TKO Group Holdings Inc (TKO) 2004 Q4 法說會逐字稿

Good day and welcome to today's teleconference call. All sites are now on the line in a listen-only mode. [OPERATOR INSTRUCTIONS] At this time I'd like to turn the call over to your moderator, Ms. Michele Goldstein. Go ahead.

Welcome to World Wrestling Entertainment's fourth quarter conference call. My name is Michele Goldstein, I'm the Vice President of Planning and Investor Relations here at WWE. Today here with me is Linda McMahon, our CEO, Michael Sileck, our CFO, and Frank Serpe, Senior Vice President of Finance and Chief Accounting Officer. We issued our earnings release earlier this morning and we will be referencing a presentation as part of our discussion. Both are available on our corporate Website at corporate.wwe.com. We will be making several forward-looking statements today as part of our discussion. These statements are based on management's estimates and actual results will differ due to numerous factors as called out on page one of the presentation and in our earnings release. Today we will review our operating highlights, our fourth quarter results, followed by a Q-and-A session.

So turning to page 3, in summary fourth quarter revenue of 118 million compares to 127 million in the prior year quarter. EBITDA of 25 million compares to 36 million and earnings per share from continuing operations of $0.23 compares to $0.30. Last year's fourth quarter results included two unusual items that affected the comparability of results. They are called out on the bottom of the page and include the reversal of accrued life and commissions and legal settlements. The total impact of these two items on EBITDA in fiscal 2004 was a positive $14 million. At this time, I would like to turn it over to Linda McMahon.

Thank you Michele and good morning everyone. I'm pleased to say that we achieved our EBITDA goal as presented to you during our third quarter earnings conference call. WrestleMania 21 was a highly successful pay-per-view event and an important contributor to the fourth quarter. It garnered our stated goal of approximately 1 million buys for that event, leading to 2 million pay-per-view buys in the quarter.

In fiscal '05 we achieved several significant milestones towards our initiatives. We expanded our global presence, through more live event scoring, greater pay-per-view distribution and new licensing partners. The result was a 38% growth in our revenue from international sources. We have established an ongoing presence in key territories such as the U.K., Australia, Italy and Japan. Next year we will continue to expand into Latin America, New Zealand and further into Germany and Italy. Now, we can more fully leverage our various business lines in these regions to drive future growth.

We have also made significant strides that will allow to us more fully monetize our vast library. Two weeks ago we announced our Legends program. The Legends initiative began informally with the introduction of WWE's new subscription video-on-demand service, WWE 24/7, and the release of retrospective DVD's such as the Rise and Fall of ECW, which is the number two best selling DVD in WWE history. With more than 25 professional wrestling greats signed on to the Legends initiative, such as "Rowdy" Roddy Piper, Jerry "The King" Lawler, and "Superstar" Billy Graham, WWE is now ready to further exploit licensed merchandise in retail. This month, we released our first official DVD under the Legends banner, called The Greatest Wrestling Stars of the '80s. Over the next several months there will be Legends action figures, apparel, books and more DVD's. The superstar legends themselves will be out promoting the full range of activities, including WWE 24/7.

We made substantial progress in signing WWE 24/7 distribution agreements. Cox and RCN started to roll out in May and will continue over the upcoming months. And in mid-July [InSite] will begin launching system-wide. Additional deals will be announced shortly. We will be able to supply the investment community with additional information on our customer behavior and potential revenue as we have launched and established in the marketplace for several months. Our first two feature films have been produced and we are working with our partners to solidify the release dates. The next film will be The Condemned starring "Stone Cold" Steve Austin. I anticipate starting product on this film in the fall. The total production budge will be approximately 20 million, keeping to our conservative budget model.

Now let's look at our live events business on page 5 of our online presentation. The momentum leading up to and following WrestleMania 21, coupled with performance at bigger venues in April, drove North American average attendance to a strong finish in the fourth quarter of '05. And even though our live event touring schedule during the first quarter includes a mix of smaller venues than in the fourth fiscal quarter we are still seeing the overall positive attendance trend continue into the first two months of '06. After our August pay-per-view event, Summer Slam, a new more efficient routing and scheduling strategy will be implemented for North American events. We will tour North America utilizing a predetermined zone strategy that will provide longer lead times similar to what we have done in our international territories. This new strategy will enable to us develop promotional campaigns with local media and retailers with the goal of driving ticket and retail sales.

I'm very pleased that the continued success and economic impact of WrestleMania on local communities is now being recognized. We conducted an economic study for WrestleMania XX, held at Madison Square Garden in New York City, on March 14, 2004. The results were estimated - - an estimated $13.5 million of new economic activity in New York City and the creation of the equivalent of 96 full year jobs. More than 50% of those jobs were in the hospitality sector. And spending related to WrestleMania also generated 2 million in city, state, and federal taxes. Now, why is all this important to WWE? We're utilizing this data as we book the locations for future WrestleMania's, so that we may receive economic incentives from the host cities and local communities. Such is the case when WWE chose Rosemont's Allstate Arena in the Chicago area, as the site for WrestleMania 22 in 2006.

We've had great success with our international live event touring. In April we conducted a 14-event sold-out European tour, which is our highest grossing international tour to date. Also in April both the RAW and SmackDown! brands successfully toured Australia simultaneously. Back in February, we conducted a tour in Japan and for the first time produced our television show from there in conjunction with KIKU Television. Both the RAW and SmackDown! talent are, as we speak, touring in Korea and in Japan. In total, we expect to have between 55 and 60 live events outside of North America in fiscal 2006.

Our strategy of producing television shows from international events is an integral part of further developing our other international businesses. The local audiences are enthusiastic to become an interactive part of our global community by participating live on TV. This serves to strengthen their connection with the WWE brand and has enabled us to increase revenue from international sources by 38% in fiscal '05. Next year we continue with this strategy and will be producing four television shows outside of North America.

