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World Wrestling Entertainment Inc (NYSE:WWE)
Q4 2019 Earnings Call
Feb 6, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the webcast entitled WWE Fourth Quarter Earnings. We have just a few announcements before we begin. [Operator Instructions] I will now turn the call over to Michael Weitz, Senior Vice President of Financial Planning and Investor Relations. Please go ahead, Michael.

Michael Weitz -- Senior Vice President of Financial Planning and Investor Relations

Thank you, and good morning, everyone. Welcome to WWE's fourth quarter and full-year 2019 earnings conference call. Leading today's discussion are Vince McMahon, our Chairman and CEO, as well as Frank Riddick, our interim Chief Financial Officer. Their remarks will be followed by a Q&A session. We issued our 2019 earnings and 2020 business outlook release earlier this morning and have posted the release, our earnings presentation and other supporting materials on our website, corporate.wwe.com/investors.

Today's discussion will include forward-looking statements. These forward-looking statements reflect our current views, are based on various assumptions and are subject to risks and uncertainties disclosed in our SEC filings. Actual results may differ materially and undue reliance should not be placed on them.

Additionally, the matters we will be discussing today may include non-GAAP financial measures. Reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation, which as I mentioned, are available on our website. Finally, as a reminder, today's conference call is being recorded and the replay will be available on our website later today.

At this time, it's my privilege to turn the call over to Vince.

Vincent K. McMahon -- Chairman & Chief Executive Officer

Good morning, everyone. Thank you for joining us today. As you know, for the year, we achieved record revenue and profit, which reflected our new distribution agreements with Raw and SmackDown. However, our performance was at the low end of recent guidance as we work through our Middle East distribution agreement and our ongoing efforts to strengthen our brand and customer engagement. Fox and USA Network provide powerful platforms for broadening our audience, driving growth. Our engagement metrics, including our television ratings, as well as live event attendance showed growth during the quarter with SmackDown TV ratings increasing 20%, live event attendance was up 15%.

As you know, the Board and I recently announced the management transition. This decision did not reflect a change in our strategy. It was made after careful consideration. We remain highly focused on growing the value of our content, furthering international expansion, engaging fans across all platforms. The decision, of course, of management transmission was based on a different view of execution of our areas of focus. Over 10 years, supported by a strong management team, George Barrios and Michelle made more than significant contributions for WWE. However, with this change, we won't miss a beat. We have a deep team of talented executives committed to our Company, who are more than capable of executing our strategy.

The fundamental sources of our long-term growth, including the ability to capitalize on the rising value of live sports content, remains unchanged and strong. While we are providing perspective today and our business outlook for 2020, you should note we are pursuing initiatives that could substantially enhance our performance. These include the distribution of content in the Middle East and India as well as the evaluation and execution of strategic alternatives for our direct-to-consumer service, which could be implemented, quite frankly, in the next quarter.

We're currently changing the WWE culture to be more collaborative, more inclusive, developing initiatives to reimagine our Company and content, bringing in new ideas and enhancing our executive team by recruiting our global talent. We remain extremely optimistic about our future and long-term growth potential. I frankly, have more confidence than ever that we're going to exploit all of our opportunities.

So I'd like to turn it over now to Frank Riddick, who is our interim CFO and long-standing member of the Board of Directors. Frank?

Frank A. Riddick -- Interim Chief Financial Officer

Thank you, Vince. There are several key topics which we'd like to review today. These include discussion of our financial performance, the progress of key strategic initiatives and our business outlook. In 2019, we generated record revenue of $960 million, reflecting significant growth from the start of our new content agreements in the United States, which became effective in the fourth quarter. Our adjusted OIBDA was $180 million, as the growth in rights fees and lower incentive compensation were offset by weaker performance across other product lines and the impact of accelerated investment to support our core content creation.

Given both the changes in the media industry, increased disruption from new direct-to-consumer services and heightened competition for viewers, as well as the challenges to our brand engagement, we believe that increasing our ability to create compelling content represented a prudent course of action. This is not a decision that was made easily, but ultimately the right thing to do.

As we transitioned SmackDown to Friday nights on Fox broadcast, our engagement metrics, including TV ratings and live event attendance showed marked improvement. Domestic TV ratings for SmackDown, which declined 15% in the first quarter of 2019, improved to a 20% increase in the fourth quarter with a 25% increase in December. Similarly, domestic TV ratings for Raw, which declined 14% in the first quarter of 2019, saw a 5% increase in December. In the quarter, Raw outperformed the aggregate ratings performance of the Top 25 cable networks. SmackDown was the Number 1-rated Friday night broadcast program among the coveted 18 to 49 demo and outperformed the aggregate ratings of the Top 4 broadcast networks. Also indicative of strengthening engagement, average attendance at our live events in North America, which declined 12% in the first quarter, improved to an increase of 15% for the fourth quarter. Early indications in January show continued positive trends.

During the fourth quarter, strong revenue growth from our new U.S. distribution agreements was partially offset by the timing of original series, absent of a large scale event, as well as lower subscription to WWE network. Importantly, the ongoing investment to support the creation of our content was balanced by a reduction in accrued management compensation associated with our full-year performance.

