XFL Needs Ratings To Stabilize in ’21 or League's Future Could Be In Doubt

JohnWallStreet

The XFL’s Week 5 slate drew an average of +/- 1.5 million viewers on broadcast television (1.54 million on ABC, 1.49 million on FOX) and +/- 800K viewers on cable (767K on FS1, 833K on ESPN). Collectively, the audience declined -19% week over week (after a -17% drop between Week 3 and Week 4). While the numbers posted last weekend are respectable, after 5 straight weeks of declining viewership it begs to wonder when the slide will stop. Coronavirus ended the league’s regular season on Thursday (it doesn’t sound as if a decision has been made on the playoffs), so we aren’t going to have our answer anytime soon, but media rights consultant Patrick Crakes says stabilization needs to take hold in '21 if Vince McMahon is going to realize a worthwhile return on his investment in the spring football league.

Howie Long-Short: Crakes explained that “[McMahon] is planning to invest $300 - $500 million dollars into the league. One has to think he wants to create at least double that number in value.” Remember, WWE has an uncompensated stake in Alpha Entertainment (the XFL’s parent co.). The upstart football league needs to generate a “significant rate of return” to add incremental value to the $2.5 billion dollar company. To realize that value long-term, the league is going to need to negotiate a lucrative broadcast rights agreement(s) within the next 3-5 years and if ratings continue to decline that might not be possible.

The value of that deal will ultimately be determined by the size of the league’s audience and the strength of its demographics, but one can’t just assume because the XFL’s ratings compare favorably to some NBA, NHL or MLB games that a billion dollar rights deal is on the horizon. “Those leagues are not the right comp. because they offer so much more inventory. They provide a different value proposition for the networks than the XFL does” (think: several games 7 days/week for 6-9 months vs. 4 games/week on Saturday/Sunday for 10 weeks).

Crakes says that if the league’s regular season ratings were to stabilize the XFL could become a valuable asset in a broadcaster’s portfolio. “They could have finished the first season declining -5% week over week and still ended up doing better than other sports on TV that are considered Tier 1.”

Perhaps as important as the stabilization of regular season viewership is how the league draws once the playoffs begin. “If television ratings were to really go up during the playoffs, that would drive value [in the league's rights]. There are a lot of sports - like baseball on a national level - where the regular season is really an investment in marketing for the post-season.” Crakes cited FOX Sports and Turner as examples of companies that generate a “significant majority of their baseball revenues during the playoffs and World Series" (through sub fees, retransmission fees or advertising dollars).

To get an idea as to what an XFL broadcast deal might look like, Crakes suggests looking at MLS. The 20 year old soccer league has more inventory, but the fact that its clubs play just twice/week make it the best comparison. Considering the league drew an average of just 246K viewers on ESPN last season and rakes in +/- $100 million/year in television revenue (the USMNT and USWNT share in that), it’s reasonable to envision the league’s “[broadcast rights] being worth as much as $200 million/year in 5 years.” That would almost certainly make the business cash flow positive (remember, they draft off the WWE for personnel and services) and give Vince the runway needed to execute his long-term plan (perhaps a sale to the NFL?).

To command a nine-figure/year rights deal, the league is going to have to increase its inventory. Since football teams can only play once/week, that means the XFL will need to add expansion franchises. Assuming Vince isn’t willing to invest beyond the $500 million allocated, at some point “he may need to go to investors and sell limited partnerships.” Crakes suggested that the ratings would need to stay close to where they are today to draw interest. Of course, MLS - with lower ratings - was recently able to command $300 million for an expansion club.

The league’s future is far less clear if ratings continue to slide. Crakes suggested that from an investment perspective it’s important that the games not draw less than 750K on broadcast television or 500K on cable. “With the inventory they have right now and ratings below that level, it would be difficult to land a sizable broadcast deal.” If that becomes McMahon's reality, there wouldn't seem to be any reason for him to continue pouring money into the league.

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