On page 6 of our presentation we have displayed the key drivers for our pay-per-view business. We had three events in the quarter which achieved almost 2 million buys in fourth quarter compared to four events in the fourth quarter of last year with 2.2 million buys. Our marquis event, WrestleMania 21 received 933,000 buys in '05, an increase of 11% over the prior year event. Backlash was our first event in '06. Typically this event falls into the fourth quarter. However, simply due to timing it occurred on the first day of our new year. Once again, because of timing we will have five pay-per-view events in the first quarter and 16 in full fiscal '06.

Page seven provides household rating information. Fourth quarter ratings are up slightly from the previous year. This positive trend is continuing into the first quarter. In fact, this past Monday, RAW achieved a coverage area rating of 4.4 or about 5.9 million viewers. That was the show's highest rating since March 22 '04. RAW has seen its ratings for the '04/'05 season steadily rise. And the show has posted an overall ratings gain of about 3% compared to last season on one of the most competitive television nights. In order to grow ratings and develop new talent we are again producing the divas search segment within the RAW television show and potentially the Tough Enough segment within the SmackDown! television show.

The diva search started earlier this year. Eight contestants were called out from a field of thousands during a two-day casting event in Los Angeles earlier this month. Last year's diva search winner Christy Hemme, has been a dynamic and integral part of our story line over the past year. And several of the divas who did not win the top slot have also increased our diva population, if you will, on the RAW show. On October 3, we will premier on USA Networks. This represents a significant opportunity for us. USA Networks will be integrating WWE into their own rebranding campaign. And NBCU has committed $8 million of support across its channels and there for our relaunch. But most important that USA is a strong dedicated partner. I view the launch support as well as other aspects of our deal with NBCU as great opportunities to expand WWE fan base.

As most of you are aware, we will not sell the television advertising time going under the USA deal. This has a significant impact to our '06 revenue. We are aggressively reviewing our cost structure and general spending across all of our businesses to mitigate the revenue shortfall. SmackDown! will be moving to Friday nights on UPN on September 9. This presents an interesting opportunity for us. As you know, we have consistently performed very well on Thursday nights, again, the most competitive night on television. The competition is not as strong on Friday nights and this will allow us to reach younger demographics since parents typically relinquish some of the control of the television of Friday nights to their kids.

Referring again to our presentation, the highlights of the branded merchandise business are on page 8. WrestleMania 21 was widely released of DVD in the beginning of May. Initial sales have been strong and are tracking to a level similar, to if not better, than that of WrestleMania XX which has sold 200,000 copies since its initial release. We have a great opportunity for international future growth in home video with our new deal with Clear Vision, our current U.K. distributor. Our home video license agreement was recently expanded through Clear Vision to now include all of Europe. This past quarter we also had a unique promotion with [La Gazette] a newspaper in Italy, which is just an example of the untapped opportunity we have within national home video. This promotion enabled individuals to purchase six promotional DVD's with a newspaper. We sold over 850,000 copies over a six-week period.

John Cena's music CD release was one of the first steps in establishing John as a star outside of the core WWE fan base. The CD was released in late April in the United States. And it's being further released in international territories in the first quarter. The CD debuted at number 15 on the Billboard charts and sales to date, as measured by [Sound Demand] have been good. In conclusion, I'm very enthusiastic about the prospect for our strategic initiatives. We've spent the past fiscal year establishing our international presence, formalizing our plans to monetize our extensive libraries and produce two solid feature films within our conservative budget formula. Our new CFO Michael Sileck is a strong addition to our executive management team. He's very helpful in our strategic planning. So I thought I would turn it over to Mike to share with you a few comments.

Thank you, Linda. I simply wanted to take this opportunity to introduce myself. I joined the Company in early June and have spent the past few weeks delving into the operations of WWE. I have quickly learned what many of you already know. WWE is a great brand with a highly leverageable business model that generates real free cash flow at very good margins. I've spent the majority of my professional career in the interactive media and entertainment industries working with successful and interesting entrepreneurs. Formerly, I was the CFO at Monster Worldwide where I oversaw Monster's global finances including the implementation of strategic financial planning that led to growth in the Company's overall profitability. Prior to joining Monster, I was the CFO at USA Networks, which now goes by the name of Interactive Corp, where I worked with Chairman Barry Diller on financial and strategic initiatives.

So why did I join WWE? As an integrated sports and entertainment Company, WWE is certainly unique. And while not without its challenges, the opportunities to maximize the value of its current asset base, while pursuing new strategic initiatives was just too good an opportunity to pass up. I look forward to working closely with Vince, Linda, and all of the fine employees of WWE to enhance the Company's strategic position and to add value to our shareholders. You can expect me to be transparent, direct, and accessible. I will shortly begin meeting with our shareholder base in the investment community, and I look forward to meeting with each of you. At this point, I will turn the call over to Frank for a review of the fourth quarter results. But I did want to thank Frank for his admirable work as the interim CFO, the Company truly appreciates your contributions. Frank.

Thank you, Mike, for the kind words, and good morning, everyone. Our revenue for the quarter was $118 million as compared to $127 million in the prior year. A decrease of approximately 7%. This decrease is primarily the result of one less pay-per-view event, lower sales of our home video titles, offset in part by higher revenues in our live events. Page 9 of our presentation lists revenues by business unit as compared to the prior year. I will be addressing the more significant changes in detail. The increased revenues from live events reflects the continued success of our international tours. During the quarter, as compared to the year-ago quarter, we added 11 events to our international schedule.

