WWE (NYSE: WWE) has not always had the best reputation with advertisers. The company was thought of as lowbrow partly for its level of violence and in part because of how it presented women. In this segment of Industry Focus, Motley Fool contributor Dan Kline and host Nick Sciple discuss how the company now has a much more sports-like presentation, and how that has helped it land major increases in its advertising deals.
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Nick Sciple: WWE has really tried to change their image when it comes to how they treat women on the brand and how they're shown on the content. You mentioned the reality shows on E!, which is targeted toward that audience as well as WrestleMania on Sunday night, you had the first ever all-women's headliner between Charlotte Flair, Becky Lynch, and Ronda Rousey. How has that strategy worked for WWE over time? What does that mean for the business?
Dan Kline: WWE decided to go PG for advertising reasons. There were two things that they got rid of to make that happen. Blood. If you're watching on Monday night and a wrestler has his head split open, it's live, they'll stop the match, have a doctor come out and either stop the match and call it a no-contest like a real sport, or they will tape it up. They do not have the old days like in the '70s and '80s, where you'd see Ric Flair with a crimson face.
The second thing they did is, female wrestling in the '80s and '90s was eye candy. They weren't trained wrestlers. They were in skimpy outfits. They would have bikini contests. Now, it is presented very much like the males. And certainly, there are male wrestlers wearing skimpy outfits. I'm not going to wear trunks to do this show anytime soon, or even a singlet, frankly. There's still a little bit of that, but they are shown as real competitors. The WrestleMania main event was a brutal, hard-fought contest between people who are every bit as trained and talented as the top men. That is a huge change. That might not bring in a huge women audience, but it does make it so your girlfriend or my wife is going to be less like: "Oh, you're watching wrestling? Is it for the bikini contest?" No, it's because it's a pseudo-sport that I like the drama of.
Sciple: Right, as well as, it makes the brand much more palatable to advertisers.
Kline: That was the impetus for it.
Sciple: Right. Dan, let's talk a little about the TV deals that we've got over the past year. The big news is, Fox has bid and received the rights to SmackDown Live, which will air on the Fox network on Friday nights, which is moving WWE wrestling from its traditional home on USA on basic cable to now a Friday night location on network TV. What's the significance of this deal for the company? What insights can we gain from that deal as we look forward in the future of the business?
Kline: In the next five years, as an investor, it guarantees the company's going to make more money every year. It's an escalating deal. It's worth a little bit more every year. On the surface, it should be better exposure. Ratings have been slowly going in the wrong direction for both of the major shows. There's still huge draws for cable. SmackDown, which is the show moving to Fox on Friday nights, it's on Tuesday nights now. Tuesday is a better night than Friday. Fox is a much better home than USA. USA is a top cable channel vs. an actual broadcast network that is in pretty much every home that has TV. In theory, that show should do a slightly bigger audience than it does now because of the better home, but also the worst night, because young men are out on Friday nights. So, if it's doing 2.1 million viewers, they're probably expecting 2.3-2.4 million. If it settles in at 1.7 million, they're in real trouble. It will get moved to FS1. The reason this is taking up primetime real estate is, it's 51 weeks of live programming a year vs. the four sitcoms that aired in that block that were each producing 18, 22, 23, whatever it is, episodes. So, you're running a lot of reruns, a lot of ridiculous filler programming. This should give you a loyal marketable audience, a platform to promote NFL games.
But, anytime a wrestling show move channels, it is a challenge. We're going to have to see how Fox promotes this. We're going to have to see how many wrestling fans are DVR-ing it and don't change their DVR. I'm fairly confident that the bigger platform and Fox putting its weight behind this as a sports property will work. Even Raw on USA, at twice the licensing fee or whatever the exact number is, that's going to have to maintain its 3.4 or 3.6 million people a week, consistently be one of the top cable shows, because it's already a loss leader. They're not making money on that deal. They're using it to maintain their status as a top five cable channel. That's good for selling ads elsewhere. It's like paying for NFL programming. It's not so much about whether you make money on those shows. But when you take a lot of money for something, you'd better deliver, or you're taking a big risk.
Sciple: Yeah, I think that's really significant. USA having the rights to Raw has driven a dependable audience to them on Monday nights for a long period of time. It's helped that channel remain significant. You talked about the deepening relationship with Fox. There's been some rumblings that there may be a new FS1 show led by WWE, which would indicate even more deeper relationships, more cross-promotion --
Kline: I'm fairly sure that's been confirmed, at least that they're going to do some sort of, call it a news desk show. Now, the challenge with WWE -- we both have the WWE Network. For a while, they did after-shows. You could watch Talking Smack after SmackDown. They tried to do a talk show format, where they were still the wrestling characters, but it was a little more real. It's a very tough line. When it worked, Daniel Bryan and The Miz, it was awesome. It felt like real life. It was really exciting. When it doesn't work, it feels like a guy playing a goofy wrestling character who doesn't realize he's on a talk show and shouldn't be playing a goofy wrestling character.
