wrestling / Columns
The Hamilton Ave Journal 11.22.08: Volume 1 – Issue 61
THE HAMILTON AVE JOURNAL
By JP Prag
Volume 1 – Issue 61
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.
WHAT’S NEWS
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: WWE tries to buck the trend
A few weeks back, the WWE released their Q3 earnings report. As covered by the Journal, despite a slight rise in revenue, net income dropped significantly due to continued rising costs that have been apparent to this reporter and other financial analysts since the beginning of the year. With the worsening of the economy worldwide, the WWE knew that they could not sit on these rising expenses and just depend on other division (home entertainment) to cushion the fall. So WWE CEO Linda McMahon announced a program to cut $20 million in costs before the end of the year. Although the WWE does need to cut costs, they had already lost an additional $20 million this year that they will not be able to make up.
Still, that has not stopped the WWE from trying to get their house back in order. Unfortunately—but as expected—the WWE has gone about cost cutting in the revenue generating area of the business instead of looking at their top level corporate structure. Several wrestlers have been released or were granted their release, including the latest at this point Armando Estrada. Still, the cuts to wrestlers is expected to continue and will move down as far as the FCW development system where people make $500 a week. Meanwhile, inside WWE corporate, an organization with around 550 employees has levels of Executive Vice Presidents, Senior Vice Presidents, and regular Vice Presidents; creating layers of redundancy and many people doing the same job. The Journal would not wish anyone to lose their job, but the WWE continues to go after the little fish and revenue generators rather than the core of issues.
The next turning point came this week when the WWE decided to end the brand extension for referees. Instead, referees will serve on all three brands where more senior officials will work for one week straight and then get a week off while the other crew works. Anyone not on this tour will be sent down to FCW or be cut from the roster entirely. It was just a few short months ago that the WWE was actively looking to hire and bring more referees up to the main roster, yet here they are again cutting in a spot where they are not losing a lot of money. And in this case the situation becomes even worse because it breaks down the walls between the brand extension even further.
In theory, the brand extension is supposed to create 3 separate companies that share overhead costs. Instead, the brand extension has replicated overhead costs and shares components that make them look exactly the same. Where each brand could be used to capture a different type of audience, now the share they exact same audience. Consequently, with the same audience watching the programming exclusively, ratings have dropped in all three brands this year with RAW bearing the worse of the brunt. While ratings matter less to the WWE now that they do not sell directly to advertisers, it takes television viewers to convert them into PPV buyers, and the PPV buyrates have been dwindling downward for the last three months.
Still, despite what is in their control, there is much that the WWE cannot control. People are spending less money so they will not sell as much merchandise, have as many people at their shows, or be able to create as many new products. What is really out of control is their stock price that closed at $9.31 on Thursday, 24% lower than at the start of the week and near all-time lows.
What most people do not realize is that the stock price has nothing to do with the company. The stock price is just a Wall Street reflection of intrinsic value; what someone would pay to own a small percentage of the company. The WWE does not receive any money if their stock price goes up or down, so there are no worries from a financial perspective. From a human resources perspective, many people in the company have incentives tied to receiving stock. If the stock price is down 24% and now actually over 50% from earlier in the year, the incentive is far less. Say for instance someone was to receive 100 shares at the end of the quarter. If the price were $20 per share, that bonus would have a value of $2,000. Now, with a stock price near $10, that bonus is only worth $1,000, much less than what this person signed up for.
In the current economy, though, the WWE does not have to worry much about employees going looking for work elsewhere. The unemployment rate in the United States is at 15 year highs, so there simply are far fewer jobs available. Most people will stick to their job to weather out the storm and take any compensation they can get. The WWE will also most likely curtail on raises and bonuses for office employees, and unfortunately they know that there is nothing their employees can do.
Despite not having control, the WWE has tried to change the street by sending out several press releases. This included one toting the financial success of the recent European tour, which grossed a record $15.1 million. Says WWE Vice President of Global Media Shane McMahon:
“This is a clear indication of WWE’s continued international growth… Even though these are tough times in the global economy, WWE remains the best value in entertainment.”
Also sent out this week were “better late then never” announcements for the WWE social networking site “WWE Universe” and another for the WWE’s HD media player. Both have been around for months, but the WWE used this week to make the announcements. Despite the late showings, both stories have been picked up by related media outlets that are impressed with the WWE technological and social advances.
Despite all this, the stock continued to drop. Some might ask why, and the answer falls into hedge funds and investment houses. Hedge funds are small shops that do stock and other investment purchasing, trying to gain top dollar in a short amount of time. When the market dropped so low that they could not possibly make a profit in a designated time frame, the hedge funds simply dumped all their stocks and went out of the business, cutting their losses and taking whatever cash they could get. Similarly, investment houses are dumping stock because they reach certain sell points for them. When the number of sales greatly outnumbers the number of buyers, the price will simply drop until an equilibrium is hit.
