The Hamilton Ave Journal 02.16.08: Volume 1 – Issue 21

Posted by JP Prag on 02.16.2008

The numbers are in! Full analysis for the WWE 2007 Q4 and Year End Earnings are inside. Plus ECW is the big ratings winner and TNA gets a whole new Top Ten.

THE HAMILTON AVE JOURNAL
By JP Prag

Volume 1 – Issue 21

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.




WHAT'S NEWS

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 2007 Q4 and Year End Earnings Report

On Tuesday February 12, the WWE released its Q4 and Year End earnings report. Overall, the numbers look favorable as the WWE posted revenue of $132.6 million for the quarter and a record year end total of $485.7 million. This was compared to $107.6 million and $415.3 million last year, increases of 23% and 17% respectively. But how did the WWE come to these high numbers? The Journal breaks it down:

Live Events: This quarter, the WWE did $30.9 million in live events ($14.0 million in North America, $16.9 million internationally) based on 49 domestic and 26 international events—75 events in total. Last year, the WWE had 87 events, which included 10 ECW-only shows. Those shows grossed $24.4 million ($11.9 million North America with 62 events, $12.5 million international with 25 events). Overall, that means that the WWE grossed $0.41 million per event this year compared to $0.28 million per event last year. Breaking it down to domestic and international, the figures compared $0.29 million to $0.19 million and $0.65 million to $0.50 million.

There are many factors that have led to this growth. Average domestic attendance increased from 5,300 per event to 7,100 per event, though last year's attendance figures are dragged down by the smaller ECW shows (generally less than 2000 people per show). Also, the WWE raised ticket prices from $35.78 to $40.66 domestically and from $70.12 to $83.47 internationally. Without exact attendance figures, it is hard to judge what is the true net difference in attendees, but the vast majority of the additional incomes seems to have come from the rise in ticket costs, not the rise in attendance (although there was still a measurable gain there).

PPV Buys: This quarter, the WWE produces four PPVs as opposed to five last year that included December to Dismember. Overall, the number of buys dropped from 1.21 million to 1.15 million this quarter. Excluding December to Dismember, last year had 1.12 million, showing an increase. The largest benefits to the WWE were the increase in No Mercy buys (197 thousand to 271 thousand) and out-of-period buys (71 thousand to 107 thousand)—that is, PPVs that were produced in another quarter and were ordered as replays in the current quarter. It can be postulated that removing excessive PPVs this year has left customers with more disposable income to buy replays of shows.

Overall, PPV revenue increased to $19.9 million from $18.7 million. There were no changes in PPV prices, but the mix of domestic and international buys changed from 58% domestic to 63% domestic. Domestic events are charged at a higher price in general.

Venue merchandise sales increased from $4.6 million to $4.4 million, totally $19.1million and $18.4 million for the year. The diversity of merchandise and the measurable increase in attendance are the key contributing factors to this growth.

WWE changed higher rates for television programs raising the total to $23.8 million this quarter compared with $21.6 million last year.

WWE 24/7 saw a slight bump to $1.1 million this quarter compared to $1.0 million last year. For the year in total, WWE 24/7 did $4.9 million compared to 2.6 million last year. The service saw significant availability growth this year, but it appears revenue subscriptions have been relatively flat since 2006 Q4.

Consumer Products: The WWE's largest growth was in consumer products, jumping from $23.9 million it the quarter last year to $35.3 million this year, an increase of 47.7%. By line, home video increase to $19.8 million from $14.0 million; licensing for apparel, toys, etc… increased to $9.4 million from $6.3 million; and magazine revenues increased to $6.0 million from $3.3 million.

Overall, the WWE has done a tremendous job of diversifying their revenue streams. Whereas three years ago the vast majority of WWE revenue would come from television rights and PPV buys, consumer products look to be taking up over 25% of the WWE's total revenue. Being less dependent on television rights and PPV buys is beneficial to the WWE in the future as the attention and wallets of fans it pulled elsewhere and they need other ways to connect with and sell to the audience.

Digital Media: There are two forms of revenue in digital medium for the WWE: WWE.com advertising, clip sales, and wireless services ($4.2 million compared to $3.3 million); and ShopZone sales (flat at $7.7 million). While WWE.com is seeing growth mostly in wireless services, ShopZone only maintained its sales because the average per order dollar amount increased while the number of sales decreased (9% drop).

WWE Films: WWE Films brought in $3.1 million for accrued revenue associated with See No Evil. Most of that revenue was offset with the cost of amortizing film assets over time.

