Magazine Archives: Less Popular but More Lucrative: Why There’s Reason to Be Optimistic WWE Will Get Raise in Rights

This article first ran in issue 1 of Fightful Magazine. Buy all issues at FightfulMag.com 

The most consequential upcoming match-up in the wrestling industry isn’t happening at WrestleMania this year or even next year’s event. It will begin sometime in late 2022, when World Wrestling Entertainment (WWE) executives return to the negotiating table with NBCUniversal (USA Network’s parent), Fox, and other potential suitors, to work out the next round of Raw and Smackdown broadcast rights agreements. If the timing of previous multi-year deals is any indication, we can expect a new set of U.S. rights agreements to be done sometime in the spring of 2023.

The results of those negotiations will largely determine the financial future of WWE. In 2020, more than half of the company’s revenue came from global rights fees for Raw and Smackdown, the largest portion from U.S. partners. Given the escalating contractual payments networks have in exchange for the rights to air WWE’s flagship programs live, the line reported in SEC filings as “core content rights fees” will likely make-up an increasing majority of WWE’s revenue even in post-COVID-19 years. This development is relatively new for the wrestling industry, which formerly relied more heavily on sales directly from consumers in the form of pay-per-view buys, ticket sales, merchandise sales, and, more recently, streaming subscriptions. A few revenue sources have been deliberately cannibalized (buys and subscriptions); others have declined (ticket and merchandise sales) in recent years.

WWE’s current U.S. television deals run from October 2019 to September 2024. Over that term, WWE gets average annual payments from NBCUniversal of $265 million for Raw. Smackdown earns an average of $205 million per year from Fox. These are the largest business deals in the history of pro wrestling. And there’s reason to be optimistic WWE will get a raise that will push the company to set further profit records for years to come. That’s despite the apparent decline in the popularity of WWE’s programming since 2017.

While the company celebrates growing metrics in social media followers and online video viewing, it’s evident from a study of other measurements that interest in WWE has diminished in recent years, even before COVID-19. Company filings show there have been annual declines since 2017 in ticket sales, merchandise sales, and consumer product licensing revenues. WWE Network subscriptions grew in 2020 but are still down from the highs of 2018. Google Trends shows that web search for WWE-related topics has been falling annually since 2016 in both the U.S. and globally.

Linear television viewership is down generally as consumer watch time moves to digital platforms. Raw’s viewership has taken a harder hit than most cable television. Meanwhile, Smackdown’s viewership has been helped by the move to better timeslots and networks, now landing on broadcast on Friday nights on Fox.

Counterintuitive as it may be, none of this is particularly prohibitive to the notion that WWE will continue to grow the media rights value for Raw and Smackdown.

As cable subscriptions diminish in the U.S., networks need top-rated shows now more than ever. Access to prime programming, especially those best watched live, is what’s keeping the remaining MVPD subscribers holding on to their service. Ads viewers see during programs are a significant revenue source for television networks. Platforms like USA Network generate the majority of their revenue from affiliate fees, which are fees paid by satellite or cable service providers to networks that allow those networks to be carried by those services.

Those affiliate fees are justifiable to the extent that viewers want access to the given network. Networks and cable systems may even have specific agreements like how many hours of live or first-run content the network must provide. They even have agreements justifying payments related to the delivery of specific programming. Live content like Raw and Smackdown likely specifically help NBCUniversal and Fox meet those promises to cable and satellite carriers.

In other words, if Raw and Smackdown remain highly ranked programs, they stand a good chance of being able to continue to demand increasing fees and other benefits from networks.

Despite the decline in viewership and popularity of WWE in general, Raw and Smackdown are still among the most viewed programs on television. Not just that, but they have high viewership 52 weeks a year, with no seasonal breaks and no reruns. While current payments for the flagship shows seem already high, wrestling programs are arguably still inexpensive programming for the sheer number of annual hours of new live content they provide.

Imagine if NBCU or Fox decided to drop their WWE rights. Both media giants would have to fill the vacated timeslots with new programming. An average one-hour U.S. cable drama might cost somewhere around $5 million per episode to produce and provide 23 first-run episodes per year. To replace Smackdown, two one-hour dramas would cost Fox $230 million per year. This total is higher than Smackdown’s current average annual fee of $205 million.

By the same parameters, NBCU might have to pay $345 million annually (in contrast with Raw’s $265 million annual fees) to come up with three scripted shows to replace Raw’s three weekly hours.

Unlike WWE programs, these theoretical replacement series wouldn’t even provide 52 weeks of first-run content. Additionally, it would be a gamble whether either series succeeded at capturing a larger audience. WWE still proves to be among the leaders in views, particularly in the ad-friendly 18-49 demographic. It seems one could argue NBCU and Fox are currently underpaying for WWE content.