While we reduced the number of domestic events by approximately 22. This resulted in 9.4 million increase in international revenues, offset by only 2.2 million reduction in domestic revenues. In the quarter, we held two events in Japan, one in South Korea, six in Australia, and 14 across Europe for a total of 23 events. The average attendance at these events was approximately 8,700 people compared to 8,400 last year. The average attendance of our North American events also increased to approximately 5,900 from 5,000 in the prior year.

Turning to pay-per-view, revenues for the quarter were 34.6 million, 9.1 million less than last year. Total buys for the quarter were approximately 2 million as compared to 2.4 million. Approximately 270,000 buys of this decrease is the timing of our Backlash event, which aired on May 1 of 2005 and is, therefore, included in our fiscal 2006 revenues. Additionally, out of period buys, which are buys reported in the current quarter for pay-per-view events held in prior quarters, was approximately 200,000 less than last year. The decrease was partially offset by the success of WrestleMania 21, which generated approximately 1 million buys, surpassing the buys of WrestleMania XX in the prior year quarter by almost 100,000.

Lastly, pay-per-view revenues were further impacted by a change in the mix of our buys. Lower priced international buys have increased as a percentage of total buys. In the quarter, international buys comprised 34% of our total buys as compared to 21% last year. This change in mix resulted in the reduction in the average revenue per buy from $18.19 last year to $17.44 this quarter. Negatively impacting revenue by approximately $1.5 million.

In our branded merchandise segment, home video revenues were 5.1 million in the quarter as compared to 11.1 in the prior year quarter. This reflects a decrease of approximately 380,000 units sold, a 47% reduction from last year. The reduction was due in part to the release in the prior year quarter of our title The Monday Night War, which was a break-away hit selling 182,000 units in the quarter and which went on to become the number one selling title for all of fiscal 2004. Also WrestleMania XX was released in the year ago quarter and sold 114,000 units. WrestleMania XX was held on March 14 of last year, as compared to WrestleMania 21 which was held on April 3 of this year. As a result of this timing difference, the DVD of WrestleMania 21 was not available for release until May when it sold 120,000 units.

Lastly, the five other titles released in the year ago quarter sold on average 68,000 units per title as compared to only 37,000 units per title for the five current year new releases. Revenues from our magazine publishing increased approximately 16% from 3.1 million to 3.6 million reflecting increased circulation and higher advertising revenues. Our profit margin for the quarter was 43%, as compared to 51% in the prior year. The prior year margin, however, reflected the reversal of $7.9 million of accrued licensing commissions associated with a litigation. Excluding this one-time item, the comparison would be 43% in the current year as compared to 45% in the prior year. This decrease primarily reflects the lower number of pay-per-view buys and lower home video revenues in the current quarter.

Turning to SG&A expenses, they were 24.4 million in the current quarter compared to 26.5 million last year. The decrease is due to lower advertising, promotion runs - - excuse me, promotions and employee costs, including a reduction in management bonuses. Offset in part by professional fees related to our Sarbanes-Oxley compliance, which totaled $1.5 million in the quarter. EBITDA for the quarter was 25.4 million versus 36.3 million in the prior year, a decrease of 30%. Page 11 of our presentation details the key factors of this decrease, most of which have been discussed previously. Please note, however, that the negative licensing variance is the result in the prior year of the $7.9 million accrued licensing commissions that we reversed, as previously mentioned.

Page 12 shows normalized EBITDA adjusting for those items which we consider to be unusual. As you can see on page 15 of our presentation, our balance sheet remains strong. At April 30 we held 258 million in cash and short-term investments, and virtually no debt. We have recorded 29 million in feature film production assets for the two films currently in production and we anticipate that these assets will total 30 million when the films are complete. These assets will be expensed on a pro rata basis as revenue is recognized in accordance with GAAP.

Free cash flow for the quarter was 5.9 million, as compared to 11.9 million last year. During the quarter we spent 5.5 million on the production of two feature films. We do not anticipate seeing revenue from these projects until fiscal 2007. A statement of cash flow is presented on page 16 of our presentation. As to Sarbanes-Oxley compliance, while the process is not fully completed, at this point we have not identified any material weaknesses. And we anticipate the project being completed in the next week to ten days.

On page 14 of the presentation, you will see the Company's outlook for fiscal 2006. It anticipates revenues of $355 to $370 million, EBITDA of $53 to $58 million, income from continuing operations of between 31 and 34 million, and fully diluted EPS from continuing operations of between $0.44 and $0.48 per share. This concludes this portion of our call, and I will now turn it back to Michele.

Wayne, we're available for questions at this time.

[OPERATOR INSTRUCTIONS] We'll go first to the site of Robert Routh. Go ahead.

Just two quick questions. First, I was wondering if could you give us a little bit more detail on WWE films, that initiative, and how you see that playing out? I know a lot of investors are kind of uncertain as to whether or not, given the hit-driven nature of that business, it makes sense for WWE to be in it or not. Even though you are mitigating your risk by limiting your financial investment. I'm just wondering if you can give us some sense as to what you're expecting to come out of the first few releases? I believe The Marine is first, then the other ones that you have coming out. And then second, I was wondering if you could give us any more detail regarding WWE 24/7, the rollout, how many subs you expect to be in by the end of the year, the revenue splits? And any other information you could give us for modeling purposes would be great.

Okay. Good morning, Robert. Let me address first the films. I'm not sure at this point I can project revenue from the films. What we have done, as we have said we've stayed within our budget of production with these films. I can tell you that Fox and LionsGate have been very pleased with the film at this point. They are almost in their final stages. There's tweaking, there's some more graphics that are being added. That sort of thing. We've gotten notes back from the studios. They think we've got a couple of good solid films and are pleased with what we have delivered. John Cena, I think, in The Marine has really stepped up to show that he is probably a new outbreak action adventure star. And it's quite the film to see when you're watching our horror flick from LionsGate. I'm not a horror flick genre candidate typically, but, of course, this one I love. And a few folks who have seen it internally here have talked about how riveting it is and the story is so compelling.

