The Hamilton Ave Journal 08.19.10: Volume 2 – Issue 151

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 2 – Issue 151

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.

TOP STORY: WWE Half Year in Review

With the WWE reporting disappointing but still profitable results for the second quarter two weeks ago, it seems that the next logical step is to look at the half year in review.

Thus far in 2010 the WWE has accumulated $245.5 million in revenue, a 0.4% from 2009’s $246.6 million. From a Profit Contribution perspective, the numbers took a bigger drop going from $114.4 million and dropping 4.9% to $108.8 million. Despite this, the WWE ended up with an Operating Income before taxes of $47.6 million, a rise of 6.3% over $44.8 million. This game about mostly from a 10.1% drop in SG&A costs and a 28.4% in depreciation, which is a non-cash item anyway.

The winners this year first consisted of Live Events and Venue Merchandise which went up 4.3% to $66.0 million based on higher average attendance and better international exchange rates. Next was Television fees which increased 13.2% to $60.2 million, driven mostly by the addition of Superstars, but also benefiting from contract renewals overseas. Finally Home Video increased 7.3% $19.1 million, showing a stronger video selection this year over last.

The losers were the bigger story here. PPV dropped 13% to $42.8 million. The drop came mostly in the second quarter as the PPV events started going downhill after two quarters of growth. WrestleMania also underperformed compared to prior years, hurting this total. Digital Media dropped 20.3% to $11.8 million, showing the softness of the online advertising market and the sales online. And finally everything else (Licensing, WWE Studios, WWE Magazine, etc…) dropped 5.6% to $45.6 million for a variety of reasons.

Despite having growth in Live Events and Home Video, both areas suffered from lower margins over last year. All other areas also had lower margin percentages with the exception of Television that that went from margin costs of 65% to 58%. Overall, Profit Contribution Margins dropped from 46% to 44%, showing it cost the WWE more to make less revenue, a double whammy if ever there was one.

At the end of the day after taxes the WWE went from $30.2 million in 2009 up 2.6% to $31.0 million. Since the rate of inflation from June 2009 to June 2010 was 1.1%, the WWE had a real growth rate of 1.5%.

Now, the WWE has operating income of $30.2 million. Adding back in the depreciation of $5.3 million, that means the WWE received $35.5 million in operating cash for this half of the year. Since the beginning of the year, the company has paid out $41.6 million in dividends, meaning that the company is once again paying out more to investors and the McMahon family than the company is taking in.

Because of this and a large purchase of short term investments, the WWE has decreased their cash position to $97.8 million. Since Total Liabilities equal $93.7 million the WWE could pay off all their debt tomorrow and still have cash left over. However, the ratio is the lowest it has been in quite some time.

A soft second quarter, a large number of questionable investment activities, higher cost to produce lower revenue, and a change in balance positions has led the WWE to be in a different place than they were just six months ago. That said, the WWE is still doing quite well and have a health profit margin. Any rise in revenue will help, and some costs can be brought back under control. The investment activities were decisions the WWE made and they can undo them in the future, so the risk is quite low there.

Overall, the WWE has many areas it can work on in the current year, but the bottom line is they are strong enough that they are not going anywhere.

Newsbites

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

SyFy has now gone beyond their website to promote SmackDown’s move to the network in the fall as they sent out the following press release:

WWE FRIDAY NIGHT SMACKDOWN – Syfy Series Premiere Friday, October 1, at 8PM – The ultimate in imagination-based sports entertainment, WWE Friday Night SmackDown® moves to its new home on Syfy. The two-hour show, one of the longest-running, weekly episodic programs on television, features a star-studded cast of WWE Superstars and Divas including The Big Show, Kane, Kofi Kingston, Jack Swagger, Kelly Kelly, Undertaker®, Rey Mysterio®, CM Punk®, Cody Rhodes®, Michelle McCool®, Kelly Kelly and Layla.

