The Hamilton Ave Journal 08.20.09: Volume 2 – Issue 100

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 2 – Issue 100

ABOUT THE JOURNAL

The Hamilton Ave Journal is the only wrestling news report focused solely on the business of wrestling. Here in the Journal we not only look at the stories that are important to the investor and business-minded person, but also delve deeper into stories that most fans of wrestling would overlook. That is because the Journal is about getting the heart of the matters that affect the companies and outlooks of the wrestling world.

And where is Hamilton Ave? That is the location of the WWE Production Studio in Stamford, CT, and thus the most powerful place in the wrestling world. Besides, The East Main Street Journal just does not have the right ring to it.

Who am I? I am JP Prag: consultant, entrepreneur, businessman, journalist, and wrestling fan.

Now, ring the bell because the market is open.

The Journal’s front page area known as What’s News isn’t just about telling you what has happened. The stories in this section are about what will have an effect on the wrestling industry, individual federations, and the wallets of the fans.

LEAD STORY: TNA lives for three more years

At the TNA iMPACT tapings this week, TNA President Dixie Carter announced to the staff that the company had signed a new three-year deal with SpikeTV. The staff was quick to send out their relief, first of which came from Awesome Kong who sent her congratulations out over Twitter.

Since word got out so quickly, TNA and Spike put together a press release of their own:

Spike TV and Total Nonstop Action (TNA) Wrestling have agreed to a new, three-year extension of their partnership, it was announced jointly today by Kevin Kay, President, Spike TV and Dixie Carter, President of TNA Entertainment.

The deal, which begins October 1, 2009, includes three new years of TNA’s weekly “iMPACT!” show as well as the addition of a new original series of one-hour specials. Each special (title TBD) will feature the biggest personalities and highlight some the greatest and awe-inspiring bouts in the history of TNA, many of them never before seen on basic cable. TNA Entertainment will produce 10 one-hour installments.

For those believing TNA’s time was coming to an end, this should be final proof that they have at least three years to wait. TNA has been slightly profitable for two years now and has a secure American television deal (as well as simulcasts around the world). Spike has obviously been happy with the company’s progress and is looking to continuing their partnership for the future.

TNA has been reportedly trying to secure another hour of television each week, but it looks like SpikeTV is not too keen on that idea yet. But in this deal, they actually do call out the 10 one-hour specials, similar to the WWE’s deal with NBC/Universal that gives them a smattering of specials on NBC during the year. These specials should give TNA a chance to show off a variety of options for SpikeTV. Should one of them be a hit, TNA may be in a better position to negotiate a regular show.

For the few specials TNA has done in the past, they have had to negotiate each show separately. Now it is part of a bigger package, so TNA just has to work with scheduling to decide when to use the slots.

Says Ms. Carter about the historic deal for the company:

“With the tremendous success and record ratings we have achieved over the past three years, we are very happy to continue to have Spike TV as TNA Wrestling’s partner… We are excited to continue our relationship with the fantastic team that has supported TNA from the very beginning, and look forward to even greater success with all of our TNA programming on Spike TV.”

Mr. Kay seemed equally excited about the deal:

“TNA Wrestling has consistently delivered strong ratings in key male demographics and has continually grown its weekly audience. In the past year alone, “iMPACT!” has seen a remarkable increase of 30% in overall growth… We are excited to not only continue but also expand our relationship with the world’s fastest growing wrestling organization.”

Despite not having their founder playing an active role in the company and its main star being arrested, TNA continues to strike the deals that matter for the company’s long term growth. This just goes to show that TNA is now bigger than any one person and that should Jarrett, Angle, or anyone else be gone from the company, it will continue on just fine for the foreseeable future.

WWE YTD

Last week, the Journal presented the WWE Q2 results. There were some comments on that presentation, though. First up is AngryTas:

Another good column, but I have an issue with your disection of the WWEs Q2 results.

If I remember correctly, you critiqued their Q1 results in comparison to last year despite the difference of WrestleMania and you’ve chosen to ignore the WrestleMania results this time around… What gives? Are you going to reanalyse the Q1 results with WrestleMania included?

