The Hamilton Ave Journal 08.13.09: Volume 2 – Issue 99

Posted by JP Prag on 08.13.2009

How profitable is the WWE? Were they able to realize all the cost savings they have claimed? What is TNA doing to try to make the company better? Is NECW setting the stage to overtake ROH? How long can WCW last in the WWE’s Top Ten? 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 99

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: WWE Q2 Results

On Thursday August 6, 2009, the WWE officially released their 2009 Q2 financial results to the street. Overall, the street was impressed, helping push the WWE stock from a $13.73 open on Thursday to a peek of $15.25 on Monday and settling at $14.85 last night. But should the street have been so swayed by the WWE's numbers?

In the past, the WWE has done a tremendous job of hiding costs and highlighting unusual income as the norm. This has led them into situations where they were forced to admit their issues when backed into a corner and exacerbated problems because they refused to be proactive about them. This report is one of those times when the WWE is a bit more straightforward about what caused their number troubles, but do not take any responsibility for it.

First and foremost, the WWE reports the revenue increased 7% from $129.7 million to $138.8 million. At the same time, net income increased a staggering 134% from $12 million to $28.1 million. But what could cause such a flux? Only one word: WrestleMania.

This year, WrestleMania 25 took place in the second quarter as opposed to last year when it took place in the first. Because of this, the numbers this quarter are extremely skewed. From this point in, the Journal will be looking only at the comparable numbers with WrestleMania 25 removed.

Going down the list, revenue then actually decreased 18% to $106.6 million. The components of revenue consisted of:

Live Events and Venue Merchandise dropped 24% from $40.5 million to $30.9 million. There were fewer events this year than last year, but the biggest driver was an 11% drop in international attendance coupled with a 35% drop in ticket prices.

Pay Per View revenue dropped 18% from $17.9 million to $14.6 million. As expected, dropping buyrates have had a strong impact on this number. However, the WWE did a tremendous job controlling costs and actually dropped the cost to produce the PPVs by 47% to $4.1 million. So from a profit contribution perspective, PPV profits actually increased 4% from $10.1 million to $10.5 million. In other words, the WWE were actually more profitable at PPV this year than last year despite the dropping buyrates. Those hoping for fewer PPVs or lower prices will have a hard time pressing the WWE for that one now that they are more profitable with less revenue.

Television rights fees were a major bright spot increasing 15% from $24.7 million to $28.3 million. This was mostly led by SuperStars generator more revenue while also international exchange rates worked to the benefit of the WWE. Please note at this time last year the WWE took a right off because exchange rates were not in their favor. During this period, too, the WWE decreased expenses related to television fees from $20.0 million to $18.1 million. So not only did they make more revenue, they also increased their profit margin from 19% to 36%, a major coup.

Digital Media and Licensing remained flat at $7.9 million and $9.0 million, respectively. Digital Media costs also remained the same, but Licensing dropped costs from $2.5 million to $2.0 million.

In one of the hardest hit sectors, Home Video dropped 54% from $18.5 million to $8.6 million. The WWE says this was due to shipping less units this year, but the question remains why they are shipping fewer units instead of taking advantage of their vast library. Home Video has been one of the WWE's strongest sectors for years. The fact that it has cut nearly in half is a sign more of mismanagement, not the economy like the WWE claims.

Without any releases, WWE Studios dropped from $2.6 million to $0.8 million. More interesting than that, the Studio was the only WWE segment in the red coming in at a negative $0.2 million profit contribution.

It would seem that the street would be most impressed with the cost cutting measures that have gone into place. Despite the great success for Television Rights Fees and PPV, overall COGS cost dropped from 59% of revenue to 55% of revenue, a positive gain for the WWE of 4%. So they were successful in cutting costs from each area, but not by a very large margin.

The place where the toted the most cost savings was SG&A (Selling, General, and Administrative fees) which dropped 17% from $37.6 million to $31.3 million. This would seem to be a great number, but not when you compare it a percentage of revenue. If you include WrestleMania, SG&A as a percentage of revenue was 23%. Without WrestleMania, SG&A as a percentage of revenue is 29%, the exact same number as last year. That means that despite all the cost cutting measures, the administrative costs of generating that revenue are exactly the same. In other words, the WWE made no gains to the bottom line.

Heading to the bottom line, those cost savings from the revenue lines of business translated to an overall gain. Net Income actually grew 9% from $12.0 million to $13.1 million. As was seen in the areas above, the WWE was able to make more profit off of less revenue, so overall this quarter was a success from that perspective.

With that profit, where does the WWE stand? Well, they are sitting on $162.9 million in cash alone, not including another $120.4 million in current assets. All Liabilities, including short term debt, long term debt, accounts payable, and deferred income are $77.1 million. The WWE could pay off every cent they owe twice over and still have cash left over. Despite paying out more in the dividend then they take in in cash, the WWE continues to sit on a strong position. If they were to stop doing all operations, they could last five years on the cash alone.