Pretty much all stocks are falling prey to this game. The price is not a reflection of WWE performance so much as a reflection of economic times. Day-to-day, the price does not affect the operations of the WWE. Still, much of the McMahon family wealth—as well as the wealth of their top executives and friends—is tied to the WWE’s performance, so they will want to bolster the price as much as possible. How far they can take it remains to be seen, but in current conditions they may be better focusing internally and let the stock go where it may.
One possibility for the stock is if the WWE Board of Directors elects to buy back their own shares. Since the Board of Directors (including Vince McMahon) already own 90% of the voting shares, there seems little need to decrease the availability of stock. If the WWE went this route, they do have a large pile of cash to buy back much of the company. Investors and other share holders would not be happy if the WWE used their cash to just buy back parts of the company instead of using that money to grow the business or give it back to investors. Given that the WWE dividend is already four times the rate of earnings, the WWE actually needs to look more toward curtailing cash spending rather than finding ways to spend more.
For this entire decade thus far, the WWE’s greatest strength has been the pile of cash they sit on. It was designed to have for times like these. The WWE may want to consider lowering their dividend as a way to hold on to that cash. Although they do not project things to get so bad that they will be cash negative, there is always the possibility and this is the time to be frugal and smart.
Newsbites
Some items of note in the rest of the wrestling business world:
MARKETPLACE
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 Thursday November 20, 2008, here are the current standings of our shows:
RAW
Close (This Week’s Rating): 2.9
Open (Last Week’s Rating): 3.1
Percentage Change: ▼ 6.5%
52-Week High: 4.1
52-Week Low: 2.5
All Time High: 8.1
All Time Low: 1.8
SmackDown*
Close (This Week’s Rating): 2.2
Open (Last Week’s Rating): 2.1
Percentage Change: ▲ 4.8%
52-Week High: 2.9
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): 1.2
Percentage Change: ▼ 4.2%
52-Week High: 1.5
52-Week Low: 0.6
All Time High: 2.3
All Time Low: 0.6
TNA iMPACT**
Close (This Week’s Rating): 1.1
Open (Last Week’s Rating): 1.1
Percentage Change: UNCH
52-Week High: 1.2
52-Week Low: 0.9
All Time High: 1.2
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
Analysis:
Where RAW is losing, SmackDown seems to be slowly gaining. RAW once again scored below the 3.0 threshold with a 2.9, which would be the seventh time this has happened this year. This compares to four times in 2007, and one in 2006, 2005, and 2004. In other words, RAW has been below a 3.0 as many times in 2008 as in the prior four years combined. And since there were no below 3.0 weeks in all of 2002 and 2003, it is actually the past six years. Now where the WWE stock’s troubles have very little to do with the day-to-day operations of the company, the ratings RAW has been seeing do have an indirect result on the bottom line. As has been pointed out many times by the Journal, the WWE continues to make their product more expensive to produce the same content, so there is indirect correlation in rising costs with dropping audience.
As mentioned above, though, it was SmackDown that was the big winner. While hardly hitting a new high in its own history, SmackDown has again broken its own record rating on MyNetworkTV and also broke MyNetworkTV’s all-time rating history. To say that Newscorp is quite happy with the results of SmackDown on their network would be an understatement. The partnership appears to be working out, but MyNetworkTV may fall prey to the same issue as CW and the UPN before it: SmackDown’s audience has not ever been converted to watching other shows on the network.
MONEY AND INVESTING
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. WWE Heritage IV Trading Cards ($2)
2. WWE Ultimate Rivals Trading Cards ($2)
3. Hardys Purple Logo Pendant ($10)
4. WWE Black Gift Bag ($3)
5. Armando Estrada Deluxe #14 Action Figure ($12.99, on sale $6.98)
6. Hardys WWE Shop and Jakks Pacific Exclusive Action Figure ($34.99, on sale $24.99)
7. WWE SmackDown vs. Raw 2009 (PS2) ($39.99, on sale $35.99)
8. WWE Red Gift Bag ($3)
9. WWE: Hell in a Cell DVD ($34.95, on sale $24.66, on double sale $20.06)
10. WWE Holiday Gift Wrap ($6)
As the Journal wondered last week, the pattern continued with sales where the vast majority of the items sold were under $10. While hardly a pattern after 2 weeks, it is still interesting that the WWE seems to be struggling with the better priced items. Even with their new game, it is only the PS2 version that has been making an appearance. More interesting than that is recently released Armando Estrada showing up at number five with a discounted item. The WWE does reduce the cost of wrestlers items when they are gone, but they rarely make an appearance in the Top Ten. This would seem to indicate that Mr. Estrada may have had some more sale power than the WWE anticipated.