So, I think from a production standpoint we've accomplished, from the story line, the quality of the production, keeping to our budgets, that we have projected all along. We've been having meetings back and forth with the Fox and LionsGate marketing groups, working on getting the trailers ready. But still they've not committed to release dates because I think they're still looking at their schedules. Probably the strongest indicator that we've had had is that the horror flick, which will be entitled See No Evil, will air or be released probably in first calendar quarter of '06, sometime in January or February. We don't have anything more definitive on The Marine at this point. The next movie that we are - - have in script development and story development is called he Condemned, as I mentioned, starring "Stone Cold" Steve Austin. That is current being shopped to the studios for distribution. And once that is locked up then we would proceed into production. But we won't go into production until a distribution deal is made, because that's our formula and the way we do it.

We don't want to have any risk of production before that's all tied up. So I think continuing with our process of producing films on a conservative basis, with the release or production probably of Condemned in this fiscal year, that's - - our appetite is not voracious. We're conservative-minded about it. We still believe that we have the opportunity given our television programming to promote these movies with a vehicle that other producers do not have. That combined with the marketing power and strength of our studio distributors I think gives us a real positive opportunity above and beyond what other releases would have.

So we're still very confident about our film business and how we're going about it. Utilizing recognizable stars to our fans as well as - - and our fans on a global basis, by the way. So we think it's a solid plan, a solid formula for us, and we're continuing down that path. We do believe that the ancillary revenues for DVD's and games will, of course enure to us and to our benefit just as they do for other producers. So we feel good and confident about where we've come so far. And we're not stepping out beyond what our formula is. Does that answer relative to the films for you, Robert?

Yes, that's great.

Now for 24/7. I think you've seen in our press releases and some of the information we've covered this morning that we are rolling out in more and more systems. There are some small, there's some medium-sized, and then Cox is our largest at this point. I think over the next couple of months we will have even more information about new rollouts and releases. We're talking to all of the major MSO's. But as I've stated on other calls, we are really reliant and dependent upon the extent of their rollout for this particular service. The feedback that we have gotten almost without doubt from all of the MSO's is that our product seems perfectly positioned clearly for an SVOD program. What we have seen in small systems so far is that those that have been out there maybe three or four months, while the subscriber base is not yet large. What we are seeing is that we are churning every month, as you would expect, but even with the churn we are adding new subscribers and increasing subscribers on a monthly basis in the system.

So we're looking at that as a good indicator of where we will be on the rollouts with our other systems as well. We continue to freshen the product, offer product that hasn't been seen. As we've mentioned with our Legends launch we will have some of those legends who will be doing wrap-arounds relative to their matches and other applications on 24/7. We think that's going to be a real boost for us. And that will come over in the next two to three to four months. So our share really is - - it is on a revenue sharing basis. And typically most all the systems are - - we have anywhere from a 55% to 60% split with some of our systems. So those are all good indicators for us.

Okay. Great. Thank you very much.

You're welcome.

Thank you. We'll go next to the site of James Clement with Sidoti & Company. Go ahead.

I was wondering whether - - if I could ask you, typically looking back over the last couple of years, do TV rating and live attendance increases typically precede pay-per-view buy increases?

If you were trying to graph it, probably more times than not you would say yes. However, we have had some breakout pay-per-views at a time when ratings were typically flat. However, I would say in general, yes, you would see ratings increase that would be driving the other aspects of our business.

And what - - one follow-up question to the previous caller. In the event that you guys end up with a breakout hit, with The Marine or one of the three movies that you're talking about, I believe it's "Stone Cold" Steve Austin, if I read correctly, you may have some sort of - - you may a contractual arrangement with. But do you have - - does the Company have assurances in place that in the event that John Cena, for example, ends to be a legitimate action star, that WWE just won't lose him?

We have John under a long-term contract with WWE as well as a preferential movie production deal. So I think we've got that - - thought about that, and wish him great success. I hope that does he make movies outside of WWE, because I think that will make the movies he makes for us even stronger. So we are hopeful for his breakout success, in the music industry, in the film industry, et cetera, because we believe that will drive his popularity and broaden that audience for us. But we do have him under a long-term contract. "Stone Cold" Steve Austin we also have a preferential movie deal with him. So the investment in him, I believe, will also enure to the benefit of WWE.

One quick follow did. Looking at WWE films long term in terms of the investment that you guys are willing to make. Is there a fourth or a fifth or a sixth film that you guys are kind of thinking about? Just to get a sense of over the next two to three years all-in what you guys are willing to spend to develop these films?

We are constantly looking at script development. Some we're hiring writers to develop the script. Other scripts, like The Condemned, we bought and are paying for polishing. So we have a couple of scripts beyond The Condemned that we are working on. We are not looking to produce five to ten movies a year. Our goal would be two to I would say, a maximum of four. But four would be a long stretch getting there. And again, it will be within our very conservative budget of approximately $20 million for an action adventure, and our horror movie came in probably at more like about 10.

Thanks very much for your time.

Sure.

Thank you. We'll go next to the site of Alan Gould with Natexis. Go ahead.

Good morning, Linda.

Hi, Alan.

Just wanted to ask you about the TV deal. I guess the next one coming up will be SmackDown! on UPN. I'm assuming they may follow their sister station. Do you think it will be likely that they do follow their sister station, would it be likely that you might deal with USA or one of the sibling networks of USA?

