WWE (WWE 0.35%) has seen its stock hit all-time highs after it signed two new television deals that roughly doubled the amount of income produced by its two flagship U.S. shows. Those deals, however, have already been priced into the company's share price. That could lead to a downturn, or there's the possibility of a sale. In this segment of Industry Focus: Consumer Goods, Motley Fool contributor Dan Kline and host Nick Sciple, both WWE fans, discuss the issue.
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Nick Sciple: Dan, I want to transition now. As we wrap up the show, talk a little bit about WWE's stock and where it's going to be going forward from today. Over the past three years, the shares are up more than 5 times. It has $900 million in total revenue, up 60% in the last five years. But if you look at their valuation metrics, they're trading at 80 times trailing earnings. What's the future for this company? They're in the small wrestling niche, but they're deepening this relationship with Fox. How should investors think about this and where this company fits in?
Dan Kline: I think the valuation's a little high right now. I think it has priced in all the best things that are going to happen, which is the five years of the U.S. contract, the upside in some of the global contracts that are coming up. I think there are two things that could offset that. The commitment to women maybe creates a generation of younger girl fans that grow up as fans. I do think we don't have a character, as we talked about earlier, that's breaking through to mainstream that's a full-time wrestler. If that happens, if somebody comes out of nowhere and becomes the next Stone Cold or The Rock and is there for five or six years, there's a lot of room. They're going to run a full house show schedule whether they're selling 8,000 tickets or selling out. So there is room for a hot act to drive the business.
But -- and we've talked about this before personally -- there's a huge thing hanging out there is that it makes a lot of sense for Fox to buy the WWE. They are taking a test run. But if you look, Vince McMahon -- the creative guru behind all of this -- is 73 years old. He has a wonderful wrestling management group behind him. Triple H, the famous wrestler who was married to his daughter, Stephanie McMahon, has proven himself with NXT the developmental territory that he understands how to book and put together wrestling programs. He's built a staff under him that could take over the wrestling side. If Fox could take over the business side, you could take a lot of expense away.
From a Fox point of view, would you rather pay a billion every five years or $6 billion now? Or, whatever the number would be to purchase it and just own it. We saw it with Viacom and Bellator. These second-tier sports leagues that are somewhat affordable should be purchased. You should just control your costs going forward and own it. I think that will be a nice premium, should it happen. Not that anyone has said it will, but I'm fairly confident that it's at least being thought about.
Sciple: Sure. All this, at the end of the day, is going to depend on Vince McMahon, the man who built the company over time, has been the creative genius behind the company, has created these folks from Hulk Hogan to Stone Cold to The Rock to John Cena. He controls 80% of voting power of the company, so he's going to decide where we're going.
Kline: He's also cashed out $400 million worth of stock to invest in the XFL, a football league that looks a lot more viable given that its chief competition went out of business. Now, you could say, a spring league went out of business, that's not good. But that spring league demonstrated that there was an audience. It set more of an ability to charge for television rights. And Vince McMahon is saying, "I'm willing to put $500 million in," we don't know exactly what the losses were for the AAF, but we know they weren't $500 million or even $250 million in the first year. So he's set up to maybe transition himself into a new business. It might make sense to have Fox in that role.
Sciple: Right. It's to be determined how robust that move into the XFL will be. Just for context, Vince McMahon still owns over $2 billion in stock. But, as you mentioned, when you have the visionary leader of the company for its entire history selling off shares of his stock, aging, as well as maybe having his attention distracted with other projects, that does raise a little bit of a smell.
Kline: I'm not telling him to use the word "aging" in association... [laughs]
Sciple: [laughs] Yeah, Vince McMahon is 73 years old, he could probably still beat me up.
Kline: Without question!
Sciple: Alright, Dan. Last thing I wanted to talk about, we've seen over the past several years, and I think WWE can lump into that, sports rights really move up over time. WWE's been riding that wave with this most recent sports deal. WWE as an investment, do you have to believe that the broader arena of sports rights are going to continue moving up over time? NFL, NBA, MLB? Or, do you think WWE can be successful in moving up its media rights without --
Kline: It's funny, Chris Hill and I talked about this on MarketFoolery yesterday. I believe fully that there is not a bubble. The looming presence of dumb money in the streaming space -- DAZN might decide: "Hey, baseball isn't getting a big enough offer. Fine, we'll triple their money." I think you might see Sunday Ticket with the NFL move to a different platform, maybe staying with DirecTV, but also being on ESPN+ or someplace else. I think as long as you have one extra bidder, the rights will keep going up. Amazon, Facebook, DAZN, ESPN+, maybe Netflix someday. Maybe some billionaire that we haven't even thought of yet, or some of these fledgling services. Maybe when Time Warner launches its series, it decides it needs a top-tier sports property. I am not at all worried about sports rights.
Sciple: It's going to be interesting to see how things play out. You had the UFC deal with ESPN, it seems like WWE could fit in a similar role there. Something we're going to continue to watch over time.