WWE (NYSE:WWE) has signed a new television deal that significantly raises the rights fees the company receives for its flagship Raw and Smackdown programs. The agreement keeps the shows with Comcast's (NASDAQ:CMCS.A) USA and SyFy networks, respectively.

Traditionally WWE has negotiated the contracts for its two biggest shows on a staggered basis. This time the company arranged for the deals for both programs to expire at the same time so it could negotiate a package deal. That strategy appears to have worked to a point -- the new agreement has brought a significant increase in the rights fees for Smackdown and Raw, though the company was vague on the actual figures.

"Over the past six months, the company has negotiated television distribution agreements in the U.S., U.K., and Thailand, and is in the midst of discussions regarding the distribution of WWE content in India," the company wrote in a release. "The company estimates that it will increase the average annual value of these key television agreements to approximately $200 million, representing an increase of more than $90 million that is nearly three times the increase achieved in the previous round of  negotiations."

That lack of specificity about the U.S. deal indicates that while the contract includes a large increase in the fees paid for the two programs, it's not as high as WWE had expected.

Behind the numbers

The Wrestling Observer, the leading newsletter covering the wrestling industry, broke down the deal.  

"That news would indicate the U.S. TV revenue of $106 million per year in 2013 would increase to roughly $142 million to $155 million in 2015, far below the $280 million hoped for, let alone analysts who were throwing around figures of more than $400 million when seeing NASCAR ratings comparisons," according to the publication.

In 2013 NASCAR landed a 10-year deal with NBC and Fox (NASDAQ:FOX) worth $820 million a year (up from around $560 million) despite declining ratings for many of its races. Major League Soccer also recently signed an eight-year deal with ESPN, Fox Sports, and Univision worth a combined $90 million, quadrupling what it currently receives.

Though wrestling has consistently good ratings, it generally brings in lower ad rates than other sports programming, which partially explains why WWE's deal did not grow at the same level. 

"WWE viewers skew toward less attractive demographics," Wrestling Observer's Ben Miller told the Fool. "Their audience fails to spill over into other USA Network shows and, frankly, the networks may have been eager to send a message in response to escalating rights fees."

By most standards, the new deal should be a huge positive. Unfortunately, it's like getting a 50% raise -- a huge increase -- when your boss had hinted your salary would double. 

It's all profit

While WWE got less than it had hoped for, the entire increase is profit. The company spends the same amount of money producing Raw and Smackdown no matter how much it gets paid for broadcast rights. Talent -- the wrestlers -- have contracts that guarantee them a minimum amount per year. What amounts to bonuses are paid based on a complicated (and secret) formula that takes into consideration live attendance and a wrestler's importance to the card. WWE performers do not get paid more based on increases in television rights fees.

The business is changing

Though the increase is smaller than expected the added profits should help WWE fund its transition from a pay-per-view model to a subscription model for its special events. The WWE Network launched earlier this year in the United States with a stated goal of 1 million subscribers at the end of 2014. Whether it will meet that goal remains a question -- the only figure announced so far is 667,287 subscribers on April 7, 42 days after launch. On the surface that number seems strong, but the company's biggest draw of the year, Wrestlemania, took place April 6.

Access to the WWE network costs $9.99 a month with a forced six-month commitment. For $59.99 customers would get access to Wrestlemania XXX as well as five other PPVs and countless hours of programming. One would think that deal would have led to even casual wrestling fans to subscribe -- the cost of Wrestlemania alone is roughly equal to six months of the network. It then could  be assumed that the vast majority of people who want the WWE Network would have subscribed before the big event.

But it should also be noted that nearly 400,000 people in the United States bought Wrestlemania as a traditional PPV -- paying between $59 and $79 to do so. Those 400,000 or so buyers likely include some network subscribers who were afraid the network would crash during the biggest show of the year. The real question for WWE is how many of those nearly 400,000 homes will buy into the network before the end of the year. 

The final 2014 subscriber number is likely to be pretty close (on either the high or low side) to 1 million. The real test will be how many people stay members and whether the company can reach the 1.3 to 1.4 million subscribers it needs to break even on the project (covering expenses and lost revenue from the PPV sales cannibalized by the network).

This is good news

The new deal for Raw and Smackdown may not be as big as WWE had predicted but the company is still getting a lot more money for doing exactly the same amount of work. It's also a huge bonus that both shows are staying in their current broadcast homes as switching networks has traditionally brought a loss of viewers. Keeping Raw on USA is especially good for the company as the other rumored suitors -- Spike and Fox's new sports networks -- are much lower-profile channels.

WWE has been dramatically transforming its business. The network gives the company a much more stable revenue stream than PPV did and the increased TV rights are a sizable win, even if the lower-than-expected number feels like a loss.