First of all I think it the's premature to say what UPN's appetite will be for WWE. At the end of our contract, which is September of '06, I think the move to Friday night is an opportunity for us to continue to prove our value to UPN at a time when the affiliates and the Network itself, as well as a lot of the other networks, don't have such a commanding presence on Friday night. I think WWE has the ability to give a good margin of success by bringing our audience to UPN on Friday night. And what value that will have to the affiliates and the Network as a whole as they evaluate it next year, I think that remains to be seen. I feel very good about the fact that we have an opportunity on Friday night. A night that has less competition, brings that younger demo audience to us. And in my conversations with Dawn Ostroff, UPN is very hopeful for the growth on Friday night. So we'll have to see what that success measure brings and what their continuing plans for UPN as a development of their network is. If we were not to be renewed on UPN, clearly we have several other options of other networks and there's also as well going to cable. So I think the future for SmackDown! is clearly strong and bright.

Okay. And a follow-up on the guidance portion. You're losing half a year of the ad revenue as you mentioned, yet your guidance is not down that much. Is the offset having the home video this year, having the extra pay-per-view events this year, and also the fact that the metrics are ticking up in live event attendance, et cetera?

That's correct, as well as a real focus on cost and spending cutting across all departments in the Company, to manage that decline in the revenue that we have seen. Under the new deal, as you said, we're impacted for about half the year, knowing full well in that the next fiscal year we'll have the entire year impact. So we've looked at, I think very prudently at our cost cutting across the board. And I feel that we have taken some good steps to make sure that that EBITDA decline is not as great. And also to show growth, as you said, upticks in our other revenue stream. So I feel good about that. It will take us probably 18 months to recover from that particular loss in the revenue in the EBITDA number but we'll not only get back, we'll exceed it.

Okay. From what I've seen, it seems like you guys run a pretty lean organization. So it's hard to see that much cost cutting coming out of there.

We do run lean. However, I think there are just some decisions we've looked at as to, okay, we've been doing things a certain way how do we change? Just let me give you one for instance. We've done some of our television shoots, what we call super shoots, we've shot RAW and SmackDown! on the same night. We won't be able to do that all the time but there are savings to be picked up. And that - - we've done in that conjunction with being able to release both brands to travel internationally. For instance, this past Monday night in Anaheim, RAW was live, and then we recorded SmackDown! immediately after that. Both then the SmackDown! and RAW groups left on Tuesday to travel to Japan where we have a tour going with both brands in Japan and in Korea. And then coming back we'll pick up, I think Honolulu on the way back. We'll do another super shoot in California, I think it's Sacramento, on Monday when everyone gets back. So, we do have some cost savings looking a little bit differently at the way we do and produce things.

Okay. Thank you very much.

Thank you. We'll go next to the site of Marla Backer with Research Associates. Go ahead.

Thank you. I have a question about the Legends initiative. And given that there's a big push now for WWE to expand internationally, how well do you think the legends will travel? How well-known are some of those superstars of yesteryear in other market? And where do you see the legends going in certain markets? For instance, in Europe I would think they would be perhaps better known in that South America where your next push is is going to come on.

You're right, clearly in Europe and in the countries where we've had such a strong television presence for so many years, for instance, in the U.K., where we've been on Sky Television for 18 years, the legends will be more well-known there. However, over the past few years in some of the countries like Germany, I think Australia, but I'd have to check that, we've also been showing some of our classic footage as part of our output television deal. So those markets have also been introduced to some of the stars of yesteryear as well as - - as we now are releasing more of our DVD's that incorporate some of these legends as well. I think the first big push for Legends is obviously going to be domestically in 24/7, in our DVD's, in our merchandise that we're pushing here. And already "Superstar" Billy Graham has been making on-sale dates for live events and having personal appearances. And just seeing him again, in the audience he's been received very well in all the live events that he attends.

So the utilization of those legends will be across many of our key drivers. And we're looking forward to welcoming them back as part of the old, nostalgia era. We do have a good part of our population between 18 and 59 that remembers - - I mean, 34 to 59 that remembers a great deal of these superstars and so I think that bodes well for us. The international marketplace would be a slower growth, but as we introduce more of our classic footage they will be remembered and recognized as well.

Okay. That makes sense. Then one follow-up question on the international. How will ticket prices compare to where international and where North America currently are when you move more aggressively into South America?

You mean the average ticket price in general when we move more aggressively into South America?

Right, average in general.

Since we haven't been there and tested the market I don't really today have a barometer to tell you what the charge will be for ticket prices in those areas. We always work with the local promoter in those countries who understands more the economics of the region, how long the on-sale dates need to be, what the advanced tours need to be. And I don't have that barometer for you at this particular point. Obviously, the economics in those regions aren't as strong as they are officially in the European markets but I don't have that direct answer for you. But as we get closer we'll be able to fill that in for you.

Thank you.

We'll go next to the site of Dennis McAlpine with McAlpine Associates. Go ahead.

Thank you and good morning. As you make the transition from Spike to USA you're going to be going through different numbers of homes passed by the networks. What do you anticipate will happen to your number of households in viewing and then your ratings? And what impact will that have? And then secondly you were talking about increasing the number of international events. What are your plans for domestic events next year? And then it looked like you had a good jump in the pay0per-view on WrestleMania but then the decline in Backlash. Anything that would have accounted for that decline and what do you anticipate for pay-per-view events going forward?

Okay, let's first address your first question about USA. Yes, there is a stronger penetration of tiers with USA households than we currently have with Spike. And we're confident, I'll have to say we're confident that we would expect to see a bump in our ratings as a result of those new households passed. In addition to that, USA is launching its own rebranding campaign, which they have announced last week in the trades. And we are part of their relaunch as well, which I think we're going to get not only the additional dollars in coverage, which they are going to spend across all of their platforms, which will include NBC for our demographic reach like NASCAR, which our demographics cross. And I think that's going to bode well for increasing and expanding our fan base on a recognition basis. Then we have to deliver to their satisfaction in order to keep them. So I think all of that bodes well for us with our move to USA Networks on October 3. On our domestic events, I'm trying to remember, Dennis, your questions in order - -

I'm sorry.