Data on Fox is harder to collect, but an assessment of the top 150 daily programs shows just how important WWE content is to the USA Network’s entire lineup. WWE programming makes up an increasing portion of the time viewers spend watching original content on the USA Network. Even if USA picks up a great deal of sports programming following the folding of the NBC Sports Network, the prospect of losing Raw would mean USA Network would likely be giving up a large and increasing amount of its overall viewership. This dynamic might give WWE additional leverage in negotiating a favorable deal shortly.

Looking at trends, WWE viewership and popularity will most likely decline indefinitely. The quality of the content is a turn-off to many fans, and it seems like there’s no remedy in sight while Vince McMahon remains the head of creative. But those crude viewership numbers without context are not the key factors to monitor when trying to assess the outlook of the company’s media rights value. Rather, there are other more important levers, some of which are hard to value with only publicly available information:

1. Ranking among other programming. As shown above, Raw slipped slightly in 2020 in the cable P18-49 rankings on Monday but remains in the top five. Since Monday Night Football came to an end, Raw is leading outright for multiple weeks on Monday in 2021, which is normal for the early part of the year. Smackdown is competitive on broadcast in P18-49 and usually exceeds all but one or two cable programs. As long as this continues to be the case for Raw and Smackdown, there’s reason to be optimistic about WWE’s next round of negotiations.
2. The extent to which WWE programs give networks leverage in negotiating affiliate fees. Does NBCUniversal or Fox use WWE programming specifically to justify affiliate fees from cable and satellite carriers? If not specified, do Raw or Smackdown help their networks satisfy certain agreements about minimum amounts of live content, sports, or first-run content that those networks deliver to carriers? The latter seems likely to relate to some of NBCU and Fox’s various agreements with carriers.
3. Advertising rates. These rates are another factor not discussed publicly. Has NBCU or Fox’s ability to sell ad space against WWE programming improved over the terms of the current deals? If the answer is yes, then that bodes well for WWE’s value. There’s little evidence at this point to weigh this factor.
4. Cross-promotional ability. Ideally, a network wants programming that’s not only watched at high volumes but brings attention to other content on the network. Here’s where the revelation that NBCU picked up rights to WWE Network content comes in. Those rights going to Peacock, as announced in January, shows NBCU is now more than ever invested in WWE content. Expect WWE personalities and other sports and entertainment personalities with NBCU associations to make guest appearances on one another’s programming to bring more attention to NBCU’s content overall.

If some of the factors above significantly weaken, it’s natural to feel less optimistic about the WWE’s future media rights value. At this point, there’s little sign of those factors weakening. Major League Baseball (MLB) signed a new deal with ESPN at a lower average annual value than the previous agreement between the parties. Digging deeper, the contract is for fewer games, but MLB’s compensation per-game increased. As more tepid sports rights deals are signed in the U.S. market, the more WWE should be concerned.

The rights to the National Football League (NFL) and the National Hockey League (NHL) programming will be finalized ahead of the WWE’s agreements. The degree to which those leagues get upgrades (or downgrades) could be a factor as to how healthy the market is and what the demand is like for live sports content.

What about competition from All Elite Wrestling (AEW)? If WarnerMedia exercises its option to extend AEW’s current deal an extra year, through the end of 2024, AEW and WWE could be negotiating new contracts around the same time. AEW Dynamite currently draws between one-third to one-half of the audience that Raw and Smackdown attract. It’s important to note that by late 2022 to mid-2023, Dynamite can close in on Raw or Smackdown in younger demographics, like viewers 18-34 or 18-49? In late 2020, Dynamite did exceed Raw in those demos during the same week. Raw has increased its lead over Dynamite, though, as of early 2021.

By negotiating time, AEW may be near Raw’s audience among younger viewers, who feel valued by networks. Overall, WWE audiences maintain a large bank of viewers over the age of 50, which AEW lacks. This hole makes it hard to imagine AEW gaining the lead in viewership overall within the next two years. How much that overall viewership lead does matter. How much that weighs into a network’s ability to drive affiliate fees is harder to unpack. Even if there are two highly ranked competitive wrestling brands available in the market in 2023, that doesn’t seem to be a factor in WWE being able to negotiate at least a moderate increase in rights fees for subsequent five years or so.

In fact, with the acquisition of WWE Network content rights by NBCUniversal, it will be interesting to see whether hundreds of millions of dollars in rights fees are on the table in 2023 or whether an acquisition of WWE altogether would be on the table. It’s hard to imagine Vince McMahon parting with control of his company. The addition of WWE to Peacock makes the most financial sense for NBCUniversal to own WWE rather than lease its content in five-year increments at a total cost of $2 billion, when the market cap of WWE is, as of this writing, just under $4 billion.