To review our business performance in the quarter, let's turn to Page 5 of our presentation, which shows the revenue, operating income and adjusted OIBDA contribution by segment as compared to the prior year. Looking at our Media segment, adjusted OIBDA increased 62% or $44.5 million, driven by the escalation of domestic rights fees for our Raw and SmackDown programs. Revenue growth was partially offset by the absence of Mixed Match Challenge and original series licensed to Facebook last year, reduction in network subscription, and increased content-related expenses.

WWE Network's average paid subscribers decreased 10% to approximately $1.42 million for the fourth quarter, driven primarily by the impact of lower subscriber additions earlier in the year. We have projected that the Network's average paid subscribers will increase on a sequential basis to approximately $1.47 million for the first quarter of 2020.

Given the evolution of new streaming services and the increasing value of live content, we believe there may be alternative strategic options for the WWE Network, which would enable us to further monetize our most valuable premium content. Thus, we're currently evaluating alternative strategic options. During the quarter, we made important progress on other strategic initiatives that extended the reach of WWE brands. Specifically, we completed a free-to-air distribution agreement with ViacomCBS' Channel 5 in the U.K. and extended our agreement with SuperSport in Africa, which will create a dedicated WWE channel. We also premiered the second season of Miz & Mrs. on USA Network and announced the fifth season of Total Bellas to air on E! beginning on April 9.

Turning to our Live Event business as shown on Page 7 of our presentation. Adjusted OIBDA from our Live Events declined $3.8 million, primarily due to the absence of Super ShowDown, a large-scale event that we held in Australia in the fourth quarter of 2018. Although we had 14 fewer North American events in the quarter, this change had limited impact on adjusted OIBDA. Despite the absence of Super ShowDown, we continued to successfully stage large-scale events for our fans. We held our second such event in Saudi Arabia and shortly thereafter announced an expansion of our partnership to hold a second event in that country every year through 2027. Domestically, we staged Survivor Series, which anchored an extended weekend that attracted nearly 40,000 fans over the four-day period to the Allstate Arena in Chicago.

In our Consumer Products segment, adjusted OIBDA increased slightly from the prior year quarter as a reduction in video game royalties was offset by lower operating expenses. During the quarter, we continued to drive growth in the distribution of mobile games, increasing installs to nearly $125 million across our game portfolio, led by WWE champions.

Page 9 of our presentation shows selected elements of our capital structure. As of December 31, 2019, WWE held approximately $250 million in cash and short-term investments. Additionally, we estimate that WWE has approximately $200 million of debt capacity under our revolving credit facility. In 2019, we generated approximately $53 million in free cash flow as compared to $154 million in the prior year. The decline was due to unfavorable changes in working capital related to our fourth quarter event in Saudi Arabia and the payment of prior year's accrued management incentive compensation. Additionally, the change in free cash flow also reflected a $37 million increase in capex, the majority of which was related to the execution of our workspace plan. Notably, we returned more than $120 million of capital to shareholders in 2019, consisting of approximately $83 million in share repurchases and $37 million in dividends paid. This included nearly $75 million of stock repurchased in the fourth quarter, representing approximately 15% of the authorization under our $500 million repurchase program.

Looking ahead, over the next few years, we believe that WWE is well positioned to take advantage of significant growth opportunities. These include the rising value of live sport content, the growth of media and entertainment in international markets, and the evolution of other businesses, specifically WWE Network. In 2020, the escalation of rights fees provides contractual revenue growth of approximately $185 million. We expect that this growth will be partially offset by an increase in operating expenses from multiple sources. Higher cost to develop new sources of revenue, the full-year impact of 2019 content-related investments, the reset of performance-based management incentive compensation, and the annual rise of staff costs. You should note that while we anticipate an incremental investment over the long term to support our growth initiatives, we are working to moderate that investment in 2020. We're also pursuing several strategic initiatives that increased the -- that could increase the monetization of our content in 2020 and subsequent years. These include distribution of content in the Middle East and India and the evaluation of strategic alternatives for our direct-to-consumer service, WWE Network.

At this time, the outcome of these initiatives is subject to considerable uncertainty. Excluding the potential impact of these initiatives, we anticipate 2020 adjusted OIBDA of $250 million to $300 million. Management believes it has the potential to exceed this range, but we are unable to provide additional guidance at this time.

Previously, we discussed step up in capital expenditures in conjunction with our workspace strategy. For 2020, we estimate total capital expenditures of $180 million to $220 million, which includes approximately $130 million to $160 million to build out our new headquarters facility. For 2021, we estimate total capital expenditures of $120 million to $140 million, including approximately $80 million to $100 million to complete construction. We expect total capital expenditures to return to approximately 5% of revenue by 2022, which is in line with the historic range of approximately 4% to 7% of revenue and is predominantly related to maintaining existing infrastructure.

