The Hamilton Ave Journal 07.29.10: Volume 2 – Issue 148

Posted by JP Prag on 07.29.2010

The Nexus dominates John Cena, Randy Orton, the Miz and the rest of the WWE roster! Plus, TNA opens themselves up for litigation with ECW chants, ROH’s profit model is delved in to and more!

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 2 – Issue 148

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.

Newsbites

With no large stories breaking in the wrestling business world, here are a few notes from around the federations:

Although THQ has released information on three video game franchises for the WWE (SmackDown vs. RAW, WWE All Stars, and the online free game in Asia for micro-transactions), THQ Vice President of Core Games Danny Bilson told CVG that another series is in the work. Though few details were given, he did say that the game would be similar to All Stars but would be "less simmy" than SmackDown vs. RAW.

Mr. Bilson also indicated that the micro-transaction game that is premiering in South Korea would most likely remain Asia-only as he felt it would cannibalize sales of SmackDown vs. RAW in North America and Europe. As such, do not expect to see the online game in America anytime soon.

The WWE is once again hiring, except this time they are looking for Divas. The company sent out a notice to various casting agencies asking them to assemble talent that would possibly be interested in "wrestling, dancing, singing, interviews and more".

For those not fitting the Diva roll, the WWE still has several job opportunities available. While many are account manager (re: sales) positions, they are also looking for engineers, creative writers, web developers, and finance positions.

The WWE's partnership with Mattel is already paying off in interesting ways as Mattel is releasing new figures for Randy Savage and the Ultimate Warrior. Both have been unable to do business with the WWE for a long time for a variety of reasons, but this one agreement could open the doors to new possibilities. The deal was negotiated by Mattel directly, however the WWE was involved enough that the doors are now open.

Over in the UK, the WWE has officially signed on with secondary ticket sales provider viagogo. viagogo is similar to Stubhub or Ace Ticketing in the United States, so having the WWE's official blessing will give fans a more secure place to buy post-market tickets than current methods. Says Andrew Whitaker, Executive Vice President WWE International:

"WWE is delighted to be partnering with viagogo… By working with the leading secondary ticketing company in Europe we are providing our fans with a safe and secure online platform to sell their live event tickets if they can't make it to the show. We are confident that viagogo will provide a first class service to the WWE Universe."

Not to overdone in Europe, TNA is expanding operations over there. They have now added a show to Ireland for the tour scheduled in January that goes through the UK. While that event has been tacked on to the end of the tour, TNA has decided to start the tour early by going to France first for two shows. This will mark a one-year return to all three countries, showing TNA's commitment to some of their top growing markets.




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 time we should be able to see patterns, trends, and anomalies.

For the week ending Wednesday July 28, 2010, here are the current standings of the shows:









Analysis:

Steady is the name of the game for most shows as every one gave back a little on the ratings, but nothing that significant. The only defiant one was RAW, which score a 3.5 rating, the highest rating since June 26, 2010 when the show scored a 3.52. Obviously the pop in rating this week is a positive sign, but it is hardly a trend as RAW has not scored above a 3.5 for two weeks in a row since the end of February / beginning of March.

**Please note that Google Docs are currently experiencing errors and that is why images of the interactive charts are up instead of the interactive charts themselves.




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 selling items for the WWE? WWEShopZone.com releases a list of varying numbers to show what is selling for them:

1. Nexus Logo T-Shirt ($25, on sale $19.95)
2. John Cena Never Give Up T-Shirt ($25, on sale $19.95)
3. John Cena Never Give Up YOUTH T-Shirt ($19.99, on sale $17.95)
4. Randy Orton Lobotomy TOP ROPE T-Shirt ($45, on sale $37.95)
5. The Miz I'm Awesome Blue T-Shirt ($25, on sale $19.95)
6. Randy Orton Lobotomy Silver T-Shirt ($25, on sale $19.95)
7. Satan's Prison- The Anthology of the Elimination Chamber DVD ($21.50)
8. Randy Orton Lobotomy T-Shirt ($25, on sale $19.95)
9. Sheamus Celtic Warrior Green T-Shirt ($25, on sale $19.95)
10. CM Punk Red Salvation T-Shirt ($25, on sale $19.95)
11. Miz I'm Awesome T-Shirt ($25, on sale $19.95)
12. WWE Red/Blue Reusable Bag ($2.99)
13. Randy Orton Lobotomy Basics YOUTH T-Shirt ($9.99, on sale $8.95)
14. WWE 11 Piece School Accessories Value Pack ($9.99)
15. John Cena Never Give Up Lunch Cooler ($12.00)
16. John Cena Never Give up YOUTH Basics T-Shirt ($9.99, on sale $8.95)
17. Triple H Return to Fear T-Shirt ($25, on sale $19.95)
18. John Morrison Sunglasses ($12.00)
19. Big Show Go Big T-Shirt ($25, on sale $19.95)
20. Austin 3:16 T-shirt ($20, on sale $16.95)

