World Wrestling Entertainment, Inc. Class A

Hello and welcome to the webcast entitled WWE Fourth Quarter 2020 Earnings Conference. We have just a few announcements before we begin. First, please use the question mark icon in the upper right hand corner of your web console for technical assistance. The option to enlarge slides is located to the right on your slides with the four arrows pointing in different directions. If you are listening through a phone line, you may ask a question verbally by pressing star then 1 on your touchtone phone. If you wish to be removed from the queue, please press star 2. I will now turn the call over to Michael Weitz, Senior Vice President of Financial Planning and Investor Relations. Please go ahead, Michael.

Thank you, and good morning, everyone. Welcome to WWE's fourth quarter. It might be in the afternoon.

I'm not sure.

Good evening. Welcome to our fourth quarter earnings conference call. Leading today's discussion are Vince McMahon, WWE's chairman and CEO. Nick Kahn, WWE's president and chief revenue officer.

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Stephanie McMahon, WWE's Chief Brand Officer, and Christina Salen, WWE's Chief Financial Officer. Their remarks will be followed by a Q&A session. We issued our fourth quarter earnings release earlier this afternoon and have posted the release, our earnings presentation, and other supporting materials on our website. This session will include forward-looking statements. These forward-looking statements reflect our current views. are based on various assumptions and are subject to risks and uncertainties disclosed in our SEC filings. Actual results may differ materially and undue reliance should not be placed on them. Additionally, the matters we will be discussing today may include non-GAAP financial measures, reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation, which are available on our website, that all comparisons are versus the year-ago quarter unless otherwise described. Finally, as a reminder, today's conference call is being recorded and the replay will be available on our website later this evening. At this time, it is my privilege to turn the call over to Vince.

Thanks, Michael. As you can see, we generated some pretty strong financial results in a very challenging environment. We continue to produce content. We never missed a week in terms of producing content. It shows the flexibility. and our commitment to our audience, which we will always have. We transitioned our flagship programs to our training facility, and then, of course, to the Amway Center, and then continued on to something we call the Thunderdome, which is a great name. In any event, most of you have seen it. There's nothing like it on television. It allows us to have live fans. They're just not in seats. They're on screens. And some of the other things I want to mention, certainly we are multi-year agreement with NBC News on the Peacock service. To my knowledge, I don't think there's any really big deal that's been announced ever since the COVID stuff began. So I really think that's pretty extraordinary on their part and definitely on our part as well. And again, this agreement is really awesome for our WWE fans, for our WWE universe, as we call it. It just gives them more value, not just for WWE at $9.99, which is a great value for what we do. But then again, for less money, they pick up our network as well as all sorts of entertainment. So it's great for our fans. on this development. Looking ahead to 2021, how we expect to continue to manage the challenges of the COVID environment, and it continues on. We no doubt will expect a gradual return to ticketed audiences, and that is something that, you know, sure, you know, okay, we're gonna have live events, but live events make any money, can you get 20% capacity, 30%, 50%, where is it that you break even? And so that's to be determined by anyone who's in the live event business. And I don't think anyone has a handle on exactly when that's going to happen. Nonetheless, we are ready. We are the most flexible, adaptable media company in the world. We can turn something around as far as a live event in six weeks. And it just speaks to our ability to innovate. as a media company, and continue to, in this current environment, to create long-term value. So that's generally pretty much where we are, and Nick, take it away.

Thank you very much Vince, and thank you everyone for calling in today. A week and a half ago, we made what we believe was a big announcement regarding WWE and Peacock. Starting on March 18th, the entire WWE Network and its content will shift to Peacock in the United States. This includes WrestleMania, our vast library, and all of our pay-per-view events, starting with Fastlane on March 21. As part of this partnership, WWE will maintain access to valuable audience data. As we all know, Peacock is free to Comcast Xfinity and Cox Cable customers. So watching Fastlane and subsequently WrestleMania on April 10th and 11th will be free to all of those consumers. Additionally, WWE Network will be available for $4.99 a month on the ad-supported Peacock tier, which is half the price that Vince just mentioned of $9.99 a month, the price we have been charging for WWE Network in the United States. There will continue to be no upcharge of any kind for any of our events.