- - international events, as you saw from the statement that Frank made, by increasing our international events we did decrease domestic events this year. However, the result from that was more profitability because ticket prices are higher, attendance is higher on an international market basis. So obviously when we pull our superstars out of the United States for those international tours we are reducing the number of live events we have here at home. But again, to higher margins and better profits.

So you are going to have fewer domestic events in '06?

Yes.

Okay. Would you also go into a little bit on the move from Thursday night to Friday night on the SmackDown!? Thursday night has historically been a very big night for young viewers as they get ready for the weekend and make their decisions. That would have seemed to have been your key audience on SmackDown!. Given that, why the move to Friday?

The move to Friday was not our decision. It was a decision by UPN. And I believe that UPN now has solidified its Monday through Thursday lineup. Everything fits better with the new releases that they wanted to have for their own format. They believed our Friday night opportunity is stronger probably than any other show on television for Friday night simply because we do have a fan base that does tend to find us and follow us. And with the promotion and marketing that we'll put behind it, the move to Friday night, we know we'll grow UPN's audience for sure on Friday night. And I think we might take a nick to start with while we get our audience over on Friday nights. Especially because we start on UPN on September 9 and the first three weeks we do have some preemptions in two or three major markets due to Major League Baseball. So we've got a little bit of double whammy in September but I think once our audience settles down to Friday night, they'll find us, they'll enjoy watching us. And Friday nights has the opportunity to be a real growth night. Your point about young viewers on Thursday night is accurate. However, actually demographics for that younger audience and numbers are a bit higher on Friday night. So we expect to capture a bit of increase in that market share. Which I think bodes well for us, too, as we look for not just kids in the younger demographics but one of the areas also that's more available on Friday nights are more of the do it yourselfers. So for after-products like automobiles, we have found an opportunity for increased sponsorship in those markets. So we think it's all a good move for us for Friday nights.

Thank you.

Thank you.

We'll go next to the site of Nader Tavakoli with EagleRock Capital.

Hi. How are you? Couple of questions. One is who is running the movie side of the business?

A gentleman by the name of Joel Simon. He runs our WWE films division in L.A. And Joel was formerly with Warner Brothers. He also ran - - I've just forgotten - - Quincy Jones, thank you. He ran Quincy Jones' production company for him for four or five years before he came with us. And has a very good track record both in the production of television series as well as film.

Okay. And second question is, you guys still have a substantial balance of cash on hand and generating free cash flow. And I'm wondering what the use of cash is going to be other than making movies, including share buybacks and things of that nature?

At this particular point, as has been our philosophy over the past few years is that a share buyback, unless something drastic were to happen in the marketplace, is not what we would - - not what we would be doing simply because we don't have a great float in the marketplace to begin with. And a share buyback just simply restricts that. And I do get a lot of varying opinions and conversations about that. Those who would like to see less float, those who don't think it's significant. So - - but at this particular point, our position is that we're not looking at a major buyback of shares. Because we do want to keep that float in the marketplace, which we - - which has shown since we had a secondary offering last year and put more shares in the marketplace we have seen some increase in our volume. So we're - - that's where we've tended to fall on that particular issue. Relative to the use of capital, yes, we are investing in the movies. We are open to an acquisition that would be accretive to us. And that is - - those are some of the things that we constantly look at. We've looked at other companies before. We don't think they've been the right investment for us but we will continue to look. And hopefully with Mike Sileck having joined us and looking at more strategic opportunities there will be more of those for us to evaluate.

If I could just follow up the stock is down 50% from its 2004's high's and the insiders pulled out a significant amount of money. We haven't seen any insider purchases. If 50% is not drastic, I'm not really sure what is. And I think that of the stockholders and the analysts we've talked to there's not a single one who doesn't think that a stock buyback would be a good idea. So I am sort of curious as to where those varying opinions are coming from. And if $10 or $11 is not a good price for the stock for to you buy back with all the cash you're sitting on, then why should we, and why should we be subject to speculation on the movies as opposed to what seems like a very sensible use of cash by way of stock buyback? So it raises some pretty significant issues, particularly when you don't see any insider buying at $10 when the insiders sold at significantly higher prices.

Well, and I clearly hear you. I've heard that argument before as well. I've also heard almost equal argument on the other side.

Who is it that's making those other arguments? I'd like to - - not - - check their sanity.

Well, that's certainly your opinion. I've had had institutional investors as well as private investors have conversations with me on the side. I do think clearly, that a $10, $10.50, $11 stock price is excellent for a purchase. We've just have maintained our philosophy at this particular point that a buyback of significant shares is not what we want to do because we want to keep the float in the marketplace.

I believe the family pulled out $7 million. Might we see some insider purchases?

Not at this particular time because it would be pretty much the same thing whether the purchase was coming from. You're reducing the float in the marketplace.

Thank you.

Thank you. We'll go next to the site of Mario Cibelli with Marathon Partners. Go ahead.

Hi. Couple of questions. Linda, have you talked about any assumptions for next year as far as whether or not the movies would be profitable or break even or losing money? Or anything on the DVD releases or any sort of color you can give there? It sounds like did you say we'd have more international tours, so I marked that down. Anything else you could add?

Are you speaking - - I'm sorry, Mario. Were you speaking directly about the movies or did you go off to other revenue drivers as well?