For the first quarter of 2020, we estimate adjusted OIBDA of $60 million to $65 million, which represents approximately 5 times the adjusted OIBDA results achieved in the prior year quarter. The estimate reflects substantial revenue growth from our new content distribution agreements in the U.S., which became effective in the fourth quarter and the February staging of the large-scale event in Riyadh, Saudi Arabia. We also anticipate the first quarter growth will be partially offset by an increase in operating expenses associated with developing new sources of revenue and reflecting the full-year impact of 2019 investments. The former includes higher cost to accommodate the production of SmackDown broadcast live on Friday night, four rather than one day following Raw and to produce an additional hour of NXT on Wednesday nights.

The fundamental elements of our growth strategy remain unchanged. As mentioned earlier, we believe we are well positioned to take advantage of the rising value of live sports content as well as strong media and entertainment growth in international markets. Additionally, we have confidence that we can grow our sponsorship business and leverage increasing digitization to expand and engage our audience. With the escalation of content rights fees, we've seen an increasing share of revenue coming from contractual arrangements and we expect that trend to continue, further transforming our business model. We are in the process of evaluating several strategic initiatives that could materially impact our growth trajectory and we are targeting a date by the end of the first quarter to communicate our long-term strategy. We're committed to providing a comprehensive perspective on our road map for creating shareholder value and we look forward to meeting with you, our investors, and analysts.

That concludes this portion of the call, and I'll now turn it back to Michael.

Michael Weitz -- Senior Vice President of Financial Planning and Investor Relations

Thank you, Frank. Nicole, we're ready for questions, please open the lines.

Questions and Answers:

Operator

Thank you, sir. We will take our first question from Ben Swinburne with Morgan Stanley.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Thank you. Good morning. Thanks for all the color. Two questions for you. First, I just want to confirm your guidance for 2020 assumes, if I'm hearing you right, zero revenues associated with your rights, TV rights or media rights in India and the Middle East. I just wanted to see if that's correct. And if it is, I understand why you'd have to guide that way, but that seems highly unlikely since presumably there is a path to some distribution deal. So, I just wanted to see if you could add some color there so we can better understand the guidance. And then I have a follow-up.

Frank A. Riddick -- Interim Chief Financial Officer

Well, on MENA, you're correct. On India, it would be the increment from the new deal, because we have an existing deal in India that's in place. And what we are -- we have taken that out because of the uncertainty, not about whether -- we feel pretty confident that these new agreements will be put in place and as I said, we have an existing agreement in India already, the uncertainties around the timing of that and the ultimate value that we receive.

Benjamin Swinburne -- Morgan Stanley -- Analyst

I see. And you are still on the air in India as of right now, right, in this first quarter, correct?

Frank A. Riddick -- Interim Chief Financial Officer

Yes, sir. That's correct.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Okay. Got it. Okay, great. And then secondly, on the strategic review for the network, what are you guys trying to achieve there? I mean, is this a business you think you can sell? Or are you looking to maybe turn this into a license stream like your broader media business, sort of de-risk it with a partner like an ESPN+ or something like that? I don't know if there's any more color you could add. I realize it's sort of an ongoing review, but just would love to hear anything else you could share.

Vincent K. McMahon -- Chairman & Chief Executive Officer

Well, we have a lot of options. We're going to continue on as we are now with an enhancement of a free tier and a more enhanced paid tier, but we have that as an option. We also have an option -- I mean, right now, there is no more better time to exercise the selling of our rights to all the majors, and quite frankly, all the majors are really clamoring for our content. So that could be a significant increase, obviously, in terms of revenue.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from David Karnofsky with J.P. Morgan.

David Karnofsky -- J.P. Morgan -- Analyst

Thanks for taking the question. I guess just a follow-up on that point, Vince. When you think about what's on the network now, would anything kind of be off limits with some of your more premier pay-per-views, etc. such as WrestleMania, Royal Rumble? Am I hearing you right when you say that there's interest from third or linear parties for that content and you would be willing to kind of move that over off the network?

Frank A. Riddick -- Interim Chief Financial Officer

I think there is nothing -- obviously, the devil is in the details in any of these arrangements. But at this point, there is nothing that would -- looks like that would be -- anything that would stop us from doing a different type of transaction with the network if we chose to.

David Karnofsky -- J.P. Morgan -- Analyst

Okay. I asked this question because we've gotten it a bunch of times since last week from investors, but can you just say here definitively whether WWE plans to invest with and partner with or even merge with XFL at any point in the future?

Vincent K. McMahon -- Chairman & Chief Executive Officer

No, the XFL is a separate entity completely, about 400 employees. It will kick off, of course, this coming Saturday. It's completely separate.

David Karnofsky -- J.P. Morgan -- Analyst

Got it, OK. Thank you.

Operator

The next question comes from Laura Martin from Needham.

Laura Martin -- Needham -- Analyst

Hey, Vince, I have a sort of philosophical question like one of the things we did with NXT is we pulled that proprietary content off the network and put it on USA for cash flow today, which de-risks it, but it also took away programming and your U.S. subs fell. In answer to Ben's question just now, you said that there is people clamoring for rights and that that might be more valuable way to monetize the network. How do you think about the fact that you can take more cash, but it's coming from the linear TV ecosystem, which is dying in this country compared to OTT, which is structurally growing, but doesn't give you the near-term cash flow that may be you could get in a different alternative?

