411Mania’s Countdown to Wrestlemania XXVI 3.24.10: The Economics of 'Mania

Posted by JP Prag on 03.24.2010

How has WrestleMania changed the economics of wrestling and the rest of the planet? Will WrestleMania be around forever, or could its days be numbered? Today, JP Prag explores the business side of WrestleMania and just how much it has changed our world.


Image by Meehan

THE HAMILTON AVE JOURNAL MAGAZINE
By JP Prag

Volume 1 – Issue 1

ABOUT THE JOURNAL MAGAZINE

The Hamilton Ave Journal Magazine is the only wrestling supplement focused solely on the business of wrestling. In this premier issue of the Journal Magazine, we explore the impact of WrestleMania on wrestling, television, and the world in the only place it matters: the bottom line.

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

Now, the market may be closed, but that won't stop us from ringing the bell.


Pay Per View

When talking about WrestleMania, the first thing that comes to mind is the "Pay Per View" extravaganza of the year. Of course, it was not always that way. The first WrestleMania actually took place via Closed Circuit Television where people went to arenas around the country to view the show. Still, at the time WrestleMania was seen by over one million people, making it the largest Closed Circuit Television event of its time. The then WWF proved there was an audience to be reached beyond just the arenas, and they wanted to see what that really met.

This led the way to "The Wrestling Classic" on November 15, 1985. While WrestleMania was available on PPV in a few select markets, The Wrestling Classic was the WWE's first attempt to do a nationwide PPV. They would not try again until WrestleMania 2 on April 7, 1986. There would be no more PPVs from the WWE until the next WrestleMania on March 29, 1987. The show had a tremendous 10.2 buyrate, assuring the future of WrestleManias and PPV in general. Because of the success of WrestleMania 3, the WWE decided to expand their PPV offerings, starting with the now defunct Survivor Series in on November 26, 1987.

As PPV and cable availability expanded, the buyrates for WrestleMania dropped. But they were not dropping in so much as the audience was necessarily dwindling, but that the company could just only capture a certain percentage of the audience at the time. Successively the buyrates went:

1987: 10.2

1988: 6.5

1989: 5.9

1990: 3.8

1991: 2.8

1992: 2.3

1993: 2.0

1994: 1.68

Buyrates would continue to drop for the WWE after 1994 as their product fell out favor and then WCW gained momentum. In 1997, WrestleMania had just a 0.77 buyrate before the company's huge rebound. The next year buyrates went up to 2.3, an increase of nearly 300%. However, 1994 is an interesting year to view the PPV industry.

While Video on Demand (VOD) may seem a relatively new technology today, testing for it actually began in 1994. At that time, though, it was not technically feasible and the dominance of wrestling continued. From The Museum of Broadcast Communication:

Apart from such failures as the Triplecast, PPV revenues have risen annually and stood at $413 million in 1994. Boxing and wrestling PPV events accounted for nearly half of that total, and movies accounted for the other half.

In 1994, Wrestling PPVs look to have accounted for around $100 million, and WrestleMania would have a significant chunk of that. But that is nothing compared to today's numbers.

WrestleMania 25 last year grossed approximately $21.0 million in revenue with 960,000 buys. While the total buys was down from the year before (1.06 million), due to price increases, the prevalence of HD, and international buys the show actually performed better. Yes, WrestleMania 24 grossed approximately $23.8 million on PPV, but the domestic numbers were higher causing a lower margin.

And going back one more year, no WrestleMania had more buys then the 1.2 million that watched WrestleMania 23. Unfortunately for the WWE, that would still not put it on the top ten selling PPV events of all time. Despite WrestleMania being so pivotal in the creation of PPV, it is boxing events that make up the entire top ten, with the lowest having 1.25 million purchases.

Nowadays, WrestleMania is the only wrestling PPV that actually makes the annual top ten, snuggling in between UFC and boxing matches. On top of that, the WWE is seeing a much larger percentage of buys coming from international buyers as opposed to domestic like their competition. For 2009, the top ten domestic PPVs were (courtesy of Dave Metzer):