The t-shirt sales kept the momentum flowing from last week, with a few notable changes. First and foremost, the Nexus actually surpassed John Cena on the list to clinch the number one spot. On a few occasions Randy Orton, Triple H, and Rey Mysterio have managed to do this, but nothing as new as the Nexus. This is quite an accomplishment for the group.

Meanwhile, John Cena and Randy Orton still did very well coming in with several items, but it was the Miz who this week added a second t-shirt to his list. Sheamus, John Morrison, Big Show, and CM Punk each held spots as well, something these men have rarely (with the exception of Morrison) been able to do for so many weeks in a row.

And though the Rock may be gone from this week's list, it is Austin who again cropped up to take over number 20, bumping out the rest of the WWE roster.


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

1. Don's Insane Brown Bag Special ($20)
2. Mr. Anderson... People Are Fake T-Shirt ($19.99)
3. Jeff Hardy Enigma T-Shirt (Glow In The Dark) ($19.99)
4. The Best Of America's Most Wanted DVD ($24.99, on sale $15.99)
5. RVD - Video Wall T-shirt ($19.99)
6. Hogan H Squared Limited Edition T-shirt ($29.99)
7. Destination X 2010 DVD ($19.99, on sale $15.99)
8. Unbreakable 2005 DVD ($9.99)
9. "Hulkamania" T-shirt ($19.99)
10. Beer Money / MMG "FANDIMONIUM" DVD ($19.99, on sale $14.99)

Back from vacation and still no updates.




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 upcoming weeks? The Personal Journal answers that question.





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, Rich was extremely angry at ever discussing the possibilities of the WWE taking legal action against TNA for using "ECW":

They haven't presented them in anyway as of yet.

They just have come into the arena a few times and Taz, who also worked for ECW commented on them, and mentioned ECW a couple times. At no point did I ever hear him say that these were ECW guys.

Shit Raven, Rhyno, and Richards were all in a TNA ring a few months ago.

Even when they stormed the ring it wasn't mentioned at all as an invasion; that was the definition the unwashed internet masses gave it.

Dixie said they were invited, so that solves any problem there.

So let's not lose our minds over them being mentioned as ECW guys, I am also pretty sure they have been called FORMER ECW as well.

TNA can play it many different ways, but as of yet I haven't said one word said or printed saying that these guys are FROM ECW (currently) or invading from another promotion. Other than from self proclaimed wrestling experts blogging on websites like this one.

Unfortunately, Rich, you should have listened more closely to the brawl from two weeks ago.




In case you can't play, here are a couple of exerts:

Mike Tenay: The former ECW four jump the guard rail…
Taz: These guys don't even work here as far as we know

Yes, they said "former" here, but they went with the "guys don't work here", which would equate to an invasion. But Taz brought it up another level later:

Taz: The TNA wrestlers, they don't know what side TNA management is on… two of them are helping the ECW guys.

That time he blatantly said they were ECW guys. Not "former" or anything like that—he presented them as from ECW and in difference to TNA wrestlers and management.

But much worse than a slip of the tongue like that is what Sideshow Jim pointed out:

Except for the part on the PPV advert where there's ECW chants. And the whole title of the PPV being a rip off of the old One Night Stand PPV.

The title rip off they could get away with (which the Journal incorrectly stated last week), but that would most likely slide in the homage category. However, putting the "ECW" chants in the advertisement is a clear use of trying to use the trademark to their benefits. Actually, since last week the chants have actually been removed from the ad, showing that someone noticed it was a legal issue. Rich, though, was still not convinced:

So the chants of some drunken people in an audience is now legal and something that can be used in court?

