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WWE’s profits are soaring to ridiculous new heights during the coronavirus pandemic

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WWE has released its financial results for the second quarter (Q2) of 2020, and in doing so the company touted its ability to adapt to the challenges presented by the COVID-19 pandemic. Overall, the company’s profits for the quarter far exceeded analyst estimates.

Here is a summary statement from their press release about the strong Q2 performance:

“Our second quarter financial performance was strong and demonstrated our ability to respond to the challenges posed by COVID-19,” said Vince McMahon, WWE Chairman & CEO. “We continue to adapt our business to the changing environment, focusing on the development of new content for global distribution platforms and increasing audience engagement to drive growth and value for our shareholders.”

Frank Riddick, interim Chief Financial Officer, added “In the quarter, we delivered revenue of $223 million and Adjusted OIBDA of $73.5 million as we continued to offset the impact of cancelled events by reducing costs. Our cash flow remains strong, and we believe we have the capital resources to deliver on our strategic initiatives and growth opportunities.”

Here is a numerical breakdown of their Q2 2020 results.

The main story here is that profits (Total Adjusted OIBDA) are soaring because, even though Total Net Revenue was negatively impacted by the pandemic, Total Operating Income was way up thanks to a tremendous reduction in operating expenses and production costs. When that is combined with a huge increase in televisions rights fees, you get record level profits.

WWE divides its business into several categories - Media, Live Events, and Consumer Products.

As you can see, revenue for Live Events was nearly non-existent due to the coronavirus pandemic.

Media revenue was roughly the same compared to Q2 2019. Last year’s quarter had a big money Saudi Arabia show, and that was offset by the increased televisions rights fees in Q2 2020.

Here is a closer look at the revenue breakdown in the Media segment:

The 2019 “Other” entry of 57.3 million largely consists of the Saudi Arabia money, whereas the television rights fees, included here in “Core Contents rights fees”, are roughly 63 million higher in 2020. Those two values essentially offset each other.

Going back to the first graphic, WWE’s measure of profit, adjusted OIBDA, blew away last year’s mark due to a reduction in operating costs in 2020, which resulted in much higher Operating Income for Q2 2020 compared to one year ago.

You won’t be surprised to hear that WWE is really proud of how they were able to keep their performers safe while still putting on wrestling shows, conveniently ignoring a COVID-19 outbreak and releasing dozens of talent along the way:

“WWE displayed its creativity throughout the quarter as the Company adapted its business model to continue to safely stage in-ring performances. Supporting this achievement, the Company established extensive safety measures to protect the health and well-being of its talent and employees. As a result, WWE was among the very few major sports properties to hold live performances and produce new content throughout the quarter, including its flagship programs, Raw and SmackDown, and its premier annual event, WrestleMania.”

As far as Consumer Products are concerned, WWE focused on increased e-commerce revenue in this quarter as one way they adapted to the pandemic. Therefore Consumer Products numbers remained healthy despite venue merchandise sales falling to zero thanks to COVID-19 canceling live events.

“eCommerce revenues nearly doubled to $12.6 million, substantially offsetting the loss of venue merchandise sales with 76 fewer events in the quarter”

“During the quarter, the growth of WWE’s e-commerce business was supported by the introduction and redesign of six new title belts, such as the Rock Brahma Bull title and the Triple H Signature Series title. Royalties from the sale of licensed console and mobile games continued to benefit from recent industry growth trends. Video game revenue reflected the licensing of WWE Superstars and IP for integration into popular titles, including The King of Fighters All-Star. Growth in the Company’s mobile game portfolio was led by WWE SuperCard and WWE Champions, which both generated revenue gains of more than 15% from the prior year quarter. The Company plans to expand its game portfolio with the launch of an arcade style game, WWE 2K Battlegrounds, in the Fall of 2020.”

WWE also provided some details on their WWE Network subscribers compared to Q2 2019:

“WWE Network average paid subscribers declined 1.5% to 1.66 million while ending paid subscribers increased 6% to 1.69 million”

Here is the accompanying graphic to illustrate network subscriber trends:

For the most part, the graph shows a decreasing trend in domestic average paid subscribers across corresponding quarters from previous years.

One interesting development is that WWE’s social media followers did not increase from Q1 2020, which I don’t believe has ever happened before:

On the bright side, lots of people are clicking on WWE’s digital content while spending more time at home during the pandemic:

“Digital video views increased 10% to a record 9.9 billion and hours consumed increased 15% to a record 374 million across digital and social media platforms”

Then there is the huge drop off in Raw ratings, which cannot be hidden away:

Like last quarter, the overall idea here is that despite the ratings decline and WWE Network not really growing any more, WWE’s revenues are doing great due to TV rights deals in the United States and India. But unlike last quarter, production costs are way down, which resulted in a profit level that far exceeded analyst estimates.

Here is a chart showing the expense breakdown from Q2 2019 to Q2 2020. They key line to look for is that “Operating expenses” in Q2 2019 were 197.4 million, but only 117.4 million in Q2 2020.

Wrestling Observer’s Dave Meltzer summarized the idea as follows:

It turns out that WWE is still absurdly profitable even during a global pandemic that removes all of their Live Events revenue. Despite this rosy picture, WWE will not offer any guidance on future performance due to the uncertainty surrounding the pandemic.

What stands out to you about WWE’s financial results for Q2 2020?