Vincent K. McMahon -- Chairman & Chief Executive Officer

Well, Laura, as you know, there is so many majors going into OTT. That's what I was referring to. Our network, obviously, is our most premium content and we have like 1.5 million subscribers. We've had more. But nonetheless, it's another way for us to capitalize on our network. And again, as I said, there is very strong interest in all of the majors as it relates to OTT.

Laura Martin -- Needham -- Analyst

And you talked about adding ads in the past, like sponsorships or advertising was something we talked about earlier when you were doing OTT. Have you rethought adding a second revenue stream to the OTT service?

Vincent K. McMahon -- Chairman & Chief Executive Officer

That's a possibility. We can leave that open, but again, right now, I mean, if we continue on as the network pretty much as is, then we're definitely going to consider that. If, in fact, we're looking to enhance revenue, that would be up to our partners.

Laura Martin -- Needham -- Analyst

I see. That makes sense. Okay, great. And then I think one of the questions we get most frequently is what's taking so long for the MENA and India, because we thought those are going to be done like early in '19? And is there -- do we have a -- will we be done by the end -- will we be done with those deals by the end of the first quarter when you're going to give us this comprehensive overview of WWE do you think?

Frank A. Riddick -- Interim Chief Financial Officer

Laura, really to answer the first part of your question, what's taking so long, in India, there have been some regulatory changes that have complicated the negotiations and so that is really the primary reason for the delay there. In the MENA rights, just -- the intricacies of dealing with the Saudi Arabian government and their own ways of going about and doing business. I think we don't want to predict a specific date, but as I said before, the uncertainty is around the timing and the amount, not that these deals will eventually be done.

Laura Martin -- Needham -- Analyst

Thank you.

Vincent K. McMahon -- Chairman & Chief Executive Officer

Let me just add that in making reference to OTT and the interest of all the major players, we'd be announcing that deal if we go that way in the first quarter. That's how far along we are.

Laura Martin -- Needham -- Analyst

Thank you.

Operator

Okay. We'll take our next question from Curry Baker with Guggenheim Securities.

Curry Baker -- Guggenheim Securities -- Analyst

Thanks, guys. On the buyback, it looks like you guys were in the market more active in the fourth quarter. I'd have to assume if you thought the stock was attractive, then you'd have to think it's significantly undervalued here. Will you be more aggressive in the market at these levels under your current authorization? And I guess, following on on that, will you consider using or leveraging the balance sheet to take advantage of the near term dislocation?

Frank A. Riddick -- Interim Chief Financial Officer

Well, answering the first -- the last part of your question, I think the capital structure strategy isn't going to change a lot. I don't -- I think we believe having a flexible capital structure that allows us to have the resources to pursue growth opportunities is probably more important even in the short term and we do have a lot of liquidity right now. So, I don't think that we would leverage up in a significant way to buy stock.

On the existing program, the existing program has about $415 million or so remaining authorization and we're going to continue to run that program the way we have, trying to buy at a significant discount to what we feel is intrinsic value constrained only by regulatory and other regulations that we have to -- disclosure and regulations we have to follow in the buyback. So clearly, right now, with the stock trading where it is, it's more attractive than it was.

Curry Baker -- Guggenheim Securities -- Analyst

Okay, thanks. That's helpful. And then maybe just one more on investments and buckets of investments you're looking at this year and over the next couple of years. I think in the past, management focused on three main areas. Building out your data and technology capabilities, localization, which I think includes performance centers internationally, as well as continuing to pay the talent more, etc. Any more color on how you're thinking about each of these, as well as if there is may be other investment opportunities that are also that you're considering?

Frank A. Riddick -- Interim Chief Financial Officer

I think the only other area that has been looked at would be around enhancements to the network and, of course, that is somewhat dependent on where we end up on the strategic alternatives. So the other areas continue to be the primary focus for investment, because that's where the growth opportunities are. International, increasing [Indecipherable] brand value and engagement with customers so that setting up for continued rights and renewals and new products or new services or new content that we can put in the market.

Curry Baker -- Guggenheim Securities -- Analyst

Is there any way you can put kind of an aggregate framework around the level of investment spending you are expecting for 2020, like a range or anything?

Frank A. Riddick -- Interim Chief Financial Officer

Well, I think what we said is that we're looking to -- we're going to have the effect of the follow-on from the 2019 investments in the full year, but we're taking a hard look in 2020 at all the investments and to see -- to try to find the right balance between investing in the business for future growth and shareholder value and maintaining financial performance at an acceptable level. So, I think we did say that 2021 would see more investments than 2020 and we are taking a hard look right now at all the investments, but the areas that will not change.

Curry Baker -- Guggenheim Securities -- Analyst

Okay. Thanks, guys.

Operator

Our next question comes from Brandon Ross with LightShed Partners.