ESPN had a big challenge. Do you remember their SportsCenter segments?
Sciple: Yeah, they had Jonathan Coachman, and he would have all the folks on there.
Kline: And sometimes they'd be themselves, and sometimes they'd be their wrestling character. From a reporting point of view, ESPN had the trouble of, do you report this as sport? Or do you report this as, this is a real grudge between these two people, the way a UFC fight would be portrayed? That's going to be a challenge for FS1. I thought they would have been better off with a highlights show or something like the WWE Network does like Countdown, where it's like, "The 10 best wacky gimmicks of the '90s!"
That's the first. I think you're probably also going to see 205 Live, maybe NXT, maybe a third hour of SmackDown. Part of the goal of this is to eat up hours on FS1 because they lost UFC.
Sciple: Yeah, exactly. The new Fox, their strategy appears to be focused more on sports and news content, and its WWE offering would fit right in with what seems to be the focus of the business post the Disney transaction.
Dan, one other TV rights thing I want to get your thoughts on before we move on is India. From the numbers you gave me, rights in India are expected to jump from $24 million a year to around $125 million. Obviously, a significant bump up. When you look at the population in India, and what opportunity that might give WWE to expand its audience, what are your thoughts on the potential for that?
Kline: They've been trying for years. They've had an India office. It's interesting that they're viable as a television property, but they've never been viable as a touring property. They've done a show or two, but it's a sold show where they're getting a set amount of money. It doesn't make sense to transport wrestlers all over the world for one show, no matter how -- well, the Saudi Arabia shows being the exception because the money is so high. But, they don't sell a lot of merchandise. They're not part of the culture. So it's an uphill battle.
When you look at a market like Mexico or Japan, that have their own wrestling traditions, there's a curiosity factor of the big American wrestling company. So, when WWE does two shows in Japan every eight months or whatever it is, those shows are going to sell really well just because it's the big version of something we already know. In India, this is not a known thing.
It's a very long project. The fact that they're getting this kind of TV money is a very strong sign.
Sciple: Yeah. Something to follow. Obviously, when you're a brand like WWE, as you can grow your audience, you really grow the potential to grow your network and interest in your brand over time.
You talked about the events they've done in Saudi Arabia over the past year. That gets us to, WWE has faced some criticism, both for those events in Saudi Arabia as well as the most recent criticism we've seen on a widespread public basis -- John Oliver, on his show Last Week Tonight, profiled WWE. The day after his show, shares dipped almost 3% on the news. What can you tell our listeners about John Oliver's WWE profile?
Kline: Let me explain the John Oliver piece. WWE considers its wrestlers independent contractors. But, not only does it completely control their schedule and their bookings and where they can wrestle -- if I'm a WWE wrestler, I cannot wrestle for another company. Well, that makes sense. I'm a Motley Fool contractor; my contract says I cannot write without permission for other competing entities. Now, if a local newspaper wanted me to write a story, I'd probably get permission. If a direct competitor wanted to, they'd probably say no. That part, WWE is probably OK.
The secondary part is that WWE, if you say, "Hey, after the Monday Night Raw show, I'm doing stand-up comedy." WWE can say no to that. "Hey, I got an offer to be on TV." "Hmm, we don't want you to do that." So, they are straddling the line. They don't have the ability to say, "You want me to work Monday night, but I'm taking Monday off." You can't even tell me what story to write. You can ask me if I want to write a story, but it's totally my decision, because I am truly an independent contractor. The WWE can say, "Nick, you are a wrestler, you have to be there Wednesday night. You're going to work this schedule. You're going to pay for your own travel."
It's a gray area. They don't cover health insurance for the wrestlers. They do cover if you get hurt in the ring, they pay for that stuff. It is a traditionally giant expense, is why wrestlers have not been salaried employees. At the top of the pay structure, that's irrelevant. If you're making $5 million a year, who cares how that check is coming in? But if you're a contracted guy in NXT making $35,000 a year, or you're a low-level WWE guy who makes $100,000 but has to pay his road expenses? These are big issues. And the company is flush with cash. John Oliver has every right to say that maybe they should make these people employees.
Daniel B. Kline owns shares of World Wrestling Entertainment. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.