As we all know, the country is losing jobs. Peter Cohan covered the unemployment rate (it currently stands at a dismal 7.2%). Well, it looks like World Wrestling Entertainment (NYSE: WWE) certainly isn't immune. According to a press release, WWE intends to implement a 10% workforce reduction.
Eliminating jobs is a terrible thing, but, sadly, it is a natural part of the business cycle. And I have to say that, oftentimes, entertainment companies have the opportunity to operate with a leaner structure. WWE obviously looked at its costs and current revenue-growth potential and decided that it had no choice. Indeed, if you've been following the WWE story at all, you know that it's basically about the stock's dividend yield. Well, since it's basically about the stock's dividend yield, it stands to reason that cash flow has to be in good shape. Lately, it hasn't been. CEO Linda McMahon has stated that she intends to do what is necessary to lower expenses to the company. So these job cuts are essentially no surprise.
In the press release, McMahon spoke about the primary growth areas being the initiatives planned for digital distribution and international operations. Interestingly enough, she didn't specifically mention WWE's movie division. That's an area where I think capital allocation really needs to be looked at and made more efficient. I guess if you read between the lines of the text, she sort of implies that allocation in this area is being considered, but I'd rather a more complete statement concerning this issue. Investment in film projects is a very risky bet, but one that WWE arguably needs to make if it wants to continue its logical evolution as a fully integrated media company capable of competing with bigger entities such as The Walt Disney Company (NYSE: DIS) and Time Warner, Inc. (NYSE: TWX). Plus, WWE wants to see its stock morph from an income generator to a source of capital appreciation. Perhaps the box office can help with this goal, too.
So, while WWE is certainly not a recession-proof business, it is taking steps to mitigate the effects of the slowdown. Let's hope upcoming pay-per-view events can bring some excitement back to this sports-entertainment name. If McMahon thinks she can solve all of WWE's problems with a simple job-slashing program, she should forget about it. The trick here lies in the company's creative abilities, as well as its marketing prowess. Both need to be stepped up. After all, is buying a ticket to a WWE event or spending valuable cash on the Royal Rumble a necessary expenditure for most people? Not in this economy.
Disclosure: I own Disney; positions can change at any time.