Brandon Ross -- LightShed Partners -- Analyst

Hi, guys, good morning. Thanks for taking the questions. I think first, Vince, content is obviously the lifeblood of this Company and the quality of your content is very strongly correlated with the success of your various business units. What have you done specifically over the last several quarters to improve upon the content and engagement? And then related, how much input do Heyman and Prichard have on Raw and SmackDown? And do you believe you need to spend much more on talent to help stimulate engagement trends?

Vincent K. McMahon -- Chairman & Chief Executive Officer

A couple of things on that. We think that what we've done thus far in terms of television ratings, in terms of higher production value, better story lines, allocation of our top talent, at the same time bringing on new talent is paramount. You can see again with the ratings, the current ratings, notwithstanding what's going to happen in the first quarter, you can see there is growth there. And it's sort of like the investment. At one time, we had a lot of talent that was injured. We don't have that right now. And again, it's a -- it just takes a while to be able to put everyone in the right place, right storyline, right talent and going into WrestleMania, we think we have exactly what we want and going forward as well.

Brandon Ross -- LightShed Partners -- Analyst

Got it. And then maybe -- I actually have two more. One is a clarification. So, for India, did you actually zero out India in the guidance? Or are you attributing the rate of the prior deal in the guidance? I wasn't sure about that.

Frank A. Riddick -- Interim Chief Financial Officer

We left the current deal in the guidance. It would be the increment that we were expecting that we took out.

Brandon Ross -- LightShed Partners -- Analyst

Okay. And then just philosophically, one of the key aspects to the WWE Network has been that it allows you to have a direct-to-consumer relationship and access to real first-party data. Would keeping those be important in any strategic alternative? And do these still matter to you or do you think that was a misplaced priority in the past?

Vincent K. McMahon -- Chairman & Chief Executive Officer

Well, I don't think it's misplaced. It was one of our goals, still continues to be. When you're playing with some of the majors, it depends on whether or not we can negotiate, holding on to things of that nature. Sometimes, the big boys, want all of that to themselves. So it's a matter of really negotiation is what we keep. If we could keep it, absolutely.

Brandon Ross -- LightShed Partners -- Analyst

Right. But it's not a must-have for you?

Vincent K. McMahon -- Chairman & Chief Executive Officer

Not what?

Frank A. Riddick -- Interim Chief Financial Officer

Must have.

Vincent K. McMahon -- Chairman & Chief Executive Officer

Nothing is a must have. We will deal with what's available and again it's going to fluctuate somewhat with what the majors want out of this.

Brandon Ross -- LightShed Partners -- Analyst

Okay, got it. Thank you.

Operator

Our next question comes from Eric Katz from Wolfe Research.

Eric Katz -- Wolfe Research -- Analyst

Thanks, good morning. One question on the 2020 guide of the $250 million to $300 million. It's a pretty big range when excluding, I guess, the increments from India and also the Middle East deal. What's driving that $50 million range? Is that mostly on the network strategy?

Frank A. Riddick -- Interim Chief Financial Officer

No, I would say, the reason for the range is the uncertainty around what level of cost structure we can actually achieve through cost reductions and other things and where the rest of the business is going to perform, including the Network in the interim in terms of the number of subscribers that we get. So we wanted to make sure that we provided guidance that was realistic of what we thought we could achieve.

Vincent K. McMahon -- Chairman & Chief Executive Officer

Adding on these numbers, let me just add just some color to that, because I think these numbers are considerably conservative, and if any one of these deals takes place, it's going to be a big deal. It's going to be transformative.

Eric Katz -- Wolfe Research -- Analyst

Okay, understood. And it sounds like, I guess, just to be clear on some of the other comments and questions we've gotten so far. It sounds like there could be anything from a dual revenue stream where you still monetize the Network just in a different way or there is even a scenario where the Network is completely shut down? But, I guess, what we're all trying to figure out is, it sounds like whatever you decide and the timing sounds like potentially before this event at the end of the quarter, the economics will be better than your current structure. I mean, is that generally a fair assessment and is that from both the revenue and expense perspective?

Vincent K. McMahon -- Chairman & Chief Executive Officer

I think that we successfully achieve what we're trying to do with the majors and in terms of their desire for our OTT, again as I said just a minute ago, it's transformative. I mean, this is our most premium content that would be available.

Eric Katz -- Wolfe Research -- Analyst

Okay. I guess maybe what would be helpful is, do you have a number on the profitability for the network currently? Is it in the $40 million, $50 million range.

Frank A. Riddick -- Interim Chief Financial Officer

We don't provide that information.

Eric Katz -- Wolfe Research -- Analyst

Okay. I guess my last question would be, based on your comments for 2020 investments moderating, should we then assume the investments in Q4 not a run rate for the entirety of 2020?

Frank A. Riddick -- Interim Chief Financial Officer

I think we were talking about the level of increment in 2020. Obviously, as we said, we have investments in 2019 that are going to continue into 2020, because they were made during 2019. I'd say that the run rate -- the existing run rate isn't going to go down in the first quarter if that's what you're asking.

Eric Katz -- Wolfe Research -- Analyst

Okay. Thank you.