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The $4.99 price is the all-in price for our great library and pay-per-view in-ring action. In addition to The Office, Saturday Night Live, Modern Family, the Dick Wolf franchises, the English Premier League, and the Olympic Games. I believe the last time we all spoke in October, we collectively discussed how the recent org structure changes at NBCU and Disney were indicative of the fact that streaming had become a top priority for both companies. Many months in advance of those org structure changes, we started to engage in deep conversations with multiple buyers in the marketplace about a potential deal. Ultimately, we felt like the partnership with Peacock was the right move at the right time for our fans and shareholders. It was Vince McMahon and WWE who were the first movers from closed circuit to pay-per-view. It was Vince and WWE that were the first movers out of pay-per-view and into the SVOD world in 2014. And WWE is now again the first mover from a standalone SVOD to partnering with a media conglomerate that has tremendous assets, reach, and promotional power. With the Peacock deal closed domestically, our focus now shifts to international markets. In addition to distributing our great domestic content internationally, our focus is to also develop content that is specifically targeted to fans in certain international territories. Two examples of this I'd like to discuss here today. First is India. We recently produced a two hour in-ring special with our partner in India, Sony, which featured our developing Indian superstars. The event, which premiered across Sony's platforms on India's Republic Day, was available on Sony 10.1, Sony 10.3, and Sony MAX, which have a combined reach of 50 million households, as well as on Sony's streaming platform, SonyLIV. The event took place at the WWE Thunderdome to an all-Indian virtual audience. It was announced in Hindi and English, and incorporated stunning and contemporary elements of Indian culture. The international music sensation known as Spinning Canvas executed an amazing performance in honor of India's national holiday. We saw record engagement on digital and social content around the event and learned just before this call that the event was viewed live by over 20 million people on the Sony platforms I just mentioned. That's five times greater than our average weekly ratings for Raw and SmackDown in India, which are both already considered highly rated shows. We await the Live Plus 7 numbers, which will obviously substantially add to the total viewership number. We believe this event will further grow our product in India, which is already a robust WWE market, and demonstrates our commitment to our partner Sony and our WWE fans in India. This event is a credit to Vince, Paul Levesque, otherwise known as Triple H, and the entire creative and production team who put together this event during a pandemic, while also producing three to four other live in-ring shows a week. You can look forward to more from us in India along these lines. The second area of our international focus is Latin America and localizing content tailored towards that region. A key part of our strategy is bringing in authentic talent who resonate with particular international markets. You may have seen or read that on the Royal Rumble pay-per-view this past Sunday, Puerto Rican superstar Bad Bunny performed his new hit single, Booker T, which is based on our WWE Hall of Fame superstar of the same name. An internationally acclaimed recording artist, Bad Bunny's songs were streamed on Spotify more than 8.3 billion times in 2020, helping to make him the most streamed artist in the world that year. Then lo and behold, at the instigation of one of WWE's up and coming Puerto Rican stars, Damian Priest, Bunny got physically involved later in the night, setting the stage for future storylines. As of this past Wednesday, this collaboration has led to over 35 million total video views and 2.5 million engagements across YouTube, Facebook, Twitter, and Instagram. Total media impressions to date are nearly 170 million, and it was reported on by the top sports and entertainment properties ranging from ESPN to Rolling Stone to Telemundo to TMZ. And within 24 hours, the co-branded Bad Bunny WWE merchandise became the hottest selling drop we've had on record on our e-commerce platform, WWE Shop. An idea which was born simply from seeing the cover of the New York Times Sunday Magazine last October has evolved into one of the most engaging pop culture collaborations in our history with a targeted focus on the Latinx community. Look for more of this in the LatAm region. In addition to our work in India and LATAM, we also closed new international deals with IB Media in Korea and Foxtel in Australia. And in China, we expanded our broadcast footprint, which already included Ichie, Yoku, and PP Sports by launching raw on Tencent video.

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Let's also discuss some out-of-the-ring opportunities and deals we are excited about as we continue to expand WWE's brand beyond the ring. In terms of original programming from our WWE studio, we continue to develop our slate. As you may know, WWE used to finance productions. We stopped doing that a few years ago. Instead, we're licensing content, both scripted and unscripted, to buyers in the marketplace. We are pleased at how quickly our portfolio has continued to grow. A few new developments include a multi-episode unscripted series order created by and voiced by John Cena, which will be produced with WWE Studios. Additionally, we have closed the deal for WWE Studios to join the NBC show Young Rock, a longtime, longtime WWE family member Dwayne Johnson, and my actual family member, my sister, Menachka Khan. The show premieres on Tuesday, February 16th on NBC. And finally, as you may be aware, we send championship title belts to many of the major sports league teams who have won championships. And in some cases, our title belts are more popular than their own trophy. You may have seen LeBron James hold up a WWE championship title belt after winning the NBA title. The Golden State Warriors have done the same, as well as the Los Angeles Dodgers and many other teams. This led us to close a deal with a major sports league where you will be seeing WWE championship title belts that will be made using the team logos of some of the most prominent pro sports franchises. It's a real testament to the power of our brand. At this point, I'd like to turn it over to my colleague and friend, Stephanie McMahon.

