Analysis: WWE stock gets smacked down after new TV deals are unveiled

Normally signing a new long-term TV deal for more money would be good for a company’s stock.

But since unveiling an agreement to keep its hit shows “Raw” and “Smackdown” on NBCUniversal’s cable networks USA and Syfy respectively, WWE stock looks like it’s being beaten by one of its wrestlers.

Since Thursday night, after the new contract was announced at an NBCU Cable presentation to advertisers, WWE stock has fallen almost 45% to $11.32 a share.

Why the smackdown? Analysts were expecting a much bigger contract. NBCU was paying around $90 million annually for “Raw,” “Smackdown” and E!’s “Total Divas,” according to analyst Brad Safalow of PAA Research. The new deal, he said, raises the price to around $150 million annually.
An almost 70% increase in rights fees is nothing to sneeze at. But last February when WWE went public that it was shopping its shows, it left Wall Street with the impression that the new deals would be at least double what it was currently getting and possibly a lot more.

In its marketing materials touting the shows, WWE compared its audience to that of NASCAR, which last year signed a 10-year, $8.2 billion deal with Fox and NBC. That translate to an average of more than $800 million per year.

WWE even retained Chris Bevilacqua, a top sports deal-maker and head of media advisory firm Bevilacqua Helfant Ventures, to negotiate its next TV deal.

Lots of networks including Turner Broadcasting, FX Networks and AMC Networks, heard pitches from the WWE, but the price tag Vince McMahon & Co. were seeking was too high and no one bit.

Money wasn’t the only issue. While “Raw” and “Smackdown” get big ratings, the audience is considered rented, meaning they don’t stick around to sample other programming on the networks that carry them. Furthermore, the value of an advertisement in its programming is less than other shows with similar-sized audiences.

Overall, WWE said its new TV deals around the globe are worth $200 million annually, up from $108 million.

“The rising value of our content coupled with the global expansion of WWE Network will provide the foundation for long-term growth that continues to transform our business over the coming years,” said WWE Chairman and Chief Executive Vince McMahon in a statement.

The disappointment about the new NBCU deals comes just months after Wall Street expressed concern about the WWE’s new online network. Launched in February, the WWE Network has around 700,000 subscribers and the company has said it should hit the million mark before the end of the year.

WWE said it expects the online offering to lose between $45 million and $52 million this year, which is a far bigger figure than had been expected. Initially, there was optimism that the network could be break-even at the end of year one.

“In general, WWE investors remain highly skeptical of management,” said Safalow. “Over the past 5-6 weeks the company’s initial Network subscriber numbers and the mark to market on the domestic TV rights fees both fell short of expectations.”

Safalow was also critical of the guidance the company has been offering on its businesses. “Investors are left with a feeling that the company consistently overpromises and underdelivers,” he wrote.