The Hamilton Ave Journal 08.06.09: Volume 2 – Issue 98

Posted by JP Prag on 08.06.2009

Is WWE stock a good buy? Will TNA be able to continue their Epics? Is SmackDown finally getting the ratings they deserve? How much merchandise can Jeff Hardy sell in one week? Are the guest hosts of RAW getting paid for their work? All this and more is answered in this week’s edition of the Hamilton Ave Journal!

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 2 – Issue 98

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: Buy WWE

On the WWE's "Insider News" section this week, the WWE included a link to a favorable article on their stock written for Seeking Alpha. Seeking Alpha is a hybrid financial blog and portfolio management site that is run by financial managers and a staff of dedicated editors. This article was contradictory to most views on the WWE's high dividend yield. While most analyst have viewed a yield of 11% to mean that the WWE is paying out too much in relation to perceived value, this author seems quite confident in that area:

WWE's $1.44/share total annual payout is a dividend yield of nearly 11%, at today's $13.25 price/share, a high dividend yield in any book.

The company has a very strong balance sheet, and is virtually debt-free:
Quick Ratio: 4.31 Debt/Equity: .01 Long Term Debt/ Equity: .01

In addition, it is highly profitable, with 43%-plus gross margin.

While the author has some key points about the balance sheet, he neglects to mention how it has changed over the years. The Journal has been keeping close tabs on the WWE's depleting cash situation for a while, which one of the commentators to the article pointed out:

WWE has excellent franchise characteristics and an excellent balance sheet with lots of cash and almost no debt. Still, the dividend coverage remains questionable - TTM cash flow from operations was $68.5 million less TTM capex of $18.2 million for free cash flow of $50.3 million. TTM dividends were $81.6 million. The good news is that the company can seemingly continue paying from its large, ~$200 million cash pile for perhaps 5-6 years (assuming current TTM figures) before burning through the cash. Of course, at some point, growth should return to the business and WWE may be able to grow into its dividend.

That is the point, though. Business has not been picking up and at best has been steady. The WWE has refused to change their position on their dividend so they are burning through cash at a rate that will bankrupt the company in five years. That is why investors have been looking to the WWE to decrease the dividend even though it personally hurts them in the short term.

Despite this, the WWE declared their usual quarterly dividend on July 31, 2009. Class A Common Stock holders received $0.36 per share while Class B Stock holders and Class A Stock owned by the McMahon family received $0.24 per share.

While most have viewed the McMahon family taking less money on the dividend as a sign of good faith for other investors, one commentator had a different take on the situation:

The McMahon family not participating fully in dividends "to protect shareholders" is nice, but it suggests the family (which knows all the inside dope) is not highly confident about the future of the company's financial situation over some short or long time period. In essence, they cut their own dividend. That counts as a dividend cut in my book, and dividend cuts are a big red flag for me. I'd therefore consider this company as a speculative investment, which is not what I'm looking for as a long-term dividend investor.

This is a quite interesting different take where perhaps the McMahons taking less means more that they are trying to prop up other numbers. It would be in line with a lot of "hide-and-seek" tactics the WWE does with the numbers every quarter, so the strategy remains a strong possibility.

When it all comes down to it, though, you have to understand the author of an article recommending a stock and what their motivations may be. This investor is long shares for the WWE, so he has something to gain by propping them up. And when he does so, he opens himself up for scrutiny as this commentator gave:

" a hugely profitable event that set the record for Pay-per-View Sports Entertainment revenue, grossing $43 million. "

I don't trust an article where the author either lies or makes it obvious he didn't do his research. De La Hoya/Mayweather did 2.15 million buys and grossed $118 million. UFC 100 did $75 million on 1.5 million buys. A Tyson fight is up there at 1.9 million buys.

WWE is getting crushed by the UFC on PPV buys and revenues. More and more fans are switching from fake fights to real fights, there will always be a niche for pro wrestling as a soap opera for men but it will never be a real investment.

While the latter part of this may be a stretch since the "niche" equals out to one of the largest audiences in cable, the first part remains true. The author's recommendation remains hollow because it seems to hiding or misleading in its facts while exaggerating other details.

Is it any wonder, then, that the WWE recommends this article above all others written about their stock in the past few months?


Newsbites

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

After much hoopla for its debut, the TNA historical clip show "TNA Epics" has been put on hiatus in the UK. Bravo claims the show is being put on hold due to scheduling conflicts and will return later in the year. TNA has been using Bravo and the UK as a testing platform as they look to sell the show to other stations around the world.