Well, any clarity could you give for your '06 numbers, specifically I'd be interested in if you're assuming a profitability for some of the movies. I'm interested in the home video releases if you're significantly upping that to some extent. Sort of interested in the international tour business, how much that might be up slightly, a lot? The things that would contribute and take away that allow to you get to your estimate that you've shared.

Okay. I think we've stated earlier in the call today we're not expecting any revenues in '06 from the movies. If they're released, if the first one would be released in January, February '06 our fiscal ends April 30. And by the time the dollars are recouped from the studios and the distributor gets back his dollars, which are first, we don't expect to see revenues from the movies until '07. In terms of our other drivers of our business, we are looking at our positive trends of increasing live events of our DVD sales and increased pay-per-views that's going into '06 to be positive revenue generators.

Okay. Are there any limitations with the new USA deal in the sense that there will be a slightly different situation here? You'll have advertisers that have historically worked with you. USA will probably want some of these same advertisers. You would not participate in those revenues. You may be more inclined to work with product placements or alternative forms of promotion. Would that - - obviously there's some conflict there. Maybe that's covered in the contract. Are you forbidden from attacking some of these old advertisers in any way?

Well, what we are doing with USA and the approach that we have had with them, is to work in partnership with them to bring, for instance, key advertisers that we've had, like Master Foods and they've been a sponsor through the MARS Products for 15, 17 years. And so we still are maintaining a partial group of our sales force in our New York sales office because we have other assets still to sell. We have our publications, we have our syndicated television programming, we have advertising to sell on the Web, we have sponsorship opportunities. And we can participate with them on product placement though they have first rights on product placement. But our whole model for our continuing sales effort relative to our assets is to partner with USA. They would realize the revenue on the sale of the time within the show. However there would be a portion of that package that we would sell our assets to our longtime advertisers and new advertisers. So we are looking to work in partnership. We've had several meetings already with the USA sales force. And we believe that we're going to develop not only a stronger relationship with our past advertisers and sponsors but be able to grow that marketplace to sell the assets which we have. We are really looking to - - I haven't spoken much about it today, but I will be speaking more about it later this year. About certainly making our Website more robust, increasing our subscribers there and advertising revenue. But that's part of a plan that we are developing as we speak. So advertising opportunity for revenue will be for us the sale of our other assets without a guarantee of CPM's, that will be USA's job. And we don't see a conflict, we see partnership.

Take a scenario where - - and I'm worried about the parts where you would not participate in the up side. But take a scenario where you do get the bump you're looking for, or there is a bump and it's pretty significant and it holds and you come back some. Are there any participation or is there any way that the Company benefits from - - would be a significant increase to them?

Not in terms of advertising revenue. The benefit to us on increased ratings, more eyeballs watching our programming, therefore an opportunity to buy more pay-per-view, opportunity to buy more of our ancillary products like our DVD releases. So an increase and growth on USA bodes well for our other businesses even if and even though we would not participate if those ratings resulted in higher advertising dollars for USA. I think the benefit to us as we are selling sponsorships, is that we have a higher base and therefore that will bode well for us for that revenue growth.

Okay. Any comments on the ECW One Night Stand? There's been some reports that that was a phenomenally well received event.

It looks as though that's coming in right on our budget numbers. We did get a lot of positive feedback on ECW as a one-off event. So it was unique. And we have moved up the release of that DVD within a time frame that's pretty like - - it's like a turbo release for us, and it will get into the marketplace. And I think the results of that DVD are going to be very successful for us as well.

Okay. And any comments on your - - the game license, the Jacks' lawsuit? Any update there you can tell your shareholders?

It's just - - there's no update other than it's really in the courts at this point. And we are just awaiting the judge to enter the next round of discovery, etc. what we need to do, and the motions. That's really it. That's in his court, no pun intended, at this point.

Just last, I wasn't going to comment on this but based on the prior call, I think you know where I stand on buybacks. And I just haven't heard anyone make an intelligent argument ever about slowed - - creating more over the long term. And I would sort of encourage you guys to defer to like a Warren Buffett and read up on him. And I think his opinion on what you guys should do with your cash would sort of fall in line with the prior caller in mind and rather than people that would think extra float adds more value, especially when the Company is overcapitalized. And I know that's not news to you, what my opinion is on that.

No, it's not and I thank you again, Mario.

Thanks.

Thank you. We'll go next to the site of Bobby Melnick with Terrier Partners. Go ahead.

I hate to beat a dead dog but I did want to go over the capital structure of the Company. And I'm indifferent as to whether you buy back stock or issue a dividend but the fact - - a couple of the facts came out this morning with a disclosure of your income statement and balance sheet. You have said in times past that you were retaining the cash for a number of reasons, possible reasons, including spending on movies and entering a new realm, which you did this year. Acquisitions, although this Company's history of diversification into both the XFL and the restaurant complex cost shareholders over nine figures. So it wasn't the best use of cash in the past. And then you said that you needed the capital for your negotiations with your distributors. Although witnessing the most recent negotiation and disclosure your RAW contract it doesn't seem as if having a $0.25 billion in cash proved very helpful or efficacious in your negotiations. But it doesn't look like this was a better deal you got now than you had prior to.

For the year you spent or your annualizing spending now $34 million of dividends and somewhere about $30 million in movies. You spent $5 million in CapEx apart from movies and still only reduced your cash $15 million. Your average cash balance is about 3.75 per share, which represents almost 60% of your assets. And even in a year in which you had a decline in EBITDA and EBIT, your operating ROA was almost 30% this year and was over 40% the previous year. Compare and contrast that to what you earn on 60% of your assets, which is 2%, $5.4 million on the cash balance. So it kind of begs the question, since the market seems to value WWE with a 4% or a 5% dividend yield. A yield which some of us on the call, and perhaps within management, believe could increase with incremental bump-up in the dividend as you've done since you initiated this. It sort of begs the question as to why it is the WWE is better at holding this $0.25 billion in cash than we would be? And it also begs the question at least from this shareholders' perspective, why you guys think that 2% yield, which you've had since your 1999 IPO, is a better return than we could earn ourselves?

