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An analysis of the WWE and Wrestling Market

In this article I will analyze the Sports Entertainment industry, more specifically, the current market for wrestling entertainment.  Wrestling entertainment has seen shifts in the number of major market firms, as well as, the market share each firm has possessed.  This industry spans a larger number of products, which, over time, has been ever increasing.  Wrestling Entertainment is the purest form of Sports Entertainment and an analysis in this paper will show direct affects by the market on the industry as a whole. 

History:

The wrestling entertainment market has seen a great number of shifts over time.  These shifts have been brought about by the actions of single firms in an attempt to gain control of the market.  As we have studied over the course of this semester, there are a great number of things which can be done by firms to cause shifts in the market.  This has been unequivocally true in terms of wrestling entertainment.  Examining this market is most easily accomplished if we do so by looking first at the WWE, formerly the WWF, for they have been the most consistent and active firm.  As we will see, their decisions within this market, have led to great changes in the structure of the market and in the ways in which firms attempt to make money.

            The story of the wrestling entertainment market dates back before 1980, however, we will start the story of this market at that point in time.  In 1980 the WWE, then known as the WWF, under the ownership of Vince McMahon, purchased several of its major competitors in order to strengthen their business.  In purchasing other wrestling firms they were buying the rights to different wrestlers.  The more wrestlers a company possesses, the more diverse the fan base will be.  The market was acting in oligopoly with the WWE acting as an up in coming major firm.  The WWE in 1980 was establishing itself as a major role player in this market, which would give way to a major shift in how wrestling entertainment firms attempted to make money, as well as the size of the consumers who were interested in wrestling entertainment in general.

            The first major shift in this market came in 1985 when the ways in which wrestling entertainment firms earned revenue changed.  This market had used live wrestling shows as their major means of earning revenue.  A firm would take their wrestlers and travel from venue to venue in an effort to bring out the greatest amount of consumers.  In 1985, the WWE changed the market by making it into a television oriented business as opposed to one based on live shows.  The show, “Saturday Night’s Main Event, was created on NBC and with it came a weekly national audience for the wrestling superstars of the WWE.  All the remaining firms in the wrestling market suddenly found themselves with a greatly lowered market share due to the fact that the WWE had changed the market.  For years, the WWE was the major firm in the oligopoly market, but in the 1990s the market would shift, as competition was on the horizon

            In 1993, under the ownership of Ted Turner, WCW burst onto the wrestling scene.  Over the course of the next two years WCW started to establish its own weekly television shows, creating in this market for the first time, a second major firm in the oligopoly.  By 1995, WCW had grown by leaps and bounds and believed it was ready to shift this market from an oligopoly to a duopoly.  Although there would be several other live-venue based firms, the goal of those firms was now to create wrestlers which could be purchased by either WCW or the WWE.

The wrestling entertainment market had fully shifted to a television and pay per view audience based market and their popularity was on the rise.  The shift to a duopoly was made official in 1995 when WCW established “Monday Nitro,” a new weekly television show.  This show aired on Monday nights in the exact same timeslot as the WWE’s “Monday Night Raw.”  WCW forced fans to choose which show they were going to watch; which brand they were going to be loyal to.  A battle for television ratings would mimic these two firms battle for control of the market as a whole.

From 1995 through 2001 these two firms acted in direct competition.  They were in a constant struggle for control of the market.  Once again it would be the WWE who would change the nature of this market.  In 1999 the WWE shifted what it meant to be a firm in the wrestling market.  It did this by becoming a publicly traded stock.  By establishing itself as a publicly traded stock, the company was taking a major step towards not only being a major player in this market, but in the sports entertainment market.  The WWE was no longer concerned solely with WCW, rather, from then on, they were concerned with the other major sports associations such as the NBA, NFL and MLB.  With this move, the WWE essentially told WCW that it would have to take a large step and greatly increase the size of its business and the diversity of its revenue.

WCW was unable to make the transition into a publicly traded stock and thus was unable to match the new market share which the WWE had gained.  In 2001, the market structure shifted again, this time to a monopoly.  The WWE purchased its greatest competitor, WCW, as well as another lesser known company ECW.  With the purchase of these two firms, the WWE once again had become the only nationally broadcasted wrestling entertainment firm in the United States.  The duopoly which had once existed had, overnight, shifted into a monopoly with the WWE as the firm with all of the control.  Lesser firms now answered solely to the WWE.  Furthermore, by purchasing WCW and ECW, the WWE purchased the rights to all of these firms’ wrestlers.  With the addition of these new wrestlers, the WWE had diversified its fan base.  When the firms were acting as a duopoly, fans often based which show they watched on their favorite wrestlers.  After 2001, the WWE owned all of the most popular wrestlers.

