WWE's Business Model is an Endangered Species
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78,000 fans attended live at the stadium and 1.3 million pay-per-views were purchased for Wrestlemania 28 for the great anticipated matchup between John Cena and The Rock on April 1st just a few weeks ago. It is estimated that it produced sales of over $60 million for the one night event. However, if you look at the stock price year-to-date, you would have never known Wrestlemania even occurred.
World Wrestling Entertainment, Inc. (NYSE:WWE) has been dropping consistently year-to-date. The company has recently reduced its dividend, and its stock price hasn't been this low since 2003. What is happening to the company? It is simple really and it has very little to do with what everyone believes - the lame storylines or John Cena. The past several years, people have been chanting for the Rock to come back along with other legends. Well he is back. So is Brock Lesnar. However, neither can help fix the broken business model that is now endangered in today's world.
In the late 1990s and early 2000s, professional wrestling - although fake to some, produced very real results in pay-per-view buy rates. The stadiums are still sold out, but people are not spending the high prices to watch a three hour show on Sunday nights. One big change that has occurred is the internet. It would be naive to think that internet piracy only affects the music and movie industries. It has definitely affected professional wrestling and the business model that was the bread and butter to its profits for years.
Additionally, mixed martial arts and the UFC have taken market share away from the fans of professional wrestling. UFC has the edge because if people don't want to buy it at home, they can easily find a sports bar around that will show it for free (with the idea being you buy the beer and food at that establishment). I haven't seen a wrestling event shown in public in a long time. This hurts the bottom line of the WWE if you just think for a second of all the sports bars that are within a city and then multiply that around the country.
Now is the time the WWE needs to think outside the box on how to revolutionize not only its storylines, but its business model. They failed with the XFL and have recently not done so well producing their WWE Studios movies which for the most part barely pass as watchable (my opinion of course). To be honest, both the XFL and the current WWE Studios make very little sense when trying to feed off the main product - professional wrestling. The XFL competed with the NFL but would never be anywhere near the NFL in terms of talent. WWE Studios best film so far was The Marine in 2006 that only made $22 million worldwide and hit six in box office rankings while it was out. The budget for The Marine was $20 million. How does this make any sense?
Instead, here are some of my suggestions. Reality TV seems to be in these days. Why not promote series like Tough Enough where fans can watch new wrestlers try to make it in the business? Or show what life is like on the road? Fans would appreciate this and it would give non-fans a glimpse into what it takes to be a wrestler. Reality TV is a lot less costly than huge movie productions and based on how many there are on TV on dozens of channels, they are profitable. If you look at a show like Jersey Shore, you can replay it over and over again and the investment pays off.
Another suggestion is to capitalize on the supplement industry. GNC Holdings Inc (NYSE:GNC) and Vitamin Shoppe, Inc. (NYSE:VSI) are near their all time highs right now. The supplement industry overall is on the rise and is in the several billions in sales annually. If WWE can use the right wrestlers to market the right products like your traditional protein, creatine, and multi-vitamin products that are popular among active gym goers, this can be a hugely profitable addition to WWE's bottom line.
As for bottom lines, the WWE is going to need to face the business model head-on. If Wrestlemania 28 wasn't a glimpse into the near future for the company even after their recent top signings of legends in the business, then I don't know what is.
mikecart1 has a long position in WWE. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.