Operator

Our next question comes from Eric Handler with MKM Partners.

Eric Handler -- MKM Partners -- Analyst

Good morning and thanks for the question. Wondering if you could just give a little bit of color on the TV deals. You talked about $185 million incremental there in 2020, but if you take out the U.S. step up, which I believe is north of $200 million, maybe you can reconcile, does that mean U.K. China, Latin America were all down? And then is NXT in that number in the free-to-air money?

Frank A. Riddick -- Interim Chief Financial Officer

Basically all that excludes is the component around -- our assumptions around MENA and the increment around India. So everything else is included in that. There is a small portion that we would exclude that is built into our forecast around contracts that renew, but haven't been contracted yet, but the vast majority is related to the other deals that you mentioned.

Eric Handler -- MKM Partners -- Analyst

Did U.K., China and Latin America grow?

Frank A. Riddick -- Interim Chief Financial Officer

Eric, we wouldn't get into specifics around terms and specific about terms and contracts of specific deals.

Eric Handler -- MKM Partners -- Analyst

Okay. Fair enough. And then the second question, with the WWE Network, late in 2019 you did do a beta of a free-tier. Is that continuing now? Can you give us maybe some color on how it's performed in terms of maybe incremental downloads?

Frank A. Riddick -- Interim Chief Financial Officer

The tier was launched in December and I think it's too early to say exactly what the results of that have been. We're going to continue to analyze and when we have something -- when we feel like we have good data around what effect it's having, we'll put that out there.

Vincent K. McMahon -- Chairman & Chief Executive Officer

And again, it was a soft launch.

Eric Handler -- MKM Partners -- Analyst

Right. Okay. Thank you very much.

Operator

Our next question comes from Vasily Karasyov with Cannonball Research.

Vasily Karasyov -- Cannonball Research -- Analyst

Thank you. Good morning. I wanted to ask a clarifying question on the guidance, and specifically about the initiatives you mentioned in the Middle East and India. So, first of all, because the decision has been made to go ahead with those initiatives and if not, what's the timeline? And then do I understand correctly from your prepared remarks that if they were to go ahead, that would be an upside to the EBITDA for 2020? Do I understand that correctly or would that require more of a spending period, which would be a negative for the EBITDA for the year?

Frank A. Riddick -- Interim Chief Financial Officer

Yes, we're still for pursuing those new agreements. And from our perspective as quickly as we can get them done, that's what we're aiming for. And I think as I explained earlier, the India rights are already -- we already have existing India rights and they are in the guidance, because we are already doing -- are being paid under that arrangement. It would be the increment on India, but yes, there is -- for MENA, it would be an addition to the guidance.

Vasily Karasyov -- Cannonball Research -- Analyst

All right. Thank you very much.

Operator

Our next question is from Jason Bazinet with Citi.

Jason Bazinet -- Citigroup -- Analyst

Thanks. So there is a lot of investors who are speaking that are interested in your stock, but they're very nervous about what I'll call X factors, something -- some sort of curve ball. And so, can I -- I know this is a bit unorthodox, but can you just take a second and just maybe address some of the things that are out there in the marketplace just to put them to bed. So, I'll give you two and feel free to add others. One is, anything related to the XFL, that's what we hear. And then the second one is, is there anything in the Fox and Comcast agreement that's not a fixed payment, in other words, some sort of flexible payment that turns on the trajectory of the viewership. In other words, can investors sort of count on those dollars, whatever they are, or is there an embedded surprise potentially?

Vincent K. McMahon -- Chairman & Chief Executive Officer

No, the contracts are what they are. That's not to say that we couldn't do more programming with them and/or others. We certainly could. And what was your question on XFL?

Jason Bazinet -- Citigroup -- Analyst

Well, there is just -- there is concern that in some way your personal investment in XFL will somehow get swirled up into the sort of investment case for WWE, the public equity?

Vincent K. McMahon -- Chairman & Chief Executive Officer

No, there is none of that basically. It's all, again, as I said, we have 400 employees over there. It's one by itself. And there is no investment whatsoever hardly in -- from WWE.

Frank A. Riddick -- Interim Chief Financial Officer

So I think just -- there is no plan to put the XFL back into -- as a part of the WWE if that's what you're asking. It's just completely independent entity.

Jason Bazinet -- Citigroup -- Analyst

Okay, thank you.

Operator

And Steven Cahall from Wells Fargo has our next question.

Steven Cahall -- Wells Fargo -- Analyst

Thank you. I was wondering if you could provide a little bit more color on some of the operating expenses that are driving the 2020 guide. You mentioned developing new sources of revenue. So, I was wondering if you could give us a little more color on what those might be. And you also mentioned resetting the performance-based management incentive comp. Why does that increase costs in 2020 as well, maybe, especially given the stock's down quite a bit over the last 12 months? And then I got a quick follow-up. Thank you.