Thanks, Nick. One of the lessons Vince always taught me in business was to always be slightly ahead of the curve. Not so far ahead that people don't understand what you're doing, and certainly not behind. WWE was ahead of the curve with the advent of pay-per-view, bringing WrestleMania directly into people's homes. Social media allowed one-to-one connection between our superstars and our fans. And when consumers started migrating to what was then a new short form platform called YouTube, WWE became one of YouTube's original paid content partners. When research showed our audience was five times more likely to consume online video, we cannibalized our pay-per-view business and launched the first live SVOD service of its kind, WWE Network. And now, we're ahead of the curve again, licensing WWE Network, our most premium content, to one of America's premier streaming services, NBCU's Peacock. But why now? Because the landscape has changed, COVID-19 and quarantine accelerated a behavioral viewership shift to streaming platforms. Streaming behemoths are investing heavily in technology and infrastructure in order to scale, with operational efficiencies creating more flexible pricing options. And the biggest thing all of these providers have in common is the need for branded content. In order to be competitive, we need to pivot away from the technology necessary for an optimum user experience and allocate our resources against what we do best, content creation, production, and storytelling. And we get to do it with a trusted partner we have had for over 30 years, NBCU. Partnering with NBCU's Peacock not only provides a greater value proposition for our current subscribers, It also allows us to deliver our most premium content to a significantly larger audience, including the 33 million people who have already signed up for the service. Additionally, this partnership gives greater access to NBCU's best in class teams across sales, marketing, and promotion, as well as some of the most iconic franchises in the United States and around the world. Just imagine, with NBCU and Peacock, Every three years is a Super Bowl, every two years is the Olympics, and every year is WrestleMania. We believe more than ever in the power of our brand. In 2020, WWE's television viewership held steady once we transitioned out of the Performance Center and invested in WWE Thunderdome. In fact, over the period from August 21 through year end, which covers our move to the Amway Center and subsequently to Tropicana Field, raw viewership is essentially unchanged, and SmackDown viewership has increased 8% compared to the prior three-month period. During the fourth quarter, digital views increased an estimated 25%, and hours consumed increased 44%, excluding the impact of geographical restrictions in India. In 2020 as a whole, we saw a record 38 billion views and 1.4 billion hours consumed across our AVOD platforms, both representing a 10% increase year-over-year and an 11% increase in revenue. In order to reach new audiences, we maintained our pop culture strategy, bringing celebrities and influencers into our programming and casting WWE superstars outside of our content. In the quarter, Matthew McConaughey's appearance in the Thunderdome and in other WWE content generated five million impressions. In fact, Jimmy Kimmel used the footage from the Thunderdome in an interview with Matthew just this week. The biggest opportunity outside of WWE programming was, bar none, SmackDown Women's Champion Sasha Banks appearing as a recurring character in season two of Disney's Mandalorian. And as Nick already highlighted, this past week, multi-platinum artist and award-winning singer-songwriter Bad Bunny not only performed at the Royal Rumble, he got physically involved diving off the top rope and then showed up again on Monday Night Raw the next night driving a Bugatti. I think it was the first time I've ever seen a Bugatti on Raw. Bad Bunny, one of the most recognized Latinx performers of our generation, said being a WWE superstar has always been his dream. As a final measure of our brand strength, our advertising and sales revenue outpaced industry trends throughout the year. The quarter was highlighted by an increase in gaming partner activations, including Wargaming, World of Tanks, Cyberpunk 2077, 2K Battlegrounds, and Microsoft Gears. Additionally, we signed a multi-year partnership with our first banking partner, Credit One, as well as our first official beer partnership with Constellation Brands, focusing on Victoria, Corona, and Modelo. In fact, if you were watching the Royal Rumble on Sunday night, you would have seen WWE superstar Rey Mysterio, a Lucha legend, wearing the Victoria brand on his mask. Ray also posted to his 3.6 million followers on Instagram in Spanish about how proud he was to partner with a brand as authentic to the Latino fan base as Victoria. Forbes, Complex, and Sports Illustrated were just a few of the outlets that highlighted this integration. And 2021 is already off to a promising start, kicking off a multi-year partnership with Cricket Wireless as the presenting sponsor of the Royal Rumble, a custom content series with first-time partner GM for the rollout of their Silverado campaign, and the announcement of Mars Snickers as the returning sponsor of WrestleMania for the sixth consecutive year. WWE is the perfect partner as more and more brands look to engage consumers with customized content creation and authentic influencers. When you couple that with our over 1 billion followers across digital and social platforms, as well as our broadcast, cable, and streaming partners, Fox USA and Peacock in the States, WWE is poised now more than ever to deliver scale, engagement, and reach. And now, I'll turn the call over to our Chief Financial Officer, Christina Salem.

