Welcome to another special edition of the Wrath of Tito, where we'll be taking yet another economic journey through professional wrestling. This week, I'd like to look into Viacom/TNN/Spike TV's investment in the WWE, which oddly enough, really began to materialize almost 5 years ago. The question is simply: Did Viacom make a good investment in the WWE?. The simple fact that Viacom is making very little effort to negotiate with the WWE about a return should tell you something, as well as the WWE being forced to take a lower offer from USA Networks due to lack of a bargaining position by the WWE thanks to Viacom's disinterest. I'm very sure that Viacom has their own economists and statisticians analyzing the data about the WWE and its effect on namely, Spike TV.

In today's column, we'll discuss the idea of a "Winner's Curse", ratings, the WWE's net worth, TNN/Spike TV's growth since acquiring the top rated RAW, as well as life after RAW for Spike TV and if they can survive. It should be an informative read, so sit back, relax, and enjoy.

Did Viacom Make a Bad Investment in the WWE?

I. Introduction

Before 2000, TNN was a channel that more or less appealed to older viewers. You had reruns of "Dallas", the famous Grand Ole Opry, and much more that appealed to Country Music television. TNN also had several sporting events, mostly consisting of some form of autoracing. During the 1990's, Viacom began thinking big as corporate conglomerates often did with media divisions back then (Time Warner, for example, expanded heavily). Mtv remained strong with younger viewers, but Nickelodeon and Vh1 received heavy makeovers in order to attract new viewers. The same was going to be said about TNN, the "Nashville Network". Viacom appealed to younger children with Nickelodeon, teenage girls with Mtv, and a wide variety of audience members with Vh1. For whatever reason, Viacom wanted the male viewer, namely those ranging in the 18-34 year old demographic.

Therefore, they decided to change up their lowest rated cable channel, TNN. They renamed it "The National Network", threw most of its country music programming to their newer network called CMT (Country Music Television), while also acquiring Star Trek reruns, movies, and other forms of programming in hopes to acquire the audience they were seeking. Back in 2000, the WWF was at its peak. They were clearly demolishing WCW in the Monday Night WAR, Wrestlemania 16 was a HUGE event, every WWF show sold out in every city, WWE went public on the stock market, and ratings were hitting above the 6.0 rating! Outside of NFL football season on ESPN broadcasts, RAW was consistenly the top rated show on television. It's audience? Largely males 18-34, the demographic that Viacom was seeking at the time!

WWF was on USA Networks at the time and grossly underpaid at a reported $5.2 million annually for RAW and the weekend shows (Marvez, 2000), which I'm assuming is in addition to advertising revenues. Viacom, looking at the WWE's impressive numbers, made an offer to the WWE to leave USA Networks and be placed on various Viacom stations. The real intention was to help boom TNN, which would later become Spike TV. USA Networks, getting great bang for their buck and also a loyal cable host to the WWE, took Viacom to court to block the huge offer Viacom made, especially since USA Networks could not come close to matching it (plus, USA Networks still wanted to pre-empt the WWE for the US Open and dogshows). The court ruled in favor of the WWE, given that the WWE shouldn't be denied an opportunity to receive more revenues for their programming. Plus, the deal with Viacom enabled the WWE to open up a recording label, host more extra television specials, make movies, and fund the dreaded XFL.

That was then. This is now... Welcome to 2005 and Viacom had no desire to resign the WWE to a new deal. But why? RAW is still the top rated show on cable television. WWE is the virtual cable monopoly on prime time television. However, one could argue that Viacom bought a product in decline...

II. The Winner's Curse

What if, for instance, you go on Ebay and you bid on a rare baseball card. At the time, this item had some strong value. Knowing this, you keep bidding and bidding, thus driving the price up. However, let's say you possibly overpaid on this card due to the excessive bidding. Then, maybe from another player breaking a record, maybe criminal charges happen to the baseball player in question on your card, or whatever. Something happens that causes THAT baseball card to diminish in value. However, at the auction on Ebay, you overpaid on the item even though it lost value after you purchased it.

