The WrestleMania Bump
For wrestling fans everywhere, the Royal Rumble begins the greatest season for professional wrestling. It starts the road to WrestleMania, the organizations biggest show of the year. The event provides memories that will last a lifetime. Who can forget Hulk Hogan body slamming the behemoth Andre the Giant? How about the Hulkster taking the WWF World Title from the Iraqi-sympathizing Sgt. Slaughter during the Gulf War? WrestleMania, much like the SuperBowl, is about creating stories that you will talk about all year, and perhaps all your life.
Over the past two years there has been a curious movement in the stock market during this time that I have dubbed the “WrestleMania Bump”. The term “bump” refers to the fall a wrestler takes when a move is delivered in the match. The term in this sense is used to describe the fall that takes place post-WrestleMania with the WWE stock. At the beginning of the year, right around the Royal Rumble, the stock begins to rise, and by the end of March or beginning of April, the stock begins to drop. The image below, highlighted in yellow from Sage’s Research Platform, shows the gain and drop from 2015. Two years is a coincidence, but would three straight years indicate a continuous pattern?
I’ve done research as to why the organization would see the stock increase during this time. Earnings get released for the fourth quarter in February, so that does not seem like it would be an effect. There were no major unusual events within the organization during this time that would have a pronounced effect on stock price. Searching through insider trading and institutional holding actions yielded nothing significant as well. Financial statements would not impact this over a prolonged period. All traditional methods have been analyzed in an attempt to rationalize this price behavior.
The price of the WWE stock as of 1/25/2016 is $16.74. It is already down about a dollar per share since the start of the year. The company holds solid liquidity ratios with profitability and efficiency ratios on the rise. The potentially troubling statistic is the trailing twelve-month price to earnings ratio of 56.10. This puts the organization in a tough position. They must either live up to the lofty expectations or risk the price of the stock coming down to a more reflective price. The WWE organization is tough to compare with other organizations in the same industry in terms of SIC code because they are truly a one of a kind entity.
A few months ago, I wrote about Weight Watchers and their dramatic increase in stock price. The stock, at the peak, crossed the $26 mark. Just a few short months later and the stock is moving at around $11.50. Why? The reason is the same reason that the WWE stock moves up during the WrestleMania season: perception. The perception for Weight Watchers was that Oprah was going to lead the organization to new heights with her investment. Demand was through the roof, and the stock almost quadrupled within a few weeks. The stock is still up overall, something like $4-$5 a share, but nothing like what the movement of the market after her announcement dictated. The perception for the WWE is similar: WWE does good business during WrestleMania because, at 32 years of age, it has become something of an American classic. Those who know the industry know this, and try to capitalize on the short swing the season produces.
That isn’t to say Vince McMahon, CEO of WWE, isn’t a good businessman. He has built an empire in an industry that most don’t dare step into. He has moved the organization into the future by using an emergent strategy to hedge his bets with network television by creating a proprietary digital subscriber channel: the WWE network. The onscreen decisions occasionally leave much to be desired, but McMahon has still done wonders to move his company in the right direction. He has ensured that when it is time for him to step aside, the strategy moving forward is sound and well planned.
With all that being said, it will be interesting to see if this is the third year with the so called “WrestleMania Bump”. WrestleMania has become a tradition spanning three decades, but it also started in a much smaller capacity than it is today. McMahon appears to be an expert at creating traditions. Perhaps this will be the final tradition he creates, even if by accident, before his time as CEO ceases to exist.