Taking into account the cost of all of the above activities, the WWE had a contribution margin of $55.9 million (42% of revenue) this quarter compared $42.2 million (39% of revenue) last year. The improved contribution margin was mostly due to larger television fees without increased costs, fewer PPV events with higher revenue, and additional consumer products spending.

SG&A expenses increased from $22.3 million to $28.8 million, mostly due to increase legal and professional coast. Obviously, the WWE is still dealing the Chris Benoit situation, the steroid scandal with Congress, the lawsuit with Jakks (among others), and other issues. Last year also saw the recovery of bad debt that was written off as negative SG&A, thus making costs look less than they were.

The WWE managed to reduce its tax rate from 26% to 23%, despite the large increase in revenues in all segments. This is a considerable gain for the organization.

Earnings before Interest, Taxes, Amortization, and Depreciation (EBITAD) were at $27.1 million for this quarter (20.4% of revenue) compared with $19.8 million last year (18.4% of revenue). Overall, the WWE has become very efficient at controlling costs and increasing revenue, making this a step in the positive cash direction. As it was, Cash on hand increased from $86.3 million at the end of last year to $135.8 million at the end of this year. In other words, the WWE is no danger of not having enough cash on hand to do whatever they want.

The bottom line: Net Income for the year increased to $52.1 million (10.7% of revenue) compared to $48.8 million last year (11.8% or revenue). The main additional cost during the year was a $15.7 million "impairment" write-off for The Condemned and the aforementioned favorable debt recovery.

At the end of the day, despite slightly sagging ratings, a year mired in controversies and bad publicity, and questionable storyline and character direction, the WWE managed to take everything and turn it into another successfully profitable year and the highest amount of revenue ever. No matter how anyone may criticize the WWE and its direction on television, they have not been hit where it hurts: the wallet. Instead, the WWE has taken its audience and got even more out them.

How can anyone convince Vince McMahon and the WWE writing staff that they are doing anything wrong when they are able to produce numbers like there?


Newsbites

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

WWE is looking for a new slogan. Many suggestions are available here

Although not all of the proposed changes to the Georgia State Athletic Commission's charter to regulate wrestling seem to be going though, there is talk of removing the exemption from the current code companies that "operate out of state and earn in excess of $25 million per year". That would be the WWE (and perhaps TNA). WWE has already stated that if the exemption is removed, the WWE will no longer run events in Georgia and will not consider Georgia for WrestleMania in 2010.

WWE's contract with Jakk's Pacific is set to end in 2010 and the WWE has already announced they are not renewing the contract and have signed a new one with Mattel. Meanwhile, Jakk's announced they have signed a deal to start distributing TNA toys starting in 2010. The WWE and Jakk's relationship has been odd as the two continue to work together despite a lawsuit that the WWE has had against Jakk's for the better part of six years. In the most recent ruling, the courts sided in favor of Jakk's saying the company did not engage in racketeering, at least from a federal level. The courts said the WWE could file an appeal in a lower court system to determine if any state laws were broken.

Canadian PPV providers have pulled ROH PPVs from future distribution since the shows were doing what is described as "a few dozen buys" across the whole country. Although this may be seen as a blow against ROH's growth plans, it is further evidence that ROH has tried to grow too much too fast and needs to slow down, have controlled planned growth, and strengthen core revenue streams.

TNA has sold out their show in New York City and is close to selling out the shows in Westbury and Deer Park. This must be seen as a positive growth sign for TNA as they rarely sold out shows during their tour over the summer and had to cancel events in international markets due to low ticket sales.


MARKETPLACE

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. Please note that gaps in the chart below are due to data not being released/available.

For the week ending Thursday February 14, 2008, here are the current standings of our shows:





RAW
Close (This Week's Rating): 3.4
Open (Last Week's Rating): 3.6
Percentage Change: ▼ 5.6%
52-Week High: 4.3
52-Week Low: 2.5
All Time High: 8.1
All Time Low: 1.8

SmackDown!*
Close (This Week's Rating): 2.6
Open (Last Week's Rating): 2.8
Percentage Change: ▼ 7.1%
52-Week High: 3.3
52-Week Low: 2.2
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): 1.4
Open (Last Week's Rating): 1.3
Percentage Change: ▲ 7.7%
52-Week High: 2.3
52-Week Low: 0.6
All Time High: 2.3
All Time Low: 0.6

TNA iMPACT**
Close (This Week's Rating): 1.1
Open (Last Week's Rating): 1.2
Percentage Change: ▼ 9.8%
52-Week High: 1.2
52-Week Low: 0.6
All Time High: 1.2
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

Analysis:

There was only one ratings winner this past week, and it was ECW. For the first time since November 27, 2007 ECW scored a 1.4 rating. The last time ECW scored higher than a 1.4 was October 30, 2007, and before that September 4, 2007. Although ECW has been on a slight uptick in recent weeks, this rise in ratings cannot be considered a full trend just yet.