WWE has signed a number of marketing deals recently. First, K-Mart will be the recipient of some exclusive Mattel action figures and appearance by WWE superstars and legends. On the other side, the WWE’s PG model has gotten them a big deal with Burger King. From the press release:

World Wrestling Entertainment(R) today announced that it has teamed up with Burger King Corp.for an in-restaurant promotion, beginning Monday, August 23 through Sunday, September 12 in close to 7,000 BURGER KING(R) locations in the U.S.

WWE Superstars Triple H(R), John Cena(R) and Undertaker(R) will be featured on more than five million exclusive Superstar plush toys inside BK(R) Kids Meals. A new Superstar plush toy will be available each week during the three-week U.S. promotion and will play the stars’ individual catch phrases or entrance music. The Superstars will also appear on BK(R) Kids Meal packaging along with merchandise displays at participating restaurants. BK(R) Kids Meals also include a $2.00 off coupon at Target stores for WWE Mattel FlexForce(R) action figures. BKC has created television commercials which are scheduled to air on networks such as Nickelodeon, Cartoon Network and Disney XD to support this campaign for the duration of the program.

From all this, the WWE is really working all ends of their merchandise and their partners. After the numbers this quarter, the WWE is trying to make sure it was just an aberration and profits will rise quickly.

Also to prepare for the future, the WWE has decided to take the idea of 3D television seriously. The company is now looking for 3D Animator/Artist. From the job description:

World Wrestling Entertainment, Inc., one of the most recognized brands and a leader in global sports entertainment seeks a 3D Animator/Artist to join our team of graphics professionals. This position will be responsible for designing and animating 3D on-air graphics for Raw, SmackDown, NXT, Promos, Home Video and Pay Per Views.

On August 5, 2010 Martha Hart filed an amendment to her lawsuit against the WWE. The WWE now has until September 20, 2010 to respond. No details are available on what was added to the suit at this time.

TNA has been heavily catering to the UK market this week. Tommy Dreamer, Douglas Williams, and Brutus Magnus have been making the media round. Meanwhile, TNA is also offering a trip for two to Orlando for the No Surrender PPV through “Zoo Magazine” and the “Extreme Sports Channel”. The UK has been an extremely important growth market for TNA and they are focusing a lot of their marketing dollars there.

Over on the government side, TNA has filed new trademarks for “Extreme Version 2.0” and “TNA Wrestling Reaction”. “Extreme Version 2.0” was filed on July 27, 2010 was “TNA Wrestling Reaction” was filed on April 12, 2010 and was published for opposition on July 20, 2010. TNA is making steps forward by actually filing their marks, but they are still behind on the timeliness. The “Extreme Version 2.0” may be forgivable since the name was not given until late into the program, but TNA would be well with some prior planning.

The “official” debut of TNA ReACTION scored a 0.87 rating immediately following iMPACT. Should the Journal track ReACTION’s ratings in the Marketplace below?

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 August 18, 2010, here are the current standings of the shows:

Analysis:

For better or for worse, there was almost no movement in the ratings this week. Although every show was down or even, the amount that the shows dropped were 0.08 or less. While this is a higher rating than what Lucha Libre USA got this week, for WWE and TNA this is hardly a statistical difference.

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. John Cena Cenation T-Shirt ($25.00)
2. John Cena Cenation YOUTH T-Shirt ($22.00)
3. John Cena Cenation Baseball Cap ($20.00)
4. John Cena Cenation Sweatband Set ($12.00)
5. Nexus Logo T-Shirt ($25, on sale $19.95)
6. Randy Orton Lobotomy T-Shirt ($25, on sale $19.95)
7. WWE Red/Blue Reusable Bag ($2.99)
8. Bret Hart Emblem Basics YOUTH T-Shirt ($9.99, on sale $2.98)
9. John Cena Cenation Ladies Tee ($25.00)
10. Raw The Beginning The Best of Seasons 1 & 2 ($39.95, on sal e$19.99)
11. Miz I’m Awesome T-Shirt ($25, on sale $19.95)
12. Bret Hart Best Since 1984 T-Shirt ($25, on sale $9.98)
13. WrestleMania XXVI YOUTH Sunglasses ($10, on sale $2.98)
14. Nexus Armband ($8.00)
15. Randy Orton Lobotomy Muscle Tank Top ($16.95, on sale $9.98)
16. John Cena Never Give Up Tank Top ($16.95, on sale $9.98)
17. John Cena Never Give up Notebook ($5.99, on sale $4.79)
18. Randy Orton Lobotomy Basics YOUTH T-Shirt ($9.99, on sale $8.95)
19. John Cena Never Give Up Lunch Cooler ($12, on sale $9.60)
20. John Cena Never Give Up White T-Shirt ($25, on sale $19.95)