3MW also thought similarly:

I think AngryTas (Guest, see above) has a goint point here. Sure, since WrestleMania seems to skip quarters every year, comparing the respective quarters is somewhat difficult due to the distorted numbers.

But WrestleMania nevertheless is an essential garner of revenue for WWE and should not be ignored from the outset.

Maybe it makes more sense to compare the accumulated numbers of the first six months of the respective years, thereby ensuring that there’s always a WrestleMania PPV included.

A couple of things:

WrestleMania was removed from comparison to show like numbers. Since one year had the show and one year did not, the Journal needed a way to compare all factors of the business without it. All else remained constant.

When the Journal did the Q1 comparison, WrestleMania was also removed from Q1 2008 to keep the comparison the same. This is not a critique, but just a way to compare like numbers. The Journal criticized the WWE for overstating WrestleMania’s impact in 2008 while understating its impact in 2009. Basically, they tried to hide performance faults in each situation with a different technique, which is why the Journal removed the WrestleMania in the comparable numbers.

In both instances, the Journal presented top and bottom line numbers including WrestleMania, so it was not discounted. Just for comparison purposes it was moved.

All that said, now that we have six months of data it would make sense to do a comparison. So, for the first six months of 2009 (including WrestleMania) the WWE has done the following:

Revenue in total has dropped 15.6% from $292.3 million to $246.6 million. All segments dropped by at least 7%, except for television rights fees, which increased 9.2% from $48.7 million $53.2 million with the addition of SuperStars and better international rates.

Breaking down the revenue segments, first Live Events and Revenue Merchandise dropped 10.5% from $70.7 million to $63.3 million, mostly accounted for by lower international attendance coupled with lower ticket prices.

Pay Per View revenue has dropped 16.8% from $59.1 million to $49.2 million. However, the COGS for PPVs dropped from 60.4% of revenue to 41.5% of revenue, bring PPV profit contributions up 23.1% from $23.4 million to $28.8 million. In other words, the WWE made more money on less revenue for PPV, thus proving their model viable and better than even, despite lower buyrates.

As mentioned above, Television Rights Fees increased, but that was also coupled with a lower GOGs margin. Dropping from 81.1% of Revenue to 65.2% of revenue, Televisions Rights Fees increased an astounding 101.1% in Profit Contributions form $9.2 million to $18.5 million.

Digital Media and Licensing dropped 4.3% and 21.1%, respectively, to $8.8 million and $7.1 million. COGS to Revenue wise, they stayed virtually the same.

Home Video, the bright spot of last year, took a drastic 47.5% decline from $14.1 million to $7.4 million. The COGS also increased slightly, meaning the videos that were produced actually cost more than before.

WWE Studios also saw a severe drop of 74.5% from $9.8 million to $2.5 million. With only a couple of poorly performing direct-to-DVD movies and few replays of their existing movies, the Studio has not been able to generate much in terms of revenue and profit.

Including all other categories, the WWE’s Net Income before SG&A and Depreciation was down 1.3% from $115.9 million to $114.4 million. Their margin actually increased from 39.7% to 46.4%. The cost savings across the board helped secure the WWE from shedding too much of the profit, actually putting them not far behind last year despite the drop in revenues.

When taking it down to the true bottom line, Operating Income increased 14.6% from $39.1 million to $44.8 million. The remainder of the dollars was made up by SG&A which dropped 11.9% from $70.6 million to $62.2 million. The cost cutting measures appear to have worked quite well there, as well. But when you look at SG&A as a percentage of Revenue, it actually increased from 24.2% to 25.2%, showing that the company is actually spending more to generate less revenue, a not-so-great sign.

Overall, just like in the analysis of the Q2 results, the WWE is done an amazing job of cutting down costs so that their profit has not just remained stable, but has gone up. The revenue decrease is an area for concern, but the WWE has done everything possible to mitigate the pain. At the same time, key performing areas like Home Video are suffering and could truly bolster the WWE if they had not slipped so much. A decrease of 10-20% can be blamed on economic conditions. After that, the answer lies solely in mismanagement.