Even with the troubles of dropping revenues, the WWE is in an enviable position. They are running a profitable business with a total 12-20% net profit margin and continue to remain in the black and find new profitability despite the challenges out there. Are there things they could be doing better from a business standpoint, nonetheless a creative one? Yes, of course they could. The important fact is that they have the resources to try those changes and others. And even if they make a mistake, they have plenty to fall back on.


Newsbites

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

TNA continues to try to sell another show to SpikeTV. In the past, it has seemed that Spike would pick up a Knockouts show or a magazine style show. The latest rumors, though, involve a show devoted to the X-Division. One would think TNA would prefer to put on Epics (a show that costs them very little to produce) instead of another hour of original programming, but TNA has not been known for always making decisions based on cost logic.

Sometimes, though, TNA does look like they are trying to do research. The company recently posted an online survey to "help make TNA better". The questions, on the other hand, dealt mostly with demographics and showed TNA trying to understand what else their audience watches so they know where to spend advertising dollars. The only question related to content was one asking which TNA stars the respondent likes.

In a bit of bad news for TNA, Midway has agreed to sell their San Diego studio and substantially all assets remaining after Warner Bros. $49 million buyout to THQ for $200,000. But THQ has not agreed to purchase the TNA video game license, even for that price. This is most likely because THQ already handles the WWE video game license and could not purchase it due to agreements with the WWE. At this time, it remains unclear if anyone will buy the license or the developers, or if it will simply expire and TNA will be forced to find a new partner and start from scratch.

NBC will be airing an hour-long version of WrestleMania 25 on Saturday August 29, 2009 at 9pm EST. The WWE tried a similar event last year by airing a shortened WrestleMania 24 on MyNetworkTV the day before SmackDown premiered. That garnered quite a small rating, the WWE NBC specials have not done well in the past couple of years. Since the content is already completed, the costs are low, but NBC might not be happy with another low rated Saturday spot.

In an amazing coup, little known Massachusetts-based independent wrestling company New England Championship Wrestling scored a television deal with Comcast Sports Net. The company will have a weekly television one-hour show airing at 4pm EST on Fridays starting in January 2010. Comcast Sports Net is available in 38 million homes and on several other providers outside of Comcast including COX, RCN, and DirecTV. This amount of available homes is actually more than HDNet, which means that starting in January NECW will have a further potential reach in North America than ROH.




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 12, 2009, here are the current standings of our shows:





RAW
Close (This Week's Rating): 3.9
Open (Last Week's Rating): 3.6
Percentage Change: ▲ 8.3%
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): 1.9
Open (Last Week's Rating): 2.0
Percentage Change: ▼ 5.0%
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): 1.1
Open (Last Week's Rating): 1.3
Percentage Change: ▼ 8.8%
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): 1.2
Open (Last Week's Rating): 1.3
Percentage Change: ▼ 7.7%
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): 0.7
Open (Last Week's Rating): 0.8
Percentage Change: ▼ 12.5%
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:

With the exception of RAW, things did not go well in ratings land this week. All shows were down, though most not by much. iMPACT and SmackDown stayed within their recent ranges, but ECW took a dive down to just above a 1.1 (1.14). The interesting one, though, is SuperStars which got its lowest rating ever at a 0.7. After several weeks of recovery, it appeared that SuperStars was going to stay in the 0.8 to 0.9 range, but that has quickly dipped off this week.

Despite this, the WWE's Q2 financial presentation had an interesting fact. Although SuperStar's ratings are below ECW, with the replay it is actually seen by 1.4 million people on average while ECW is seen by 1.2 million. Of course, these numbers do not reflect how many people watch online, so total audience may remain a mystery. But if SuperStars is getting more viewers than ECW, than it has to be considered a success for the WWE.




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. John Cena Attitude Adjustment T-Shirt ($25)
3. The Rise and Fall of WCW DVD/NWO Retro T-Shirt Package ($54.95, on sale $26.99)
4. Hardys Green Pendant ($10)
5. Jeff Hardy 2 Armband Package ($40, on sale $14.99)
6. John Cena 2008 Spiral Notebook (Unavailable)
7. Triple H Eversoris T-Shirt ($28)
8. Rey Mysterio 2008 Spiral Notebook (Unavailable)
9. Randy Orton Root of Evil T-Shirt ($25)
10. John Cena Attitude Adjustment Baseball Cap ($20)

The sales continued at WWE as they cleared out of many more notebooks from 2008. But that would not deter a new item from making the list: The Rise and Fall of WCW DVD. This will be the WWE latest effort to start using their largest piece of library since the Best of Starrcade was released last year. Considering the vast amount of WCW/NWA/JCP video the WWE owns, just sitting on it has been a waste of resources. This product will perhaps bolster future releases, especially considering the consumer products numbers concerning DVDs above. What used to be one of the WWE's bright spots is dragging down, so they need to put their library to even greater use.