People around here often wonder why John Cena is booked as a “superman” and is the focus of the show. Well here is your answer: whenever Mr. Cena introduces a new item he blows out the rest of the roster and then maintains those items for a long time. Premiereing at numbers one through four are John Cena’s newest style in t-shirts, baseball hats, and sweatbands. More than that, Mr. Cena brought a rare ladies item to the top selling list coming in at number nine. At the same time, sales of the new items churned up additional purchases of the older items. All together, Mr. Cena represented nine of the top twenty spots.

The rest of the list held up good showings by the Miz, Randy Orton, Bret Hart, and the Nexus. For the later, it still remains to be seen if the WWE will take their sales into consideration to continue the angle. The Miz also falls into the same category of whether his sales will help him in the coming months ahead, but he has successfully held a spot on this list for months on end, a feat only seen by John Cena and Randy Orton.

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)

They have new items and a big sale, yet TNA refuses to update the top selling list.

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. Now, let’s break down the topics from last week’s commentary section:

Talking to the Stars

You talked to Christian? Somehow I doubt that, BUT if you did, KUDOS to you sir. It would make this column a lot more credible in my eyes!
– fro

And what would make your words more credible would be if the Journal did not have to edit them to replace “u” with “you” and add capitalization. That said, why would this reporter just make up a random item like that. Thankfully, others remember:

There is an article on this site with pictures of Small and Prag at a TNA meet and greet (the game launch) interacting with different TNA wrestlers.

Besides, if a person travels for a living and frequents the same airports, they might bump into different wrestlers.
– Guest#2854

Yes, that would be the Hamilton-Ave-For-All Special News Report. Be sure to read the sections with Christian to prove that this reporter has spoken to him.

That said, yes, sometimes this reporter does run into wrestlers at airports (or on a rare occasion on an airplane). However, as a fellow traveler this reporter respects the toll the road takes on the body and usually lets them be.

Number 3

There was a lot of discussion on whether or not TNA is the second largest promotion in the world and the Journal is not going to back down on that position. However, that brings up an interesting question:

Agreeing that TNA is #2 (and I do) who would you guess is #3 in the world?
– gpjunk

This is a rather tough one. AAA, CMLL, and NJPW are all large in their home markets and are usually quite profitable. AAA has better ratings in their home market, but NJPW is in a country with a larger, more prosperous country. ROH would have to be in consideration for the simple fact that they have a TV show in a few countries, but their revenues are not to the level of those promotions.

Any thoughts out there?

Mexico in America

As for the number three promotion in ratings in the US. Lucha Libre USA been averaging around 120,000 viewers(for the original airings, this is not counting the two replays) and did a .12 for the 8/06 show. My sources say AAA have been averaging around 200,000 viewers for their US Galavision show for years. I doubt Wrestlelicious can contend with these guys on MavTV.

As for attendance, AAA last tour in the US last year, average between 5000-7000, the most being 7000 in Las Vegas which they film and it made it to television, it happen on 04/02/2009. (The shows was promoted by Lucha Libre USA who now promotes Masked Warriors). AAA can come in and draw just as better as TNA. Their agreement with Lucha Libre USA runs out next year so they can’t tour the US until that time.
– USAUSA1

Good info there. The one thing to note is that AAA’s tours have been in southern California and Texas, areas with high a Latino population, thus making them good areas to go to. Other markets like South Carolina, Idaho, and Maine may not to quite as well. Conversely, TNA draws better in England than they would in Mexico City, so there is still a lot of locality to deal with.

TNA in India

The Journal says:

‘And TNA has a strong foothold in India and is looking at that for major expansion.’

