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.
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...
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.
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.
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.
Quite possibly the biggest one...
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.
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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