Implications Of Brexit On WWE

With the business world reeling from the United Kingdom European Union membership referendum (colloquially known as Brexit), one wonders what the ramifications are for World Wrestling Entertainment (WWE).

The United Kingdom is WWE's largest international market and represents nearly 45% of the company's non-North American revenue. In 2015, revenue generated in the UK skyrocketed (up 87% year-over-year) to $75,653,000 compared to $40,501,000 in 2014 and $36,003,000 in 2013. The catalyst for this jump in revenue was the start of a new lucrative five-year television rights contract with BSkyB which was signed in January 2014 and went into effect in Q1 2015. At the time, the Hollywood Reporter wrote that the new deal was believed to be "about three times that of the previous five-year agreement."

U.K. Television Rights

Contrary to comments from Needham & Company analyst Laura Martin, WWE has confirmed to WrestlingInc that the BSkyB deal was written in US Dollars and not Pound Sterling. Therefore, GBP currency devaluation should not affect the value of WWE's U.K. Television Rights deals.

This is consistent with the information made publicly available from a WWE lawsuit settled earlier this year (World Wrestling Entertainment, Inc v. CTH Content Company Limited et al). Last year, WWE sued their Thailand television distributor (Cable Thai Holdings) over failing to make any of the payments on the invoices sent by WWE or obtaining the Bank Guarantee that was required by the License Agreement. WWE was awarded default judgment in the case for $23.4 million in March 2016.

The CTH/WWE lawsuit was notably since the Thailand television rights deal for WWE was reported to be "seven times higher than WWE's previous deal in the Asian country". Also, this was one of the many analysts had cited during the stock price escalation prior to WWE announcing their new domestic television rights contract with NBC Universal and subsequent share price drop.

One exhibit in the WWE/CTH lawsuit was a copy of the CTH International Television Rights License Agreement from November 2013. In Section A(1) of the "Terms of Payment" in the "Provision on Payment" section (page 15), it clearly states that "All payments made to WWE pursuant to this Agreement shall be made in US Dollars." Presumably, the U.K. television rights contract with BSkyB has similar language in that agreement.

WWE Network subscribers in the United Kingdom

For the first quarter of 2016, the WWE Network averaged 1,289,000 paid subscribers split into 985,000 domestic paid subscribers and 304,000 international subscribers. While WWE does not break out subscribers by country, it is believed that the United Kingdom consists of the largest international base of WWE Network subscribers. On the first anniversary of the WWE Network, WWE sent out a colorful infographic. This press release listed the United Kingdom as #2 in the Top 10 Countries for the WWE Network subscribers behind only the United States. This was just weeks after the January 4, 2015 launch of the WWE Network. While some other important market have come online in the meanwhile (India, Germany, Japan), it's still believed the U.K. is likely the largest international marketplace for the WWE Network.

The pricing for the WWE Network in the United Kingdom is unique. While most markets around the world that offer the over-the-top WWE Network charge $9.99 (USD), the pricing in the U.K. is at premium of £9.99 for the U.K. and ?12.99 for Ireland. It is possible that a recession in the United Kingdom could result in a loss of U.K. subscribers. Likewise, the evolution of tax policies in the U.K. (including VAT) remain unclear.

WWE's future in the United Kingdom

WWE has confirmed to Wrestling Inc. they will be further addressing implications of "Brexit" at their next conference call. That call is expected to be held either in late July or early August and will cover the Q2 2016 results for WWE. When asked whether the political turmoil in the United Kingdom will have any impact on live events in the United Kingdom, the company said that it would have no impact.

The largest international television rights contracts for the WWE are believed to be the United Kingdom, India and Canada. During the 2015 year-end remarks, WWE Chief Strategy and Financial Officer George Barrios credited the "addition of an NXT tour in the U.K." as part of growing the company's international live events business.

Growing international business is a top 2016 priority of WWE and it will be interesting to see how the recent "Brexit" decision adds to this changing landscape. Recently, the president of WWE International, Gerrit Meier, left the company. General managers of respective regions, including UK General Manager Tracy Keenan report up through Ed Wells, WWE Executive Vice President of International.

Certainly, regardless of what the future holds, the UK market is a well-established and key component of WWE's business strategy.