WWE has taken a significant financial hit following news of a multi-year deal with NBCUniversal that seemed unimpressive to investors.
The Stamford-based entertainment company announced the agreement with NBCU on Thursday to renew licensing for its Raw and SmackDown programs, then watched its stock drop 50 percent in early trading on Friday. At the close of trading Friday, WWE's stock dropped $8.66, or 43.45 percent, to $11.27.
The company also announced that it will require more than 1.3 to 1.4 million subscribers for its online WWE Network to offset the loss of its pay-per-view customers to the network. The WWE Network, which launched in February, finished the first quarter with nearly 670,000 subscribers, according to Bloomberg News.
WWE's chief financial officer George Barrios told Bloomberg News on Friday that the company is striving to reach 1 million subscribers by the end of the year, but did not comment on the stock price.
"With the favorable renegotiation of our largest television agreements, WWE transitions to a subscription-based business model for future growth," Barrios said in a statement. "Successful execution of our WWE Network strategy could significantly raise the company's earnings profile and better reflect WWE's tremendous global appeal and brand strength. With such execution, the company anticipates sufficient financial resources, including debt capacity, to fund growth, support ongoing business requirements and maintain its current dividend."
Monday Night Raw is slotted for a three-hour block on the USA Network and the Friday Night Smackdown is billed for Syfy. Based on this new agreement with NBCU, WWE anticipates a growth in operating income before depreciation and amortization of $125 million to $190 million by 2015, according to WWE.
However, this goal is now entirely dependent on the favorable execution and growth for the WWE Network, according to a report issued Friday by Daniel Moore, managing director of research at CJS Securities.
"Given management's more optimistic tone and the fact that other major sports franchises have garnered much higher increases, this outcome is likely to be viewed as disappointing by many investors," Moore said in the report. Moore noted in the report that the initial growth of the WWE Network, gaining 667,2871 subscribers just 42 days after launching in the U.S., is "a very good first step." CJS Securities revised its estimates for WWE in 2014, assuming less operating income from TV rights and higher expenses.
WWE previously negotiated distribution agreements for television programming in the U.S., U.K. and Thailand, and is discussing the distribution of content in India. These agreements are expected to boost the company's cable revenue by about $200 million, according to WWE.
The WWE Network is expected to launch in Canada, the U.K., Australia, New Zealand, Singapore, Hong Kong and the Nordics by the end of this year and the beginning of 2015.
"We continue to achieve significant increases in the value of our largest television agreements, a key component of our business plan," Vince McMahon, chairman and chief executive officer, said in a statement on Thursday.
"The rising value of our content coupled with the global expansion of WWE Network will provide the foundation for long-term growth that continues to transform our business over the coming years."
Despite his positive outlook, McMahon's personal wealth took a severe downturn as the company's stock fell on Friday. According to Forbes, McMahon lost $340 million by 3 p.m. Friday, lowering his net worth to $760 million and bumping him out of the billionaire ranks.
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