Vince McMahon and WWE Have Tools to Rebound from Massive Stock Dip

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Vince McMahon and WWE Have Tools to Rebound from Massive Stock Dip
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Vince McMahon is unquestionably the most successful businessman in the history of professional wrestling. The current WWE financial landscape is gloomy to say the least, but McMahon is no stranger to overcoming adversity.

McMahon is the man who conceptualized WrestleMania, risked it all and hit a home run. He took professional wrestling to unfathomable and unseen heights, and he continues to strive to do that even today.

Unfortunately, sometimes businessmen need to take their lumps before their grand ideas reach their fullest potential.

That appears to be the case with McMahon and WWE currently. According to Maggie McGrath of Forbes, WWE's stock tumbled nearly 50 percent last week in the wake of its new television deal netting the company less than it initially expected.

Joe Flint of the Los Angeles Times reports that WWE's new contract with NBC Universal will net $150 million annually, which is nearly a 70 percent increase from the previous deal worth $90 million per year.

Estimates expected WWE to double or triple its deal due to hefty contracts secured by other sports organizations like NASCAR, but those expectations turned out to be a bit grandiose.

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Even though WWE fell short of doubling or tripling its TV deal, a 70 percent increase is impressive considering the circumstances. In order to negotiate a deal that was twice as big as the previous one, WWE needed some type of hand in the negotiations.

Turner Broadcasting, FX Networks and AMC Networks were all potential factors in the bidding, according to Flint, but it doesn't seem as though there were any serious outside threats to outbid NBC Universal since all of them viewed the asking price as being too hefty.

Also, there is a certain degree of comfort and familiarity when it comes to WWE's relationship with NBC Universal. It knows what to expect and it knows that NBCU is willing to provide three hours of airtime for Raw on USA Mondays and two hours of airtime for SmackDown on SyFy Fridays.

It is entirely possible that WWE couldn't have gotten those conditions elsewhere, so it had to kowtow to NBC Universal to some degree. Even so, it brokered a fairly significant increase that isn't being given nearly enough respect.

Despite that, WWE's failure to meet its goal resulted in panic from shareholders as the stock dipped in value from roughly $20 to about $11, per Dan Alexander of Forbes.

That inevitably hit McMahon's wallet hard and resulted in him losing $350 million in one day, which resulted in WWE's CEO falling from the billionaire ranks.

Such a huge loss has to be disconcerting from McMahon's point of view, but Scott Fishman of the Miami Herald put it into perspective:

McMahon has been nothing but positive publicly since the television deal finalization and subsequent stock plummet occurred.

According to CNN's Benjamin Snyder, McMahon is comfortable with the company's current direction due to its international television rights deal of $200 million along with the continued progress of WWE Network.

"The rising value of our content coupled with the global expansion of WWE Network will provide the foundation for long-term growth that continues to transform our business over the coming years," McMahon said.

While WWE's new television rights deal with NBC Universal is obviously important, the true key to WWE's business model moving forward may be WWE Network.

WWE's over-the-top live streaming service has been a dream come true for wrestling fans since its launch in February. WWE Network features live, original content, all 12 WWE pay-per-view events over the course of the year as well as an archive featuring every pay-per-view in the history of WWE, WCW and ECW.

More content is added on a constant basis, and wrestling fans are able to enjoy it for the reasonable sum of $9.99 per month. There seems to be a disconnect between what WWE and financial experts want to see out of WWE Network, though.

According to McGrath, there was some disappointment regarding WWE's first-quarter subscriber total of roughly 670,000. WWE's stated goal for the first year is to reel in one million subscribers and, in order to overcome WWE Network's cannibalization of pay-per-view revenue, it must bring in between 1.3 million and 1.4 million subscribers.

Many seem to believe that WWE's goals are too lofty, including Aaron Taube of Business Insider.

This logic is extremely flawed. While it's nice that 52 million households have "affinity" for the WWE, the fact is that only about 5 million people watch the company's flagship cable show, Monday Night Raw, each week. It stands to reason that people who aren't watching the company's free offerings would be unlikely to pay $9.99 monthly for premium content.

That may be true, but the one thing that everyone seems to be ignoring is the inevitable globalization of WWE Network. Even if WWE is only able to reach one million American subscribers in the first year conservatively, globalizing will open up millions upon millions of opportunities.

WWE is a global brand that has legions of fans in essentially every nation. WWE Network hasn't even been made available to WWE hotbeds like Canada and the United Kingdom yet, so the subscription numbers figure to increase in a big way when that comes to fruition.

Prior to globalization, McMahon is excited about the current subscriber pace that WWE Network is on, according to Snyder via Wall Street Journal.

"There should be no confusion on Wall Street as it is extraordinary to have reached more than 660,000 WWE Network subscribers only 42 days after launch, putting us on track to reach 1 million subscribers by the end of the year," McMahon said.

Perhaps more than anything, WWE's stock drop was a case of the bubble bursting. Per Kurt Badenhausen of Forbes, WWE was the top-performing sports stock of the first quarter of 2014 as it experienced a 75 percent increase to a high-water mark of $29 per share.

This came on the heels of WWE Network's announcement, as the service was viewed as exciting and revolutionary. It's also important to note that the spike coincided with WrestleMania season, which isn't particularly surprising since buzz surrounding the product organically increases during that time of year.

While a boost in stock was warranted after the WWE Network announcement, such a huge jump was clearly unsustainable. Stockholders were likely looking for the first sign of trouble in order to abandon ship, and a somewhat disappointing television deal was transformed from a molehill into a mountain.

The good news is that WWE's stock is suddenly a bargain once again after reaching a fever pitch in April. Among those who advocate jumping back into the fray despite the stock's recent drop is WWE Hall of Famer Mick Foley:

As the old adage goes, the stock market is volatile. It doesn't take much for wild swings to occur and WWE was unfortunately the victim of precisely that. All it takes is one big announcement for the stock to rebound and the inevitable globalization of WWE Network could turn the trick.

It is unclear when WWE will make that announcement, but it is difficult to imagine the stock falling much lower than it is now. WWE stock is suddenly a low-risk, buy-low candidate with plenty of room for growth in the immediate future.

Things may not look great for WWE right now on the surface, but the doom-and-gloom attitude among investors simply isn't logical. WWE has a new, stable and underrated television deal in place, consistent viewership that doesn't often waver and boasts a live streaming network that allows every penny of revenue to be funneled back to WWE.

WWE's core business model appears to be quite strong, so don't expect this current rough patch to be anything more than a blip on the radar.

 

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