Frank A. Riddick -- Interim Chief Financial Officer

So the cost areas increasing in 2020 are around the production. Again, we talked about the fact that we now do the SmackDown events four days later. We're going to have the full year effect of that. We have higher costs related to some of the initiatives, and I think we did say -- in the third quarter, we talked about the increase in talent expense and that will roll over. There are considerations around new production, developing new content and there are some costs in for that as well.

What was your second question?

Steven Cahall -- Wells Fargo -- Analyst

The second part of that was...

Frank A. Riddick -- Interim Chief Financial Officer

[Indecipherable] MLP is quite straightforward. Because of the relative performance in 2019, the payouts under the management incentive plan were lower than targeted and when we build the plans for 2020, of course, we put it in at a rate where we would achieve the target. So that accounts for the increment. That's for the short term, the cash bonus plan. The stock component is not in adjusted OIBDA. So clearly, stock compensation might be lower if the stock stays lower, but it's not an adjusted OIBDA anyway. So, it doesn't explain any of the difference.

Steven Cahall -- Wells Fargo -- Analyst

Okay. And then, Vince, you just mentioned that India or MENA contracts could be transformative. I was wondering if you could tell us what you meant by that, because those be more than just TV rights deals? Any more color there. Thank you.

Frank A. Riddick -- Interim Chief Financial Officer

I believe Vince was referring to potential network transaction will be transformative.

Steven Cahall -- Wells Fargo -- Analyst

Okay, thanks.

Operator

And John Belton from Evercore has our next question.

John Belton -- Evercore ISI -- Analyst

Thanks. Vince, I was hoping you could give us some updated thoughts [Technical Issues] now that it's about a year into that promotion launching and you've been competing with them on Wednesday nights for about four months. Basically, they are trying to do fill a niche with more edgy content. How do you feel about that strategy? What is it done for the category? How has AEW, in general, changed your content and your business?

Vincent K. McMahon -- Chairman & Chief Executive Officer

AEW has not changed our content at all, because it's all about characters and story lines and resolutions. So it really hasn't changed our point of view in terms of what we present and we don't need more edgy, as you call it, content PG. We're [Phonetic] the few programs out there that really is PG. So, that's -- as far as NXT, we're competing -- NXT is competing on Wednesday night with AEW and doing extremely well. And we're confident that NXT will continue on with its success.

John Belton -- Evercore ISI -- Analyst

Got it. Thank you.

Operator

And we have a question from Bernie McTernan with Rosenblatt Securities.

Bernie McTernan -- Rosenblatt Securities -- Analyst

Right. Good morning. Thanks for taking the question. I was wondering, based on the increased investment, what the return thresholds will be or how that's thought about and over what time frame? Is it all about being in a better position for the next rates renewal in the U.S. or could we see those returns prior?

Frank A. Riddick -- Interim Chief Financial Officer

Of course, we look at the return on investment for all the incremental investments, but they're largely tied to building the brand and building the content quality and engagement with fans to get the payoff in the next content renewals. So that's the objective. It's always a healthy tension around how much do you invest for the future payoff and what the landscape is going to look like at that time. But those are the judgments that are made.

Bernie McTernan -- Rosenblatt Securities -- Analyst

Got it. And then just a follow-up on talent costs. So I believe the talent what you pay the WWE superstars is based on percentage of revenue. Has that rate that you pay them gone up? Or is the impact just because of revenue increasing as well?

Vincent K. McMahon -- Chairman & Chief Executive Officer

It's mostly revenue increase and we've always done percentages with our talent. Generally speaking, the more revenue, the more money they make and conversely. So talent cost has gone up and we're sort of proud of it.

Bernie McTernan -- Rosenblatt Securities -- Analyst

Got it and thank you. And lastly, Vince, just wondering if you're -- with the management turnover changing, anywhere you're spending your time on the day-to-day basis short term and expect to change over the next few years?

Vincent K. McMahon -- Chairman & Chief Executive Officer

At the moment, I have a few more reports, direct reports. But going forward, that will not be the case in terms of allocating my time. I have a pretty broad shoulders, and I can handle a lot.

Bernie McTernan -- Rosenblatt Securities -- Analyst

Thank you.

Operator

And we have a question from Alan Gould with Loop Capital.

Alan Gould -- Loop Capital Markets -- Analyst

Thank you. It seems to be a little bit of a divergence between some of the domestic trends and the international trends, especially with respect to Live Events. I mean, domestic ratings have been improving, domestic average attendance was up, but international average attendance has been trailing domestic average attendance in terms for percent changes. Is it just a function of the locations you've been going, but it looks like -- or is there something going on internationally?

Frank A. Riddick -- Interim Chief Financial Officer

No, I think it's -- the difference in international is really mix in venue, what country, what venue and number of events, which is a little more variable in international because of the logistics associated with it, but that's the primary and there is nothing fundamentally different between the U.S. and international at this point.

Alan Gould -- Loop Capital Markets -- Analyst

Thank you.

Operator

And we have a question from John Healy with Northcoast Research.

John Healy -- Northcoast Research -- Analyst

Thank you. Vince, I wanted to ask a question about the corporate leadership structure going forward. Rightfully so, the Company has always had a very unique structure. I was hoping you could give us a little bit of thought in terms of what ideally you would like the C suites to kind of look like over the next couple of years? And additionally, how long it might take to maybe get to where you want to be with the transition of leadership?

