Surprisingly Large MLS Deal Fuels Speculation On WWE TV Rights

Monday’s announcement that Major League Soccer (MLS) had signed eight-year deals with ESPN, Fox and Univision worth a total a…

Chris Harrington

Contributor

Wwe Deal

Monday’s announcement that Major League Soccer (MLS) had signed eight-year deals with ESPN, Fox and Univision worth a total a $90 million per year startled many analysts. The agreements ($75M for ESPN/Fox and $15M for Spanish Language Univision) represented a five-fold increase in rights for a league which only drew an average of 163,000 viewers per game in 2013.  For the games shown on ESPN2 and Fox Sports 1, assuming previous viewership levels, they’d be spending about $6.64 per MLS viewer.  By contrast, assuming NBCU spent an estimated $86M on Raw and Smackdown in 2013 for an average audience per show of about 3.4 million (around 4 million for Raw, 2.5-3 million for Smackdown), right now NBCU is only spending a paltry $0.25 per WWE viewer.

Investors are quick to leap at these numbers.  If WWE delivers such a large audience for bargain basement prices, why wouldn’t cable networks jump at the opportunity to obtain weekly live sports entertainment? Even if landing TV rights meant tripling current rates, Raw and Smackdown would represent an incredible value based on the number of dedicated viewers each airing delivers.  If a peripheral league such as American Soccer can do it, surely the cable programming juggernaut and worldwide leader in professional wrestling deserves it! At least, that’s how the argument follows.

And there’s no doubting that live sports are hot. Nascar signed a $4.4B/10 year deal with NBC. Pac-12 Network signed a $3B/12 year deal. NBC Universal stealthily secured the exclusive broadcast rights for the Olympics Games between 2022 to 2032 for a cool $7.75B.  The 2011 NHL Deal $2B/10 year with NBC Sports Group seems like a bargain now.  WWE argues that they’re “just as valuable as live sports” and “90% of the viewing for both programs (Raw & Smackdown) happens live or before 3 a.m. on the day they air”.

Timing is everything. USA Network is hanging out on the title of “#1 Cable Network” by a thread, and losing Monday Night Raw would likely knock them off that perch. Numerous bidders have been rumored and top media rights negotiators secured. Was it enough?

Many expect that we’ll know very soon.  On Thursday (5/15), NBC Universal will be announcing their “Cable Entertainment Upfront” which will include details about USA, Bravo, Syfy and E! network programming.  There’s a strong belief that this event should make it terribly obvious whether WWE programming will be leaving the NBCU portfolio.

WWE has been opaque about when (and how) they’ll announce their new domestic TV rights deal.  During the Q1 conference call at the beginning of the month, Brad Safalow of PAA Research asked: “Whenever you announce the domestic deals, what we should we expect? Will you host the call or you just going to have a press release with details on the contract? What should we expect to see?”  Vince McMahon won’t budge: “Like as I said in the prepared statements, we’ll give more guidance when it’s appropriate.”  Timing has already moved from “late April” into “early May”.  If there isn’t clarity by the end of this week, I expect to they’ll be an uproar from jittery investors.

World Wrestling Entertainment is certainly a powerful producer of weekly, live content that comes with a dedicated and vocal fanbase. What we don’t know is what exactly is the value to advertisers (and networks) to capture this audience.  Despite being the number one network on Cable television, USA only gets about 71 cents/subscriber whereas ESPN is a mammoth $5.54/subscriber and more traditional rival TNT sits at $1.33/subscriber.  USA desperately wants to increase their subscriber fees and losing a top-rated show (like Raw) would hurt the network’s argument they are a “must carry” channel.  There’s not much growth left for adding subscriber households.  Raw, Syfy, Spike all hover above 98 million cable households.  That contrasts with tertiary channels like WGN America which is down below 74 million cable households (though known to have pursued WWE programming in the past).

The major dilemma for WWE is that most serious sports stations don’t want to carry professional wrestling. And the advertising rates for professional wrestling are levels of magnitude lower than live sports.  Viewership alone isn’t the only determinant.  Last year, Scarborough surveyed 200,000 U.S. adults and reported a whole series of statistics that highlighted why WWE isn’t just like other “live sports”:

  • 66% of adult WWE viewers never attended college (compared to 44% national average)
  • Half of WWE viewers earn an income under $50,000 (compared to 30% for sports fans in general, 34% for UFC fans and 39% for Boxing fans)
  • An estimated 12 million Americans identified as “WWE Fans” (compared to 16 million for UFC/Boxing and WWE’s estimate that “62M US TV Homes have an affinity for WWE”)

This disconnect from audience size and lucrative advertising is why LA Times remarked:

 The challenge for potential buyers is that although WWE fare gets big ratings, there isn’t much of a trickle-down effect. Also, though WWE has softened its content to appease advertisers, it still does not always command a commercial rate commensurate with the size of its audience.

Always keep in mind that circumstances can change – quickly and quite unpleasantly.  For instance, in May 2012 ESPN allegedly offered the Big East a $1.17B/9 year deal.  Believing they could do better, Big East rejected it. However, in less than a year, the value of the Big East plummeted (as schools left the conference) and in the end the final deal with ESPN was just  $126M/7 years.  What may have seemed pretty great two weeks ago (such as WWE doubling their domestic TV rights), may now look laughable compared to the giant win MLS just pulled off.

The latest speculation is that NBC Universal will announce that WWE (namely Monday Night Raw and Smackdown) will remain on their networks in a multi-year, cable-exclusive deal.  Historically, these deals have been for five years.  Big questions remain on whether NBCU will cede any rebroadcast rights to the WWE (so they can start airing Raw & Smackdown on their WWE Network in a timetable more similar to Hulu), whether Smackdown will move to become a live show on Tuesday Nights and most importantly – how much did NBCU pay to retain WWE?

I conducted an informal poll of about a hundred respondents.  My results suggested that 60% expected that even with the current sports climate, WWE’s new domestic TV rights deal would still average less than $175M/year (less than double current). Only 5% believed that WWE could achieve triple (or more) their current TV rights.  The vast majority (over 85%) were split evenly between the <$100M-$150M>, <$150M-$175M> and <$175M-$225M> options.  The weighted average was $161M to $205M.

With this in mind, my current projection was that NBCU will announce a five-year deal worth slightly under than a billion dollars.  I’m guessing that it would start somewhere around $160M/year and end around $230M/year.  I don’t believe that Smackdown will move to be a live show unless either WWE announces a much higher figure (at doubling rights, I believe it’ll be taped; if they triple rights, I believe it’ll be live) or if WWE decides to take on a separate partner (likely Viacom) for Smackdown.  In any scenario, I would be flabbergasted if Monday Night Raw were to leave the USA Network.