World Wrestling Entertainment (WWE) recently announced record earnings for 2021. With the wrestling leader taking an all-in approach to licensing its intellectual property (IP), investors may want to take a closer look at the industry leader.
Licensing mania
Despite being one of the first movers into streaming with its WWE Network in 2014, WWE abandoned its independent streaming service in 2021 by selling its exclusive rights in the United States to Peacock. The deal was valued at more than $1 billion over five years. While many entertainment companies like Comcast and Paramount are starting their own streaming networks, WWE is selling its streaming business because the company has realized its IP is its most valuable asset. WWE makes an estimated $700 million annually just between licensing its live airings of tentpole properties NXT, Raw, Smackdown, and the WWE Network. With those deals, WWE has separate partnerships with some of the top media networks including Comcast, Fox, and most recently Disney. Additionally, WWE has partnerships with Take-Two Interactive for the WWE 2K video game, Mattel for action figures, Netflix for scripted and non-scripted shows, Fox's Bento Box Creative Labs for NFT's, and even IGT for lottery tickets.
Image source: Getty Images.
As a result of these expanding partnerships, the wrestling leader posted record results in 2021: $1.09 billion in revenue, up roughly 12% from a year ago; and $180 million in net income, up 37% from a year ago. So, even if WWE doesn't have the TV ratings power of the late 1990s and early 2000s, when its popularity peaked with the "Attitude Era," the company has become more efficient by dividing its IP and selling it to the highest bidder. On the WWE's most recent earnings call, President Nick Khan stated, "It's evident that the marketplace puts considerable value on our IP, which has allowed us to drive more value for existing partnerships and enter into a number of new categories."
Better yet, these licensing deals have a history of increasing over time. In the short term, WWE's current deals have a yearly contractual escalation of rights fees, creating a growing revenue base each year. And in the long term, the live U.S. television/streaming deals -- the most lucrative of WWE's IP -- expire in 2024 and 2025.
A contender for the belt
Nearly 20 years after WWE's "Monday Night Wars" ended with Ted Turner's World Championship Wrestling (WCW), the leader in wrestling entertainment finally has a formidable foe again with All Elite Wrestling (AEW). WWE's newest competitor has deep pockets, backed by billionaires Shadid Khan and Tony Khan -- no relation to WWE President Nick Khan. AEW has already taken some of WWE's top talent since it was founded in 2019. Unlike WWE, AEW offers health insurance and a less rigorous schedule to incentivize its professional wrestlers.
WWE recent decision to thin out its roster of stars could be by design, as the company appears keen on cutting costs since Nick Khan's tenure at WWE began in 2020 as a way to boost profits. However, this strategy runs the risk of WWE losing fans to AEW. In fact, WWE recently lost to AEW in the all-important 18-49 demographic in late January.
Still, between its legacy and deal-making prowess, WWE is a heavyweight compared to AEW. For example, WWE currently has a deal through 2027 with the Kingdom of Saudi Arabia to produce two annual events for an estimated $100 million per year -- that's more than what AEW makes in its U.S. TV deal on an average annual value. And WWE shows typically draw double the overall TV audience of AEW.
It should be noted that WWE has faced political backlash for its partnership with Saudi Arabia as well as its lack of healthcare, but the company remains resilient. According to YouGov, a leading market research and data analytics firm, WWE has more total fans 18 to 34 across all social media platforms than all other American sports leagues. In 2021, WWE claims to have had 50 billion total social media views, earning tens of millions of additional revenue.
The stone cold bottom line
For the first time in its 42-year history, WWE is relinquishing its solo title to shift its focus on becoming a tag-team champion by selling its coveted IP to content-hungry media services. In 2022, look for announcements of future licensing deals, including further licensing of the WWE network in international markets and the licensing of Raw second window rights. If the company can find more ways to squeeze additional cash from its existing shows and talent, WWE's stock may be poised to soar off the top rope.