Despite that, the WWE is in a strong position for the rest of the year. If they can keep their costs under control, they should be set for record year in profit, though definitely not one in revenue.

Newsbites

Some items of note in the rest of the wrestling business world:

Former WWE developmental territory is back on the air, of sorts. The company has begun streaming their show online via their website.

WWE CEO Linda McMahon has been rumored to possibly make a run for the United States Senate. The rumors were enough that the WWE was forced to respond. Says the WWE:

Linda McMahon, CEO of World Wrestling Entertainment, is considering a run for the United States Senate representing the state of Connecticut. Should she decide to run, Linda would step down as CEO, and Vince McMahon would assume the duties of CEO in addition to his current position as WWE Chairman.

Should Mrs. McMahon decide to run, she would most likely do so as a Republican and go up against incumbent Chris Dodd (D) in 2010.

Other outlets have begun to pick at the WWE going after streaming sites for PPVs and how it provides no measurable results for the WWE. “CurchGear” posted these thoughts on August 14, 2009:

The English Premier League complained the other day that illegal Web streams of live games (from Justin.tv and the like) were eating into its profits. No profits, no Premiership, was the implied threat. Then explain this to me: WWE ran a pay-per-view event in June called The Bash, and it marked the first time the company aggressively pursued illegal Web streams (again, from Justin.tv, Ustream, etc.). According to the company’s recently released… The Bash was the third least purchased pay-per-view event “in years.”

Why should any of you care? It merely illustrates that, despite the fact that WWE had gone out of its way to snuff out piracy, such actions had no measurable, positive impact on the pay-per-view buyrate (the number of people who buy the pay-per-view). Despite the fact that there were no streams, the buyrate didn’t respond in kind.

While it is a big jump to say there were “no” streams available, the WWE did spend considerable resources shutting down streams to no results. This once again shows the problem is not in the illegal, but in the product and the WWE delivery model. You can read the whole article here.

Sticking the WWE PPV and promotions department, in the UK the WWE has dropped Frank PR has their representative in the region. Frank PR won the contract after a 25-agency RFP. Apparently, the WWE has not been happy with their service as they have now completely switched companies to Shine Communications in what is being described as a six-figure (in pounds) deal. Says Natalie Luke who will handle the account:

‘Our remit is to really broaden appeal and take it to the mainstream, building new opportunities and finding new journalist fans. We want to be achieving hero coverage on shows like BBC The One Show, Question of Sport, GMTV Toonatik, T4 and Newsround.’

In the Marketplace we look at the trends in television ratings. This section is less for critical analysis by the Journal but more for the reader to see what is really going on and to draw their own conclusions.

As with stocks, here in the Journal we track the progress of television ratings. If ratings are the barometer by which we judge the product, then over the course of 52 weeks we should be able to see patterns, trends, and anomalies.

For the week ending Wednesday August 19, 2009, here are the current standings of our shows:

RAW
Close (This Week’s Rating): 3.8
Open (Last Week’s Rating): 3.9
Percentage Change: ▼ 2.6%
52-Week High: 4.5
52-Week Low: 2.6
All Time High: 8.1
All Time Low: 1.8

SmackDown*
Close (This Week’s Rating): 1.7
Open (Last Week’s Rating): 1.9
Percentage Change: ▼ 10.5%
52-Week High: 2.5
52-Week Low: 1.6
All Time High: 5.8
All Time Low: 1.0

* SmackDown! ratings may include fast overnight if final ratings are not posted. Also, SmackDown! ratings are for the prior week as overnights are not available before this article goes to print.