1. UFC 100: Brock Lesnar vs. Frank Mir, July 11, 1.6 million
2. Boxing: Manny Pacquiao vs. Miguel Cotto, Nov. 14, 1.25 million
3. Boxing: Floyd Mayweather Jr. vs. Juan Manuel Marquez, Sept. 19, 1.05 millon
4. UFC 94: Georges St. Pierre vs. B.J. Penn, Jan. 31, 920,000 buys
5. UFC 101: Penn vs. Kenny Florian/Anderson Silva vs. Forrest Griffin, Aug. 8, 850,000
6. Boxing: Pacquiao vs. Ricky Hatton, May 2, 825,000
7t. UFC 107: Penn vs. Diego Sanchez, Dec. 12, 650,000
7t. UFC 97: Silva vs. Thales Leites/Chuck Liddell vs. Mauricio Rua, April 18, 650,000
9. UFC 99: Lyoto Machida vs. Rashad Evans/Matt Hughes vs. Matt Serra, May 23, 635,000
10. Wrestling: WWE WrestleMania 25, April 5, 582,000 buys

WrestleMania is still a huge deal in the PPV world and outsells 99% of the competition, but the ones that beat it do so soundly. WrestleMania is still exceptionally important to the future of PPV, but the WWE simply does not have the same bargaining power they had in 1987.


Local Economy

Starting with the aforementioned WrestleMania 23, the WWE began to calculate the economic impact of WrestleMania. The WWE wanted to prove that brining WrestleMania to a community actually improved conditions in the area, in the same way that the SuperBowl or the Academy Awards does. While the WWE has never claimed to have the impact of those two events, the company does contend that what they offer should be seriously considered.

In 2007, the WWE released a statement saying that WresteMania 23 in Detroit added $25 million in to the local struggling economy. Even though the numbers were estimated by the WWE, this number began to turn heads and others wanted to gain that income. Orlando made a pitch to host WrestleMania 24 that the WWE was quite impressed with and Orlando's plan worked much better than expected. Instead of a mere $25 million, the event brought $51.5 million in impact and $1.8 million in tax revenue. From the Orlando Sentinel:

WrestleMania XXIV brought more than the Undertaker to Central Florida. The World Wrestling Entertainment event, held in the Florida Citrus Bowl in March, generated more than $51.5 million in economic ripple effect for Central Florida, according to a study by Enigma Research Corp. of Toronto.

WrestleMania drew fans from all 50 states and 21 countries, according to the Central Florida Sports Commission. About three-quarters of the spectators came from beyond Central Florida and stayed for an average of 3.8 nights. The Enigma study indicated that $1.8 million was generated in local tax revenue. Sam Stark, president of the sports commission, said there was "clear indication" that WWE fans want to return to the Citrus Bowl for WrestleMania in the future.

This was the first year the WWE employed Enigma, and they would do so again for the following year. From the WWE's press release:

World Wrestling Entertainment® announced today that The 25th Anniversary of WrestleMania generated a $49.8 million dollar economic windfall for the greater Houston area, according to a study conducted by the Enigma Research Corporation. Despite one of the biggest economic downturns in recent history, local and state governments collected $5.7 million in taxes. This follows the $51.5 million of economic impact WrestleMania XXIV brought to Orlando.

"Having the opportunity to host The 25th Anniversary of WrestleMania was a huge honor and success," said Greg Ortale, President and CEO of the Greater Houston Convention & Visitor's Bureau. "The direct expenditure demonstrates that WrestleMania is indeed economically on par with the world's greatest sports and entertainment offerings."

"Our overarching goal with our public and private sector partners is to consistently provide positive economic impact for WrestleMania's host communities and establish a lasting pro-social legacy, "said John P. Saboor, Senior Vice President of Special Events for World Wrestling Entertainment.

As the years moved on, the impact of WrestleMania both on the economy and on the tax revenue has drastically increased. Glendale can expect a similar impact if the numbers are to be believed, but there are some numbers we do know.




WWE's Bottom Line

As one should know, the WWE isn't in this just to look good; they want to make a sizeable profit. As covered in the Journal, the WWE had a huge problem through 2008 and halfway through 2009 where cost were rising while revenues were not meeting pace. Even though the WWE had their highest grossing WrestleMania, their profits were on the decline. From the Hollywood Reporter:

Meanwhile, WrestleMania's bottom-line contribution has fluctuated more, with profits ranging from $7.1 million to more than twice that in recent years. The company succeeded in improving the profit contribution since a weaker 2008 result.

"We don't give specific guidance every year, but we have said we weren't happy with the 2008 numbers," WWE CFO George Barrios said.

What are his expectations for this year's event? "Most important is that the show is compelling to the audience, and things will be a bit different every year depending where we are, etc.," Barrios said. "But we know it won't be like 2008. We feel pretty good about the numbers."