This is called the Winner's Curse. The Winner's Curse is defined as "the plight of the winning bidder for an asset of uncertain value who has overestimated the asset's true value" (McEachern, pg. 647, 1997). A good example of this would be Free Agent acquisitions in pro sports. The New York Yankees have several examples of this, for they've outbid many teams on certain players. Bernie Williams hasn't been much since he resigned his very lucrative contract with the Yankees. Jason Giambi, for example, was considerably overpaid by the Yankees, only to have major health problems last year and the steroid scandals. Carlos Beltran of the New York Mets could be an example, as he's not playing as well as he did in Houston or Kansas City. Actually, the New York Mets on many players...

Other venues often suffer from the Curse. Many suggest that networks overpay to host the Olympics, both Winter and Summer. Ratings will be there, but both CBS and NBC dish out billions to host the games. Both networks have had trouble finding sponsors who are willing to pay the large pricetag to sponsor the Olympics, and ratings for both networks for Olympic prime time events have been down. An old economics professor used to talk about how CBS overpaid to have Major League Baseball on its network, only to see a smaller growth in the league's worth than intended. You could think about Pro Wrestlers, too. Look at Brock Lesnar. He was in a heavy bidding war between WCW and WWE during 1999 and ended up making millions from it. WWE outbid WCW, but where is Brock Lesnar NOW? And when he arrived, he didn't draw extra fans. Sure, he was a steady main eventer, but for the amount of money he was paid, he didn't bring new wrestling fans to the sport, as well as bringing back some old. You could argue that many WCW wrestlers also fall into the curse, as WCW outbid the WWE on many WWE wrestlers who jumped. Some worked out well, while some did not (especially British Bulldog from 1993, for instance). Aquisitions like Bret Hart, Curt Hennig, Bryan Adams, among many others didn't pan out, despite the large paychecks each were receiving. Another great example was UPN purchasing "Buffy the Vampire Slayer" from WB. UPN outbid WB heavily for the show, yet Buffy only lasted 2 seasons on UPN due to severely declining ratings.

Viacom may have fallen victim to the dreaded "Winner's Curse". By outbidding USA Networks, they bought a WWE that was about to embark on a severe ratings decline. During their peak in 2000, WWE was scoring above 6.0 ratings on USA Networks. The overall average rating the WWE has done on TNN/Spike TV has been around 4.1 (Wrestling Information Archive, 2005). That's a drop of around 2 million viewers, roughly (more on ratings in a bit). The WWE stock has been devalued since 2000. The IPO started around $16 or $17 per share, but nowadays, the WWE is lucky to see $14 a share. LUCKY! They've often dipped below $10 per share and has only increased in value due to the WWE's many cost cutting efforts. The XFL was a total bomb and only lasted one season. Viacom, NBC, and the WWE took a huge financial hit on that failure. WWE's recording studios have already tanked. The theme restaurant in New York City has already closed down, which I believe was a luxury added to the deal? The jury is still out on the movies, though box offices in general have diminished, so why should the WWE even draw at the theaters? Smackdown has also experienced a decrease in viewership and the UPN part of the contract will NOT be renewed next year. WWE's Pay Per View buyrates, merchandise sales, and event gates have all decreased as well.

Simply put, Viacom bought a product in decline. They overspent by at first paying the WWF $28 million annually, an increase of $22.8 from what USA Networks was paying (Marvez, 2000), plus advertising revenues. That deal has since been re-negotiated to pay the WWE a lower base salary annually, while Spike TV receives more of a cut from advertisers. In addition, Viacom purchased $30 million or 3% share of WWE stock (Shareholder.com, 2005), which the WWE later bought back (same with NBC's $30 million investment). The Sunday Night Heat experiment on Mtv failed miserably and was soon moved to Spike TV. Spike TV's ratings, in general, only started to really shape up once CSI reruns brought stronger ratings on a daily basis and when the Ultimate Fighter started to pick up. Viacom shouldered some of the burden of the XFL massive losses, for they owned the soon-to-be-declining stock because of bad XFL news and hosted games on both UPN and TNN. Advertisers quickly pulled ads from XFL games or were given major discounts, thus undercutting any extra dollar to receive from XFL games. And speaking of advertisers, after 2000, WWE shows began to lose major sponsors due to political pressure from the Parents Television Council and a statistical study that viewers with low incomes watch WWE programming (bad news for sponsors).