Thanks, Stephanie, and hello to WWE shareholders. Today, I'll review WWE's financial performance, liquidity and capital structure, and business outlook. As a reminder, all comparisons are versus the year-ago quarter, unless I say otherwise. For the year, WWE achieved record revenue and record profits. WWE's adjusted OIVDA of $286.2 million was at the high end of our rescinded guidance and reflected nearly a 60% increase of more than $100 million. This growth was driven primarily by higher rights fees from WWE's U.S. distribution agreements. Throughout 2020, WWE managed a challenging environment, particularly for producers of live content. We estimate that WWE lost more than $90 million in revenue as a result of COVID-19 restrictions, primarily from the loss of ticket sales and the postponement of large-scale international events. WWE never went off the air. As shown on page three of the presentation, we implemented short-term cost reductions and realized other cost savings that substantially offset these revenue losses. This was a remarkable achievement. but it does foreshadow a tough comparison for 2021. In the fourth quarter, the absence of a large-scale international event contributed to a 50% or a $56.4 million reduction in fourth quarter adjusted EBITDA, which also reflected lower advertising revenue and higher TV production costs. To review the fourth quarter performance in more detail, let's turn to page five of the presentation, which shows revenue, operating income, and adjusted libido contribution by segment. Looking at the WWE media segment, adjusted OIVDA decreased 37%, or approximately $44 million, to $73 million, primarily due to the aforementioned event loss and, to a lesser extent, decreased advertising sales and higher production costs. On December 11th, we transitioned the WWE Thunderdome, our state-of-the-art environment for producing Raw and SmackDown, to a temporary residency at Tropicana Field in St. Petersburg, Florida. In that stadium setting, we bring nearly 1,000 live virtual fans back to our show and surround them with pyrotechnics, laser displays, augmented reality, and drone cameras. This staging increases production costs by approximately 25% per episode. We expect this investment to continue through at least the first half of 2021 as it brings a high level of excitement to our programs and, most importantly, brings our fans back into the show. Despite a challenging environment, WWE continued to produce a significant amount of content. More than 700 hours of programming in the quarter and more than 2,300 hours for the year. across television, streaming, and social and digital platforms. As we prepare to transition the WWE Network to Peacock, we continue to capitalize on the growth in digital consumption, promoting content sampling and subscription with the free version of WWE Network. Since the pandemic began, WWE subscriptions and consumption have been up meaningfully. In the fourth quarter, 2.2 million total viewers watched content across all tiers, representing a 40% increase, and those viewers watched 35 million hours of content, which was 14% higher. Perhaps most importantly, average paid subscribers to the network increased 6% to 1.5 million. Now let's turn to WWE's live event business on page seven of the presentation. Adjusted EBITDA from live events declined by $4.9 million to a loss of $6.7 million due to a $26.7 million decline in live event revenue.

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These declines were due to the loss of ticket revenue resulting from the cancellation of events. Until mid-March, WWE held arena and stadium-based events in front of ticketed audiences. During the fourth quarter, however, WWE held no ticketed events. We are delighted to have announced the return of WrestleMania to Tampa Bay on Saturday, April 10th and Sunday, April 11th, 2021 at Raymond James Stadium with ticket availability and safety protocols forthcoming. However, it remains challenging to predict the pace at which we will return to a weekly live event schedule. We do not anticipate the staging of other ticketed events until at least the second half of 2021. Looking at WWE's consumer product segment on page eight of the presentation, adjusted libido decreased $3.2 million to $9.1 million, primarily due to lower video game sales and the absence of venue merchandise sales. The drop in video game sales was anticipated as WWE and Take-Two had previously determined to delay the release of WWE's franchise game until 2021. WWE continued to introduce new products, expand its video game portfolio, and develop partnerships across product categories. For example, during the quarter, WWE continued to build out its video game portfolio, launching WWE Undefeated and WWE Racing Showdown in partnership with Enway and Jet Synthesis, respectively. As of year end, WWE had 140 million installs across its game portfolio. Demonstrating our commitment to product innovation, WWE released 2,000 new products on its e-commerce platform, including 18 new championship title belts, which generated category growth of more than 100% for the year. Now let's turn to WWE's overall cash generation, as shown on page nine of the presentation. In 2020, WWE generated approximately $292 million in free cash flow, an increase of $240 million. The increase was driven by improved working capital, the timing of collections associated with large-scale international events, stronger operating performance, and to a lesser extent, lower capital expenditures. As of December 31st, 2020, WWE held $593 million in cash and short-term investments. This included $100 million borrowed under WWE's revolving credit facility, which was repaid just in January 2021. And finally, a word on WWE's business outlook. Last week, WWE issued guidance for 2021 adjusted OIBDA. As previously indicated, WWE expects restrictions related to the spread of COVID-19, particularly related to ticketed live events, to continue at least through the first half of 2021. Additionally, we anticipate a significant year-over-year increase in expense due to continued higher TV production expenses at WWE Thunderdome, as well as the return of employees from furlough. We estimate that WWE can achieve 2021 adjusted EBITDA of 270 to 305 million, as revenue growth, driven by the Peacock transaction, the gradual ramp-up of ticketed live events, including large-scale international events, and the escalation of core content rights fees, is offset by the increase in production and personnel expenses in our view the stated 2021 adjusted libido guidance range would be approximately 15 to 20 percent higher without the ongoing impact of COVID-19 which includes the loss of ticket and merchandise sales at live events and the increased investment in production to further fan engagement Turning to WWE's capital expenditures, in early 2020, we deferred spending on the company's new headquarters. Given increasing visibility regarding WWE's projected performance and liquidity, we are planning to restart this project in the second half of 2021. For 2021, we estimate total capital expenditures of $65 to $85 million. including funds to begin construction, as well as funds to enhance WWE's technology infrastructure. We are in the process of reevaluating the headquarters project, and we will provide further guidance on future capital expenditures when that work is completed. For the first quarter of 2021, we estimate adjusted EBITDA will decline as incremental profits from PCOC and higher content rights fees are more than offset by the absence of ticketed events, including a large-scale international event, and increased production costs. The timing and rate of returning ticketed audiences to WWE's live events remain subject to significant uncertainty, and as such, we are not reinstating more specific quarterly guidance at this time.

