WWE released talent because of an ‘overly cautious’ approach to business

Vince McMahon held an investors’ call today, along with WWE’s interim CFO Frank Riddick, to discuss the state of WWE’s business in the aftermath of their quarter one financial results.

We’ll actually start with the final question of the call, regarding the state of WWE’s annual video game. Here is Riddick’s response:

“No, there’s not gonna be a launch of the game this year.”

The answer was kept short and to the point, with no explanation given. I know some of you are only here to read about video game updates, so you can probably get on with the rest of your night now. I guess you’ll have to keep playing whatever older wrestling games are filling your time these days, because it’s still in your best interests to avoid the abomination that is WWE 2K20.

As for everyone else, you won’t be surprised to hear that the coronavirus pandemic’s effect on business was the primary topic on this call.

Riddick described their approach to risk in the following way:

“Overall, we are concerned about the uncertainty and the impacts of additional government regulations and changes in societal behavior around COVID, and how long it will last. Since we don’t know that, we felt like we needed to be maybe overly cautious, or overly conservative, to try to make sure that we had adequate financial resources to adapt the business however it needed to be adapted.”

“We don’t see anything right now that would result in a huge use of cash, but we don’t know what the market’s gonna look like, or performance is gonna look like in the next few quarters, because we don’t know what the impact of COVID’s gonna be. As soon as we know that, we’ll have a better idea of how to model it, so we’ve been very cautious.”

McMahon then chimed in with the following:

“And the old expression of cash is king. We have no debt. We’re not looking to buy some crazy something. We’re just making certain, that we are being conservative, and maybe overly cautious.”

WWE’s business is absurdly profitable thanks to its television rights fees. Could WWE’s overly conservative approach here be related to uncertainty about how long they will continue to be able to run and televise empty venue events?

It doesn’t sound like that’s the issue. McMahon assured everyone that their TV partners have their back. He also said there are contingency plans in place in case Florida goes back on its decision to label nationally televised pro wrestling as an essential business:

“Yes we do [have other locations available]. A number of them in a number of states would welcome us.”

Well, that’s awfully vague, but it sounds like Vince has a number of undisclosed locations ready as a backup plan if things go awry in Florida.

The main takeaway from the call is that WWE just doesn’t know how to quantify the impact of COVID-19 on their business right now, and more time will be needed to figure that out. WWE previously projected record profits for the full year, but Riddick was unwilling to stand behind that estimate:

“We’re not in the position to give guidance on the full year right now, because if we were, we would have given it publicly. So I think we’d like to defer on that, see a few more cards here, and how things actually play out in the next month or so, if it looks like the economy may re-open and we see how it affects our business. I think it’s just too early to go out on a limb.”

The decreasing WWE Network subscriptions were asked about, and McMahon said they are exploring improvements and new marketing techniques. It sounds like a free version of the network will come towards the final quarter of 2020.

Live event uncertainty is a major concern right now. When discussing the eventual return of live events, McMahon made it clear that he has no crystal ball and he can’t even guess when that will happen. He also doesn’t know what it will look like at first, in terms of how closely fans will be allowed to sit near each other, or what standards they might need to meet to gain admission into the venue. But Vince assured everyone that WWE is always the first one to figure out how to best handle unusual circumstances, so they will of course be on the cutting edge of tackling this issue as well.

“I don’t know that we’re gonna be in the Live Event business as we were before. No one can predict what’s gonna happen here. We’re ready, if it’s allowed...I think it’s gonna take a while for consumers to want to come out.”

“If anyone can figure it out, we will. We’re highly adaptable, as you’ve seen through the years. Whatever happens, we’re there. I think it’s gonna be more content-oriented, heavily marketed, in terms of, not live events, but more in terms of programming and social and digital media, which are way up. There are a lot of things we can do there. It’s a creative environment, is the way I look at it. Obviously it’s not a problem, it’s an opportunity.”

My personal interpretation of that response is “More Boneyard!”

McMahon also mentioned that even if WWE doesn’t return to Saudi Arabia in 2020, they’ll just add an event on the backside of the 10 year deal to make up for it.

Regarding WWE’s desire to pursue a strategic alternative to WWE Network in the form of licensing out their content to third parties, Riddick said the lack of a deal is entirely because every third party is still dealing with struggles related to COVID-19. It has nothing to do with a lack of interest in WWE’s product.

“We haven’t heard that they don’t have a lack of interest in the property. That’s not the case. I think we’re excited about the performance of the network in this environment. I think it only enhances the value of it, and gives us more options. But we’re still pursuing a strategic transaction.”

I think it’s fair to say that third parties are not looking to spend hundreds of millions of dollars on WWE’s content because of the global pandemic. But I fail to see how the pandemic enhances the value of the WWE Network, because if that was the case, then why is it taking so long to sign a deal, and why are network subscriptions headed in the wrong direction?

Vince also says that the wrestlers see it as a duty to perform during these unprecedented times:

“Our talent have taken this as a challenge, have taken this almost as a duty, which has always happened with us. And they realize that people are sitting at home, they’re bored...so they look at this as a challenge and they’ve really risen to the occasion. It’s amazing, actually. There are a few that are unable to come down due to certain things that exist. But nonetheless, by and large, kudos to them, they are very very special people. They’re extraordinary athletes. They love to give. That’s what this business is about. That’s why they got into it, is to give and perform for the audience...All in all, I’m so proud of them.”

With that kind of pep talk about how dutiful it is for the wrestlers to show up and work, and how they got into the business because they love to give, I’m sure there’s no pressure at all felt by anybody in WWE to come to work during a global pandemic if they don’t feel comfortable. Sure, no heat, no issues.

Vince didn’t offer any word on how amazing those bored people are who have chosen to stay home in order to rise to the challenge of defeating a global pandemic. But the call was only an hour long, so there’s only so much that can be said.

The bottom line takeaway is that WWE is swimming in cash right now due to their TV deals that kicked in last fall as well as the Saudi Arabia money. But they apparently have no idea how to model their business performance in the midst of a global pandemic, so they are being overly conservative with their approach. However, Vince McMahon is very confident that WWE will always find a way to adapt to any situation and be the first ones to discover creative solutions to any obstacles in their way. Just not the obstacle of keeping everyone employed during a global pandemic, I suppose.

What do you think of the answers Vince McMahon and Frank Riddick provided in this earnings call?