World Wrestling Entertainment (WWE) CEO Vince McMahon admitted his company misjudged how much it would be able to sell rights to its flagship Raw and Smackdown programs in a call with investors Monday.

"We were a little bit disappointed in our NBCU deal," he said referring to the domestic deal for Raw and Smackdown rights. "Internationally we did better. Overall we about doubled our deals."

McMahon remained bullish on the company and the prospects of it growing revenue not just from its increased TV deals but from its recently launched subscription-based digital streaming network.

On the call McMahon and WWE CFO George Barrios were upbeat about the network and its upcoming (but not specified) worldwide roll-out, and were a little defensive about their failure to deliver a TV rights deal as large as expected. 

Both stuck to the party line, repeatedly stressing that three of its four deals had increased. While the U.S. number disappointed, WWE did better than expected in the United Kingdom and Thailand and will do similarly well with its almost-completed deal in India.

Unfortunately, the stations licensing the shows in those three countries paid a fraction of what Comcast's (NASDAQ: CMCSK) USA and SyFy Networks are paying in the U.S.  

"Our analysis demonstrated that our content was undervalued in several markets," Barrios said. "In three out of the four markets we were correct."

That's sort of like a kid who failed English and tried to distract his parents by stressing his A's in gym, health, and typing. 

How bad was the TV deal?

WWE has not released specific details as to how each deal breaks down, instead claiming a rough total of $200 million, which represents a $90 million increase over the yearly value of the previous deals in those countries. I wrote more about the deal in Inside the WWE Raw and Smackdown TV Deals, in which I quoted The Wrestling Observer's breakdown of 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 general the news would have been taken as a positive even with the company's attempts to hide the value of the U.S. deal had the $280 million per year expectation not been floating around. Never mind that it was hard to make that financial case based on ad revenues that a network could expect to bring in from the programs. The number was out there it and that became the low-end expectation.

Meeting expectations is key

The call was scheduled after the investing public was underwhelmed by the announcement of the television contract and one prominent investor called for the company to either replace its management or pursue a sale. Lemelson Capital did not address the TV deals in a press release announcing that it had taken a stake in the company, but it did take issue with the company's projections for its subscription-based streaming video service, WWE Network.

"WWE has affirmed that even with one million subscribers for its WWE network, the company stands to lose between $45 million and $52 million in FY 2014, which validates the original short thesis," said Emmanuel Lemelson, Chief Investment Officer of Lemelson Capital Management. "This follows what we believe to be material misrepresentations by the company about both the performance and operating profit model of its WWE Network, which the company has wrongly labeled 'a homerun.'"

On the call Barrios went through a number of scenarios for the network saying that break-even would occur at somewhere between 1.3 and 1.4 million subscribers. The company has only reported subscriber numbers once, saying on April 7 (42 days after launch) that it had 667,287 subscribers. Barrios declined to update that figure during the call, saying WWE was sticking with its plan to report the number quarterly.

The break-even number, Barrios explained, assumes that all global revenue for pay per views (about $80 million a year) would be cannibalized by the network. In a document WWE sent out last week the company predicted that the subscriber base for the network once it has rolled out globally would be between 2.5 million and 3.8 million subscribers. 

Lemelson is calling for blood because the company overplayed its hand when it came to its expected U.S. TV deal. That's a little extreme -- adding $90 million a year, almost all of which hits the bottom line, is still impressive even if it's not in line with the increases other sports have landed (and WWE is not exactly a sport). The company's prediction was way off, but making a lot more money than you had been -- albeit less than you predicted -- is not exactly mismanagement.

The true test for WWE's strategy comes over the next 12 months as the network gets rolled out around the world and we begin to see if those 2.5 million to 3.8 million potential subscribers sign up.

WWE is making a tough transition

For years WWE has been a business driven by live-event attendance, TV rights deals, and pay-per-view sales. The first two remain the same but the network is replacing pay per view as a revenue source. The company's management should be applauded for seeing that pay per view was a declining business and a subscription-based model would be a viable way to replace it.

Barrios acknowledged on the call that if numbers disappoint there were variable expenses that could be removed from the network. Still while it remains a question as to whether the company will hit its projected subscriber number, it's hard to see how it won't reach break-even given the initial sign-ups.

That number obviously included the company's biggest fans and the fact that Wrestlemania XXX, the biggest PPV of the year, was offered likely drove that early figure. Still nearly 400.000 U.S. homes bought Wrestlemania XXX on traditional PPV (at more than the cost of six months of the network), so there are still U.S. fans left to convert along with those in the rest of the world. The potential user pool should also increase as more and more people become comfortable with streaming networks and WWE makes its offering available on more set-top boxes.

WWE has not proven that a network will make money or even replace the PPV revenue it is cannibalizing, but it is well on its way to doing so. Given the disappointment of its recent domestic TV deals, the pressure on the network is higher than ever.