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All G. And finally, I'd like to take a moment and talk about WWE's financial outlook in a post-COVID world, whenever that may be. As analysts and investors will likely use the ex-COVID range of 2021 adjusted OEBIDA guidance to estimate future performance, I would note that 2022 and future years will be impacted by a variety of factors. Certainly, the contractual escalation of WWE's core content rights fees will continue to be an important source of growth. However, other factors may temper that growth. Based on the accounting treatment of PCOC revenue, for example, we expect the highest incremental impact of the PCOC transaction to be booked in 2021. Another key factor to note in the WWE post-COVID business model is that while TV production costs may decline somewhat in 2022 relative to 2021, Costs will likely remain higher than in 2019. This is due to the shift in 2020 to a Monday-Friday production schedule compared to a Monday-Tuesday schedule previously. Incremental costs related to this change were masked in 2020 by residency in various locations, particularly in WWE's own Performance Center in the early months of COVID. WWE continues to adapt its business to the changing environment. As Vince, Nick, and Stephanie indicated, we believe WWE can and will continue to innovate across all business lines as we execute our strategic objectives. We look forward to sharing progress on these initiatives with you all in the future. And that concludes our prepared remarks, and I'll turn it back to Michael for Q&A.

Thank you, Christina. Corinna, we're ready now. Please open the lines for questions.

Thank you. As a reminder, that's star 1 if you'd like to ask a question. We'll go ahead and take our first question from David Joyce with Barclays. Please go ahead.

Thank you very much. If you could please provide some more color on the cost side of the equation for the PCOC and WWE Network deal. We can think about the phasing of cost savings and what kind of areas those will come in. And also, if you could talk about sort of the one-time migration expenses and how that feeds into your guidance this year. Thank you.

Sure, David. It's Christina. Thank you for your question. I think from the perspective of migration costs, most of that will be in the first quarter. So it's embedded in our guidance for both the first quarter and for the full year of 2021. And as are any potential savings from a technology perspective. But I would caution you from a technology perspective in that I did highlight in my remarks potential capital expenditures around technology infrastructure. At least some of the technology savings will be offset by investments in systems that are long overdue. But it is all embedded in the 2021 guidance that we've provided.

All right. Thank you very much.

You're welcome.

We'll go ahead and take our next question from Brandon Long with LightShed Partners. Please go ahead.

Hello. Thanks for taking the question. Was also hoping you could help us better understand the financial impact of the Peacock deal. And I'm thinking more on the revenue side. Are there any potential revenue offsets there against the licensing deal besides obviously subscriber revenue going away and then maybe one related for Stephanie wanted to think about your sponsorship opportunity following the deal as I assume you're giving network inventory to NBCU what sponsorship what's your sponsorship going to look like in the wake of this deal particularly around the large pay-per-view events And how is their sales force going to help you with your other sponsorship ambitions?

We'll work backwards. I'll start with that last question, Brandon, and thank you for the question. We can't really comment on specific deal terms, but Comcast NBCU is an industry leader, particularly in the sales and sponsorship space. And as we mentioned in the comments never before have we been positioned alongside properties like, you know, the Olympics and Sunday night football, et cetera. So we're looking forward to amplifying our current partnership and certainly working with NBCU and Peacock.

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And Brandon, it's Christina. Just to answer your question about the incremental revenue opportunity, I think is ultimately what you were asking about. It is embedded in our guidance. We're thinking about it from an incremental perspective. And you're correct. The offset would be the loss of subscription revenue related to the network.

Okay, and no other offsets besides that. Okay. And then the other question I wanted to ask was about content flexibility, given your broader relationship with NBCU. Is there the ability to perhaps move some higher profile content off of the pay-per-views and into raw to help kind of bring raw ratings back to growth?