ECW
Close (This Week’s Rating): 1.2
Open (Last Week’s Rating): 1.1
Percentage Change: ▲ 5.3%
52-Week High: 1.4
52-Week Low: 0.7
All Time High: 2.3
All Time Low: 0.6

TNA iMPACT**
Close (This Week’s Rating): 1.1
Open (Last Week’s Rating): 1.2
Percentage Change: ▼ 8.3%
52-Week High: 1.3
52-Week Low: 1.0
All Time High: 1.3
All Time Low: 0.6

** TNA iMPACT’s are for the prior week as ratings may not be available at the time of the Journal’s posting

SuperStars***
Close (This Week’s Rating): 0.8
Open (Last Week’s Rating): 0.7
Percentage Change: ▲ 14.3%
52-Week High: 1.0
52-Week Low: 0.7
All Time High: 1.0
All Time Low: 0.7

*** SuperStars ratings may include fast overnight if final ratings are not posted. Also, SuperStars ratings are for the prior week as overnights are not available before this article goes to print.

Analysis:

Despite two weeks of less than Shaq-tacular hosts, RAW has been managing to keep their recent gains up. They are down only 0.1 to a 3.8 this week, showing the model has some legs. As WWE Executive Vice President of Creative Stephanie McMahon recently said, the WWE will continue to do this for a long time in the foreseeable future. They already have a long line of potential and signed guest hosts, so it is now just a watch and wait game to see if people start to lose interest or if this becomes a permanent fixture.

Meanwhile, iMPACT and SmackDown have both slipped this week, giving back recent gains. Those losses appear to have been transferred to SuperStars and ECW, which were both up slightly. On the other hand, the latter two are seeing some of their worst ratings ever, so an upward spike puts them into less than stellar categories.

We all know that wrestling is a business, but we don’t often pay attention to what sells and makes money. Money and Investing looks into the top selling items in the world of wrestling and any interesting figures that may have come out this week.

What are the top ten selling items for the WWE? From WWEShopZone.com:

1. Hardys Messenger Bag ($35, on sale $24.98)
2. The Rise and Fall of WCW DVD/NWO Retro T-Shirt Package ($54.95, on sale $26.99)
3. Hardys Magnet ($5, on sale $1.98)
4. Triple H Fear No Man T-Shirt ($25)
5. D Generation X Basics YOUTH T-Shirt ($9.99)
6. D Generation X T-shirt (Unavailable)
7. John Cena Attitude Adjustment T-Shirt ($25)
8. Hardys Green Pendant ($10)
9. Hardys Purple Logo Pendant ($10)
10. Jeff Hardy 2 Armband Package ($40, on sale $14.99)

This Sunday may be Jeff Hardy’s last match in the WWE for quite some time. If that is true, the WWE is going to have a lot of trouble in their merchandise department. John Cena and Triple H/DX will keep up their end of the deal, but no one seems like they are going to step up and fill the massive void that Hardy will leave behind.

TNA sometimes releases a list of top selling items on ShopTNA.com. According to the site the top selling items were:

1. TNA Stars 8 X 10 Extravaganza ($29.99)
2. Beer Money – Daily Buzz Shirt ($19.99)
3. Bobby Lashley T-shirt ($19.99)
4. Hot Sizzling Summer Sale ($335, on sale $69.99)
5. TNA Logo T-Shirt Special ($24.99)
6. LAX Theme Featuring F.I.L.T.H.E.E ($0.99, on sale $0.89)
7. Beer Money T-shirt ($19.99)
8. Burn It Down (Hard Justice 2009 Theme) ($0.99, on sale $0.89)
9. TAZ Autographed Special ($39.99)
10. Destination X 2009 ($14.99, on sale $11.99)

For the first time in a long time, one particular thing carried two spots on TNA’s top selling list. And that thing was Beer Money. Beer Money has proven to be one of TNA’s best selling bits of merchandise, and the company would be wise to keep them in the spotlight. Meanwhile, they are the main representation of the TNA home grown talent as Bobby Lashley and Taz still hold spots over all others save Beer Money (and an LAX ringtone).

Wrestling isn’t just about watching and reading. The best way to be a wrestling fan is to experience it live. Where is wrestling coming to in the next 2 weeks? The Personal Journal answers that question.

