Vince McMahon Promises For WWE May Fall Short

Vince McMahon plan to triple its 2012 profits by 2015 may be fading, even after the World Wrestling Entertainment signed a new cable TV contract. It seems McMahon and his promises have a tough hill to climb.

However, the WWE CEO and chairman was basing his financial forecast with big increases enjoyed by other sports leagues like Major League Soccer.

In August, McMahon was so confident that WWE would benefit from the trend that he told a financial analyst he could put him in a hammerlock if the company didn’t double the value of its domestic contracts for its two most popular shows, Monday Night Raw and Friday Night Smackdown.

Instead, the company announced Thursday that it had re-signed with NBCUniversal in a deal that would pay WWE about $150 million a year, a decent increase of 50% on the previous contract but nowhere near the spike investors had been waiting for.

The stock took its biggest nosedive since its 1999 IPO the following day, and Forbes reported that McMahon had lost nearly a third of his $1.1 billion fortune in the crash.

Looking back, the WWE’s recent implosion was caused in large part by an embarrassing amount of unsubstantiated hype the company communicated to investors, both about the size of its forthcoming TV deal and the fortunes of its recently launched streaming video network.

Let’s start with the WWE Network, created earlier this year in a bold attempt to replace a stagnant but significant $83 million revenue stream with an entirely new business.

The aforementioned $83 million in revenues was tied to the WWE’s monthly special events, which tend to include the most important matches and have for years been sold to viewers for about $55 via cable pay-per-view. Though pay-per-view still made up 16% of the WWE’s net revenues in 2013, it was no longer the $127 million juggernaut it was in 2001, the height of the company’s most recent boom period.

Instead, the WWE announced in January that it would offer these live special events to fans for $9.99 a month on an online network they could access via PCs, smart TVs, gaming consoles, and mobile devices. The Network, which cost about $70 million to get up and running, would also include thousands of hours of archived video alongside new, wrestling-related content.

Here’s where the WWE got ahead of itself: In a presentation given shortly after the Network was announced in January, the company told investors that it would take 1 million U.S. subscribers for the Network to break even, but if it got to 2 million subscribers, the Network would produce additional income of $50 million, thereby nearly doubling the entirety of the company’s 2012 operating income before depreciation and amortization (OIBDA).

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