The anticipated answer might be, well, the McMahon's are just as happy having the cash within the Company than they would be dividending it out, since you're the largest shareholders. To which I would reply, I just think that's an affront, if that is in fact your view. Because this Company is not run for the benefits of the McMahon's. Your obligation is to subordinate your personal interests to the public shareholders. I just - - I have yet to hear, as of my previous two - - the previous two callers, an intelligent, sane, rationale for holding this money. Every year you come up with some new reason as to why you have to hold the money. And yet when push comes to shove you never actually - - the money never seems to be beneficial to you. I just - - I can't understand why you'd hold all this cash.

Well, I just want to take issue with one thing. You said every year we come one a new reason to hold on to it. We've been consistent in what we have said in holding onto the cash. And that was, if an investment made since and we thought it would be accretive, we would do it. We've been consistent in saying that we did still want to hold on to the cash because we believe that the opportunity for investment will come. It is not just for the McMahon's to sit back and hold on to the cash. I think in looking at increasing the dividend from $0.04 cents to $0.12 a share, with the promise to the shareholders that even if operating capital did not deliver that $0.12 dividend we would take it out of cash to pay back. So those things have all been consistent. But I think Mike Sileck did want to address a couple of your issues.

Good morning. We hear you loud and clear in terms of the buyback. The Company has been very consistent. Look at - - not all companies buy back stock even if they have excess cash.

I'm sorry, I don't mean to pre-empt you I did mention that you could pay - - you could return capital to shareholders in a variety of ways so - - but go ahead, please.

Yes. And I understand had that. And I look forward to meeting with you and talking about it personally. The Company has a healthy dividend, it has - - and they have shown a willingness to increase that dividend over time. There are other strategic uses for that cash that are not being discussed at this point and that are being evaluated. Obviously if we can have a higher return on capital by making investments in other activities, then that would be overall good for the shareholders. And I can understand had your perhaps lack of willingness to be patient with other strategic investments because of some historical investments. That said, I think the Company will be very prudent in terms of looking at other uses for the cash, other strategic investments. If at the end of the day there is absolutely no other reasons to hold that cash, if we've turned over every stone and there's nothing to use that cash, then the Company would reconsider its position. But I think at this point it's premature to give the cash back to the shareholders.

Okay.

And I apologize if that's not the answer you're looking for but I think at this point it's the best we can do.

It's not the issue of the answer. I think your comment was insulting and offensive to suggest that shareholders are not patient. I mean this has been six is years. Okay, last year on the call you said that you were going expand into the movie business and you articulated that you could be spending up to $20 million a movie. And that there may be as many as five movies out there. And you reiterated that at meeting at Jaffray's, a public meeting attended by about 50 people. So, okay, fine. So the Company now has new rationalization for retaining some of this cash. Nobody is looking for to you necessarily go into heavily leveraged to operate your business. That's not what we're advocating or at least not what I'm advocating. So you spent this money on the movie. So you're now in the movie business. You've got two in the can, you've got one in the hopper. And yet you've still been able to sustain your dividend, still have been able to sustain your international growth and you still only reduced your cash $15 million. So I take it's as a personal afront that you would suggest that I'm impatient. I've been involved in this Company for four years. I've been involved in this Company for four times longer than you've been involved in this Company. And the Company has had the money from the IPO since 1999, which they haven't spent. To the extent that they have spent that on diversification they've blown over $140 million on the XFL and on the restaurant complex. Now you're talking about how acquisitions apart from the wrestling business might make sense? I think that's insulting to the owners.

Thank you.

Thank you. We'll go next to the site of Jason Eisenberg with Eisenberg Capital. Go ahead.

Good morning. Quick question, follow up on the ECW. From what I've heard that's done very well, somewhere in the neighborhood of 500,000 buys, which I believe would beat most of your secondary pay-per-views.

That's an incorrect number.

Do you have the preliminary numbers?

No, we don't have preliminary numbers at this point but I don't know where you would get 500,000. We haven't posted any numbers. We don't even have our numbers in for that at this particular point. I just said that I thought we were going to get pretty chose to budget or about budget on that number which is in the high 200 to low 300's.

Assuming it does very well you did say it was a one-off, so there are no plans to do other pay-per-views or bring back the brand, as a separate stand-alone from regular WWE entertainment?

It's one thing that we are discussing internally but as far as this particular time we're not looking to resurrect that as a full-time brand. I think it has value and is unique.

So you think you would just probably at this point just do one-offs and pay-per-views?

Pretty much. That's the general consensus right now. It could it change. We are bringing in a couple of the stars from ECW but not looking to make it a full-time brand at this point.

Any thoughts of recombining SmackDown! and RAW?

No. They seem to be doing well as stand-alones. And the reasons for the split, which we did to serve the international market better to increase our touring ability and to create two distinct and separate brands, I believe are meeting with the success that we had looked for. Though it took us awhile to get there. But we don't have plans now to combine them.

Just one last question, touching on the previous callers. Previous conference - - on a previous conference call someone asked why put up with all this, why not treat the Company private. I believe your answer was something that you had thought about and you had talked about. Any more thoughts on that?

No. We are very happy being public Company.

Thank you.

Thank you. That concludes today's question-and-answer session. If you have any more questions or comments, please contact Michele Goldstein. And I'll turn it back over to you, ma'am.

Great. And thank you very much. And as Wayne just indicated, please feel free to contact me should you have any follow-up questions. And thank you very much for participating today. Bye-bye.

That concludes today's teleconference. You may disconnect.