Sunday	Monday	Tuesday	Wednesday	Thursday	Friday	Saturday
23 (Aug) WWE SummerfestSlam (Los Angeles, CA)	24 RAW (Las Vegas, NV)	25 SmackDown / ECW (Phoenix, AZ)	26	27	28 RAW Live (Cadillac, MI) TNA Live (San Angelo, TX)	29 RAW Live (Flint, MI) SmackDown / ECW Live (Ocean City, MD) TNA Live (Abilene, TX)
30 RAW Live (Valparaiso, IN) SmackDown / ECW Live (Johnstown, PA) TNA Live (Belton, TX)	31 RAW (Detroit, MI) SmackDown / ECW Live (Canton, OH) TNA iMPACT (Orlando, FL)	1 (Sep) SmackDown / ECW (Cleveland, OH) TNA iMPACT (Orlando, FL)	2	3	4 RAW Live (Sioux Falls, SD) SmackDown / ECW Live (San Juan, PR)	5 RAW Live (St. Paul, MN) SmackDown / ECW Live (Arecibo, PR)

Do you know a wrestling event coming up? Send one in to The Hamilton Ave Journal and we’ll be sure to add it to the list.

The Editorials section is designed for you, the readers, to respond to the views presented in the Journal, send an important news item, or talk about another overlooked business related item in wrestling. Just beware: the Journal reserves the right to respond back.

From the commentary section last week, MDK clarifies what type of drugs you can get legally:

Contrary to popular belief, you can legally buy ephedrine (the thermogenic substance found in the ephedra leaf.) OTC in just about any pharmacy. It’s not banned … it’s just illegal for drug companies to *market* ephedrine as a weight-loss drug. Asthmatic people still use it. (BronkAID is an example.) You don’t even need a prescription, but you do need to be 18.

Thanks for the clarification. It could still be a banned substance according to TNA and WWE Wellness Policies, as well as with other major sports franchises. Many other over the counter supplements are included in that list.

Moving away from the drugs, Sbre zeke shares a plan:

Spike should show TNA PPVs a few months after the live broadcast like they do with some UFC PPVs.

Well, that does not appear to be in the card for now with the 10 one-hour specials on Spike. TNA has a similar deal in various countries around the world where they show the PPV for free as close to as a week after the USA broadcast. That said, TNA does make a fair bit of their money off of DVD sales, so they may cannibalize the market if they give the shows away so close to the initial air date. UFC does not really have that much of a television presence, so it is more akin to NWA/WCW 20 years ago having “Clash of the Champions” specials. If the UFC has the same amount of television to fill each week as TNA, it would not make much sense for them to show old broadcasts, either.

Sticking to TNA, the company sent out a survey a couple of weeks back. Quimby wanted some additional detail:

“The only question related to content was one asking which TNA stars the respondent likes.”

Did it have radio buttons for Sting, Kurt Angle, Jeff Jarrett. Bobby Lashley, Mick Foley, Booker T, Taz, Kevin Nash, Scott Steiner and ‘Other’?

Or was it one of those Flash animations that move the button every time you try to click ‘AJ Styles’, so you have no choice but to click ‘Jenna Morasca’.

Actually, it was just check boxes, so the question did not even make sense. It asked for your “favorite”, but you could click them all. Not everyone was on the list, too, but it was still about 30 people deep. Why some people were not included is a complete mystery.

Leaving TNA and moving on to the indy scene, AJP shares some dismay:

Kinda wild that Comcast, which is based in Philly, would pick up NECW over ROH…oh well.

HeartBurnKid was quick to follow up:

ROH might be locked into the HDNet deal.

Personally, I expected PWG or Chikara to be the next to get some sort of TV deal.

True, ROH is locked into a deal with HDNet now, but they were negotiating for two years for a TV deal. It appears that Comcast was not interested in them during any of that time.