TNA releases a weekly Top Seven list on ShopTNA.com. According to the site the top selling items were:
1. Jeff Jarrett Autographed Laser Engraved Guitar ($299, on sale $199)
2. Autographed Sting Baseball Bat ($149)
3. TNA iMPACT Video Game ($39.99 to $59.99)
4. Knocked Out DVD ($14.99)
5. TNA Global iMPACT DVD ($19.99)
6. Post Yard Sale DVD Special ($29.99)
7. Post Yard Sale T-Shirt Special ($39.99)
Last week, the Journal was contacted by a customer of TNA who has been having problems with ordering items. The Journal contacted TNA Head of Public Relations Steven Godfrey to make him aware of the situation and other issues highlighted last week (and more that will be seen in the Editorials section), but Mr. Godfrey declined to comment. The Journal will most likely attempt to contact TNA Chief Marketing Officer Steve Allison to find out how they can allow their own site to disparage their product.
PERSONAL JOURNAL
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 (Nov)
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24
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25
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26 | 27 | 28 | 29
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| 30
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1 (Dec)
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2 | 3 | 4 | 5
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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.
EDITORIALS
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, Kyle had more complaints about ShopTNA.com:
My main problem with TNA has been the high shipping cost of 12 bucks. They have reduced it thankfully. So looking at this I decided to see what TNA was offering and on the front page and—I kid you not—Autographed Mick Foley & Sing Poster Combo. Mick Foley and Sing there is no excuse for that.
This is the point the Journal was making last week. TNA has a lot of trouble paying attention to the little details, or the Hidden Highlights, if you will. Another issue was pointed out by Guest#9331:
Another gripe about the TNA shop is that each t-shirt only comes in like one size. They never have any t-shirts in stock.
The complaints listed in the Journal this and last week led many people to want to go a step further. First up, Manbearpig:
Someone needs to file a complaint with the B.B.B. against TNA or whatever subsidiary they pawn off their merchandising onto is. That’s shameful customer service.
Unfortunately, the Better Business Bureau is extremely slow moving and is unlikely to follow up anytime soon. Still, the complaints allege that that TNA did not deliver on products advertised, and that leads to what rez_perez said:
That’s false advertising and they aren’t paying people their refunds back either. I’d sue for a lot of money.
And what moves slower than the BBB is the court system. Also, you can only sue for damages incurred, so the only damages incurred were the loss of the product value and the time spent trying to recover it. This would hardly amount to a large amount of money. If there was a class action lawsuit, though, it might make a difference.
TNA’s woes also continued with their video game dropping in price. Guest#0314 brought up an interesting point with this one, though:
You make no mention that this price drop coincides with the release of SD vs RAW ’09. Isn’t it possible that it was always their plan to drop the price once SD vs RAW came out and the price drop has nothing to do with meeting sales expectations?
That is a possibility that the Journal had not considered. It is an interesting thought and most likely was a factor in deciding to drop the price. While originally it may not have been part of the plan, the release of SmackDown vs. RAW 2009 may have been that catalyst to drop the price.
In other merchandise news, 3MW wanted to know a little more on the analysis side:
As always, you’re in discontent with WWE’s merchandise sales:
“A week after releasing numbers that showed some major hits to their margins, the WWE showed that the pattern is thoroughly continuing in the fourth quarter. There are actually four items in the Top Ten under $5, hardly a stellar number to be showing off. Of the remaining items, all are discounted save the $10 Hardy Pendant. While some of the discounts are off of packages, the numbers are not impressive.”
Well, these are quite the lines along which you have argued for the last quarters. Low price – low revenue – low margin.
I simply wonder why WWE’s Q3 report tells me otherwise then. It says:
“Revenues from our Consumer Products businesses were $26.6 million versus $19.0 million in the prior year quarter, representing a 40% increase.”
and
“WWEShop revenues were $3.9 million as compared to $3.1 million in the prior year quarter. The number of orders processed during the current quarter increased by 22%. In addition, the average per order spend by our customers increased to $54.72, as compared to $53.58 per order in the prior year quarter.”
That doesn’t seem to go with your points, does it? Maybe you can shed some light on that.
Yes, it is rather simple. Revenue is the top line number and has been the WWE’s focus for quite some time. The issue is that while they have successfully increased revenue, the cost of sales to get that revenue has increased. So while at the top line the WWE made more, the bottom line does not match up to the increase in revenues. For instance, if last year you made $10 in revenue and the bottom line was $5, the margin was 50%. Now, if sales went up 40%, you would except the bottom line to do the same, so $14 in revenue should equal out to $7 in bottom line. But what is happening in the WWE is that $14 in revenue is coming out to $6 in bottom line (and in some cases $4 in bottom line). So while the top looks good, the results in real profit leave much to be desired.
Hope that helps out. Tim wants to know something about the Journal functions as we wrap this week up:
I was just curious as to what day you pull the list of best-sellers from wweshop.com
Most often the list is pulled on Wednesday night or early Thursday morning before business opens. Sometimes it is pulled as late as Friday afternoon and as early as Tuesday afternoon. This week, the list was pulled late Thursday night / early Friday morning.
Plenty more was written, so be sure to take a look. And of course, a week would not be complete without a good dose of JP Prag’s own HIDDEN HIGHLIGHTS!!
CLOSING BELL
This concludes Issue #61 (Volume 1) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.
Till then!