I can answer that, Brandon. This is Nick. Thank you for that part of the question. We're always looking for ratings growth no matter how high the ratings are. It's all about exceeding NBC's expectations. So there is flexibility. If the two entities came together and decided to put certain content onto a linear platform, we have the ability to do that. Obviously, both parties, again, would have to agree to that. For now, we're focused on helping Peacock grow their subscriber base, and we're confident that we can do it.

Thank you.

We'll take our next question from Laura Martin with Needham & Company.

Hi, Deb. Maybe one for Vince first. If we just sold the 1 million sub-business in the U.S., which helped cover the overhead cost of the networks, Why is it that running 50 different countries for 400,000 subs is a good business idea versus doing what you did in Canada, which is just selling the rights to Rogers or syndicating out the rights? How do you think about those two P&L options offshore for the network?

This is Nick. I can assist in answering that. Thank you.

I tried to articulate some of our international plan. We have robust thoughts on WWE Network internationally as we did 12 to 24 months ago domestically. So again, we're always looking at our existing partners in terms of growing our viewership, growing our audience, and that's gonna be one of our many focuses moving forward as it already is.

Okay, and then my other one's for Christina. You said here that EBITDA would have been 15% to 20% higher if you'd been able to have live events and merch. But I thought one of the great learnings of going into lockdown was that EBITDA margins exploded once you didn't have live because live sort of breaks even. And it's great for revenue management, but it actually isn't very profitable. So could you just walk us through, like, The longer the lockdown stays, the more EBITDA seems like you have, not the other way around. What am I getting wrong in that equation?

Hi, Laura. Thanks for your question. I think ultimately it's looking at the TV production expense. So we're spending incrementally to increase our fan engagement and keep the excitement and energy around shows that normally would be live and have ticketed audiences against them. So there's not incremental revenue associated with the incremental spending that we're doing in the production of Raw and SmackDown in Tropicana field right now. So the degree to which we're able to start bringing fans physically back into arenas and stadiums and getting them to buy tickets, buy merchandise, will have a higher incremental margin than just spending money with no revenue against it at all.

People are helpful. Thank you very much.

You're welcome. We'll take our next question from Curry Baker with Guggenheim. Please go ahead.

Thanks for the question. I think my first one's for Nick. Can you maybe walk us through the key revenue opportunities from here now that the network deal's done and most all the key TV rights agreements are done, save MENA? And I think in particular, maybe what the opportunity is for sponsorship, the TAM there, just given that it's an area that WWE's historically under-monetized then relative to other sports leagues.

Thanks, Kerry. A couple things there. Our international plan, as I mentioned a few moments ago, is really just getting started. We're confident where we are internationally. We're also confident that there's a lot of room for growth. So we're looking at new revenue opportunities there. In terms of the sales and sponsorship element, as you may know, Stephanie took that over about six months or so ago. We've already seen a strong uptick in the results of that. We think with the NBCU partnership across it with WWE, you're going to see more of that. So we're confident in those revenue opportunities. In terms of the scripted and unscripted television opportunities that I mentioned in the prepared remarks, we're just getting started and are excited about a number of items in that arena. The championship title belt thing that I mentioned to you, that's just with one of the major sports leagues. So obviously we're going to look to replicate that. Those sell at a decent price point and are a good source of revenue for the company now. And we believe something that can grow substantially in the future.

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Okay, thanks. And then my last one is for whoever wants to take it. I mean, one question I get the most from investors is, you know, how will you guys reverse ratings trends? Aside from bands coming back hopefully later this year, which should help boost ratings. What else is the company doing to enhance the product and drive viewers back to Raw and SmackDown?

So a couple things. This is Nick again. We don't believe that we've lost eyeballs. We believe eyeballs tend to shift from linear to digital platforms. So if you look at even our Facebook numbers, which are significantly up the last six months or so, including the revenue against those numbers, we think the eyeballs are there. Like I said, we're always looking to grow ratings. So now that we're coming out of a competitive presidential race that a lot of people were focused on, We're still all in the midst of a virus that a lot of people are focused on. We believe with a continued great in-ring product that the eyeballs are continuing to grow and will result in more linear eyeballs as some of the other stuff that I just mentioned passes. So we feel good about our position and we think our network partners do as well.

Okay. Thanks for the questions.

We'll take our next question from Ben Swinburne with Morgan Stanley.

Hi, good afternoon. Two questions. Maybe for Nick, it's interesting this Peacock deal you mentioned or maybe Stephanie mentioned that you were the company or WWE was the company that started this whole direct-to-consumer trend many years ago, and now all these companies are pouring into that space. um, I'm wondering if you think you're going to see the rest of the industry sort of move in the direction you've moved in, um, sort of, you know, offloading the rights in a broader platform. And also, are you giving anything up in this? I mean, a direct to consumer and having relationships with your fans, obviously strategically important. I think you mentioned that you guys are retaining data. So I'd love to hear more about that and how you think about, um, maintaining those relationships in this new model. And then, um, I don't want to let Christina down, so I'll ask her an accounting question. Can you tell us anything about how the mechanics of this deal is going to work on the P&L over time? I'm just wondering, particularly on the pay-per-views, whether there's going to be volatility we should be aware of or anything you can help us with. Thank you both.