Overall, WrestleMania is always "the biggest pay-per-view of the year in revenue, and it was by far the most profitable in 2009," he added. And it is typically one of the best-selling PPVs of the year with about 1 million buys around the world.

How profitable was that? Well, in 2008 WrestleMania accounted for $31.3 million in revenue across all business segments (live events, PPVs, merchandise, etc...) and had $7.1 million profit margin for a profit margin percentage of 22.7%. In 2009 that number went to $32.2 million in revenue and profit margin of $15.0 million, or 46.6%. As the further comparison point, WrestleMania 23 in 2007 generated $31.4 million in revenue and had $9.7 million in profit, or 30.9%. As can be seen here, costs were out of control in 2008 but the WWE was not only able to get them in line--they actually expanded profitability to new heights.

Revenue wise, WrestleMania has been flat overall the past few years, but profitability has been the name of the game. Because of the control in place today, expect WrestleMania 26 to do even better in total profitability.


Competition

With numbers like the local impact listed above along with the WWE's profitability, it has become carte blanche for cities to compete for the right to host WrestleMania. Years ago, the WWE had trouble finding homes despite the success on PPV. Today, it is a totally different story.

Since before WrestleMania 25 ended, cities began competing for the right to host WrestleMania 27. These cities put together packages and presentations, flew in WWE representatives, and made every concerted effort to get on the WWE's docket. While cities like Miami, Indianapolis, and Toronto fell by the way side, Atlanta was able to rise above the pack. What Atlanta offered that the other cities did not remains unknown at this time, but the WWE has let them know they are all in the running to host a WrestleMania in the future.

And now, the competition is on again for WrestleMania 28, 29, and 30. Cities around North America are putting together packages now to bring WrestleMania to their hometown, but the WWE is hoping some will accept an alternative.

The model for WrestleMania is something the WWE hopes to replicate with SummerSlam. While they know they will not see the same level of dollars, at even half of these figures SummerSlam could mean a lot to the WWE and the communities it goes to. Meanwhile, the fight continues for who will host the next WrestleMania with cities hoping to do everything Orlando and Houston did, except better.


WrestleMania in Total

From the numbers above, WrestleMania is making a fair amount of change. Looking at the three most recent years, let us break down WrestleMania in terms of the WWE's total numbers.

WrestleMania 23 generated $31.4 million in revenue and $6.6 million in profit net of tax. For that same year, the company had $485.7 million in revenue and $52.1 million in profit, meaning WrestleMania accounted for 6.5% of revenue and 12.7% of profit.

WrestleMania 24 saw $31.3 million in revenue but just $4.6 million in profit net of tax. In that year, the company had $526.5 million in revenue and $45.4 million in profit. With that, WrestleMania accounted for 5.9% of revenue and 10.1% of profit.

WrestleMania 25 had $32.2 million in revenue and $9.7 million in profit net of cash. This was in comparison to $475.2 million in revenue and $50.3 million in profit. This lead to margins of 6.8% of revenue and 19.3% of profit.

From these numbers above, it is quite obvious that WrestleMania plays a major role in the WWE's top and bottom line, and that percentage has grown in the past year. That said, what is most amazing is how non-dependent on WrestleMania the WWE actually is. Should the event disappear tomorrow for whatever reason, the WWE would still have $40 million in profit. In one way it is a saving grace for the WWE that if everything went wrong the company would be just fine. On the other hand, commoditizing WrestleMania shows just how easily it could be replaced or removed.

Today, no one may think that WrestleMania may come to an end, but one day it may not be economically feasible for it continue. As the WWE diversifies their revenue and profit base, WrestleMania will hold less of a stronghold in the WWE pantheon of dollar generators.

Does it seem so crazy that it could happen? After 23 years, Survivor Series was dropped because it was deemed not worthy any more, so what should be learned is that nothing is sacred.

As for the here and now, WrestleMania holds a vital importance to the company and the communities it inhabits, but that may not be the end result in the future. PPV can drop in importance, delivery models can completely change, competition can force unexpected change, and plethora of other situations can make WrestleMania a thing of the past.

What one has to remember is that the WWE is in the business of making money, not in the business of putting on the best wrestling or sports entertainment product they can. With that, the traditions that it created do not hold the importance that they do outside the company. One day, WrestleMania may be such a small percentage of revenue and profit (or lack thereof) that it may no longer be worth it.

Is that day coming soon? Not likely with the numbers that are showing here. Yet one should always be sure to watch those profitability lines because the WWE--like any company--will cut one of their longest standing ways of life in order to chase the most reasonable dollar.