Epics was not the only thing that was shed as TNA laid off creative member Dutch Mantell and backstage agent Savio Vega. Both were close to founder Jeff Jarrett and their releases are believed to be because of Jarrett's leave of absence.

WWE SuperStars has now been added to Hulu.com, meeting up with ECW and an edited version of SmackDown. RAW remains the only show that is not available on Hulu, which is odd since Hulu is partially owned by NBC Universal (27%).

Business Week has picked up on the WWE guest host program and its affects on ratings. Says the article:

Yup, Monday Night Raw has become a virtual Saturday Night Live, the NBC (GE) show that pulls in stars as hosts to promote their latest works to the youngish demo. (How many times has Alec Baldwin promoted 30 Rock, for gosh sakes?) Like SNL, Raw has a discernable audience ripe for the right kind of project—namely a howling group of 3.7 million male viewers, including 1.8 million in the 18-49 age bracket.

Of course, WWE RAW is on USA network, a property of NBC Universal. It is quite possible that USA looked at the Saturday Night Live model and coddled the WWE in to believing it could work for them, too.

Also, the WWE will be releasing Q2 earnings before markets open and hosting a conference call this morning at 11am. The Journal will have complete coverage next week.




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 5, 2009, here are the current standings of our shows:





RAW
Close (This Week's Rating): 3.6
Open (Last Week's Rating): 4.0
Percentage Change: ▼ 8.9%
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): 2.0
Open (Last Week's Rating): 1.8
Percentage Change: ▲ 11.1%
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): 1.3
Open (Last Week's Rating): 1.3
Percentage Change: ▼ 3.8%
52-Week High: 1.5
52-Week Low: 0.7
All Time High: 2.3
All Time Low: 0.6

TNA iMPACT**
Close (This Week's Rating): 1.3
Open (Last Week's Rating): 1.3
Percentage Change: UNCH
52-Week High: 1.3
52-Week Low: 0.9
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): 0.9
Percentage Change: ▼ 11.1%
52-Week High: 1.0
52-Week Low: 0.8
All Time High: 1.0
All Time Low: 0.8

*** 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:

RAW's Shaq-tastic rating came back down to earth when the returned with a 3.6 ratings. Next week will be very telling without an outside guest but only someone the wrestling industry will enjoy seeing. But the ratings this week prove that the WWE is not keeping new viewers, only occasionally popping the ratings. At one time, the WWE looked to be in a slow rebuilding mode to gain audience share. Now they just look to move the dial on any given week.

On the other end, SmackDown has been on the slow rebuild and received their highest rating since April 17, 2009 when they also had a 2.0. Next week will start or end a trend of SmackDown being able to keep their new intermediate average (like TNA and their 1.3 ratings or if it was just an aberration.




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. John Cena Attitude Adjustment T-Shirt ($25)
2. Hardys Messenger Bag ($35, on sale $24.98)
3. Jeff Hardy 2 Armband Package ($40, on sale $14.99)
4. Hardys Purple Logo Pendant ($10)
5. Hardys Green Pendant ($10)
6. Randy Orton Root of Evil T-Shirt ($25)
7. WWE White Gift Bag ($3)
8. Hardys 2008 Spiral Notebook (Unavailable)
9. D Generation X Backpack (Unavailable)
10. John Cena 2008 Spiral Notebook ($5, on sale $3)

For the first time in a couple of months, Triple H fell off the Top Ten (though a one-off D-Generation X clearance item made the list) while Hardy and Cena dominated 70% of the list. Snuggling in between the two was Randy Orton, who held on for another week with his new shirt. Meanwhile, the clearance items continued to do well as the WWE looks to get rid of some inventory for a lower margin. Given the items, getting anything for these items is an absolute plus for the WWE. If these items are sticking around two weeks from now, though, that means there is a lot more trouble in sales than we realize.


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

1. Destination X 2009 DVD ($14.99, on sale $11.99)
2. Beer Money T-shirt ($19.99)
3. Against All Odds 2009 PPV DVD ($14.99, on sale $9.99)
4. Lockdown – 2009 DVD ($19.99)
5. Taz FTW shirt ($19.99)
6. The Beautiful People Men's T-shirt ($19.99)
7. Kurt Angle - Champion DVD ($19.99, on sale $17.99)
8. Cross The Line Triple Pack 2.0 DVD Set ($24.99, on sale $14.99)
9. TNA Logo T-shirt Special ($24.99)

The list remained exactly the same except the July Holiday Special at number one moved off the list and everything else moved up because of it.




