World Wrestling Grapples With Competitive Threat

WWEs Unsustainable Dividends
Boasting a ravishing 12% yield, WWE's Class A dividend may be cut as early as the Q1 report on May 5. WWE earned 71 cents per share for all of 2010, while paying out a 36 cent dividend per quarter. Unless profit grows or the controlling McMahon family waives their Class B shares, the dividend must be cut and the shares will tumble further.

Several operational factors are making WWE an unattractive accidental high yielder. In fourth quarter of 2011, operating income declined by 22% and earnings fell as live event attendance dropped 15% in North America. Like WWE, Live Nation Entertainment (NYSE:LYV) is another company that depends on gate revenues, which experienced a difficult 2010. That might mean it was simply a down year for most companies that host live events. Unfortunately, a business that is closely related to WWE battled its way to a great year - and that doesn't speak well for WWE.

UFC Slams Wrestling
WWE dominates a very niche segment of the entertainment market, but professional wrestling is grappling with privately held Ultimate Fighting Championship's growing shadow. Some argue that the two companies don't compete with each other; that one is sports (UFC) and the other is sports entertainment (WWE). This is not true. Fans are clearly crossing over from the WWE's ring to the UFC's octagon

Here We Go Again
In addition to competitive pressures from the UFC, investors need to be concerned about WWE's intentions to diversify away from the ring. On April 7, World Wrestling Entertainment officially rebranded itself as "WWE." The new company will be a diversified entertainment company, featuring a TV network with scripted and reality shows, and animated programs, along with wrestling events. The concern for investors is that WWE has a dubious history of businesses outside core wrestling operations. The failed XFL football league and wrestling-themed restaurant in New York City do not portend well for WWE's latest attempt at reincarnation.

The Bottom Line
The impact of WWE's rebranding won't be fully realized until the details of a potential TV deal are released. In the meantime, investors should prepare themselves right away for a shock when the dividend gets slammed...More?

source: investopedia.com