From 2001 through 2009 the WWE has been in monopolistic control of the wrestling entertainment market.  In 2002 TNA Wrestling was established as another nationally televised wrestling firm, however, they have a very small amount of market power, and are in no way a form of competition to the WWE.

The Market:

With this background we can now more closely examine the strategies and examples of the different market conditions held by the firms in the wrestling entertainment market.  To this point we have seen the shifts of this market over time from oligopoly to duopoly eventually to monopoly.  Now we will look specifically to show that it is a monopoly and then to discuss the curious case of the WWE in 2001-2005.

Before examining the structure of this market we must first look at what the product being sold to consumers is.  It is true that firms in the wrestling entertainment market are making an effort to sell merchandise, television advertising, tickets to events, television rights and pay per views.  These five things are best described as the different ways in which a firm in this market can earn revenue; they are not, in fact, the product being sold to consumers.  The product which firms like the WWE have to sell to consumers is entertainment.  The only way in which firms can increase the sales in any or all of these five different revenue venues, is by increasing the amount of individuals who are entertained by the product.

Now that we have established the product, it is necessary to understand how firms go about selling it.  There is great drama in sports, winners and losers, fans and great competition.  Wrestling entertainment has bridged a gap beyond the conventional way to sell entertainment in sports.  They have done this by removing two factors: chance and ability.  Wrestling entertainment is not bound by competitive winners and losers because all match outcomes are determined ahead of time.  Marketing analysts and professional writers collaborate in order to create storylines which are then acted out by the wrestlers.  .  Ability is based on ones affliction for entertainment.  The product in this market is entertainment and now we can see that firms like the WWE are in direct control of how they want to appeal to consumer preferences.  The WWE transformed wrestling entertainment into sports entertainment; major it a player in two markets, instead of one.

It is important to understand these factors before we examine the structure of this market because one must realize that the power in this market is directly derived from brand loyalty.  By entertaining a fan base a firm is able to create brand loyalty.  The fact that the sporting event which takes place each week on television is “fake,” is why wrestling entertainment firms must have brand loyalty.  Vince McMahon openly refers to the WWE is a soap opera.  He states this because the way in which an individual enjoys wrestling is by enjoying the allure of the characters and talent in the choreographed moves.  If an individual was not loyal to the wrestling brand then they would not watch.  Wrestling has no disparity; whatever consumers dictate as the best ways for a firm to earn profit will be the steps that are taken.  Firms like the WWE have great flexibility to react to consumer preferences.  Now we can examine the WWE following the 2001 mergers.

Market Structure:

            When we look at the structure of a monopoly market we know, in general, that the model is based on the assumption that there is a well-defined market with one single supplier.  With one suppler corresponding to one market, it can be seen, how effective monopolies can be.  Sellers have the ability to choose a price on their products which maximizes profits, as long as the product being sold is in demand.  Another important factor in defining a monopoly is that control is related to market share.  Even more important, however, is a firm’s market power.  This means that monopolies not only need to own a large portion of the market, they need the power to act.

            This definition of a monopoly structure can be applied to wrestling entertainment.  More specifically, it can be applied to the WWE.  After the aforementioned purchase of WCW and ECW in 2001 the WWE became the sole provider of televised wrestling entertainment.  All of the competition had been forced out of the market; however, it is interesting that a purchase of WCW was so easily allowed.  When the WWE became a publicly traded stock and a publicly run business, it was opening itself up to scrutiny in terms of regulation.  WCW and ECW were not at that time large enough to take that step and thus it was not necessarily a business merger. 

Another positive factor in these purchases was the difficulty in defining the market.  The WWE was no longer simply allowing itself to be defined as “wrestling,” or even “wrestling entertainment.”  It was transforming its product into a new market which, they referred to as “sports entertainment.”  The WWE may have been towing a thin line by calling themselves a sport because of the preset outcomes lying at the heart of the business, but it worked..  With the tag of a “sport” the WWE was able to establish monopoly control without regulation.

            It is now clear that the WWE after 2001 was the only major provider of wrestling or sports entertainment.  In 2002 when TNA Wrestling was established, it was done with far too low of a fan base to be a realistic competitor.  To this day we can still define the wrestling market as monopolistic due to the WWE’s immense power in the market.  The mere existence of another firm has not in any way altered the WWE’s strangle hold on the market.  Even more interesting than the fact that the creation of new firms has not altered the shape of the market is an examination of the WWE after the 2001 merger.

