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At first glance of WWE's second quarter financial results, one would think that WWE's stockholders would be popping open their bottles of champagne, as the company had much to brag about, such as:
- Record breaking revenue of $199 million due to WWE's Live Event and Network segments achieving their highest quarterly revenue ever;
- A record 1.52 million average paid Network subscribers over the quarter;
- Video views and social media engagements continuing to grow rapidly;
- The recently announced multi-year content distribution deal in China with PPTV;
- WrestleMania 32 achieving record breaking attendance, ticket sales, viewership, and social media activity.
However, delving deeper the financial picture wasn't quite as rosy, as despite all these accomplishments, WWE only posted a net profit of $800,000 for the quarter.
The main reason for the small profits ironically seems to have been WrestleMania, which is now a loss leader designed to acquire new Network subscribers who hopefully become long term customers of the service. The production and talent costs associated with the event were $21.5 million, amounting to 41.5% of the revenue for the whole Network division, which combined with increased production costs of other Network programming, led to that segment posting a negative OIBDA (i.e. a loss before taxes, depreciation and amortization are taken out) of -$5.7 million.
Without the costs of producing their biggest show of the year, WWE are expecting the next quarter to be much more profitable, but that is contingent on keeping average paid Network subscribers at close to record levels:
"For the third quarter 2016, the Company projects average paid subscribers to WWE Network of 1.49 million (+/- 2%), representing a year-over-year increase of approximately 27%. The third quarter subscriber forecast represents a sequential decline of 2% from the second quarter 2016, which compares to the 4% decline from the second to the third quarter 2015.The Company also estimates third quarter 2016 Adjusted OIBDA of approximately $24 million to $28 million. This range represents an expected year-over-year increase from $23.4 million in the third quarter 2015 primarily due to the increased monetization of the Company’s video content and the continued strong performance of its Live Events business."
Another key will be the brand split being a success in terms of the increased costs of producing Smackdown live being offset by increased revenue elsewhere. Vince McMahon argued the latter would be the case due to more pay-per-views leading to more income (which given that the Network has cannibalised their pay-per-view business the extra PPVs won't help the bottom line much, if at all) and increased licensing opportunities (time will tell on that nebulous claim):
Brandon Ross (BTIG) asks about Brand Extension - reasons & costs #wweq2 ^CH pic.twitter.com/MkEj87TSR2
— Wrestling Observer (@WONF4W) July 28, 2016
George Barrios also touted that the brand extension would drive more engagement across all media platforms. Hopefully so, but the next six months will prove whether the juice was worth the squeeze from a financial standpoint.