5 Things You Won't Hear on WWE's Friday Conference Call

| About: World Wrestling (WWE)
This Friday WWE will be announcing its Q4 2010 and full year 2010 earnings to an understandably anxious group of investors ready to scrutinize every aspect of the call. With institutional buyers jettisoning WWE stock during the latter part of 2010, and a major sell-off two weeks ago precipitated by WWE’s unusual Earnings Estimate release, investor interest seems to be peaking in this often ignored high yielder.
Given the excitement of the past few weeks, there are many things investors and analysts alike may be hoping to hear on this week’s call. The following five things will likely go unmentioned.
1. Discussion of Chief Operating Officer Donna Goldsmith’s Departure and Naming of Replacement
The abrupt resignation of Donna Goldsmith, effective February 28, was a surprise to many followers of WWE. For someone who had been with the company since 2000 and had ascended through the ranks to COO in 2009, Goldsmith’s abrupt departure seems to raise more questions as to where WWE will go in 2011. After taking on an increased leadership role since the resignation of Linda McMahon as CEO to run for the Senate, Goldsmith has presided over several terrible quarters for WWE as well as a much stronger push towards PG-rated entertainment. The dismal Q4 2010 that WWE had was likely the final straw for Goldsmith, prompting her resignation.
It is worth noting that since September 2009, WWE has lost a CEO, and now COO to resignations.
2. Dividend Policy Will Change in 2011
Despite speculation in recent weeks over the unsustainability of its dividend payouts and requisite free cash flow generation to pay these dividends, WWE will not announce changes to its dividend policy. After announcing this past Friday a $0.36 dividend payable in March, WWE, at least in the short term, does not appear ready to make material changes to its dividend policy. As aptly stated by Frank Voislin in his article of Feb. 1 noting the pitfalls of investing for WWE’s dividend, WWE will continue to rely on non-cash charges to help meet its dividend payouts regardless of how unsustainable it may be in the long run. Its cash rich balance sheet, low debt and non-cash charges will allow it to continue its current dividend for the next few quarters.
3. Competition Along the Lines of UFC, TNA and Ring of Honor
Over the years WWE has adopted an unofficial policy of not acknowledging any competition in the professional wrestling entertainment industry. A look back upon conference calls in the last two years reveals that WWE has never acknowledged the competitive pressures that it is facing, and certainly not by name. Although the recession has played a large role in the stagnant growth of the company since 2008, WWE management has not accepted that lower pay-per-view buys and ratings could come from anything else but the recession itself, despite evidence in the form of TV ratings showing that WWE’s programming overlaps with UFC and TNA in terms of demographics.
I do not foresee Vince McMahon or WWE management acknowledging the competitive pressures from mixed martial arts and TNA in the upcoming conference call despite my belief that it may be proper to do so, especially given the tremendous growth of UFC.
4. WWE Will Move Towards a PG-13 Rating
As I mentioned earlier, Goldsmith, who is believed to have been behind WWE’s push towards PG-rated programming, is departing the company as of February 28. This has led many to speculate about a possible shift towards PG-13 programming in order to satiate the older 18-35 audience, which has been lagging in recent years due to competition from UFC and mixed martial arts. There has also been speculation about a return to the programming style of the late 1990s and early 2000s, which featured an hour of PG-rated material followed by a second hour of PG-13 material to satisfy the older demographic (WWE Raw and WWE War Zone). Although I believe WWE will continue making PG-13-rated direct-to-DVD feature films in the future, I do not think it will begin shifting the bulk of WWE programming back to the PG-13 category, despite evidence that it could boost the 18-35 male viewership demographic.
5. Development of New Talent Management Program
Whenever WWE has a tough quarter, Vince McMahon tends to cite injuries to top talent and, more recently, macroeconomic factors as a cause for the poor results. What WWE and McMahon won’t mention are solutions to the talent management issues that have been plaguing WWE for years. While I admire the changes that have taken place in terms of the talent wellness program and rigorous steroid testing, WWE still has a long way to go in regards to taking care of its top talent. Unionizing isn’t the answer, but implementing a program (outside of just the normal training/development system) to keep talent engaged as a part of the organization and of the community is important. Losing talent not only hurts the product but hurts the brand as well, especially when some stars go directly to TNA, one of WWE’s non-existent (according to WWE management) competitors.
In a large hierarchal organization such as WWE, it is incredibly difficult to manage the needs, wants and expectations of all superstars on the roster. Every wrestler who signs with the company is an investment, and every wrestler who goes through WWE’s developmental territory and training program is an investment. For investors in WWE stock, we are paying WWE to create, foster, and effectively use the most talented wrestlers to create the best product and thus deliver the best results for us. As an investor in WWE, I am concerned that the failure to create a successful talent management program will continue to hurt WWE’s programming and contribute to high turnover and poor results. Unfortunately, I do not see WWE management properly addressing this issue in the conference call.
Disclosure: I am long WWE.

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