Thank you, Ben. I think there were like eight compound questions baked into that. Very well done by you. Let's talk about NBCU and Peacock first. If you look at the big media conglomerates, there's not one that has the cable, which obviously the pipes into homes, including broadband, the content, the theme parks, and remove any company that has a satellite company. Again, we're talking about broadband pipes. NBCU is unique in that way. It was sort of the right time to look at it and say, even if you caught this tease a few weeks ago, on the Football Night in America pre-NFL, pre-game NFL show, going into their playoff game on Saturday primetime a few weeks ago, they announced the next three locations of WrestleMania, including the upcoming April 10 and 11 in Tampa. Just that announcement on their linear platform combined, which what we thought was a very creative content output by Paul and Steph in terms of talking about the different cities we're going to, During a football game, the whole thing went viral. It almost took over social media. And again, the NFL is the NFL. Certainly, it's not for us to compare ourselves to them. But we felt great about how that worked. It was a bit of a tease because the Peacock deal was already done. which is why they tagged that announcement with Raw coming up on Monday night. There's going to be more of that. We are putting together our 2021, finalizing our schedule in terms of pay-per-view premium events. Look for events to be piggybacked onto big NBC events where we'll have that promotional power headed our way. It's the first time ever that WWE's partnered with someone who has that sort of reach, on these events, so we feel good about our chances. In terms of the financial part of it, I would turn that over to Christina.

Hi Ben, thanks for throwing me an accounting bone, but I'm really glad you brought it up because I think it's an important thing for all of our analysts and investors to understand. Of course, you all have a lot of experience with content rights deals and the mechanics of them. And there's two things, though, that I want to underscore here. First, I think in your question, Ben, there was an underlying assumption that there would be volatility around pay-per-views. Just so everyone understands, there is no upcharge around special content. For for WWE. This is one $4.99 you get everything get our library get a pay-per-view Plus the amazing content coming out of peacock as well So there won't be that kind of volatility the second thing I would say and I touched on it briefly in my prepared remarks is is that we're still working through the accounting from the perspective of just making sure that it's properly reviewed. But in any case, regardless, 2021 will be the biggest year in the deal from an incremental revenue and adjusted OIVDA perspective because upon delivery of the deal, so to speak, upon the onset, we have to value the subscribers that we're transferring over and we have to value any IP that we're transferring over. And that will be all recognized in 2021. And then in 2022, you'll have the regular revenue recognition of the ongoing deal. So hopefully that's enough geeking out on accounting for you to keep you busy.

Great. Thank you very much, everybody.

Ben, can I just tag that with one thing if you're still with us? I am, of course. Thank you. What I had mentioned in terms of the power of broadcast, we don't believe broadcast is going anywhere. If you look at our partners at Fox, they put together a pre-Royal Rumble show for us. which did over a million viewers. We announced the 30th and 29th, I'm sorry, we announced the first and second people to enter into the Rumble. All of that stuff matters. That Fox Network platform, having them promote into SmackDown, it matters. So again, in terms of broadcast networks, we're thrilled with Fox and we're thrilled with what NBC can do for us promotional-wise.

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We'll go ahead and take our next question from David Karnofsky with JP Morgan.

Thanks for the question. Nick, I was wondering if you could discuss how you expect NBCU We'll evaluate the success of WWE content on Peacock. You know, since Nielsen ratings obviously don't apply, just interested to think how you think the way factors like subscriber ads, advertising yield, or maybe just the promotional value of having something like WrestleMania on there.

So we think it always comes down to, we refer to them as the three R's, ratings, relevancy, and revenue. Ratings in a subscriber base, obviously based on subs. Relevancy for a product like WrestleMania, for them to be as excited as they are about it. And revenue, obviously, it's a tremendous opportunity for them to sell against it on an ad-supported tier at $4.99. So we always look at it by thinking about those three R's in terms of... our partner's satisfaction.

Okay, and then just on a separate topic, can you speak to how the shutdown of the NBC Sports Network and then the move of sports content over to USA potentially impacts Raw and NXT, you know, either in terms of scheduling or just, you know, kind of the overall role that your content has had at that network? And, you know, with NXT, would you ever kind of consider moving any of that content over to Peacock, the weekly content?

We believe it has no impact on us, the departure of NBC Sports Network. I think we think what you're seeing in the cable universe is going to be further consolidation. So we know that the bundle has now sort of been unbundled or a little exposed. So the networks that were propped up, the not as strong cable networks that were propped up by the stronger cable networks, like USA, the not as strong ones probably cease to exist across the board. So look for more content migration onto the stronger cable platforms. There'll be no effect on RAR NXT.