With all of this being said, Viacom was indeed a victim of the Winner's Curse.

III. Ratings Analysis

*****NOTE: Bandwidth problems occurred last time for the graphs in the last economics column. If you cannot see the graphs, CLICK HERE. Sorry for the bandwidth inconvenience, if necessary.

Here is a graph of Monday Night RAW's ratings from September 1995 through September 2005 (Wrestling Information Archive, 2005):

As clearly indicated by red line on the graph, you can see that RAW's ratings have steadily declined since RAW first debuted on September 25th, 2000 on TNN (later becoming Spike TV). Before the red line, you can see that the WWE steadily increased and was well over 5.0 or 6.0 before Viacom acquired them. As I said above, the average rating of RAW since Viacom purchased the rights has been around a 4.1. Good by cable standards, but bad considering that the WWE has significantly lost audience members since 2000.

One could argue that USA might have had a spiked audience during the Monday Night Wars, as sampling error could have occurred in RAW's higher numbers (from fans flipping back and forth between RAW and Nitro... like me). However, I believe that's an insignificant point since WCW was in a major financial crisis by 2000 while the WWE was not.

To back up the Winner's Curse argument, you can already see that WWE RAW's ratings were already steadily declining from the peak positions of around Wrestlemania 16. In fact, the last time the WWE was above 6.0 was on August 21st, 2000, a full month before RAW was to debut on TNN. That is the very last time the WWE would be break that mark, for TNN would never see that type of success that it originally bought during the summer of 2000.

The general trend indicates that the WWE has went from a show that hit ratings from 6.0 to 7.0, to a show that now hits ratings from a 3.5 to a 4.0. What's worse is that the WWE is already taking a beating from Monday Night Football, just this week on September 12th, 2005. The WWE has run unopposed since January, yet still hovering in the 3.5-4.0 range. Given the lesser demand for WWE, as indicated by poor houseshow attendance, lower buyrates, and struggles to sell merchandise, I would suggest that the WWE's ratings on Spike TV will continue to dip further and further until jumping to USA Networks where they actually might decrease some more due to fan confusion of a switch.

IV. Other Factors

There are many, many factors as to why purchasing the WWE by Viacom was a terrible investment. In addition to declining ratings, are are a few...

  • The Parents Television Council. During late 1999, the WWE officially began to run WWE Smackdown on a regular basis on UPN, which is broadcast television. The Parents Television Council, also known as PTC, is a special interest censorship group run by Brent Bozell, the third, and they mainly watch shows on broadcast television (which explains why cable is so much more risque). WWE Smackdown was new and it ran for 2 hours on Thursday nights. It was immediately targeted by the PTC and Bozell as being the most offensive show on television. In addition to trashing the WWE on their webpage, they began to attack WWE sponsors. In late 1999, the PTC pressured one of the largest sponsors around, Coke, to pull ads from WWE television (Foley, 2001). Yes, a quick replacement ad was found, but Coke was a big international sponsor and it set precedent for other sponsors to also follow suit. The PTC attacks were aggressive and relentless. On their webpage, ParentsTV.org, they began to list WWE's sponsors and presented contact information for each sponsor. The PTC also attended shareholder meetings and expressed concern about sponsoring the WWE, which Mick Foley mentioned in his 2nd book about celebrity PTC member Steve Allen attending a MCI shareholder meeting and completely trashed the WWE.

