still has the ability to draw a consistently large audience (at least on a relative scale) multiple times/week and my gut tells me there will be more suitors for the product in five years - between streaming services and television - then there are now.”
If there is reason to be concerned about WWE’s long-term future it’s because they have an aging audience and a viable competitor - for the first time in a long time - that is resonating with younger viewers. Meltzer explained that “in 2000, the average age of [the WWE] television audience was 23 years old; today it’s 50 years old for Raw and SmackDown and 55 year old for NXT.” The fact that the demographic skews upwards for NXT (their developmental brand) would seemingly indicate the WWE is losing younger viewers to its upstart competitor, AEW, on Wednesday nights. AEW's early success has led to an extension of their broadcast deal with Warner Media, one that will include a second night of programming each week The pact increases the amount of available wrestling programming on television (in a space already seemingly oversaturated) and the pressure on WWE to improve their product.
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