Actually, yes. The FCC can be used as precedent when the fined public broadcasters for swears let out by the audience. That is why today nothing is "live", but actually on at least a nine second delay. Watch a few football and baseball games on a network station for when they suddenly drop audio to get rid of swears. Being on cable, TNA does not have bleep their broadcasts, but their show is taped and therefore they can be held accountable.

That said, going after TNA for something said in the audience would be a stretch. The real issue is when they repackaged the chants into an advertisement. Something happening in the audience is beyond their control; an advertisement is a clear usage that they did not have to do. Guest#5940 wraps this up:

They were not part of a live broadcast. The chants were in a pre-made advertisement for a PPV, used so everybody would know that this was ECW related. Huge difference.

As for TNA having lawyers, TNA does not have a good track record of getting things done right. They have advertised wrestlers not under contract multiple times, in spite of having been burned multiple times. They show the negative signs of not having a cleanly defined power structure. Often they seem to be chasing their own tail. So I wouldn't put too much stock in TNA having lawyers who can tell them where to toe the line until I see internal memos.

Rich wasn't the only angry one in the audience last week as Guest#0038 contends:

How do you know with such certainty that TNA's gotten out of the hole the past couple years?

What made me want to finally post this question was your response to the ROH subject from last time, which was so incredibly off the mark that if I didn't like your column so much I'd probably just stop reading. For instance:

"...they started to only use local talent."

Really. They're based out of the northeast. They routinely use….

The list was quite long. Anyway, "local talent" may have been an overstatement as the term should have been "more talent closer to the area with fewer people flown in." And this actually happened two and half years ago. In Issue #19 on February 2, 2008 of the Journal the lead story was all about the cut backs that ROH was making at the time that they needed to do to make it a much more stable organization. Here's the full story:

LEAD STORY: ROH makes cutbacks

After weeks of debate in the Editorials section here in the Journal, news broke this week that Ring of Honor is having financial difficulties. Although not many details are available, what the Journal has learned is that ROH has failed to increase DVD sales and live events attendance as the company has added more shows, gone further from its home base, and added more expensive talent to the roster.

Many would like to blame PPV for troubles within ROH, but PPV is most likely not a major factor. PPV companies take six to eight months to pay content providers, so ROH must have been prepared to not have that cash on hand when they entered the PPV market. This was a mistake that ECW made as they did not realize there could be that much of a lag time and they never had the cash on hand to continue operations through their bi-monthly PPV era.

Several cutbacks have already been made in order to reel in out of control and unsubstantiated growth. For instance, Daniel Puder will not be flown in from the west coast due to plane fare being relatively high. ROH will also rotate the major names to different shows, rarely having the major names available on one card. They will also use more local talent to fill in cards.

Before ROH moved to PPV, wrestlers were asked to sign contracts that basically bared them from working for WWE and TNA. ROH may have to allow some wrestlers to leave that contract if they cannot provide enough work, just as ECW did later in its life. Also, in order for performers to make a living, ROH will have to allow them more control over their individual schedules again in order for them to make a living. Many ROH stars due well in other countries and may chose to take extended tours overseas.

ROH has also cut down on the number of live events scheduled for the year, but not by a large amount. They are still planning two shows in Orlando during WrestleMania weekend in order to try to spread their name. Outside of this, though, events are more in ROH strongholds of Philadelphia, Boston, New Jersey, New York, Chicago, Detroit, and Dayton and not in more far flung or growing markets.

Despite the cutbacks, this may be beneficial to ROH in the long run. By being forced to scale back operations and grow at a slower pace, ROH may be able to recuperate losses and focus on core growth areas instead of trying to grow everywhere. While this means ROH will not be able to reach the revenue level or reach of TNA any time soon, it does leave ROH a possible future where they are not overextended and over cost.

And what part of that has not come true? Our Guest continues:

"...the company is stable and likely profitable by a small margin"

How do you know? They're not publicly traded.

Supposition based on what was known two years ago and estimates based on their growth and expenses since then. Small margin is relative in comparison to the WWE. So long as they are profitable, things should be fine. Anything else?