    Through this entire hazing process by the PTC, the WWE lost the following sponsors: 1-800-CALL-ATT, 1-800-COLLECT, Mars candies, Burger King, Swanson, Taco Bell/KFC, ConAgra, US Armed Services, Wrigley gum, Ford, Dr. Pepper/7up, Coke, and Abbot laboratories (Magee, 2002). Those are big name sponsors and it forced the WWE to receive offers from smaller corporations. Today on the WWE, you mostly see video game ads or brands who aren't as large as the sponors you see that are lost. This method by the PTC cost the WWE a lot of advertising revenue, as well as costing Viacom a lot of advertising revenue. It caused Viacom to renegotiate their deal with the WWE where the WWE was now paid a flat fee for each show while Viacom reaped all benefits from advertising. The PTC was eventually sued by the WWE for their actions, but the damage was done.

    The whole PTC problem, however, began in 1999 and was well into high gear when Viacom began to make the WWE offers. They should have seen it coming.

  • A devastating demographic study. In addition to the PTC, a demographic study was done that was equally damaging. While I cannot find the specific study, I did find one source (here) that backs up something mentioned in the study. The study said that viewers of professional wrestling fall into the lowest income demographics of all viewers. According to the source I found, in 2002, UPN had the lowest median income from their viewers compared to networks like NBC, FOX, ABC, CBS, and even WB! With WB, UPN was several thousand dollars less in comparison to WB, despite UPN receiving higher viewership, on average, at that time (Downey, 2002). Just thinking in general terms, what's possibly the largest age bracket for the WWE? Probably 13 to 25 year old males. From 13-18, they are in grammar school. What would they most likely buy with their low incomes? Video games. From 18-25, you have mostly college students. What would they mostly buy with their low incomes? Video games! A major national sponsor is NOT going to give WWE programs consideration. Big name WWE advertisers saw the study, in addition to PTC pressures, and got the hell out. It thus lowered the bargaining position the WWE once had to receive sponsors for their shows, which thus meant lower advertising revenues for the WWE and Viacom.
  • Failed Recording Label. The WWE actually tried to have a legitimate record label somewhere between 2001-2003. However, it soon became costly and none of the acts signed panned out. Dropped like a bad habit.
  • WWE New York: where is that theme restaurant? Viacom helped the WWE set up a theme restaurant which no longer exists to this day. Bad service, lesser demand for overpay by being in a WWE themed restaurant, and the failure of Mtv Heat ultimately led to the doors being shut. Oh yeah, it's costly to pay rent around Time Square, especially when you can't get customers.
  • The XFL. By far, one of the biggest money pits of the Viacom deal. In April of 2001, the WWE reported only a $16 million profit from $456 million in total revenues after factoring in XFL losses (Assael/Mooneyham, 2002). The league only lasted one year and TNN, UPN, and NBC lost a lot on advertising revenues. They promised high ratings and sold advertisements based on high ratings. Once ratings started to heavily decline, the stations were forced to give discount rates on ads. Thus, lower advertising revenue to pay for the large operating costs of a start up league. With the XFL declining, the WWE stock took a major hit. Both Viacom and NBC took a $30 million stake, each, in the WWE stock. So when the value of the stock declines, they both instantly lost millions of dollars...
  • WWE's declining net worth. During 2000, Vince was considered a billionaire when he made his stock available. The stock's price has devalued considerably since 2000, failing to climb above the initial price of $16 or $17. In fact, the stock is lucky to be worth $14 and there was a long period of time where the WWE was stuck below $10. Vince McMahon is no longer a billionaire and the WWE is no longer as profitable as it once was.
  • Lack of Superstar Power. This one might hit home, but here in 2005, where are Steve Austin and the Rock? Where's Vince McMahon? You don't see them on televison any longer. Vince, Rock, and Austin were 3 pivotal characters from the WWE's booming period. Austin and Rock, especially, were major draws. However, over the years, their actual star power has declined. The WWE overpushed the Rock as a face through 2001 while Steve Austin and Steve Austin became so repetitive. Who have they been replaced with? Guys who aren't as popular. As much as I enjoy the likes of Kurt Angle, Eddie Guerrero, Chris Benoit, Chris Jericho, among others, they are NOT the Rock or Steve Austin in their prime. Brock Lesnar, though heavily pushed as a main eventer, wasn't drawing in fans no matter how fresh of a character he was. Triple H has proven to be just a cog in the 2000 system, for he hasn't drawn a dime since his quad injury return in 2002. New stars like John Cena, Batista, Carlito, among others are still growing and they must be given time to develop. However, they lack originality in a lot of aspects that Austin/Rock commanded. Austin and the Rock were getting legitimate offers from Hollywood during their time, whereas today's stars are in the WWE produced and likely straight-to-video movies. The Rock was such a big star that he's actually a legitimate Hollywood actor and drawing millions in the box office.
