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By Mike Johnson on 2020-07-29 13:19:00

Lightshed Partners, a top technology, media and telecommunications research firm based in New York City, released a deep analysis on the WWE stock yesterday, citing their belief that unless WWE turns their television ratings around, the company will not be able to maintain the level of rights fees they currently receive from NBC Universal and FOX.

Noting that WWE has “dealt well with the pandemic, managing costs down while fulfilling contractual content obligations,” Lightshed noted that they believed the Raw and Smackdown ratings in June might have been a “ratings bottom" but it has gotten worse since then.  A big piece of blame was pointed at WWE Creative and Lightshed’s analysis specifically pointed to the “ousting of Paul Heyman” from his position of Executive Director of Raw as an issue.  The analysis points out that WWE’s ratings have declined despite the money being brought in by their current deals and with that pressure, the “margin of error” for the company is smaller than ever.  It noted that COVID-19 has impacted ratings for professional wrestling, but both WWE NXT and All Elite Wrestling’s numbers have been up while Raw (10%) and Smackdown (8%) are down from last month and down 15% from April 2020 with Raw hitting all time low ratings multiple times this summer.

On where the blame falls, the analysis notes, “COVID or no COVID, creative appears to be at the center of the issues.  Vince McMahon has acknowledged things need to change multiple times.  However, while there have been short lived experiments, the content appears to continuously return to a similar formula under his absolute control.  McMahon went so far as to hire creative heads for Raw and SmackDown a year ago, with Paul Heyman heading Raw and Eric Bischoff heading SmackDown.  Neither are in their roles a year later.  Bischoff was fired after four months on the job and Heyman was relieved last month. The role is now consolidated under Bruce Prichard.”

They also stated that one of WWE’s “largest problems” is an “inability to create new Superstars”, noting that WWE has always been defined by its top stars but recent years have not had that star power, noting Roman Reigns has been closest but hasn’t hit on the same level as talents from eras before.

Lightshed noted, “More broadly, there really has been very little younger talent that have broken through at all on their way to replenishing even the middle level of stars in the men’s division.  This has made the company more susceptible to injuries / absentees of major stars.  Much of the talent with drawing power is aging. And, the big draws for major events have been in bringing back even older wrestlers such as Goldberg and The Undertaker.  That is a band-aid, not a long-term strategy.”

The analysis noted that Vince McMahon addressed the Raw issues but then seven weeks later, Paul Heyman was moved from power.  Noting that “the strategy with Heyman was to work towards building this talent, even if it took time” but since Heyman’s departure “Raw’s focus has again shifted more heavily to much more established stars.  It has not worked; as we mentioned viewership declines are accelerating again.”

Lightshed pointed out that WWE has a few years before TV rights have to be negotiated again, so WWE has a chance to “fix” the roster and suggested that Paul Levesque could be the one to help right the ship.  They suggest the company might need, “A longer-term approach, even if ratings return more slowly, is probably the right prescription.”

Lightshed also stated that the future of the WWE Network is very important, noting they do “not expect a resolution on a transformative deal for a very long time.”  They pointed out that the plans for the streaming service and using its data went out the window with the exit of George Barrios and Michelle Wilson as co-Presidents.  With COVID-19 hitting, WWE didn’t get the chance to lock in a hoped-for deal with a major streaming company and export content there.

The analysis noted that Lightshed is “torn on the right future for the Network.  We still believe those companies that can have [Direct to Consumer] relationships are far more better off in the current media ecosystem.  Admittedly, though, we have grown more skeptical of the Network with time.  It might just be that WWE doesn’t have the DNA to be great at DTC / grow it far beyond what it is today.”

Lightshed noted they’d like to see the next iteration of the WWE Network (the potential multi-tiered one, which the company has backed off from) launch before determining whether WWE should abandon the Direct to Consumer strategy.

The analysis went on to state that they cannot recommend WWE’s stock right now because there are “still simply too many critical questions surrounding the company” at the moment, specifically the company’s creative direction.  They noted the company’s engagement with viewers is more crucial than ever and noted they see “a potential domestic devaluation in sports rights coming, particularly as WWE” - especially with the NHL and NBA returns potentially taking a bite out of WWE’s ratings.

Lightshed pointed out that WWE’s main success are their television rights fees and that the stock “crumbled” earlier this year when international rights did not match what WWE garnered from the USA Network and FOX.    Lightshed also expressed their doubts that FOX and NBC Universal will want to spend more money on WWE rights when the deals come due given the current environment and how WWE has performed.  Pointing out how FOX has dropped sports properties and cut back on WWE programming and how NBC is “backing away” from pay-tv with an eye on streaming success with Peacock, their worry is that the landscape may not be there for WWE to repeat or enhance the success of their most recent deals.

Lightshed  stated that going forward, they “would like to understand the company’s growth strategy and level of investment, capital allocation and find comfort with new management (the company hired a new CFO, Kristina Salen a few weeks ago)” and would be open to again recommending WWE stock if “if we see a notable improvement in content / ratings and have a better understanding of the aforementioned issues.  But for now, we assign WWE a Neutral rating.”

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