WWE was once a company that was a machine whose financial results were always very healthy. But their ambitious nature has caused them to stray from that safe path, leading to business being a very mixed bag for over a year.
It all started in the final quarter of 2011, where they posted their first three month loss (a whopping $8.6 million) in quite some time due to an impairment charge of $12.2 million from their failing movie division.
At the 2012 annual stockholders meeting, Vince McMahon guaranteed that WWE would be in stronger shape in a years time, but that promise really hasn't come to fruition.
Though they got off to a strong start with profits being up $6.7 million in the first quarter of 2012, things fizzled from there. Even though WrestleMania 28 with the first match between John Cena and The Rock was the biggest grossing event in wrestling history, profits for the second quarter were still down $2.4 million. Worse news came in the third quarter with profits down $13.9 million, but much of that was due to returning to a more normalised level of management incentive compensation. In the final quarter of 2012 they made a measly $600,000 profit, which only looked acceptable in comparison to the huge loss made in the same quarter the prior year.
WWE's financial state of affairs weren't much better during the first quarter of 2013 either. Although revenue was slightly up compared with the same quarter last year from $123.1 million to $124.0 million, their profits were way down falling from $15.3 million to just $3.0 million.
There were several reasons for such a steep decline in profits:
- Increased spending on their developmental territory NXT, which included the construction of a new 26,000 square foot training facility in Orlando, FL.
- The high cost of "celebrity guest appearances", i.e., by The Rock and to a lesser extent Brock Lesnar too. Though their presence didn't pay off in this quarter, as WrestleMania 29 was a big success, they were worth it in the long run.
- A significant decline in domestic home entertainment profits, due to overestimating the demand for their DVDs during the Christmas season.
- Lower revenue from video game, toys and other licensed products, due to a 23% decline in their sale in international markets.
- A decline in international touring profits, due to the weak performance of house shows in the emerging markets of Turkey and Qatar.
- A $4.7 million impairment charge for the WWE movie Dead Man Down after it generated lower domestic box office receipts than anticipated.
- A $500,000 increase in spending on preparations for the WWE Network.
However, it wasn't all bad news. As Geno Mrosko reported earlier this week, pay-per-view buys were up 17% overall from last year for the combination of the Royal Rumble and Elimination Chamber. Average domestic attendance of house shows was up 3%, despite average ticket prices increasing by 2%. Digital media related business revenue were up 27% ($1.9 million), mainly thanks to WWE's recent deal to license content to Hulu Plus.
These positive signs allowed Vince McMahon to remain bullish about the company's future in the company's official press release reporting these results:
"In the first quarter, our performance reflected investments to enhance our brand strength, which we view as a critical determinant of our long-term growth. Operating metrics such as pay-per-view buys and live event attendance, which are key leading indicators, continued to show improvement. Demonstrating the ongoing demand for WWE content, we successfully staged WrestleMania in April, which attracted more than 80,000 fans and is expected to deliver more than one million pay-per-view buys globally, ranking the event as the highest grossing and most profitable pay-per-view event in our history. Looking ahead, we are confident that we can leverage this demand to transform our business."
If Vince's dream of the WWE Network ever gets off the ground, then these quarterly reports might fast become a nightmare. Hopefully he isn't setting up his company for a mighty fall.