  • Failure in helping Spike TV boost its overall ratings. TNN actually had a big falling out when they changed their programming. Once they acquired RAW and ditched a lot of its country-style programming, longtime viewers of TNN left. Now, you basically had the WWE audience and that's it. USA Networks learned long ago that the WWE isn't a very good rub on other shows. Wrestling fans aren't exactly fans of various other kinds of wrestling programs. Sure, they can boost your ratings on a Monday Night, but that's it on the WWE. Many new shows have been advertised on TNN/Spike TV for a while now but with little success. Many shows have been placed after RAW at 11:00 pm but with little success. CSI reruns have actually been the savior of Spike TV, for like Law & Order on TNT, they are bringing strong nightly ratings. The Ultimate Fighter was possibly the first show created by Spike TV that's actually stuck with fans, but even in recent times, their ratings have declined based on the WWE rub. Now, the UFC events, that's a different story. Point being, Monday Night RAW isn't helping the Stripperellas of the world on Spike TV.
  • Low ratings for Weekend Shows. Mtv Heat was a major failure, insomuch that it was moved to Spike TV. The show failed to connect music fans, namely teenagers, to professional wrestling as they once did in the 1980's. On Spike, however, both Heat and Velocity have shown piss poor ratings. When the WWE does well, then demand to see the weekend shows increases. But the WWE isn't doing as well as it did in 2000 or even 2001 and 2002. They've declined. WWE Confidential was a huge bust and WWE Experience is failing as well. I can remember a time when weekend recap shows were the thing to catch back on the USA Network. Point being, ratings for those shows were up when the WWE was doing well.
  • WWE revenue declines. Notice how many wrestlers or office workers are getting cut? Usually when taking into consideration profits, you have Total Revenue minus Total Costs. Well, the total revenues have been down due to the WWE's decline in house show attendance, merchadise, lower advertising revenues, weaker buyrates, etc. To keep the profit margin large in the eyes of a shareholder, most corporations on the stock market cut their costs. What's the easiest cost to delete? Labor costs. The WWE has cut a lot of laborers, from wrestlers to office staff, from their budget. The fact is, the WWE didn't have to do this in 2000. Hell, they could have increased their roster, tenfold (which is what they did with a lot of developmental wrestlers under contract). Now, the WWE is stingy with the amount of wrestlers they currently have. In fact, there might be more cuts coming once Heat and Velocity are no longer with us. Point being, the WWE is no longer the big success it was in 2000.
  • Can't account for bad booking. Simply put, how could Spike TV account for the WWE putting on boring or stale storylines? How could they account for the WWE blowing the WCW Invasion angle in 2001? How could they account for the WWE putting a non-draw at the top for most of 2002-2005 in Triple H? Wrestlers were getting crazy over in 2000 and midcarders flourished. In 2005, the main event has struggled and midcarders aren't getting over. How can Viacom account for weak marketing of wrestlers by the WWE?
  • Decline in economic growth. I'm not sure how much this holds water against RAW's ratings, but during WWE's peak year in 2000, things began to go South for the overall economy. WWE introduced stock in 2000, yet the stock market in general was taking a big hit. WWE was relying heavily on internet advertisements, for they created many webpages in 2000. The dotcom bust disabled many webpages from making quick and easy cash from the internet. Advertising banners, for example, were no longer paying a lot like they use to. Then, prices of oil started to skyrocket during the summer of 2000 and most likely created a shock to the economy that might have led to the 2001 recession. 9/11 happened just before the recession ended. I'm not sure how a cooled down economy would disable someone from watching wrestling on basic cable, but I'm sure someone could argue that during tougher times, less Pay Per Views, merchandise, and WWE event tickets were purchased, as well as anything advertised on WWE television?
  • Quite possibly the biggest one...

