WWE wrestlers feel the McMahons are stealing from their pockets to fund the Network

As our Tuesday Rumor Roundup mentioned, there's widespread unhappiness within the WWE locker room at the moment over their payoffs, as despite house show attendance and video game sales remaining strong, their compensation has significantly declined so far this year.

The timing of this decline in pay directly coincided with the launch of the struggling WWE Network, which, according to Dave Meltzer in this week's subscriber only Wrestling Observer Newsletter, led to performers bitterly concluding that the McMahon family must be stealing from their pockets to fund their new toy:

"There was a great deal of grumbling, particularly around the time of WrestleMania, because of payoffs being lower for the same grosses than previously, and wrestlers feeling their pay was being used to finance the network."

Indeed, talent related expenditure was down 19% in this year's first quarter compared with the same quarter in 2013, although part of the fall can be attributed to last year's spending being swelled by The Rock headlining both the Royal Rumble and Elimination Chamber pay-per-views.

In particular, Meltzer confirmed Mick Foley's complaints that video games royalties paid to talent were a small fraction of what they were two years ago under the new deal with 2K Sports:

"Another top tier star noted to us that he earned more than six times more two years ago from video game royalties than this year. Last year’s royalties off the video game were way down because of the bankruptcy and everyone expected that. But the expectation was this year would be back to normal levels, and instead it was a small percentage of what it used to be. With the exception of the super merchandise movers like [John] Cena and [CM] Punk, the video game royalties are the biggest supplemental income the performers have. Since Foley publicly said what he did, we got notes from three major names (these are not the Cena tier, but pretty close to it), and their video game checks were in the $10,000 to $15,000 range, and two years ago they were $70,000 to more than $100,000."

Given that we're talking about the loss of tens of thousands of dollars for seemingly no apparent reason, you can perfectly understand why WWE wrestlers are unhappy.

Especially when they've been kept completely in the dark about whether they will even share in the proceeds from the WWE Network like they have traditionally done from the monthly PPV events, yet alone the percentage they would get. With subscriptions still several hundred thousand away from reaching the estimated break-even point of a million, clearly the next quarter is also going to be another lean period for the boys in the back.

However, there's little evidence from WWE's recent financial statements that backs up the hypothesis that WWE have purposefully cut performer pay to cover for some of the costs of their Network.

The reason for house show payoffs being down despite revenue from those events staying constant was due to increases in building rental, advertising and promotional expenses, which meant there was less money to pay the wrestlers once those costs had been taken care of. Indeed, profits for the live events division was down 14%.

Regarding the disappointing video game royalties, Meltzer explained that this was due to the terms of the contract WWE signed with 2K last year, where they agreed to a lower cut for sales below a certain threshold in order to ensure that a game was still released in autumn 2013:

"Regarding the video game payoffs, WWE, when it cut its deal with 2K Sports, reportedly 2K Sports didn’t want to do the game right away, preferring to launch late 2014. After not making much money off the video game in 2013 due to the THQ bankruptcy, WWE didn’t want to go without video game money for the 2014 books because that’s tens of millions and it would look really bad for Wall Street, and give an illusion of a company falling in its licensing. So in cutting the deal, the report we got is the first dollars that come in, WWE was getting royalties at a substantially lower rate. They will start to make significantly more money once sales reach a certain level. Reportedly they have reached that level, but hadn’t by 3/31, when the quarter ended and the check came in. Supposedly the money will even out and a far bigger than usual second quarter check will be coming to make up the difference, both to the company, and to talent."

The problem is the lack of communication with talent. I'm sure if they'd have known that WWE had to take a worse deal so their video game franchise didn't skip a year, then they'd have been much more amiable about the situation. After all, some money is better than no money.

In reality, the WWE Network is being paid for out of all the money the company started hoarding once profits skyrocketed in the Attitude Era that they didn't squander on more ill-thought out ventures like the XFL and their WWE themed Times Square restaurant. Over the last 3 months, WWE's cash reserves were cut by 20%, from $109.4 million to $87.3 million. It's also worth noting that WWE opened a line of credit for $31.6 million to pay for their new, much larger, corporate jet.

At current rates of spending, WWE will run out of their cash reserves in about a year, so they desperately need the upcoming expected big hike in TV rights fees while the Network gets on its feet. Those dwindling bank accounts might also partly explain the recent promotional hot shotting to get people to sign up for the channel before the end of the month.