After the initial bump associated with John Cena's return, RAW's ratings have returned to the exact level they were at before. Short time ratings gains are interesting, but unsustainable. The WWE must look more at long-term slow growth instead of trying to bump the ratings in unsustainable fashion. Meanwhile, the WWE would also do well to invest more time in SmackDown! as they are shopping around for a new home for the program. Any dip in ratings could affect their asking price at the bargaining table.


MONEY AND INVESTING

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. Stone Cold Steve Austin Legacy of Austin DVD/T-Shirt Package
2. D Generation X Anytime Anywhere T-Shirt
3. Hardys Purple Logo Pendant
4. Sabu 8 x 10 Photo
5. WWE Black Gift Bag
6. Randy Orton Oblivion T-Shirt
7. Stone Cold Steve Austin Legacy of Austin DVD
8. John Cena Beware of Dog Package
9. Shawn Michaels Creation T-Shirt
10. Triple H The Conqueror T-Shirt

It appears to be nostalgia week at the WWE Shop as Stone Cold Steve Austin dominated the list with his DVD appearing by itself and with a t-shirt package, pushing Jeff Hardy and Triple H items off the list. The Sabu 8x10 photo is an off anomaly. The item has been cut down to $2.98. Many people may have been buying it, like the black gift bag, to reach a certain dollar threshold to apply for shipping or item discounts. Don't expect that item to stay on the list too long.

TNA requires a little bit more research. Their website does not release Top Ten lists, so the Journal does a general search for a space on "featured products" and sorts by most popular. They came up in order as:

1. TNA Meltdown CD Vol. 2
2. Against All Odds PPV Special Package
3. James Storm "Sorry Bout Your Damn Luck" T-Shirt
4. 2008 Wall Calendar
5. Booker T T-shirt
6. Genesis 2007 DVD
7. TNA Playing Cards
8. TNA Gym Bag
9. TNA Turning Point 2007 DVD
10. TNA "Knockouts Kiss" T-shirt

Finally, the TNA list gets an almost complete shakeup. After mentioning it last week here in the Journal, the Against All Odds PPV package skyrocketed from number 11 to number 2. James Storm continued his slow climb, making it another spot to number 3. Meanwhile, Booker T saw significant movement going from number 10 (his home for many weeks) to number 5. Two new DVDs entered the charts with one thing in common: both feature Kevin Nash on the cover. Also, it item diversification the TNA Gym Bag has taken over the spots for long sleeve t-shirts and fleece blankets as the weather may begin to warm. On top of all this, a Knockout piece of women's clothing actually entered the top ten; something rarely seen in a man's dominated sport. Perhaps the sales numbers are part of the reason TNA is considering a Women's-only show.


PERSONAL JOURNAL

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
17 (Feb) WWE No Way Out Las Vegas, NV	18 RAW Anaheim, CA	19 SmackDown!/ECW San Diego, CA	20	21 TNA Live New York City, NY	22 TNA Live Westbury, NY ROH Live Deer Park, NY	23 TNA Live Elmira, NY ROH Live New York City, NY
24	25 RAW Phoenix, AZ TNA iMPACT Orlando, FL	26 SmackDown/ECW Tuscon, AZ TNA iMPACT Orlando, FL	27	28	29 RAW Live Cape Girardeau, MO	1 (Mar) RAW Live Louisville, KY SmackDown!/ECW Live Fort Wayne, IN

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.

EDITORIALS

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, we have several items to highlight.

The Journal would first like to make one thing clear: being called a small airport that does not have a lot of direct flights and is most expensive is not a slight against said airport. The Journal has no qualms with smaller, out of the way airports, but just wanted to point out it is cheaper for the WWE to fly directly to as east coast facility that has more flights per day. Also, just being an "international" airport does not make that airport large or cost effective. The Journal is based in Providence, RI. The airport in nearby Warwick is an "international" airport, yet there is only one terminal and 26 gates. Greensboro, NC also has an "international" airport with two terminals and 48 gates. Both of these airports are perfectly fine for getting to and from and are the preference for many travelers. From the corporate perspective of the WWE, though, it does not make sense to fly from TF Green in Providence when they can fly from Laguardia or JFK in New York.

Now, onto other subjects with Kairow:

How well do the earnings for 2007 stand up after taking into account inflation? I would have to guess that 2007 would not be as good as the Hulkamaina or Attitude eras.