Market Reaction:

After the formation of the WWE as a wrestling conglomerate with monopoly power, we would expect that the firm began to prosper and increase across the board.  Based on the outcomes of most mergers we could have expected prices to increase and for there to be a reduction in costs.  The synergy of the WWE and WCW meant that there was no longer competition in terms of pricing and that the WWE could choose single providers to create merchandising or host television shows.  These factors lead to the lowering of costs for the firm and the ability to increase prices.  Furthermore, because the WWE hires other organizations to handle their business, such as toy companies to create wrestling action figures, an expected loss of output following the merger did not occur.  The merger was able to keep marginal costs low enough that there was no decrease.

            As we can see, the WWE had a monopoly, had lowered its costs, increased its prices and had total power over the market.  With all of these “stars aligning,” one would think that we could predict the eventual outcome for the WWE.  The firm should have immediately begun increasing its revenues.  This was not the case.  The following diagram shows from a WWE 2005 business plan shows that, in 2001-2005, the WWE was steadily decreasing in revenue, even though it was operating as a monopoly.  If we have established a definition of a monopoly and the effects which should take place then how is it that the real world trend was in opposition to what we would expect?

The answer to this question can be found in our original definition of this market.  In that analysis we saw that the most important factor for a firm to do well in terms of revenue and popularity was brand loyalty.  Brand loyalty in the wrestling entertainment market is, as stated before, based on the amount each consumer is entertained by the wrestlers themselves.  The WWE believed, by purchasing all of the major wrestlers in the market and putting them in different storylines together, that they would be able to maintain or increase business.  The factor which they did not account for was that a large part of brand loyalty in this market was derived in the competition between the two different wrestling entities.  The fans not only enjoyed the competition between the WWE and WCW, it was a major selling point.  Once the WWE seized control of the market they ceased to be in competition.  The fans suddenly woke up from their decade long dream of a duopoly market and were left with one major firm.  It was as if half of America found out, for the first time, that wrestling matches were not real.  Thus, the trend from above continued for four years until the WWE changed its path.

For four years the WWE was locked in by path dependence.  They had chosen a marketing scheme to coincide with their establishment of being in monopoly control of the market, and could not alter it.  They did not want to lose the people who had become loyal to the brand, because, although revenue was decreasing, it was certainly not low.  Furthermore, the market is based on entertainment and thus we can see how it is formed essentially as a network.  A viewer’s experience is enhanced if he is able to talk with his friends about what they saw the night before.  Millions of individuals across the world tune in each week to see what will happen.  A major reason why they enjoy wrestling is the fact that they can be proud to be loyal to their brand and not another.

The shift made by the WWE was to restructure their own company in such a way that they could create the competition which enabled business to be increasing under the duopoly system. In 2005 the WWE established Thursday night SmackDown and Monday night raw as two separate entities which were in competition with one and other. Both television shows were owned by the WWE but they were built into two separate brands of wrestling, each of which aimed itself at different kinds of wrestling fans. The company wanted to create brand separation between these two shows, knowing full well that the products were similar, if not the same. This brand separation tactic was used to try and recreate the competition that existed in 1990s, just this time, the monopoly power of the WWE was driving it, not the competition of a duopolistic market. The affect of these actions was an immediate increase in brand loyalty as fans began to choose sides between the two shows. Each show had its own championship titles and normally acted independent of the other.  On occasion, inter-show feuds or rivalries were created. Although individuals were less likely to buy products from or watch both brands, a greater combined number people were watching each show. There was a great increase in their combined revenue; which coincided with the same increase in the WWE. The newly formatted brands pushed the WWE to the top of the weekly Neilson TV ratings, even beyond the other major sports (NFL, NBA and MLB). Likewise, all of the forms of WWE revenue have seen similar increases since 2005.

Conclusion:

As we have seen throughout the course of this analysis, the WWE is in a diverse and extensive market. Over the course of thirty years, the market has gradually lowered in the number of firms as the popularity and overall size has increased. This is fitting with the non linear nature of a marketplace, in general. From oligopoly to monopoly one firm has outlasted the rest: the WWE. Once in monopoly control, the WWE saw that having market share and power alone, is not enough. A firm’s decisions and usage of their power makes a difference. The WWE is a real world example that textbook theories can hold true, but only if a firm is able to make the changes necessary to adapt to their market.

Bibliography

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"World Wrestling Entertainment, Inc. Overview." WWE Corporate. Fall 2005. WWE. 20 Apr. 2009 .

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