"They have few fixed costs."

Excuse me? Have you ever run a wrestling show in any way? Do you know how much it costs, even doing a small show? Even ROH's smallest shows have building rental, a big set (that's truck rental, sound, lighting, chairs, ring crew, staff, etc.), licensing depending on area, the costs related to talent mentioned above, insurance, equipment (cameras, tapes, mics, ring stuff - hell, the ring itself, etc.) sometimes concessions, promotional costs (tickets, flyers, merchandise, etc.) not to mention the post-production of DVDs/shows, etc. Wrestling is not a cheap business, especially on the level ROH does it.

Well Guest, every single thing you listed is a "variable" cost. Yes, those are the costs of putting on a show. "Fixed" costs are costs to keep the company running while you are doing nothing. In other words: front office staff, guaranteed salaries, storage expenses, and website maintenance are among things ROH has to pay for when they are not putting on shows.

ROH has a very lean structure, which is to their benefit. Saying they have few "fixed costs" is a good thing because, in comparison, TNA has A LOT of fixed costs. Look at the size of TNA's front office and you can see that they have to make more revenue in order to cover costs. If you have very few fixed costs, your shows can be profitable.

This is a concept called managerial accounts. Regular accounting says that you take revenue and subtract out the cost of goods and anything directly related to that product. So, if TNA and ROH both put on house shows and TNA gets $100,000 in revenue and ROH gets $50,000 in revenue, TNA looks like the winner. But then you start to subtract all of those variable costs you mentioned. Let's say after that because TNA has higher expenses for talent and crew that they have a 35% margin which ROH has a 50% margin. That means TNA made $35,000 in gross margin while ROH made $25,000. At this point, TNA still looks like the winner.

The next level of accounting uses allocations to take fixed costs and assign them to revenue streams. Another way of looking at it is to spread costs among your customers so you have a dollar cost per unit that includes administrative functions. For our sake, let's say TNA and ROH have the same number of house shows and thus their managerial allocation is the same percent. In this example, each company will allocate 5% of managerial expenses to the show.

Because of their office and staff, let's say TNA has $500,000 in fixed costs and ROH has $250,000. As such, the allocation to this show is $25,000 for TNA and ROH has $12,500. Subtracting this out, TNA's show has a managerial profit of $10,000 while ROH has a managerial profit of $12,500.

So, because of the lower fixed costs, ROH actually came out ahead.

Of course, this is an extremely simplified version and not based on real numbers, but hopefully this explains the difference between fixed and variable costs, why they are important, and how to analyze them.

Moving away from this topic but sticking to the numbers, Thank You! says:

"What a lot of people do not realize is the WWE makes far more in revenues and profit now than they did during the Monday Night Wars Era."

I think most of the IWC just looks at ratings and makes up facts. UFC gets 1.0-2.0 ratings, but get HUGE PPV buyrates.

Just as WWE has lower ratings than the late 90's, but has a thousand different avenues to make money....

Exactly the point the Journal was making. If ratings were the only barometer, the WWE and TNA (despite being among all the top rated shows on their respective network) would be bankrupt. But the WWE actually makes more revenue on their shows today than they did in the 1990's by a large margin. Changing from a revenue model to a rights fees model has been extremely important for the WWE and has been the largest area of growth and stability.

This is actually one of the areas that TNA has copied very well. But selling iMPACT and Xplosion for rights fees in markets around the world, they have been able to create a level of stability and revenue growth that make the company possible. Going back to the fixed costs above, these shows cover the vast majority of those and then some.

Sticking to the subject of ratings, Guest$4566 asks:

So LuchaLibreUSA did well and why ROH does not post it's ratings is a complete mystery to fans.

Well it should not since the Journal has written about it several times, but Guest#1713 answers anyway:

Nielson is a private company and not a public service. The act of getting rated and therefore having a rating to release costs money. Since HDNet doesn't appear concerned, there is no reason to get measured.

Basically, HDNet does not pay to get rating information and therefore Nielson does not officially track them. Unofficially, Nielson tracks everyone, but since HDNet doesn't pay no one can get their data. It's a very different model for television, but Mark Cuban seems intent to go this route. And as he does so, ROH ratings will never become available.



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

Till then!