Actually, they are already behind the curve as Dragon Gate USA and Wrestlicious have at least some semblance of a TV deal. The former has a deal with Fight Network to air PPV preview shows starting September 6, 2009. This could possibly lead to a regular show in the future. The latter—believe it or not—has a 13 episode deal with FOX to start airing in the Fall. No official start date has been given, which is quite odd considering how close to the new season we are.

The next show more likely to get picked up is AAA in English. With the rising Latino demographic in the USA, having a completely Spanish-based program with an English counterpart is too tempting to pass up.

Moving into a whole different world of Q&A, BobbyC asks much of the following:

1. Not sure if you can discuss – but would you personally buy WWE stock as an investment? And if so – at what price would you buy – then sell.

Right now, no, the Journal does not recommend WWE stock. As a disclosure, neither 411mania, the Hamilton Ave Journal, nor this reporter directly own any share of WWE stock. As it is, the WWE is paying out in cash dividend more then they are taking in, which is a scary place to be. At $10-$11 a share, the WWE seemed like a good buy, but you have to consider how high others are willing to go. Right now, the WWE is hovering the low to mid-14’s and is not going to be going anywhere for quite some time. If you are in for the long haul (15+ years), then it is a fine investment; then again, so is just about any diversified portfolio. On the short, though, there is not much return to be had. Also, Hillary Lyons just downgraded the stock from Long-term buy to Neutral, so investors are not going to be too interested in it for now. Should it get back to the $10 range, then it will be a good point to jump back in.

2. I think that there is plenty of room for UFC and WWE to co-exist. All current major sports overlap their seasons with each other – and I don’t think the product or revenues are hurt by this overlap.

Look at College Football and Pro Football. Rarely, if ever, will you see a College and Pro Football game played at the same time.

Rather than try and compete – WWE and UFC should be looking to use each other to enhance their specific products. But because UFC is on Spike and they’ve got TNA – it’ll be tough to get UFC and WWE together. If I were the WWE, I’d be looking to do two things.

t-money would like to share his thoughts on this one:

The reason you don’t see NFL football going head to head with college is because the NFL isn’t allowed to broadcast games on Friday and Saturday when college and high school football is going on. It is a condition of their anti-trust exemption. If they were allowed to broadcast games on Saturdays believe me, they would.

Thanks for the info! The one piece that is missing is the anti-trust was put in place when the two leagues wanted to merge. Now, the justice department has shown little concern for fighting (real or otherwise) organizations merging as they did not even do an inquiry probe when the WWE bought WCW. If they had, they would have found some interesting collusion and back-door deals.

That said, football is only competing for television time and advertisers. The WWE dominates the UFC in the television ratings and advertiser revenue category. The problem is in consumer dollars for PPV. UFC is taking away the WWE’s audience—or at least the dollars they have free to buy PPVs. When a consumer only has $40 a month to spend on PPV, there is just no way to split it.

When TNA’s contract is up with Spike – I would push the WWE to move Smackdown AND Superstars to Spike.

As you read above, TNA and Spike extended the deal for three years. That said, the WWE cannot do what you are suggesting. The contract the WWE has with NBC/Universal says that the WWE cannot move have any programming on any cable network outside the NBC/Universal family. This deal does not apply to network stations, which is why SmackDown is on MyNetworkTV (a NewsCorp brand). If the WWE wanted to move SmackDown to cable, there are only a few stations that it could possibly go to according to that deal, and a Viacom owned station is not one of them.

Bobby C has more questions, but let’s give Royce a chance:

Do you feel as though the top ten merchandise lists are based on sales quantity or sales dollars generated?

If it’s dollars then I think it’s pretty clear why the TNA FanFest tickets are top selling, due to cost.

With little doubt, the list is based on sale quantity. Look at this week’s list with two items being ringtones selling for $0.89. If that is somehow adding up to dollars that were more than a $70 item, then TNA is in much worse shape in the sales department than anyone would believe. Don West certainly has his new job cut out for him either way!

Plenty more was written, so be sure to take a look. And if you enjoy the Journal, why not bookmark 411wrestling.com and make it your home page? You can do that by clicking here.

This concludes Issue #100 (Volume 2) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!