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
9 (Aug) RAW Live (Colorado Springs, CO) SmackDown / ECW Live (Medicine Hat, Alberta, Canada) TNA Live (Alexandria, LA)	10 RAW (Calgary, Alberta, Canada) SmackDown / ECW Live (Red Deer, Alberta, Canada)	11 SmackDown / ECW (Edmonton, Alberta, Canada)	12	13	14 RAW Live (Cedar Rapids, IA) ROH on HDNet (Philadelphia, PA)	15 RAW Live (Peoria, IL) SmackDown / ECW Live (Mankato, MN) ROH on HDNet (Philadelphia, PA)
16 RAW Live (Cape Girardeau, MO) SmackDown / ECW Live (Sioux City, IA)	17 RAW (St. Louis, MO) SmackDown / ECW Live (Lincoln, NE) TNA iMPACT (Orlando, FL)	18 SmackDown / ECW (Kansas City, MO) TNA iMPACT (Orlando, FL)	19	20	21 TNA Live (Robstown, TX)	22 TNA Live (Laredo, TX)

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, the Journal's unbiased look back at the history of TNA iMPACT won some praise, such as this form Guest#8937:

Thank you for paying a little respect for TNA and its ability to survive, while also pointing out the gradual increase in ratings and profit margin.

It was refreshing, considering how many on this site do nothing but bash the company.

Where TNA falters from a business process perspective, the Journal is not afraid to point out. But when the company deserves kudos for its accomplishments, the Journal is not afraid to give that either. TNA, WWE, ROH—none are either all "good" or all "bad". Each has unique strengths and areas for growths, and they deserve to have all of these aspects highlighted.

On the subject of TNA kudos and lambasts, someone has been trying to push through a rumor that Slammiversary only got 7,000 buys. If you read the Tuesday gossip rags, you know who. However, the Journal tries to do a bit more research before reporting a figure like that. Thus far, no credible sources can be found to confirm that number. The fresh chimes in with why that is:

That 7000 buys figure was a rumour that was only printed once and has never been reported by a credible source.

Speaking of PPVs, the number and price of WWE PPVs have been a big topic for the past couple of weeks. Despite people suggesting other models, the WWE is actually better off with an overabundance at lower buyrates than fewer at higher because the difference cannot be made up with just 4 or 8 PPVs. Rupedog sums up his thoughts:

WWE needs fewer PPVs for sure. But it will never happen because there is a loyal base that buys EVERY PPV!! I agree most PPVS aren't must sees anymore because there are too many and feuds are wayyy too rushed.

Yes, but this is not a question of quality; it's a question of dollars. And the dollar signs say that the WWE is the winner in this case.

The WWE is not only trying to sell PPVs, but also pick up ratings. RAW has been privy to the "guest host" model for the past couple of months, so CyberSocko asks:

I've got a quick question about the guest hosts. Do you know if they are paid for their appearance, and roughly how much? I assumed that they would be, but then read a report that said some people were trying to get on to Raw, which led me to suspect that they may do it for free, in exchange for letting them advertise whatever product they are currently shopping.

It would really depend on the guest host. People like Batista have a contract with the WWE get a per-appearance fee, so he was paid his normal rate. Ted DiBiase has a "Legends" contract that also gives him a per-appearance fee, similar to what he got for going to Comic Con. However, actors like Seth Green and Jeremy Piven are in SAG and cannot accept money from the WWE for an appearance. Since they are acting as characters of themselves on RAW, the WWE would actually have to set up a relationship with SAG and work with union rules. Since we know the WWE does not work well with unions, they would avoid that.

Also, most of the actors appear to be using the show as a promotional vehicle. So for them, it is more like an appearance on "Good Morning America" or "The Howard Stern Show". Sure, it is longer and they are playing to a script, but they could just as easily take place in a bit on "Conan O'Brien".

When it comes to some of the one-offs like Shaq, he may or may not be getting paid. Shaq is in SAG as well, so he may fall under the same rules as the others. But if someone like Michael Phelps made an appearance, it would seem to be completely negotiable.

Actors of that level can get anywhere from $40,000 to $200,000 an episode for a TV show, so their appearance fees would have to be something similar.

Outside of the moving media, there was also a discussion about TNA Knockouts appearing in Playboy. Many personal opinions were sprouted, so that might be worth your time to check that out in last week's issue.


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




This concludes Issue #98 (Volume 2) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!