Thank you.

We'll take our next question from David Beckel with Berenberg. Please go ahead.

Great. Thanks so much for the question. I'll start with the high-level one. You talk a lot about The ongoing shift in viewing towards digital platforms and of course the peacock deal really hits the nail on the head there. I'm wondering how this negotiation in this deal might influence future TV deals. Those are obviously, especially in the US, quite a ways away. A lot can change between now and then. Are you thinking about the way in which you might license Ron Smackdown in the US any differently as a result of this deal? Maybe taking that? on an exclusive basis to a digital platform, then I have a follow-up.

Thanks, David. First of all, we're always going to look to our incumbent partners to see what their plans are in the future and to make sure that those conversations happen first. We are open to all buyers. So I think it was the light shed folks who had predicted that Thursday Night Football may go to Amazon exclusively for the first time, and the exception on that exclusion is it may also be on NFL Network, but it wouldn't be on a traditional broadcast network. We agree with that assessment. That's obviously speculative on someone else's property, but you see Amazon hovering around. They tested live out in the UK first with tennis. They then came and tested it out when Thursday Night Football digitally was on Twitter. They took that package and put it on Amazon and has done some interesting things with it. Obviously, there's an executive change that we all learned about. not too long ago, so we'll see how that shakes out. But we'd like to think we have our finger on the pulse of what most of these buyers are looking for down the road, again, with a heavy emphasis on Fox and NBCUniversal to make sure that they're taken care of.

Great, thanks. And just as a quick follow-up, you mentioned the 15% to 20% impact to EBITDA from the pandemic. I was wondering if you could maybe help us splice that a little bit in terms of how that's comprised, what portion of that is related to production costs versus the other impact you mentioned, which is the loss of ticket sales and merchandise. Thanks.

Thanks for the question. We haven't broken it down publicly with regard to percentage impacts, but what we have said is we expect there to be a significant year-over-year increase in WWE's expense base. due to continued hire expenses associated with the production of Raw and Smackdown at Tropicana or any other facility like that post. We have said that our TV production expense is up 25% per episode. And we also pointed out that there's also an impact of The return of employees from furlough, which won't start to be a year-over-year comparison really until the second quarter of 2021. And, you know, of course, the biggest X factor in our minds is the return of ticketed live events and the pace at which they ramp. As Vince talked about in his opening remarks, what's the capacity restriction going to be? How many stadiums are available to us across the United States in any given moment? Are we allowed to sell merchandise? All of these things are kind of up in the air right now. It's anyone's best guess in the live event of business as to when and then as to how. So all of those are kind of impacting as we think about that 15 to 20% estimate of what we think that ongoing COVID impact is on our numbers for 2021. Thank you, Christina.

We have time. Sorry, we have given the length of the call. We're just going to take one more caller. Thank you.

Thank you. We'll go ahead and take our last question from Vasily Kurasiov with Cannonball Research.

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Thank you. Good afternoon. I wanted to follow up on Christina's point that the company should be looked at in terms of normalized earning power. So if we think back to Saudi Arabia events, can you help us understand the profitability aspect of those events so that we can sort of run sensitivities. If I remember, we can figure out the revenue from the reported financials, but I think a couple of years ago you spoke about the first event being more profitable than the second. So if you could just help us triangulate the EBITDA impact, that would be super helpful. Thank you.

Sure. I think just looking at this most recent fourth quarter, will give you a great baseline in terms of understanding what the absence of a large-scale international event has on the impact that it has on our business. As we discussed in the fourth quarter, the absence of a large-scale international event contributed to a 50% or 56.4 million reduction in fourth quarter adjusted EBITDA. And that did also reflect lower advertising revenue and higher TV production costs. So, you know, we're seeing it very, very starkly in this quarter just reported what the positive or, you know, when a large international event comes back to us, the positive impact that can have on our adjusted OIVDA.

All right. A quick follow-up then. Do both of them have the same profitability profile? No. So if you have one in a year or two in a year, you just multiply the positive impact by two, or the second one is less profitable. Because I think that was the case before.

What I would say is it's really, you know, in talking about live events, we are in the hyper-theoretical right now. Because, again, even talking about live events in the United States is quite difficult to hypothesize what it will look like. You know, even in 2022, what some of the restrictions may be. But what I would say is comparing one event to another event in any given year depends on where it is within the country, what the expectations are around the show itself. There's so many factors that go into it that would just be a highly theoretical conversation.

All right, thank you very much.

Thank you.

Thank you, everybody. We appreciate you listening to the call today. If you have any questions, please do not hesitate to contact me, Michael White, or Michael Guido, your contacts in investor relations. Thank you.

Once again, that does conclude today's conference. We do appreciate your participation. You may now disconnect your phone lines.