Nonsense.

TNA is ATTEMPTING TO GAIN A FOOTHOLD here. There’s a big difference. WWE is much, much more visible on national TV. Been living and working in Mumbai and Delhi for 5 years and dealing with TV advertising sales constantly in this time. WWE is easy to sell, no agency knows what TNA is.

You’ve already said Dixie is known to exaggerate. Surprised you fell for this.
– Mon Fleur

Should have clarified this one with a “relative to TNA” comment. TNA has made a few media tours of India and has drawn crowds into the thousands, as reported by the India media, TNA, and those on the tour. So, for TNA they have a strong foothold, but they do want a bigger piece of the pie. Yes, they are not as big as the WWE or as easy to sell, but nobody is yet. India has the potential to be a more important market than the US to the company, so they do want to expand on what they have. The fact that they are there and some people know who they are proves they have some type of foothold.

SmackDown’s Ratings

Yeah, I don’t know if they’re just treading water until the move to SyFy this fall but I’m not surprised by Smackdown’s drop in ratings. Between Undertaker’s injury, Batista leaving the company, and them shifting a ton of the most over talent to Raw during the draft (Jericho, Edge, Morrison, and R-Truth if I’m remembering correctly), it’s really become noticably less prestigious than Raw in terms of just how little they’ve been featuring the most popular guys in the company.

To me, Mysterio and CM Punk (and maybe Big Show) are the only “stars” featured every week. Don’t get me wrong, the actual wrestling’s usually better on Smackdown than Raw, I’m just saying I can see why the ratings have dropped in terms of general fans tuning in to watch.
– Korsen

There’s more to it than just the missing stars. First off, SmackDown has been dealing with preemptions in many markets due to baseball, including New York. Next, some MyNetworkTV affiliates have already dropped SmackDown as a preemptive move since they do not want to promote a program that is not going to be on there in a couple of months. Couple those elements with what you mentioned and the general lag in all WWE ratings and there you have it.

TNA’s Profit

Well I wasn’t sure TNA was making that much in revenue, but make it simple and call it 52 million. So that’s a million a week. Are they really spending more than that right now? I somehow doubt it, even with Hogan and Sting and giving people perk money for one or two shot deals.
– Rich

Well, TNA has a roster of over 70 wrestlers, announcers, referees, and other on screen characters. Let’s say on average they make $2000 a week (some make $350, some make $5000), making $140,000 right off the top. Then TNA has an office staff filled with Vice Presidents to the effect of let’s say $60,000. So just from salary costs 20% is gone from the top. Then they have rent on their office, expenses of their production studios and trucks, satellite uplink time, the cost to produce t-shirt and DVDs, and many more expenses that could easily come to another $500,000. Now add in promotions, building fees, reimbursements, and other and there is even more to take from this total. So while TNA may be profitable, the margin isn’t huge. From $1 million a week, it would be as much as a couple hundred thousand or as little as several ten thousands. There are quite a few things that could cut into that and TNA is not sitting on the pike of cash the WWE is. That said, TNA is hardly in a position that they are suddenly going to go out of business tomorrow. Cost disciple will only make their profitability position stronger, and those abilities should be well within their grasp.

WWE’s Numbers

Being that the theme of the past two weeks has been the WWE’s performance, it would be good to discuss that.

From the editorials:

“Actually, the WWE is not dependent on PPV either. PPV is 9.7% of the WWE’s revenue and 14.6% of the profit margin, so the WWE could potentially survive without it. Why would they, though? There is still money to be had from PPV for the company and they would like to see those revenues back up again as opposed to letting them die out.”

Do those numbers include the live gate from those events?

I’d imagine the biggest WWE live gates would be their PPV’s by miles over weekly taping and non-televised house shows.
– Trash

No, live gates are completely separate in the Live Events and Venue Merchandise category. That said, attendance for television and PPV are generally much higher than house shows and ticket prices are higher. Still, the difference in the 13 PPV dates and 104 television tapings is hundreds of thousands, not millions that would make a difference.

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

This concludes Issue #151 (Volume 2) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!