  • Decline in the trend of wrestling. Wrestling tends to go in cycles. What usually happens is that fans, more or less, grow up. That's not an insult to the fans, for it's the truth. Think of the kids, for example. As young wrestling fans, they'll buy all of the video games, toys, and other merchandise purposely marketed to children. When they grow up, being a wrestling fan might no longer be "hip". If you're in college and a big wrestling fan, you could tend to watch all of the shows with your buddies in school. But what about AFTER college? The biggest WWE demographic is 18-25, so there might be a drop off. Wrestling lives or dies on creating new fans and keeping them watching for at least 5 years. In 1998, the WWE created all kinds of new fans with DX, Steve Austin vs. Vince McMahon, the Rock, and a nice cast of new, colorful characters. Here in 2005, ratings and other measures shows that a lot of that audience has evaporated. Same thing with the late 1980's and Hulk Hogan. Kids bought up Hulkamania, but as they grew older, they began to grow tired of it. Hogan was losing his strong face reaction back in the early 1990's and he was gone from the WWE by 1993. The fans, in a sense, grew up and moved on.
  • V. Concluding Remarks

    Viacom did indeed outbid USA Networks for a product that was in decline. The WWE peaked in 2000. By that year, however, WCW was about to suffer embarrassing lows that would lead to the destruction of WCW in 2001. The lack of a strong WCW weakened the fan base, as it was nice to have competition to change to every so often. It's hard to predict a trend in wrestling, but the noticeable ratings decline before RAW debuted on TNN.

    They should have instantly noticed how advertising revenues were starting to drop, despite high ratings. They should have seen the political clouds surrounding the WWE in the form of the PTC.

    The XFL was a total bust and money pit, and Viacom should have saw that from the beginning. Learn from history before being condemned to repeat it. No rival football league has ever worked. The USFL had the same ideas that the XFL had, but it too ultimately failed. Football season is from September until January, not February through Spring. That stigma can never be changed! The WWE's handling of the games was very embarrassing and somewhat helped to contribute to the WWE woes of running a rival football league. Viacom suffered humiliation on two of its networks from this league as well as financial hits from stock and advertising revenue declines.

    Hindsight is 20/20, for Viacom would possibly have troubles determining if the WWE could ultimately boost Spike TV. However, the signs were there that the almighty and powerful WWE was declining after peaking around Wrestlemania time in 2000. It's a chance Viacom took to help strengthen TNN/Spike TV, but it's a failure considering that RAW has never helped Spike TV, outside of just Monday nights. Original programming, good rerun purchases, and schedules that appeal to a more broader audience will determine the success of a network. Having wrestling on your network just appeals to wrestling fans and history has shown that they don't stick around for other forms of programming.

    VI. References

    Assael, S.; Mooneyham, M. (2002). Sex, Lies, and Headlocks: The Real Story of Vince McMahon and the World Wrestling Federation. New York, NY: Crown Publishing.

    Downey, K. (2002). A Flusher CBS, Thanks to Thursdays. Retrieved September 14th, 2005, http://users5.cgiforme.com/awnews/messages/435.html.

    Marvez, A. (2000). "'RAW is WAR' Gives TNN Much Needed Ratings Boost". South Florida Sun-Sentinel.. Retrieved September 14th, 2005, http://www.detnews.com/2000/moresports/0010/04/sports-127273.htm.

    McEachern, W. A. (1997). Economics: A Contemporary Introduction (4th edition). Cincinnati, OH: South-Western College Publishing.

    ShareHolder.com (2000). Viacom Invests $30 Million in World Wrestling Federation Entertainment, Inc.. Retrieved September 14th, 2005, http://www.shareholder.com/wwe/ReleaseDetail.cfm?ReleaseID=47556.

    Wrestling Information Database (2001-2005). RAW is WAR Ratings History. Retrieved September 14th, 2005, http://www.100megsfree4.com/wiawrestling/pages/wwf/wwfraw.htm.

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