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

1. Bound for Glory Fan Interaction General Admission ($55)
2. TNA Stars 8 X 10 Extravaganza ($29.99)
3. Beer Money T-shirt ($19.99)
4. Hot Sizzling Summer Sale ($335, on sale $69.99)
5. Bound for Glory Fan Interaction VIP Admission ($100)
6. TNA Logo T-Shirt Special ($24.99)
7. Destination X 2009 DVD ($14.99, on sale $11.99)
8. TAZ "FTW" Shirt ($19.99)
9. 24 oz TNA Superstar Mug ($9.99, on sale $7.99)
10. Bobby Lashley T-shirt ($19.99)

If you ever wanted to understand volumes sold by TNA, look no further than this list. The number one and five items deal with the Fan Interaction at Bound for Glory. Being generous, let us say that 8,000 will attend Bound for Glory. Of that, 25% will attend the Fan Interaction (and highly unlikely number). That means that they sold 2,000 units of numbers one and five combined. So by the time you are getting to four or five, the volumes you are looking at are already in the hundreds. Not the most impressive figures in the world.




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
16 (Aug) 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)
23 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)

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, merchandise became an interesting question of point. JTX highlights:

You know what I just realized? Nobody in TNA sells any merchandise. When a goddamn Taz FTW shirt is the highest individual star on that list and he's #5 and not even an active wrestler...

Is anybody over in this company?

Yes, Beer Money has been in TNA's top selling list this entire year while the Beautiful People are usually on the list. But as you saw this week, not only was Taz still in but Bobby Lashley also made the bottom of the charts. People wonder why TNA brings in these outsiders, but their merchandise sales quickly tell the reason why.

Outside of TNA, WWE's merchandise figures reveal what peep wants to point out:

Based on merch sales and the obvious fact they are THE stars of WWE...

CENA and JEFF HARDY should wrestle at Mania this year. Even if Jeff walks, bring him back at the Rumble, have him win and face Cena for the title.

It would seem logical that the two biggest stars in the company would face each other. One would have to believe the fans would be behind Hardy in that match.

Speaking of matches, the Journal apparently became the place for MMA vs. wrestling debates. Guest#5551 riled everyone up:

UFC is a niche "sport", only 18-28 year-olds like it, it reminds me of X-games.

Evil George was not impressed with this analysis:

Guest#5551 (Guest), you just keep hanging onto those delusions. You and the rest of the marks. UFC is eating pro-wrestling's lunch. Deal with it.

Nor was UFC >>>>< WWE:

That's why you see people from ALL AGES and HOT CHICKS on every single UFC PPV RIGHT?

That's why UFC did 1.7 MILLION PPV BUYRATES For UFC 100, a number Vince will NEVER EVER DO in his WILDEST DREAMS?

The UFC is more and more popular and ANYONE enjoys IT and it's NOT PG!

Machida/GSP/Brock >>>> Ziggler

DIG IT !

"More popular" is the lose term here. If we are talking about PPV buys and conversion rates, the UFC is blowing the WWE out of the water. But if we are talking television ratings, merchandise, live event gates and attendance figures, programming fees, and worldwide distribution, the WWE has the UFC beat in all of those categories. Each is popular in its own way with its own audience. Neither of them are going to see American Idol numbers or be the last episode of M*A*S*H, but can have victories in their own way.

The UFC is hurting the WWE by taking away potential purchasers of PPVs. If someone only has $50 a month of disposable income, they are becoming more likely to buy a UFC PPV than a WWE PPV. However, even ECW ratings generally do better than the MMA shows in the ratings by a fair margin, so the WWE is much better at pulling in a wider audience for their free shows. The UFC is great at taking their audience and converting them into PPV buyers. The WWE is great at taking their audience and converting them into buyers of their plethora of different product options.

the get some kid sums it all up:

I don't get how people get their draws in a twist about pro wrestling vs. UFC. UFC guys take steroids like WWE guys do or HGH and none of these guys are 100% clean. They are two separate things that I, an educate father over 30 with a good job can appreciate.

While some people in each category are most likely clean, there is always going to be people taking what they feel is fine. This reporter feels that creatine in unsafe and should not be used by those looking to get into shape, but many body builders and athletes swear by it. Not too many years ago, the WWE and UFC had their personalities shilling out ephedra-related products. But in 2004, the FDA banned the sale of ephedra, putting it on the same list of controlled substances as steroids.

So while a substance may have been considered perfectly reasonable only five years ago, it is considered a performance enhancing drug today. Who knows how creatine, taurine, or any of the other supplements of today will be viewed in retrospect?

But the other point made above is clear. It is not UFC vs. WWE, one or the other. People can enjoy one, both, or neither. At the end of the day, they are in competition with all entertainment out there and the success of one does not mean the downfall of the other.


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

Till then!