WWE at a crossroads as the retirement of Vince McMahon and his scandals fueled speculation of a sale

The Chairman of the Board of Directors of World Wrestling Entertainment Inc. , Vince McMahon (left) and wrestler Triple H, in the ring during WWE Monday Night Raw at the Thomas & Mack Center on August 24, 2009

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The 2021 World Wrestling Entertainment annual report lists a risk factor specifically about the consequences of Vince McMahon’s retirement – an event that happened last week.

WWE wrote in their December 31 corporate filing: “The unexpected loss of Vincent K.’s services to Mr. McMahon due to unexpected retirement, disability, death or other unexpected termination of any cause could have a material adverse effect on our ability to create celebrity and storytelling characters. creative or could adversely affect our operating results.”

This sounds bad for WWE shareholders. So, what happened to WWE stock when McMahon announced his unexpected retirement after Friday? They shot higher, up more than 8% on Monday.

The sudden surge in investor sentiment was prompted by the imminent sale. Newly appointed co-CEO Nick Kahn publicly discussed the concept of the sale already this year, months before McMahon stepped down amid a Wall Street Journal investigation that exposed payments to women who alleged sexual misconduct and infidelity. WWE has since confirmed $14.6 million in previously unrecorded expenses paid by McMahon personally.

“As we say, we’re open for business,” Khan said in March on The Ringer’s The Town podcast.

potential buyers

The timing of the deal may depend on the upcoming US television rights renewal from WWE, loosely scheduled for mid-2023. The acquirer may decide that buying the company makes more sense than a temporary rights deal. Fox owns the rights to “Smackdown” and NBCUniversal owns the rights to “Raw,” two WWE TV properties. Both deals expire in the last quarter of 2024.

Speaking to Matthew Belloni of The Town, Khan cited Comcast’s NBCUniversal as a potential buyer. NBCUniversal’s Peacock currently owns the exclusive live broadcast rights to WWE.

“If you look at what NBCU/Comcast they lack, and I think it’s a factual statement, they don’t have the intellectual property that some other companies have. They certainly don’t have the Disney treasure trove of intellectual property,” Khan said. He has a treasure trove of intellectual property. Not much of it has been exploited yet… Now it’s up to us to monetize it properly and show the community exactly what we have. “

Global media companies are looking for intellectual property they can use as a basis for repeating TV series, movies, and entertainment attractions for those who own it. WWE is also attractive as an acquisition because the media owner can sell real-time ads on live shows and potentially keep the audience paying for traditional pay-TV, a diminishing but profitable revenue stream. The song WWE Raw is currently broadcast on USA Network, the NBCUniversal cable network. For comparison, the NFL nearly doubled its projected TV revenue in its most recent rights renewal deal last year.

WWE has consistently grown its annual revenue over the past decade thanks to the strength of its media deals and live events. It announced Monday that second-quarter revenue is currently expected to be $328 million for the quarter, up 23% from last year, and operating income of about $70 million, up 52% ​​from a year earlier.

There aren’t many world-class entertainment companies out there that are up for sale at a price that is easily digestible to many potential suitors. WWE is not participating in the sale talks, according to a person familiar with the matter. But McMahon’s retirement may open the floodgates to offers that may be too good for the company to turn down. WWEAnd the whose shares are up about 40% this year in contrast to broader declines in stocksAnd the Its market value is estimated at around $5 billion. The stock closed more than 3% lower Tuesday, after the Wall Street Journal reported that McMahon’s payments were under investigation by federal authorities.

Eric Handler, an analyst at MKM Partners, wrote in a note to clients: Comcast, Disney, Warner Bros Discovery, Paramount Global, Apple, Amazon and Netflix all make sense, given their streaming ambitions.

A WWE spokesperson declined to comment.

jumping gun?

It is also possible that the new executive leadership – Khan; co-CEO and McMahon’s daughter Stephanie McMahon; Stephanie’s husband, Paul “Triple H” Levesque – will see this time to fix the WWE.

While it would be naive to think that Vince McMahon, who remains WWE’s largest shareholder, would not be involved in major company decisions, Levesque, who has taken over creative control from McMahon, may have an opportunity to revamp the story and introduce new talent. McMahon, who turns 77 in August, no longer holds any executive position at the company.

McMahon may also see selling now as a departure from a vulnerability, which he may see as contrary to his public persona as an always responsible person.

“We doubt that Street will interpret Mr. McMahon’s retirement as a prelude to the eventual sale of WWE,” City analyst Jason Bazinet said in a note to clients. “We’re not sure that’s a reasonable conclusion because WWE will continue to be a company controlled by 100% of the Class B stock held by the McMahon family.”

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.

WATCH: WWE’s McMahon steps aside during misconduct investigation

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