Inflation averages out to about 3% per year, so a t-shirt that cost $25 in 2008 would be worth approximately $12.41 1985 dollars. With those figures, you would seem to have a point since, although earnings were less, if we account for inflation they would be a whole lot more. That said, the earnings of this era far surpass the era of Hulkamania for different reasons. In the 1980's, the vast majority of the WWE's earnings came from live events, while a growing portion in the mid-to-late 80's came from the 4-5 PPVS they had per year. Although there were shows like Tuesday Night Titans and Saturday Night Main Event, those shows did no where near the earnings of RAW, SmackDown!, and ECW. Nowadays, the vast majority of WWE earnings come from the 12-15 PPVs they run per year and the large television fees they get for their programming. Also, the WWE is proliferated into 120 countries, whereas in the 80's they were only in a few dozen.

On top of all that, the diversity of merchandise is far greater today while the cost to produce it is far less. Hulk Hogan had one t-shirt for the better part of a decade while Stone Cold Steve Austin has had more than 20. There were no blow up fingers, Hardy pendants, replica belts, and the large number of toys (there were some, but not the amount that is available today). Also, the WWE makes a growing chunk of change from DVD sales, most notably special focus DVDs like John Cena's My Life, items that simply were not plausible in that era.

While the WWE may have had a larger presence in the Hulkamania-era, their ability to reap the market was nothing compared to what it is today. Even with inflation, there are just too many other revenue streams for the WWE today to compare it to the WWF of the past, and the past stands no chance.

On the subject of earners, Brett postulates:

I don't see how people who don't like Cena would be proven "wrong" because the WWE had a spike in numbers, nobody is saying he isn't popular, but there are just as many people that DON'T like him and they won't stop just because other people do like him. JP mentioned that Mysterio and Cena bring in kids and chicks, but I thought they targeted the 18-24 demo. Maybe the WWE should do something about that.

G-Walla replied with the appropriate response:

Yeah, but kids turn into 18-24 year olds. Hook 'em young, like the tobacco industry.

It is a fair point, and one covered in the Journal about six weeks back. The WWE is launching a new magazine aimed at kids, which would go against that target 18-24 demo. But their aging audience is not being backfilled, so the WWE is looking to build the future by bringing in younger children. AM RAW already gears towards a younger audience, so the WWE is being smart in trying to build the next generation of fans.

AJ has some thoughts about TNA switching to HD:

Satellite time is not a concern. It does not cost more in primetime (Spike owns the transponders) and Universal has uplink equipment onsite.

You can go to HD for a lot less than 20 million. WWE added a lot of costs that weren't production equipment to that figure, like the new set. TNA will have to spend the money anyway, so why does it matter on what date? People are making more out of the HD switch than need be. WWE hyped it and exaggerated it to make it sound more important. I run dual SD/HD feeds and there's not really any more work and it took hardly anytime to get used to. If you are a video pro you are already ready for it. The biggest cost may be re-doing all the production spots and graphics because of pure man hours needed to accomplish it. TNA has a pretty good video department so I don't see what the big deal is.

The problem is TNA does not have an HD production truck, HD cameras, or anything ready for HD. And we have already seen the WWE has been having slight issues with the HD/SD dual feeds. TNA has problems with their SD feeds now, so it stands to reason they may not be ready for a full HD switch (although presenting in letterbox format may solve some of those switchover issues). TNA may have an excellent video department, but they do not have a lot of man-power and do not have funds to add additional man-power and training. On top of all this, TNA is considering making iMPACT live and switching over to HD on the same night. That is a lot of change at once that the production crew may just not be ready for. Perhaps it would be better to do the HD-switchover during taped shows so they can get used to it and work out the kinks and then consider going to a live broadcast. Your thoughts on satellite time not costing more are interesting. The Journal has no figures available on cost to broadcast at different times of day, so there is nothing available to contest with, unless another expert cares to respond.

There was plenty more written, so be sure to check out the rest of that section. Also worth your read this week is:

Bayani teaches you how to introduce a wrestler properly. I guess building up Glacier for six months and then debuting him on Sunday Night's Main Event Wrestling was not the best idea.

Small vs. Slimmer again? This time in Fact or Fiction! Oh, Small, TNA is considering holding Lockdown in Boston this year. Sounds like another good show I can ditch on you at the last minute.

JD Dunn has been recapping NWA Wrestling Showcase. I think there is one guy who wrestlers as a different gimmick on every show.

Ogre doesn't want Mario Party to have a sequel. I think it is a little late for that.

And, of course, a week would not be complete without a good dose of my very own HIDDEN HIGHLIGHTS!!


CLOSING BELL

This concludes Issue #21 (Volume 1) of THE HAMILTON AVE JOURNAL. Join us next week as we get ready to ring the bell again.

Till then!