Vincent K. McMahon -- Chairman & Chief Executive Officer

I think that's for sure is -- in terms of changing or reimagining our culture and the way we do business, it's going to be far more inclusive. And quite frankly, with that and our strong management team is currently as well as going forward attracting world-class individuals to our Company. Who wouldn't want to work for WWE? I mean, come on. It's exciting. It's -- we [Indecipherable] on the 75 percentile assets in terms of what the value of an executive is, not on a 50-50 kind of -- we -- you get what you pay for. So -- and it won't take us long either to implement all of that.

John Healy -- Northcoast Research -- Analyst

Thank you.

Operator

Our next question comes from Ray Stochel with Consumer Edge Research.

Ray Stochel -- Consumer Edge Research -- Analyst

Great. Thanks for taking my question. Could you be more specific about any explicit disagreements around strategy that you may have had with prior exec team members to give us a sense of how you're thinking about the business going forward with some more granularity? It sounded like it was execution-related, but just wanted to be clear there.

Vincent K. McMahon -- Chairman & Chief Executive Officer

A lot of it was execution related and a lot of it is the focus as well and as well as reallocation of resources. Again, looking at the way we do business, it's going to be different and more successful.

Ray Stochel -- Consumer Edge Research -- Analyst

Great, thanks. And then another one on capital allocation. So aside from XFL, you do have a venture portfolio, how do we think about that when it comes to capital allocation and what would be the potential for non-XFL-related acquisitions over the next few years? Thanks.

Frank A. Riddick -- Interim Chief Financial Officer

Yeah, well, I think we'll continue to make small equity investments, meaning not taking a small equity stake in technologies and businesses that -- where there are enhancements to or learning that can be put into the WWE organization. I don't think that those are going to be material and because of the size of the -- and since [Phonetic] the size of those investments. So -- but I do think it's a valid strategy and has created some opportunities for the business. So I think we will continue that at a modest level.

Vincent K. McMahon -- Chairman & Chief Executive Officer

I think you just mentioned, XFL, again, that is a totally separate entity.

Ray Stochel -- Consumer Edge Research -- Analyst

Great. Thanks, again.

Operator

And we have a question from Brandon Ross with LightShed Partners.

Brandon Ross -- LightShed Partners -- Analyst

Hi, just a couple of clarifying questions. Were any WWE Network profits excluded from the guidance or do you assume that the Network continues as is for the purpose of the guide?

Frank A. Riddick -- Interim Chief Financial Officer

We didn't assume that any of the strategic options that we're looking at with respect to the network would be achieved and impact the guidance. Obviously, ongoing business in the Network and our operating...

Brandon Ross -- LightShed Partners -- Analyst

So, you're assuming it's a contributor.

Frank A. Riddick -- Interim Chief Financial Officer

Correct. But nothing new, not in the sense of any new strategic deal or any major change in the way we're doing business in the Network or who we're partnering with. That would not be included. But we have an ongoing business and that business will continue until we make a change in how it's operated. [Speech Overlap] build our plans and we give our guidance, it's included.

Brandon Ross -- LightShed Partners -- Analyst

Okay, got it. And then could you explain a little more specifically who is going to fill George and Michelle's roles within the Company? Are you bringing in additional senior executives? I think that's what you said. Or the business unit leaders is going to take on additional responsibilities? How are you going to fill those roles?

Vincent K. McMahon -- Chairman & Chief Executive Officer

We're in search now with an exceptional talent to come in. At the same time, we have huge faith in our current -- our current role in terms of our management team.

Brandon Ross -- LightShed Partners -- Analyst

Okay, got it. Thank you.

Operator

[Operator Instructions]

Michael Weitz -- Senior Vice President of Financial Planning and Investor Relations

Thank you, everyone. We appreciate you listening to the call today and if you have any questions, please do not hesitate to reach out to us. Thank you.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Michael Weitz -- Senior Vice President of Financial Planning and Investor Relations

Vincent K. McMahon -- Chairman & Chief Executive Officer

Frank A. Riddick -- Interim Chief Financial Officer

Benjamin Swinburne -- Morgan Stanley -- Analyst

David Karnofsky -- J.P. Morgan -- Analyst

Laura Martin -- Needham -- Analyst

Curry Baker -- Guggenheim Securities -- Analyst

Brandon Ross -- LightShed Partners -- Analyst

Eric Katz -- Wolfe Research -- Analyst

Eric Handler -- MKM Partners -- Analyst

Vasily Karasyov -- Cannonball Research -- Analyst

Jason Bazinet -- Citigroup -- Analyst

Steven Cahall -- Wells Fargo -- Analyst

John Belton -- Evercore ISI -- Analyst

Bernie McTernan -- Rosenblatt Securities -- Analyst

Alan Gould -- Loop Capital Markets -- Analyst

John Healy -- Northcoast Research -- Analyst

Ray Stochel -- Consumer Edge Research -- Analyst

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